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Orders Of The Day

Volume 529: debated on Monday 28 June 1954

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Finance Bill

[ Progress, 24th June]

Considered in Committee.

[Sir CHARLES MACANDREW in the Chair]

Clause 26—(Amendments Restricting Finance Act 1940, S 55, Where Deceased Did Not Have Voting Control Of Company)

3.40 p.m.

I beg to move, in page 29, line 18, to leave out "or partly."

I will not take up the time of the Committee for very long. The Clause as it stands provides that if a deceased person has control of a company for a continuous period of two years falling wholly or partly within the five years ending on the death of the deceased, the assets basis for valuation of the estate for death duty purposes shall apply. If the words "or partly" were allowed to stand the test period of five years would be extended in an extreme case to seven years. Therefore, I feel that these words ought to be deleted.

I am glad to be able to tell my hon. Friend that the Government are prepared to accept this Amendment, which makes a slight alteration in the Bill but one that improves its operation.

Can we be given an assurance by the Solicitor-General that the Government are prepared to accept this Amendment and stick to their decision should the 1922 Committee decide to go against them, and that on this occasion the Government will not give way to that Committee?

I should like to thank my right hon. and learned Friend for the gracious way in which he has accepted my proposal.

Amendment agreed to.

I beg to move, in page 29, line 30, at the end to insert:

"For this purpose the expression debenture' shall have the same meaning as in subsection (4) of this section."
I do not propose to delay the Committee in what is, after all, a very simple point which may arise as a result of an error of drafting. The object of this Amendment is to ensure that the expression "debentures" in this Clause shall have the same meaning as in subsection (4). In this Clause it is clearly laid down that temporary debentures shall be excluded from the calculation when determining whether a deceased had a beneficial interest in one-half of the capital.

It is surely only logical, when determining whether the beneficial interest is equal to one-half on the basis of income, that dividends from temporary debentures should also be excluded. As the Clause at present stands, interest on temporary debentures is not excluded from the calculation and the proposed Amendment ensures that temporary debentures shall be ignored in determining the income, as is the case in determining the capital. I very much hope that my right hon. and learned Friend will be prepared to accept this Amendment.

3.45 p.m.

I am sure that my hon. Friend will be delighted to know that the Government are prepared to accept this Amendment for the reasons he has advanced. I would only say that the wording of the Amendment may not be entirely acceptable and it may be necessary to make some improvements in it on the Report stage.

I wonder whether the right hon. and learned Gentleman has been answering the correct Amendment. The first Amendment on the Paper in the name of the hon. Member for Beverley (Mr. Odey) is in page 29, line 25, to leave out "one-half" and to insert "three-quarters."

I gather it has not been selected, but I listened as carefully as I could to the speech of the hon. Member, and he seemed to be speaking to that Amendment and not to the one in line 30.

Amendment agreed to.

I beg to move, in page 29, line 37, to leave out the second "or," and to insert "and."

My right hon. and learned Friend has accepted the last two Amendments and I hope that he will accept this one. Subsection (4) re-enacts a test previously contained in Section 55 (1, c) of the Finance Act, 1940. It is only now to be applied in the circumstances laid down in subsection (5). The wording, however, would appear to draw a material distinction between the position for the future and the position in the past.

In the terms of Section 55, the test was that the deceased had a beneficial interest in possession of shares in, or debentures of, the company representing one-half or more of the aggregate nominal amount of the shares in, and debentures of, the company then issued. In subsection (4) as now drafted the word "or" is utilised in substitution for "and." The result would therefore appear to be that the test is where the deceased held 50 per cent. or more of the shares issued or of the debentures issued. This cannot but be wrong, and I suggest that it was correct in its previous form. The Amendment is designed to adjust it to that form.

I am sure my hon. Friend will be gratified to know that the Government are prepared to accept this Amendment which corrects a small drafting error.

Amendment agreed to.

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

After the kindness of the Government in accepting three Amendments from my hon. Friends, it may seem a little unkind for me to criticise the Clause. The first 10 lines of subsection (1) do away with considerable injustices from which companies and other individuals have suffered, but from the eleventh line onwards it seems that a great many difficulties are put in the way of those members of a family who succeed to shares in an estate.

Above all, the position is made extremely difficult where a gift of shares is given during the lifetime of the deceased, or under a disposition as indicated in the Clause, and the recipient is someone who, through them, obtains control or the equivalent of control in a company in conjunction with relatives. We believed that one of the main objects of this Clause was to make it a little easier for the family companies to carry on, but all the latter part of it, from the eleventh line onwards, re-imposes many of the existing difficulties on those who desire to pass their shares on to members of their family. Therefore, I ask the Solicitor-General to explain exactly what advantage is given to family companies as compared with their position under the present law.

I think it is right to say that this Clause makes things a little easier for family companies to carry on. The principle behind the subsection to which my right hon. and learned Friend has referred is that where the exchange of shares does not result in the family losing control of the company, and does not mean that the assets value cannot be realised, it is right that the basis of valuation should be the assets value. That principle runs throughout this complicated Clause.

For instance, if there were a transfer from one member of the family to another member, it might be that while neither individual had control separately, jointly they could exercise control and could realise the assets value. Where that possibility exists, we feel that it is right to retain, for the purposes of Estate Duty valuation, the assets value basis.

I want to draw to the attention of the Solicitor-General the point that we thought the idea of Clauses 25, 26 and 27 was to bring relief to family businesses to enable them to carry on from one generation of the family to another. My right hon. and learned Friend said that if there was to be no realisation of the shares of these private companies, the assets basis must be used. Many of my hon. Friends on this side of the Committee will not agree with that.

We are exceedingly grateful for the concession given in Clause 25 that, when that valuation has been arrived at, the Estate Duty payable is to be reduced by 45 per cent., but in principle many of my hon. Friends and myself feel that the assets basis as distinct from the earnings basis—the genuine valuation of that company—is the worst possible basis that could be devised. I am exceedingly sorry that it has been thought necessary in Clause 25 to introduce a concession with one hand and in Clause 26 to take away a very large part of it with the other, and I venture to register my protest.

Question put, and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 27—(Other Amendments Of, Or Affecting Finance Act, 1940, S 55)

I think it would be for the convenience of the Committee if we discussed the next Amendment on the Order Paper in the name of the hon. and gallant Member for Cheltenham (Major Hicks Beach) together with the one following in page 31, line 13, in the name of the hon. Member for Beverley (Mr. Odey).

I beg to move, in page 30, line 46, to leave out paragraph (a).

Clause 27, in principle, is a good Clause. It gives a concession to estates or shares which have been valued under Section 55 of the Finance Act, 1940, and allows the substitution of a sale price if a sale takes place within three years; but that concession, if I may so describe it, is subject to three provisos set out in the Clause.

The first, with which we are concerned in this Amendment, provides that the Commissioners of Inland Revenue have to be satisfied, before giving a price valuation concession, that no person concerned, either as a vendor or as having an interest in the proceeds of sale, was a relative of any person concerned either as purchaser or as having an interest in the purchase.

Those of us who have practical experience in these matters will agree that the proviso to paragraph (a) will negative the concession which it is intended to give in a great many cases, because in all assessments under Section 55 of the 1940 Act it is generally the case that they are small family businesses and the only probable purchasers—in fact, very often the only possible ones—are members of the family.

The Solicitor-General may say that this is a safeguard which is essential for the Treasury, but paragraph (b) says that the sale must be made at arm's length at a price freely negotiated at the time of sale. I should have thought that gave the Treasury an ample safeguard. If this Amendment is accepted, it will mean that they have a full discretion under paragraph (b) apart from the discretion under paragraph (c). It will also mean that where the Commissioners of Inland Revenue are satisfied that there has been a genuine sale within the three-year period to a member of the family, the price concession shall stand.

I understand, Sir Charles, that it is the desire of the Committee to consider, with the Amendment moved by my hon. and gallant Friend, the one in my name in page 31, line 13, which seeks to insert at the end:

Provided that, where the purchaser is a relative, and the Commissioners of Inland Revenue are not satisfied that the price obtained represented one freely negotiated at arm's length, the price which shall be substituted as the value of the shares and debentures sold shall be the price which in the opinion of the Commissioners would represent a price freely negotiated at arm's length subject to the right of appeal to the courts by the executors, administrators or trustees.

That Amendment has not been selected but the point can be made on the present Amendment.

I beg your pardon, Sir Charles. If I had been in a position to move my Amendment, the object would have been to provide relatives desiring to acquire an interest in a family business with a safeguard which they might well need if they found themselves in the position of not being able to agree with the value placed upon the shares by the Commissioners of Inland Revenue.

The Amendment would have achieved the effect of the omission of paragraph (a) and would have given an additional safeguard of appeal to the courts. I see, however, that you are becoming slightly restive, so I will only say that I realise that the general object of my Amendment will be achieved by the removal of paragraph (a).

4.0 p.m.

I support the Amendment. While we welcome the provisions in the Bill for mitigation of hardships created under Section 45 of the Finance Act, 1940, we regret that it falls short of completely removing discrimination against owners of shares in controlled companies. In view of the safeguards provided in Clause 27 (1, b), we protest against the inclusion of subsection (1, a) of the same Clause, which we think is a typical example of such discrimination.

Our objection is on the ground that subsection (1, b) adequately protects the Exchequer from the risk of loss of revenue. If it does not, then why include it? It may be contended that on occasion it may be difficult to determine whether any specific transaction is at market value, but surely the answer to that is that the onus of proof is on the party claiming benefit under the Clause. If he fails, then he cannot get the benefit of the Clause as originally drafted, but if he succeeds then he should not be debarred from his benefit simply because the vendor or the person for whose benefit he is acting is a relative of the purchaser or the person for whose benefit he is acting.

We feel that the paragraph is unjust. We protest against it. We hope that it will be removed. I do not know whether my right hon. and learned Friend the Solicitor-General is sympathetic in this case. One can usually tell from the back of his neck, for instance when he is playing chess. I shall not pursue that line of thought today, but will conclude by expressing the hope that the Amendment will be accepted.

On behalf of the whole Committee, I should like to welcome the hon. and gallant Member for Knutsford (Lieut.-Colonel Bromley-Davenport) back to our debates. We have invited him on more than one occasion to participate and he has shown himself unusually coy. It may be difficult to judge the Solicitor-General's feeling from the back of his neck, but we are never in any doubt as to the hon. and gallant Member's feelings on any subject at all.

The Amendment goes extremely wide. The Chancellor told us on Clause 25 that, after very long consideration—he referred to a year-long examination at the Treasury—he had decided not to give up the assets basis of valuation in favour of valuation by Stock Exchange values. In effect, the subsection says that the assets basis of valuation can be given up in favour of a different basis of valuation, in this case, the basis of puchase price, in what, I imagine, would be a rather small number of cases where, within three years of death, shares or debentures are sold to a relative.

This is clearly a concession to cover a relatively small number of cases, but if it is extended, as it would be by the Amendment, I cannot help feeling that the assets basis of valuation would disappear by the back-door and a completely different basis would come in by the same door despite the fact that the Chancellor, after a year's consideration, has decided to retain that basis. If the Amendment were accepted, it would become common practice for sales of shares and debentures to be made to relatives within three years of death.

The hon. and gallant Member for Knutsford said that the Inland Revenue were protected by subsection (1, b). I can see that there is a protection, but it would be very much harder to interpret that subsection in the case of sales made within a family than it would be in other cases. It would be much more difficult to decide whether a sale was a genuine arm's length sale if it was within a family than if it was taking place in an ordinary commercial way between two strangers.

While one's instincts are naturally in favour of the Amendment and the arguments employed by the hon. and gallant Member for Cheltenham (Major Hicks Beach), it would widen the Clause so that the assets basis of valuation would almost disappear. We really ought to make up our mind whether we believe in this basis of valuation or net. The Chancellor, despite very heavy pressure from his own benches, decided to stick to it. If we are to stick to it, we ought to make it perfectly clear. If we are to give it up we ought to do so openly in all cases and we ought not pass an Amendment of this sort which would so widen the avenue of concessions that the assets basis of valuation would completely disappear without any of us noticing it.

For these reasons, for the moment I remain unconvinced by the arguments in favour of the Amendment.

I am sorry to have to disappoint my hon. Friend by saying that we are not prepared to accept the Amendment. The object of the Clause is, as far as possible, to avoid injustice, and it was an injustice where some one had to sell a parcel of shares to a stranger in order to secure enough money to pay Estate Duty—sometimes at a price which probably bore no relation to the assets value—that the shares so sold should be valued at an assets value basis. The Clause remedies that. To go further, as the Amendment suggests, would be to open a very wide door indeed to avoidance of the intention of the Clause.

It may well be that the transfer of shares from one member of a family to another still leaves the recipient of those shares in a position to realise the assets value of the shares if he wishes. In such a case we do not think that it would be right that the shares should be valued at the price at which they were sold between the members of the family. My hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) suggests that it is sufficient to rely on subsection (1, b). In our view, it is not sufficient. It is a matter of great difficulty in the case of sales between close relatives. I would emphasise that this is not just a sale between any relative but between relatives as defined in Clause 28 (1, d) as meaning:
"husband, wife, ancestor, lineal descendant, brother, or sister."
It is a pretty close relation. It is a very hard matter to determine, on sales between those relatives, that the sale was not
… made at arm's length for a price freely negotiated at the time of sale."
We have considered the matter very carefully in view of the feelings of my hon. Friends. We feel that we could not accept the Amendment without opening a very wide door for avoiding the operation of the assets value basis in cases where the family can still realise the assets value for the shares that have been transferred from one member to another. I have put the case shortly because I know that the Committee want to get on to the new Clauses at a fairly early stage. It is because we feel that there are so many dangers which would accompany the deletion of the subsection that we have reached the conclusion that we must adhere to it and keep it in the Bill.

Would I be right to interpret the words of my right hon. and learned Friend as meaning that the Government think that this proposal is not unjust, that in fact it is reasonable, but that they find it administratively difficult to carry out?

I do not think that that is the interpretation which I would ask my right hon. Friend to put on my words. If we left out subsection (1,a) it would mean that the way was open for the avoidance of the proper scale of duty on the assumption that we are retaining the assets value basis for cases where the family retain control and are so able to realise the assets value of the shares if they wish.

In view of the very full explanation given by the Solicitor-General, I beg to ask leave to withdraw the Amendment—[HON. MEMBERS: "No".]

On a point of order, Sir Charles, I did not understand that the Committee gave leave to the hon. and gallant Member to withdraw the Amendment.

We understood we were still on the Amendment. At least one hon. Member opposite rose in his place in order to carry on the debate, Sir Charles. I am afraid you did not see him. When my hon. Friend the Member for Islington, East (Mr. E. Fletcher) rose, we understood that you were not closing the debate but that you were proposing the Question and that the Amendment was still open to debate.

I was putting the Question. I did not see anyone rising. No one hailed me indicating that he wished to speak.

Would it have been in order, Sir Charles, for an hon. Member to hail you?

Amendment negatived.

I beg to move, in page 31, line 13, at the end, to insert:

"and in so far as may be just in the circumstances for the value of any remaining shares of the same class not sold."
The provisions of subsection (1) are designed to remove an anomaly and their purpose is to ensure that where shares have been valued on an assets basis and any such shares are subsequently sold and realised at a price lower than the assets basis of valuation, that lower price shall be used for the purpose of working out the amount of Estate Duty they should attract. It means that one is actually paying out in relation to what one has actually received for the shares, which is good as far as it goes, but it does not apply to those shares not actually sold. This may be fair in some circumstances, but, equally, it may be unfair in others.

To give an example, if a deceased person had 75 per cent. of the shares in a company and 10 per cent. only were sold, that is plainly a minority interest. They would be sold at a price probably well below the true value because one would not be surrendering control, which would remain with the majority shareholding, and the small parcel would be expected only to command a lowish price. Therefore, the benefit of the relief of the subsection would be confined to those actually sold, which is quite fair.

If one takes the proposition the other way round and one is dealing with 75 per cent. of the shares of a company of which 60 per cent. are sold and 15 per cent. only are left unsold. Suppose the 60 per cent. are sold at lower than their assets valuation, it is plainly unfair that the remaining 15 per cent. should be valued on the assets basis to attract duty on that basis and could not have the benefit of being valued on the basis of what the 60 per cent. holding actually fetched in the open market. One should remember, particularly, that in the second case control would be sold with the 60 per cent. and, even then, could not produce a figure equal to the assets basis. It is obvious that the remaining shares could not reach figures in the market as high as those actually sold. It is plainly unfair that the small minority holding should continue to the valued on the assets basis; it ought to be accorded the benefit of this subsection.

The two examples I have given are clear-cut. In one case the benefit should not apply and in the other case it should apply. But there will be some marginal cases, and those we must leave to the Inland Revenue authorities to judge fairly where the true balance should lie. That explains the wording of my Amendment, which says:
"in so far as may be just in the circumstances"—
obviously there may be many and varied circumstances—
"for the value of any remaining shares"
—and so on. Therefore, on behalf of the holders of shares which are not sold, I seek the kindness and indulgence of the Solicitor-General to see that they are accorded full justice.

4.15 p.m.

I regret that I must disappoint my hon. Friend. As he indicated when moving the Amendment, it would not work properly in a case where there was a sale of a majority holding and a retention of a minority holding, because it would be quite wrong to give the same value to the shares which were retained, bearing in mind that they were not capable of being realised on an assets basis.

The second case my hon. Friend put was one in which he said 60 per cent. of the shares would be sold out of a substantial holding. He suggested that the minority retained should be valued on the same basis, and not on the assets value basis. That is to say, the sale price of the 60 per cent. should be taken as the valuation. I am able to tell my hon. Friend that it is already the practice, where the controlled holding is sold at arm's length, to adopt the sale price as the value for Estate Duty purposes, subject to any adjustment for changes of circumstances since the date of death, and this would apply to shares retained as well as to the shares sold. That meets the point my hon. Friend made in regard to that particular category or shares.

There are other shares where control is broken up so that neither the shares sold nor those retained carry control as, for instance, where 40 per cent. are sold and 40 per cent. retained out of an 80 per cent. holding. It may well be that although 40 per cent. is sold the purchaser of that 40 per cent. has other shares in his possession and is so able, if he chooses, to realise the assets value. It depends on the proportion of the possession of other shares by him, or other members of the family working in association with him. It could be less than that, where, as seems a very unlikely case, the control is broken up so that neither the family nor anyone else has control.

To give an instance, suppose the deceased's holding was 60 per cent. and the other 40 per cent. were held by a number of unrelated shareholders, then, if 30 per cent. or more of the 60 per cent. were sold it would seem prima facie reasonable to adopt the price realised for the shares sold as the value of the assets retained. That would not be so if 20 per cent, were sold and 40 per cent, retained. The value of the 40 per cent. holding would be much greater than that of the 20 per cent, holding. The holder of 40 per cent., where no other shareholder had more than 20 per cent., would be in a dominating position in the company, although he would not get actual control.

I hope that by these observations I have been able to convince my hon. Friend that it would not lead to a fair result to say that the price at which shares are sold under the provisions of the Clause should be taken to be the value of the remaining shares of the same class not sold, whether or not the remaining shares constituted a minority or majority holding and whether or not the quantity of shares sold led to the splitting up of control.

Both the hon. Member for Altrincham and Sale (Mr. Erroll) and the Solicitor-General gave us instances depending on control formal or informal. There are other reasons for rejecting the Amendment.

As we were told just now by the right hon. and learned Gentleman, this is intended to be a form of relief or justice in a certain special case, in effect where shares are sold to meet Estate Duty. If the Amendment were accepted, it would be an invitation and an inducement to have sales, which might be of comparatively small quantities of shares, for a different purpose, and through those sales to extend the scope of what is offered considerably beyond the special cases which is intended to meet.

It might well be that executors, having to consider what property to sell in order to meet Estate Duty, would be induced to sell this type of share, perhaps only in comparatively small quantities, in order to get a relief which they would not otherwise have. It seems to me that proceedings of that sort would not be fair to those who might not get the relief or would not be fair, by and large, to the Revenue. I should regard an Amendment of this sort as offering an inducement which, on public grounds, seems objectionable.

Amendment negatived.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

I want to ask the Solicitor-General one or two questions about subsection (5). I am not clear about it as it now stands. Broadly, it appears to describe how the concessions in subsections (1) and (4) operate in the case of a share split or bonus issue. It appears to give the relief of subsection (1) in respect of the sale of shares or debentures within three years of death and the relief of subsection (4), the so-called quick succession relief, where two deaths occur within five years.

It appears to give the two reliefs to bonus shares as well as to the original shares in respect of which the bonus issue was made, but I am not clear how far this goes. It seems clear that the two reliefs are given to bonus shares, from which it would appear to follow logically that bonus shares are now subject to Estate Duty, but I am not clear that they are subject to Estate Duty. This is a point on which I should be grateful for some clarification.

I understand from people who are much better informed about these matters than I am that, as a result of a court decision in 1940 in the case of the Attorney-General v. Oldham, bonus shares in certain circumstances do not attract Estate Duty at all. The case where they apparently do not attract Estate Duty is the following.

The owner of a private business or a family business may make a transfer of shares to someone within five years of his death. If it were more than five years before his death, this provision would not apply at all, because the shares transferred would not be subject to Estate Duty. If, after the transfer of shares is made, but before the man dies, a bonus issue of shares is made, it appears that, as a result of the judgment which I have mentioned, the bonus issue of shares does not itself attract duty. If this is the case, it appears that this is a comparatively simple way of avoiding large sums of Estate Duty.

I will give an instance to show how easily this could happen. I understand that it frequently happens under the law as it now stands. Let us assume a company with an issued share capital of 100,000 £1 shares but with net assets, including reserves and undistributed profits, equal to £500,000. On the basis of assets valuation or any other common sense basis, the actual value of the shares is £5, although their nominal is £1.

Let us suppose that the sole shareholder of the business transfers 50,000 shares—that is, half his shares—to his son. At the date of transfer the son's shares are worth £250,000, which is 50,000 shares multiplied by £5, the value of each share. If after the assignment of the shares takes place a bonus issue is declared, say, on a one-for-one basis, the son then has his original 50,000 shares plus 50,000 bonus shares. In other words, he has a total of 100,000 shares.

Assuming that the value of the net assets of the company does not in the meantime increase, the 100,000 shares are still worth only £250,000. In other words, they are worth exactly the same as the 50,000 shares which were originally assigned to the son.

Although the 100,000 shares are now worth only the same as the 50,000 shares when first assigned, if the owner of the business who transferred the shares dies within five years of the transfer, a very different picture emerges from the Estate Duty point of view because, under the court judgment to which I referred, bonus shares are apparently not subject to Estate Duty. Therefore, for the purposes of Estate Duty only, the 50,000 shares originally assigned are involved, and their value after the share split is now only £125,000 instead of their original value before the bonus issue was made of £250,000.

The difference from an Estate Duty point of view is a very large one. Estate Duty at 60 per cent., as it would be on £250,000, amounts to £150,000. Estate Duty at 50 per cent., as it would be on £125,000, amounts to only £62,500. Therefore, there is as a result of the bonus issue, if the facts are as I have said, a saving in duty of no less than £87,500, the saving being due partly to the reduced value—that is, to the lower sum on which duty is assessed—and partly to the fact that, because the sum on which the duty is assessed is lower, the duty falls at the lower rate.

I do not know whether the example as I have given it is a valid one under the law as it now stands. I have every reason to believe that it is. If it is, this appears to be an extremely simple way of avoiding very large sums of Estate Duty.

The specific question that I want to ask is what the position will be as a result of subsection (5). It appears that the subsection extends certain reliefs to bonus shares. Does it follow from that that bonus shares are subject to Estate Duty? If it does, presumably the example which I have given is not a valid one at all. In that case, there seems to be a considerable mystery here which ought to be cleared up.

4.30 p.m.

We should be very grateful to the Solicitor-General if he would make a general comment, which I think this Clause gives him a convenient opportunity of doing, on the question of Estate Duty and bonus issues of shares made in the circumstances which I have described. There is a good deal of uneasiness whether, in the kind of circumstances which I have related, the issue of bonus shares is not a convenient and too easy method of avoiding Estate Duty.

Before we part with this Clause, I should like the Solicitor-General to comment on one matter. It seems that the object of this Clause, as well as of the preceding Clauses, is to avoid the breaking up of family businesses owing to Estate Duty. The object is to avoid the family having to sell the business to a combine or break up the assets because they have to find money with which to pay the Estate Duty. It is felt by the Chancellor that there is advantage in businesses of this type, and that they contribute something to our economy which bigger businesses do not provide. Though one may agree with its objective, it seems to me that there are difficulties when we come to Clause 27.

Am I not right in thinking that the effect of the Clause will be that, in certain cases, it might well be more advantageous—in some cases, considerably so—to the family to sell the business outright to a large combine rather than to other members of the same family? It may well be greatly advantageous to sell the business outside the family and, if that is the case, would they not be defeating one of the main purposes of the Government in these Clauses. I should be glad to hear the Solicitor-General's comment on that point, because it is, perhaps, a matter that should be considered between now and Report stage.

I should like to support what has been said by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland), because the case to which he referred related to a well-known company—Messrs. Tate and Lyle—which is always particularly interesting in taxation methods.

In this case, Mr. Tate, shortly before his death, handed over a number of shares to a younger Mr. Tate, and the shares "pupped" in the interval between being handed over and the death of Mr. Tate. That was just too bad for the Revenue, because the result was that, when the court had to consider which were the shares upon which Estate Duty should be raised, the court, both in the first instance and again in the Court of Appeal, held that obviously only the shares that were actually handed over could be liable to Estate Duty. A good deal was said at the time by the Crown, which, in these matters, sometimes looks first one way and then the other, about acting in the spirit of the matter—that one must not look too hard at the actual text of the Act, because it was the spirit that mattered. A number of instances were given, more or less of an animal character, about mares in foal, tame deer and so on, which produced in the same sort of way as shares.

There is obviously a very open means of evasion in the case of companies of the character that we are now considering, because it is perfectly possible to give shares away. It appears to be perfectly possible for the family, in the case we are now considering, to arrange for the bonus issue when the donor is beginning to look "a bit dicky," to use a crude phrase, and, in these circumstances, to get out of paying the Revenue quite considerable sums of money. The Crown then, as distinct from the Crown now, said that that was dead against the spirit and intention of this kind of legislation.

We are only dealing with one kind of firm now, and Messrs. Tate and Lyle, whatever they may have been in the past, are by now, I imagine, valued on an assets basis. There remain the smaller group, where, though, of course, the evasion would not be so much, the opportunity for repetition seems to be considerable. In these circumstances, what astonishes me is that the Government have thought fit in this case only to put in the provision at the end of a Clause which, if I read it rightly, does provide for similar treatment on this point both of the original shares and of the bonus shares. Why no more?

Since 1940, it has always been open to the Government to say, "Why did you not do it?", though we are getting a little tired of that excuse. I wonder why, when dealing with this matter, they have entirely failed, as I read the Clause, to deal with the far wider and much more substantial point which arises out of that particular case. I am not going to repeat the very strong arguments put by my hon. Friend, and I do not believe that any hon. Member of the Committee considers that what was done in the case of the Attorney-General v. Oldham was not right, as far as the law was concerned, but that it was dead against the wish of this Committee with regard to Estate Duty. We do not want the door to be left open, when an opportunity might be taken of dealing with something else when we are concerned with a very narrow field, and I want to ask the Government why they did not go the whole hog, do the job properly and cover that major point.

May I put to the learned Solicitor-General another point concerning a different subsection of this Clause? Clause 27 is something of a mixed grill, and I think that a few moments spent on the matters under discussion might be useful.

Before coming to subsection (3), on which I wish to ask a question, I should like to express the hope that the right hon. and learned Gentleman will be able to assure us that subsection (5) will, in fact, deal with the type of case which was so clearly explained by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). When one sees the figures in an example like this, one realises what enchanting possibilities there are when a person possesses wealth. The football pools have nothing to compare with this kind of exercise. Here one is bound to win a prize if one only knows what to do with one's resources. The example given by my hon. and learned Friend shows how a simple transaction from father to son may eventually lead to a very substantial relief from Estate Duty on the family resources.

I have done my best to see whether subsection (5) means what it appears to mean. In parenthesis, perhaps I might make an appeal for a revision of our out-of-date procedure in Committee so that when a complicated matter comes before us we can have an explanation of the Clauses. We could then study them, instead of having to probe their meaning on the Floor of the Committee by asking hon. and right hon. Gentlemen on the Government Front Bench to tell us the purpose of the Clauses.

My hon. Friend the Member for Gloucestershire, South raised a particular matter on which I understand there has, up till now, been a genuine difference of opinion among those who offer themselves as experts. It is whether subsection (5) does or does not stop the practice of avoidance of Estate Duty by the issue of bonus shares during the lifetime of one member of a family to another member of the family, thereby in the end paying Estate Duty only on the shares actually transferred, even though at the time of death they are worth probably half what they were worth at the time of transfer, owing to the subsequent issue of bonus shares.

Subsection (3) appears to deal with what I understand to be an injustice in regard to companies where Estate Duty has been levied on the assets basis, when an additional levy of Profits Tax is made on distributed profits after the date of death. When profits are distributed there is an additional charge to Profits Tax. If the distribution is made after the date of death, although it arises from conditions and circumstances existing before the date of death, the distribution charge for Profits Tax is not, strictly speaking, allowable against the assets basis of valuation. It is not regarded as a charge against the valuation not even as a contingent liability against it. If subsection (3) removes that anomaly, the Committee will approve of it.

I notice that the Clause says, in page 31, line 35:
"Any liability of the company arising, or which may arise, after the death for taxation on income or profits shall be taken into account as if it were an actual but contingent liability at the date of the death."
That seems to cover possible charges to taxation, apart from Profits Tax, on the distribution of profits made after death. Does it permit of Income Tax, recoverable as a result of some misdemeanour, failure or neglect on the part of the taxpaying company, after death to be set off against the assets basis of valuation? If so, where there is some culpable failure, or even worse, on the part of the company to disclose the true liability to Income Tax before the date of death, one wonders whether liability arising and discovered after death should be given any special relief from Estate Duty. I hope that that does not sound too vindictive, but any deterrent we can put into our legislation against the malpractices which go on in a small number of cases, the better for the health of our taxation system.

I should like the Solicitor-General to find the right place in his brief this time and to tell us just what subsection (3) of the Clause is going to do, and also to give the assurance asked for by my hon. Friend the Member for Gloucestershire, South.

4.45 p.m.

The hon. Member for Gloucestershire, South (Mr. Crosland) and the hon. and learned Member for Kettering (Mr. Mitchison) raised questions in regard to subsection (5). As they no doubt realise, that subsection deals with the case in which there has been some change in the capital structure of a company either by way of the issue of bonus shares or in other ways, as by a sub-division of shares into smaller amounts or their consolidation into larger amounts.

The intention of the subsection is to provide that subsections (1) and (4) shall apply to the new shares after the change as they applied to the old shares before the change, provided that the new shares derive from shares of the same class which have had to be valued on the assets basis, on a death occurring before the change. I hope that the hon. and learned Member for Kettering will feel that his fears in regard to bonus shares in relation to the operation of the Clause are laid and that the Clause deals with the matter satisfactorily.

Before the Solicitor-General leaves that point, perhaps, I may reassure him that I have never had any fears on the point, except that I completely fail to understand why the Clause does not go a great deal further?

If I discussed matters which were not in the Clause I should be out of order, especially in a debate on the Question "That the Clause stand part of the Bill."

On the matter raised by the hon. Member for Sowerby (Mr. Houghton), subsection (3) makes provision, subject to certain limitations, for Income Tax and Profits Tax which are referable to income or profits accruing before death to be deemed as a contingent liability at the date of death and so to be allowable in whole or part as a deduction from the value of the assets "by reference to such estimation as appears to the Commissioners to be reasonable." I am sure that the hon. Member will agree with me that that is a desirable provision in relation to Income Tax, and that it means a slight alteration of the decision in the case of "Re Duffy (deceased)," which was decided in 1948 in relation to Profits Tax. It is a matter on which considerable doubt has been expressed in the case of Estate Duty where Profits Tax liability is concerned. I could give the hon. Gentleman a very long explanation of precisely what subsection (3) does. It is extremely technical and I would be only too glad to explain it later, as I feel sure the Committee would wish to get on.

I do not want to add anything so far as subsection (3) is concerned, but while the Solicitor-General was speaking my hon. and learned Friend the Member for Kettering (Mr. Mitchison) intervened to point out that the right hon. and learned Gentleman had not so far dealt with the main point made by my hon. and learned Friend. The only way in which the Solicitor-General purported to deal with it was to say that he thought that it would be out of order to go outside the Clause. I want to look into the Clause in order to point out what does not figure within it.

What does not figure inside its four walls is the very matter with which my hon. and learned Friend was dealing. He was saying—and I feel sure that the Solicitor-General must have understood—that we have the decision in the case of the Attorney-General v. Oldham which was decided as long ago as 1940 and still has not been put right. I quite agree that since then several Governments have intervened. So far as that aspect of Clause 27 is concerned, the only point we put is whether, while the Government were putting right what they considered to be anomalies in the workings of this particular section of the Estate Duty code, it would not have been a very excellent opportunity also to put right the anomaly which has existed since the decision in the case of the Attorney-General v. Oldham?

It is to that point that we have not yet had an answer. The anomaly has been very clearly put by my hon. and learned Friend the Member for Kettering and by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). It concerns the situation which arises when there is a gift of shares and, before the death, the shares have, as my hon. and learned Friend put it so graphically, pupped. Have not the Government that point clearly in mind, and do they not agree that this would be a very suitable opportunity to deal with the matter?

On a point of order, Mr. Hoy. I think we are not allowed to discuss on the Question, "That the Clause stand part of the Bill" anything which is not in the Clause.

I am most anxious to keep within the rules of order, Mr. Hoy, but in criticising a Clause actually in the Bill am I not entitled to look strictly at its wording and see whether it goes far enough? I would respectfully submit that it was in order to examine and appraise the conditions of the Clause as it stands and to express a mild word of regret that it does not go further.

It is rather difficult for a layman to give an interpretation of something which might be strictly legal, but I would say that the right hon. and learned Gentleman would not be in order if he went outside what is in the Clause. I think he certainly might ask a question, but it would not be in order to debate something not contained in the Clause.

I am obliged, Mr. Hoy, and take that Ruling to mean that I was strictly in order.

Further to that point, Mr. Hoy. If I am asked a question about something not in the Clause—and there is no reference to the subject matter of the Attorney-General v. Oldham in the Clause—surely it would be out of order for me to seek to give an answer to the question?

I thought that I had made it clear that the Solicitor-General should not attempt to reply to remark's about something not in the Clause. All I say is that it would not be right for the Committee to debate something not in the Clause itself.

I am much obliged for that Ruling, Mr. Hoy. In effect, it draws the line between myself and the right hon. and learned Gentleman. We are both right and both wrong.

If I might try in obedience to your Ruling, to stick strictly to my side of the tape, I would simply conclude by voicing, as I have said, a note of regret, and almost of lament, that the Government have framed the Clause as they have done—I am talking only about the Clause—and have not found themselves able to take a somewhat wider view, and do not contemplate bringing within its provisions these very important matters which my hon. and learned Friends have raised with such insistence in the course of this debate.

It has not been made clear what need there is for this subsection at all. As my hon. Friend the Member for Gloucestershire, South (Mr. Grosland) pointed out so clearly, if under the most recent ruling of the courts Estate Duty is not paid on bonus shares which are issued in the period of five years, why is it necessary to have this subsection granting relief for substantially the same circumstances? As I understand, neither in the case of subsection (1), which refers to the sale of shares within three years of death, or subsection (4) which refers to death within five years, would Estate Duty, under the present ruling of the court, be payable on bonus shares. I admit that this is a very complicated question, but, if that is the case, what is the purpose of introducing this subsection at all?

That is what the Solicitor-General did not make clear and what we are trying to find out. It is rather important. I do not know how the courts will interpret this in future. I do not know if courts do interpret by inference, but will they by inference interpret this as meaning that it is the view of the Government—or Parliament—that bonus shares issued within the period of five years of death are, in fact, to be liable to Estate Duty on their full value and not on the value of the number of shares at the date of death? That is the important point.

Frankly, it is extremely confusing. We still do not know the Solicitor-General's views on this. Does he hold a view contrary to that of the courts? If that is the case, we can well understand his subsection. But, if he accepts the view of the courts—as presumably he must—why on earth is this subsection needed at all? We are extremely concerned, of course, with this obvious method of Estate Duty evasion, but, as you have pointed out, Mr. Hoy, it would not be in order for us to discuss that. However, I think that I am in order in asking why it is necessary to put into this Bill this farrago of words which seems to have no meaning at all.

I should like to repeat in a very much simpler way the question addressed to the Solicitor-General by my hon. Friend the Member for Edmonton (Mr. Albu). He can give to the Committee an assurance, which on this side we should be very glad to have, simply by replying to this question. Is it the opinion of the Solicitor-General that, if this subsection were not in the Clause, the Inland Revenue would lose money? If the Solicitor-General can assure us that the subsection has been put in to protect the Revenue, then I do not doubt that we on this side would be very much more disposed to accept the whole thing. Surely all that matters is, does it or does it not protect the Revenue? If it does, let us say so. If it does not, we should like to know why—and we should have our own idea why the subsection has been put in.

5.0 p.m.

I rose to my feet only very slowly, because I wished to give the Solicitor-General every opportunity to intervene, and I could hardly believe that he would not do so. I was extremely surprised at the right hon. and learned Gentleman's reply.

As on several occasions when hon. Members sat down the hon. Gentleman gave indications that he intended to rise, I thought I would wait until I heard his observations. I did that as a matter of courtesy and for no other reason, because I can get to my feet without his inspiration.

May I say straight away that the need for this subsection is clearly established, because, if it were not there, there would be all sorts of arguments as to what effect an alteration of shares would have on the operation of subsections (1), (2), (3) and (4). It removes that doubt.

Regarding the other questions put to me in relation to the case of the Attorney-General v. Oldham and to the issue of bonus shares in relation to Estate Duty generally, I dare say that we could have a very interesting debate on that. However, I do not think that I could answer those questions without causing you, Mr. Hoy, to rise to your feet in much the same way, perhaps, as the hon. Member for Stechford (Mr. Roy Jenkins) has caused me to rise to mine. While it would be an interesting matter for debate, I do not believe that I could answer those questions and still remain within the bounds of order. That being so, I must disappoint the hon. Gentleman opposite by not giving my views on the interesting case which was decided in 1940.

I am sorry if there is any confusion between the Solicitor-General and myself. My hon. Friend the Member for Nottingham, South (Mr. Norman Smith) made a sign to the Solicitor-General which was intended to ask him whether or not he was going to get to his feet. Quite frankly, the right hon. and learned Gentleman gave no indication that he was going to reply. I am bound to say that, while it is courteous of him to rise to his feet, he has not by so doing helped the Committee very much, and he has not replied, at least not in a way that I can understand, to the point put to him by my hon. Friend the Member for Edmonton (Mr. Albu).

I still do not understand what would be the position if subsection (5) were not included in the Clause. Would this relief which is being accorded to bonus shares exist or not; would bonus shares be called upon to pay this duty or not? The Solicitor-General dealt with this point in only one sentence. I was unable to take down what he said, but I found that it shed very little light indeed on the decision. The right hon. and learned Gentleman did not say what the position would be if this subsection were not in the Clause.

We are in difficulties because we all recognise that there is an underlying

Division No. 174.]


[5.5 p.m.

Aitken, W. T.Campbell, Sir DavidFletcher, Sir Walter (Bury)
Allan, R. A. (Paddington, S.)Cary, Sir RobertFletcher-Cooke, C.
Alport, C. J. M.Channon, H.Ford, Mrs. Patricia
Amery, Julian (Preston, N.)Clarke, Col. Ralph (East Grinstead)Fort, R.
Amory, Rt. Hon. Heathcoat (Tiverton)Clarke, Brig. Terence (Portsmouth, W.)Foster, John
Anstruther-Gray, Major W. J.Clyde, Rt. Hon. J. LFraser, Hon. Hugh (Stone)
Arbuthnot, JohnCole, NormanFraser, Sir Ian (Morecambe & Lonsdale)
Assheton, Rt. Hon. R. (Blackburn, W.)Colegate, W. A.Fyfe, Rt. Hon. Sir David Maxwell
Astor, Hon. J. J.Conant, Maj. Sir RogerGalbraith, Rt. Hon. T. D. (Pollok)
Baldock, Lt.-Cmdr. J. M.Cooper, Sqn. Ldr. AlbertGalbraith, T. G. D. (Hillhead)
Baldwin, A. E.Cooper-Key, E. M.George, Rt. Hon. Maj. G. Lloyd
Baxter, Sir BeverleyCraddock, Beresford (Spelthorne)Glover, D.
Beach, Maj. HicksCrookshank, Capt. Rt. Hon. H. F. CGodber, J. B.
Bell, Philip (Bolton, E.)Crosthwaite-Eyre, Col. O. E.Goush, C. F. H.
Bell, Ronald (Bucks, S.)Crouch, R. F.Gower, H. R.
Bennett, F. M. (Reading, N.)Crowder, Sir John (Finchley)Graham, Sir Fergus
Bennett, William (Woodside)Crowder, Petre (Ruislip—Northwood)Grimond, J.
Bavins, J. R. (Toxteth)Darling, Sir William (Edinburgh, S.)Grimston, Hon. John (St. Albans)
Birch, NigelDavidson, ViscountessGrimston, Sir Robert (Westbury)
Bishop, F. P.Davies, Rt. Hn. Clement (Montgomery)Hall, John (Wycombe)
Black, C. W.Deedes, W. F.Harris, Frederic (Croydon, N.)
Boothby, Sir R. J. G.Digby, S. WingfieldHarris, Reader (Heston)
Bossom, Sir A. C.Dodds-Parker, A. D.Harrison, Col. J. H. (Eye)
Boyd-Carpenter, Rt. Hon. J. A.Donaldson, Cmdr. C. E. McA.Harvey, Air Cdre A. V. (Macclesfield)
Boyle, Sir EdwardDoughty, C. J. A.Harvey, Ian (Harrow, E.)
Braine, B. R.Douglas-Hamilton, Lord MalcolmHarvie-Watt, Sir George
Braithwaite, Sir Albert (Harrow, W.)Drayson, G. B.Hay, John
Braithwaite, Sir GurneyDugdale, Rt. Hon. Sir T. (Richmond)Head, Rt. Hon. A. H.
Bromley-Davenport, Lt.-Col. W. H.Duncan, Capt. J. A. L.Heald, Rt. Hon. Sir Lionel
Browne, Jack (Govan)Duthie, W. S.Heath, Edward
Buchan-Hepburn, Rt. Hon. P. G. T.Eccles, Rt. Hon. Sir D. M.Henderson, John (Cathcart)
Bullard, D. G.Eden, J. B. (Bournemouth, West)Higgs, J. M. C.
Bullus, Wing Commander E. E.Elliot, Rt. Hon. W. E.Hill, Dr. Charles (Luton)
Burden, F. F. A.Erroll, F. J.Hill, Mrs. E. (Wythenshawe)
Butcher, Sir HerbertFinlay, GraemeHirst, Geoffrey
Butler, Rt. Hon. R. A. (Saffron Walden)Fisher, NigelHolland-Martin, C. J

point of considerable importance which is not directly related to the Clause. But it is difficult to discuss the Clause without having some idea of the Government's view of whether the position is what it appears to be from the decision in the case of the Attorney-General v. Oldham in 1940. It bears very directly upon the position as it arises under subsection (5), and I think that in telling us. in words which we can understand, exactly what is the purpose of subsection (5) the Solicitor-General could, without in any way transgressing the rules of order, throw a little light on the Government's view on this question which underlies the whole of the Clause, and which, unless the Government can shed some light upon it, is bound to make us very dissatisfied with the whole Clause.

As it appears that the Clause cannot be discussed without transgressing the rules of order, and as none of us would wish that to happen, I can only draw the conclusion that it is a most unsatisfactory Clause, and must therefore ask my hon. Friends to divide against it.

Question put.

The Committee divided: Ayes, 278; Noes, 222.

Hollis, M. C.Marlowe, A. A. H.Shepherd, William
Holt, A. F.Marples, A. E.Simon, J. E. S. (Middlesbrough, W.)
Hope, Lord JohnMarshall, Douglas (Bodmin)Smithers, Peter (Winchester)
Hopkinson, Rt, Hon. HenryMaude, AngusSmithers, Sir Waldron (Orpington)
Horobin, I. M.Maudling, R.Smyth, Brig. J. G. (Norwood)
Horsbrugh, Rt, Hon. FlorenceMaydon, Lt.-Comdr. S. L. C.Snadden, W. McN.
Howard, Hon. Greville (St. Ives)Medlicott, Brig. F.Spearman, A. C. M.
Hudson, Sir Austin (Lewisham, N.)Mellor, Sir JohnSpeir, R. M.
Hulbert, Wing Cdr. N. J.Molson, A. H. E.Spence, H. R. (Aberdeenshire, W.)
Hurd, A. R.Monckton, Rt. Hon. Sir WalterSpens, Rt. Hon. Sir P. (Kensington, S.)
Hutchison, Sir Ian Clark (E'b'rgh, W.)Moore, Sir ThomasStanley, Capt. Hon. Richard
Hutchison, James (Scotstoun)Morrison, John (Salisbury)Stevens, Geoffrey
Hyde, Lt.-Col. H. M.Mott-Radclyffe, C. E.Stewart, Henderson (Fife, E)
Hylton-Foster, H. B. H.Nabarro, G. D. N.Stoddart-Scott, Col. M.
Iremonger, T. L.Neave, AireyStorey, S
Jenkins, Robert (Dulwich)Nicholls HarmarStrauss, Henry (Norwich, S.)
Johnson, Eric (Blackley)Nicholson, Godfrey (Farnham)Stuart, Rt. Hon. James (Moray)
Johnson, Howard (Kemptown)Noble, Comdr. A. H. P.Studholme, H. G.
Jones, A. (Hall Green)Nugent, G. R. H.Summers, G. S
Joynson-Hicks, Hon. L. W.Nutting, AnthonySutcliffe, Sir Harold
Kaberry, D.Odey, G. W.Taylor, Sir Charles (Eastbourne)
Kerby, Capt. H B.O'Neill, Hon Phelim (Co. Antrim N.)Taylor, William (Bradford, N.)
Kerr, H. W.Ormsby-Gore, Hon. W. D.Teeling, W.
Lambert, Hon. G.Orr, Capt. L. P. S.Thomas, Rt. Hon. J.P. L (Hereford)
Lambton, ViscountOrr-Ewing, Charles Ian (Hendon, N.)Thomas, Leslie (Canterbury)
Lancaster, Col. C. G.Osborne, C.Thompson, Kenneth (Walton)
Langford-Holt, J. A.Page, R. G.Thompson, Lt.-Cdr. R (Croydon, W.)
Leather, E. H. C.Peake, Rt. Hon. O.Thorneycroft, Rt. Hn. Peter (Monmouth)
Legge-Bourke, Mai. E. A. H.Perkins, Sir RobertThornton-Kemsley, Col. C. N.
Legh, Hon. Peter (Petersfield)Peto, Brig. C. H. M.Tilney, John
Lennox-Boyd, Rt. Hon. A. T.Pickthorn, K. W. M.Touche, Sir Gordon
Linstead, Sir H. N.Pilkington, Capt. R. ATurner, H. F L.
Llewellyn, D. T.Pitman, I. J.Turton, R. H.
Lloyd, Rt. Hon. G. (King's Norton)Pitt, Miss E. M.Tweedsmuir, Lady
Lloyd, Maj. Sir Guy (Renfrew, E.)Powell, J. EnochVane, W. M. F.
Lloyd, Rt. Hon. Selwyn (Wirral)Price, Henry (Lewisham, W.)Vaughan-Morgan, J K
Lockwood, Lt.-Col. J. C.Prior-Palmer, Brig. O. L.Vosper, D. F.
Longden, GilbertProfumo, J. D.Wakefield, Edward (Derbyshire, W.)
Low, A. R. W.Raikes, Sir VictorWakefield, Sir Wavell (St. Marylebone)
Lucas, Sir Jocelyn (Portsmouth, S.)Rayner, Brig. R.Walker-Smith, D. C.
Lucas, P. B. (Brentford)Redmayne, M.Wall, Major Patrick
Lucas-Tooth, Sir HughRees-Davies, W. RWard, Hon. George (Worcester)
Lyttelton, Rt. Hon. O.Remnant, Hon. P.Ward, Miss I. (Tynemouth)
McAdden, S. J.Renton, D. L. MWaterhouse, Capt Rt. Hon, C
McCorquodale, Rt. Hon. M. SRidsdale, J. E.Watkinson, H. A
Macdonald, Sir PeterRoberts, Peter (Heeley)Webbe, Sir H. (London & Westminster)
Mackeson, Brig. Sir HarryRobertson, Sir DavidWellwood, W.
McKibbin, A. J.Robinson, Sir. Roland (Blackpool, S)Williams, Rt. Hon. Charles (Torquay)
Mackie, J. H. (Galloway)Rodgers, John (Sevenoaks)Williams, Sir Herbert (Croydon, E.)
Maclay, Rt. Hon. JohnRoper, Sir HaroldWilliams, Paul (Sunderland, S.)
Maclean, FitzroyRopner, Col. Sir LeonardWilliams, R. Dudley (Exeter)
Macleod, Rt. Hon. Iain (Enfield, W.)Russell, R. S.Wills, G.
Macmillan, Rt. Hon. Harold (Bromley)Ryder, Capt. R. E. DWilson, Geoffrey (Truro)
Macpherson, Niall (Dumfries)Sandys, Rt. Hon. D.Wood, Hon. R.
Maitland, Comdr. J. F. W. (Horncastle)Savory, Prof. Sir Douglas
Maitland, Patrick (Lanark)Schofield, Lt.-Col. W.TELLERS FOR THE AYES:
Manningham-Buller, Rt. Hn. Sir ReginaldScott, R. DonaldSir Cedric Drewe and Mr. Oakshott.
Markham, Major Sir FrankScott-Miller, Cmdr. R


Acland, Sir RichardBraddock, Mrs. ElizabethDavies, Harold (Leek)
Albu, A. H.Brockway, A. FDavies, Stephen (Merthyr)
Allen, Arthur (Bosworth)Brook, Dryden (Halifax)de Freitas, Geoffrey
Allen, Scholefield (Crewe)Brown, Rt. Hon. George (Belper)Deer, G.
Anderson, Frank (Whitehaven)Brown, Thomas (Ince)Delargy, H. J
Attlee, Rt. Hon. C. R.Butler, Herbert (Hackney, S.)Dodds, N. N.
Awbery, S. S.Callaghan, L. JDonnelly, D. L.
Bacon, Miss AliceCarmichael, J.Driberg, T. E. N.
Balfour, A.Castle, Mrs. B. A.Dugdale, Rt. Hon. John (W. Bromwich)
Bartley, P.Champion, A. J.Ede, Rt. Hon. J. C.
Bellenger, Rt. Hon. F. J.Chetwynd, G. R.Edwards, W. J. (Stepney)
Bence, C. R.Clunie, J.Evans, Albert (Islington, S. W.)
Benn, Hon. WedgwoodColdrick, W.Evans, Edward (Lowestoft)
Benson, G.Collick, P. H.Evans, Stanley (Wednesbury)
Beswick, F.Cove, W. G.Fernyhough, E.
Bing, G. H. C.Craddock, George (Bradford, S.)Finish, H. J.
Blackburn, F.Crosland, C. A. R.Fletcher, Eric (Islington, E.)
Blenkinsop, A.Crossman, R. H. S.Follick, M.
Blyton, W. R.Cullen, Mrs. A.Foot, M. M.
Boardman, H.Daines, P.Forman, J. C.
Bottomley, Rt. Hon. A. GDalton, Rt. Hon. H.Fraser, Thomas (Hamilton)
Bowden, H. W.Darling, George (Hillsborough)Freeman, John (Watford)
Bowles, F. G.Davies, Ernest (Enfield, E.)Gaitskell, Rt. Hon. H. T. N

Gibson, C. W.MacPherson, Malcolm (Stirling)Shurmer, P. L. E.
Gooch, E. G.Mainwaring, W. H.Silverman, Sydney (Nelson)
Gordon Walker, Rt. Hon. P. C.Mallalieu, E. L. (Brigg)Silverman, Sydney (Nelson)
Grey, C. F.Mallalieu, J. P. W. (Huddersfield, E.)Simmons, C. J. (Brierley Hill)
Griffiths, David (Rother Valley)Manuel, A C.Skeffington, A. M.
Griffiths, Rt. Hon. James (Llanelly)Marquand, Rt. Hon. H. A.Slater, Mrs. H. (Stoke-on-Trent)
Griffiths, William (Exchange)Mason, RoySlater, J. (Durham, Sedgefield)
Hall, Rt. Hon. Glenvil (Colne Valley)Mayhew, C. P.Smith, Ellis (Stoke, S.)
Hall, John T. (Gateshead, W.)Mellish, R. J.Smith, Norman (Nottingham, S.)
Hamilton, W. W.Messer, Sir F.Snow, J. W.
Hannan, W.Mikardo, IanSorenson, R. W.
Hardy, E. A.Mitchison, G. RSoskice, Rt. Hon Sir Frank
Hargreaves, A.Monslow, W.Sparks, J. A.
Harrison, J. (Nottingham, E.)Moody, A. S.Steele, T.
Hastings, S.Morgan, Dr. H. B. W.Strachey, Rt. Hon. J.
Hayman, F. H.Morley, R.Strauss, Rt. Hon. George (Vauxhall)
Healey, Denis (Leeds, S. E.)Morrison, Rt. Hon. H. (Lewisham, S.)Stross, Dr. Barnett
Henderson, Rt. Hon. A. (Rowley Regis)Mulley, F. W.Summerskill, Rt. Hon E
Herbison, Miss M.Noel-Baker, Rt. Hon. P. J.Swingler, S. T.
Hewitson, Capt. M.Oldfield, W. H.Sylvester, G. O.
Hobson, C. R.Oliver, G. H.Taylor, Bernard (Mansfield)
Holman, P.Orbach, M.Taylor, Rt. Hon. Robert (Morpeth)
Holmes, HoraceOswald, T.Thomson, George (Dundee, E.)
Houghton, DouglasPadley, W. E.Thornton, E.
Hudson, James (Ealing, N.)Paling, Rt. Hon. W (Dearne Valley)Tomney, F.
Hughes, Emrys (S. Ayrshire)Palmer, A. M. F.Viant, S. P.
Hughes, Hector (Aberdeen, N.)Pannell, CharlesWallace, H. W.
Hynd, J. B. (Attercliffe)Pargiter, G. A.Warbey, W. N
Irving, W. J. (Wood Green)Parker, J.Watkins, T. E
Isaacs, Rt. Hon. G. A.Parkin, B. T.Weitzman, D.
Janner, B.Paton, J.Wells, Percy (Faversham)
Jay, Rt. Hon. D. P. T.Pearson, A.Wells, William (Walsall)
Jeger, George (Goole)Peart, T. F.West, D. G.
Jeger, Mrs. LenaPlummer, Sir LeslieWheeldon, W. E.
Jenkins, R. H. (Stechford)Popplewell, E.White, Mrs. Eirene (E. Flint)
Johnson, James (Rugby)Porter, G.White, Henry (Derbyshire, N. E.)
Johnston, Douglas (Paisley)Price, J. T. (Westhoughton)Wigg, George
Jones, David (Hartlepool)Proctor, W. T.Wilcock, Group Capt. C. A. B.
Jones, T. W. (Merioneth)Pryde, D. J.Willey, F. T.
Keenan, W.Pursey, Cmdr. H.Williams, Rev. Llywelyn (Abertillery)
Key, Rt. Hon. C. W.Rankin, JohnWilliams, Rt. Hon. Thomas (Don V'll'y)
King, Dr. H. M.Reeves, J.Williams, W. R. (Droylsden)
Kinley, J.Reid, Thomas (Swindon)Williams, W. T. (Hammersmith, S.)
Lawson, G. M.Reid, William (Camlachie)Willis, E. G.
Lee, Frederick (Newton)Robens, Rt. Hon. A.Winterbottom, Richard (Brightside)
Lee, Miss Jennie (Cannock)Roberts, Albert (Normanton)Woodburn, Rt. Hon. A.
Lewis, ArthurRoberts, Goronwy (Caernarvon)Wyatt, W. L.
Lipton, Lt.-Col. M.Robinson, Kenneth (St. Pancras, N.)Yates, V. F.
Logan, D. G.Ross, WilliamYounger, Rt. Hon. K.
MacColl, J. E.Royle, C.
McKay, John (Wallsend)Shinwell, Rt. Hon. ETELLERS FOR THE NOES:
McLeavy, F.Short, E. WMr. John Taylor and Mr. Rogers.

Clause ordered to stand part of the Bill.

Clause 28—(Interpretation Of And Provisions Supplementary To Ss 25 To 27)

Motion made, and Question proposed. "That the Clause stand part of the Bill."

5.15 p.m.

I wish to draw my right hon. Friend's attention to some peculiarities in the Clause as drafted. At the foot of page 32, we find a reference to a person who has

"powers equivalent to control."
In the middle of page 33 there is a reference to a person who
"has or had control"
without any qualifying word. On the same page at line 43, we find the words:
"… the Commissioners are satisfied do not materially affect the effective control."
We therefore have three different descriptions of "control." I know that legislation sometimes exists for the benefit of solicitors and others, but it seems to me that some simplification could be introduced into this Clause with advantage to all.

I should like to ask a question on subsection (1,d). The definition of "relative" seems a little strange. Apparently, so far as buying and selling companies is concerned, the forbidden degree of consanguinity includes ancestors. For instance, apparently a person may not sell to his paternal grandmother but he may sell to his daughter's child. Surely one's daughter's daughter is not a lineal descendant. [Interruption.] She is? Then I give way on that point. But then what does "lineal" mean?

Why are these particular relationships chosen? What happens to stepdaughters and stepsons? It seems to me that if one wanted to sell to one's stepson or stepdaughter it would be as difficult to establish that the sale was at arm's length, as it would if the sales were to a grandmother, and the same applies to nephews and nieces. If we are to draw a line between certain relationships, it would be useful if the Solicitor-General could explain why this line is drawn according to the definition in this subsection.

May I draw the attention of my right hon. and learned Friend to the wording of subsection (3, c)? This subsection lays down means and conditions under which control is obtained, or supposed to be obtained, but paragraph (c) contains some very peculiar points. One is:

… there shall, in so far as the Commissioners of Inland Revenue so direct, he disregarded—
(i) any limited interest subsisting at the relevant time in any shares …"
By reference to other Clauses, a limited share means something of this sort: if the deceased leaves the shares for life to some person, or for some shorter period and then to a relative.

The Commissioners are apparently to be given a free hand to decide in which cases they will or will not have regard to limited interests. I should have thought it was a serious matter to give that sort of power to the Commissioners without, so far as I can see, an appeal to any tribunal of any sort or kind. If shares were left to a young person for life and then to a relative, that would be a limited interest. It would be likely to go on for a very long time, and presumably therefore could not and would not be disregarded. On the other hand, if the shares were left to an elderly person who was likely to die very quickly, the Commissioners might think fit to disregard the matter. If the shares were left to a person for six months and then to a relative the Commissioners would almost certainly disregard that limited interest. But it is a very serious discretionary power to give to the Commissioners without there being any form of appeal.

Subsection (3, a (ii)) is even more extraordinary. There, apparently, the Commissioners are to decide whether voting rights which may or may not affect the effective control of the company's affairs shall be taken into account. I should have thought that it was a purely legal question whether or not voting rights conferred upon shareholders by virtue of their preference shares had any effect upon the control of the company. Whether or not the Commissioners should be given a discretion to say that certain voting rights affect control, I suggest that it is highly undesirable to give discretionary powers of this sort to the Commissioners unless there is some process by which a decision which is very nearly a legal one can be appealed from and tested.

I have been thinking of what was said by the hon. Member for Orkney and Shetland (Mr. Grimond), and I cannot see the significance of the word "lineal." I think the definition would be quite appropriate if that word were left out.

If we are now suggesting ways and means of improving the grammar or the wording of the Clause, I would ask the right hon. and learned Gentleman to look at the first line in subsection (2), which containes a reference to

"The two last foregoing sections. …
" I can find only one "last foregoing section." I was wondering whether anything had been done to tighten up the wording or grammar in that case.

I cannot remember the occasion, but I remember the right hon. Gentleman drawing attention to this point some time ago.

I can give the right hon. Member the assurance that I gave him on that occasion. We shall look into that drafting point, and into the point made by my hon. Friend the Member for Langstone (Mr. Stevens) about the references to "control." In subsection (1,d) we have sought to take a fairly narrow definition of "relative." We want to exclude those cases in which it will be specially difficult to establish that the sale of the shares was at arms' length and at a freely negotiated price. I shall certainly consider whether the word "lineal" is necessary before the word "descendant." My impression is that it is, in order to exclude stepsons, stepdaughters, and similar relations.

Does that mean that a sale between step-relations would not be allowed or would be allowed?

It excludes a sale between a stepmother and a stepson from the operation of Clause 27 (1,a).

Is my right hon. and learned Friend suggesting that a stepson, a stepdaughter, an adopted son or an adopted daughter is a descendant? If so, I do not agree with him.

I hope I had made it clear that I was not suggesting that. I said that I should look at the use of the word again, but that I thought it might be desirable to retain it in order to make it quite clear what was meant by the subsection.

My right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) raised a point of more substance, on a matter which has given me considerable difficulty. It is quite right that subsection (3,c) reserves a complete and unappealable discretion to the Commissioners, and we want to be satisfied that that is desirable before letting it go by. The discretion really relates to a problem which is small in compass. The subsection can apply only to cases where the application of the assets basis does not depend upon a deceased person having voting control. It is estimated that these what I might call quasi-control cases have, up to now, represented less than one-quarter of the total number of Section 55 cases.

The cases in which the Commissioners' discretion under subsection (3) would operate form only a small fraction of that fraction. In most cases the nature of the limited interest would be irrelevant, because the limited interest or voting preference shares would normally be clearly indicated as being in or out of the assets basis. It is only a small number of cases on the borderline with which we are concerned here. It is important to bear that fact in mind, especially when one considers what alternative could be inserted.

The precise type of limited interest which should be disregarded is very difficult to define in a way which would enable the courts to adjudicate upon the matter. The forms of limited interest may be many. One simple instance would be where a beneficiary was entitled to shares subject to a limited interest of only six months' duration. If there were not some escape provision such as this, that limited interest would be sufficient to take the case out of the ambit of Clause 26 (5). Something must be done to provide some flexibility. I can assure my right hon. and learned Friend that although we have thought very carefully whether some alternative method might not be adopted, we have come to the conclusion that any such alternative would have to be so complex and so lengthy that, on balance, it is best to leave the discretion in the Commissioners in this exceptionally narrow field.

My right hon. and learned Friend drew particular attention to the question of voting preference shares, which is dealt with in paragraph (c, ii). The position there is much the same. The existence of voting rights which are exercisable by virtue of preference shares may have no effect on the actual control of the company; those rights may be in the hands of an employee who never attends company meetings, or, if he does, is unlikely to vote against his employer. Other similar instances could be given. It is not unreasonable that in certain cases voting rights of that kind should be ignored, for the purposes of the Clause.

It is almost impossible to give a precise definition of the circumstances in which the voting rights attached to such shares should be disregarded without creating many anomalies and possible hardships. We have again come to the conclusion that, on balance, it is best to give this wide discretion to the Commissioners in this extremely narrow field, in the belief that in the exercise of their discretion they will seek to avoid hardship, injustice and the inequitable operation of the preceding Clauses.

5.30 p.m.

I do not know what the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) or the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) or my hon. Friends think about the reply of the Solicitor-General, but I found it most unsatisfactory. I thought it a very sorry performance, and I think a great many hon. and right hon. Members on both sides of the Committee will wonder where we are getting to if that is the best reply we can have from the Government.

The Solicitor-General said—I wrote it down—that as this matter was so complicated and applied to a relatively limited number of cases only, it was extremely difficult, if not impossible, to provide a precise definition, and he thought, therefore, it would be better to leave these very complicated matters to the discretion of the Commissioners in order that there might be a measure of flexibility. What does that mean?

We are now dealing with the definition Clause, and if there is in any Clause in any Measure where one expects to find precision, it is in the interpretation Clause. We all concede that this is a highly complicated matter. It involves very abstruse propositions in the consideration of hypothetical cases. Therefore, that necessitates the use of language that should be as clear and precise as possible in order that the taxpayers may understand it. It may well be that this group of Clauses will apply in only a small number of cases, but in those cases where it does apply the amounts of Estate Duty will be very large indeed.

It is a matter of very great moment to executors faced with paying Estate Duty to know whether the asset value applies or whether the other value applies. In Clause 25 concessions have been made in the rate of duty in Section 55 cases, and in Clause 27 an attempt is made to prevent abuses by tightening up the loopholes that may arise where there are sales of family businesses to relatives within three years of death.

What the Solicitor-General in fact is saying is that there may be borderline cases. Those borderline cases will depend on whether or not the deceased had control. That in turn will depend on what is meant by control. In other cases it will depend on whether the sale is a sale to a relative as defined in this Clause or to somebody who is not a relative. Complicated though it may be, I am sure that all Members on both sides of the Committee, since this is not a political matter, will agree that it is our duty to get it as clearly defined as we can.

I do not think it is satisfactory that the taxpayers' liability should be left to the discretion of the Commissioners without any clear guidance in the Measure how that discretion is to be exercised. There may be cases in which £20,000 or £30,000 or £50,000 of duty are involved. Granted that the Commissioners will carry out their discretion to the best of their ability, that is not the way in which we ought to legislate, because fiscal law, like penal and criminal law, should be carefully and precisely defined. If there is any doubt about it, the person against whom the claim arises should have the benefit of the doubt. In any event, he should have the benefit of an appeal from a decision of the Commissioners to a judicial tribunal.

I think the Solicitor-General agrees with me in saying that this is an exceptional and unprecedented instance of giving discretion to the Commissioners. However exceptional the circumstances may be, it seems to me thoroughly indefensible on principle.

I want to consider two major questions that have been raised in the debate. Let us take first the definition of a relative. The Solicitor-General's answer was most unsatisfactory. The whole object of defining a relative is to add an additional safeguard to the provisions of Clause 27 (1,a). A moment ago, when we were discussing that on an Amendment moved by the hon. and gallant Member for Cheltenham (Major Hicks Beach), the hon. and gallant Member asked why have that paragraph in at all, for, he said, it was quite unnecessary in view of Clause 27 (1,b), which ruled out any sale unless it was negotiated at arms' length. The Solicitor-General then justified his resistance of the Amendment by saying there might be a sale to a relative, and if there were it would not be easy to tell whether it was a sale at arms' length or not.

We now come to consider the definition of a relative, and we are told that for the purposes of Clause 27 a son is a relative and a stepson is not, a lineal descendant is a relative but no other kind of descendant is. I must add in fairness that the Solicitor-General did not seem to be very clear what form of descendants there were other than lineal descendants, but he was good enough to say he was going to look into that matter. He should have looked into that matter before now, because it is here and now the Committee has to decide whether to accept the words "lineal descendant" with some quite unknown limitation of the words. I am not myself prepared to leave it in abeyance in that unsatisfactory way.

The major question is this. I was not convinced by the Solicitor-General's reply to the arguments of the hon. and gallant Member for Cheltenham, but if they had any validity at all those arguments hold good to precisely the same degree for a sale to a relative as for a sale to a son. I should think they would be equally valid if there were a sale to a son-in-law as compared with a sale to a daughter, but under this definition of relative a sale to a daughter is suspect but a sale to a son-in-law is aboveboard. That really cannot make sense at all. This definition of relative is so loosely drawn as to be completely nugatory, as to destroy the purpose for which, according to the Solicitor-General, it is necessary to have it in the Bill as a safeguard.

It may be that if my observations are well-founded they will give some comfort to the hon. and gallant Member for Cheltenham and his friends. Be that as it may, my object in making these few observations is not to expatiate on the problems of whether the definition of a relative should be more widely or more narrowly drawn, but to point out that it is not good enough that it should be prepared in this very loose manner and should contain a number of words of which the Solicitor-General is unable to give us an explanation.

I want to pass to the question of whether the Commissioners of Inland Revenue should be left as the sole and final judges, in any case which arises, as to whether control exists, in as far as control may depend upon there being either limited interests or upon their voting rights being derived not from ordinary shares but from preference shares. Both these are very vexed questions. The right hon. and learned Member for Kensington, South (Sir P. Spens) knows perfectly well, as do other hon. Members, that it is a highly technical matter in a great many cases to say whether or not the voting rights which are given to preference shareholders in the articles of a company do or do not confer any measure of control. It may depend upon whether the preference dividend is in arrear. It may well depend upon an almost infinite variety of circumstances—many of which are daily considered by those whose duty it is to frame articles of association for companies in which there are a large number of members of one family interested in one respect or another.

In so far as the problem which will concern the Commissioners in a number of cases is as to the existence of control, it seems to me that in this definition Clause we should face the task, however difficult it may be, and try to define with much greater accuracy and precision what we mean by control.

I am particularly worried by the phrase in subsection (3, c, ii) where it refers to any voting rights
"which do not materially affect the effective control."
What on earth does that mean? Does it mean that there may be voting rights which affect the control although they do not materially affect the control? May there be other voting rights which materially affect the control but do not materially affect the effective control? I think my hon. and learned Friend the Member for Kettering (Mr. Mitchison), at any rate, will agree with me that the proposition has only to be stated in those terms to show how impossible it will be for the Commissioners to discharge the task entrusted to them.

It seems to me, therefore, that if questions arise under a definition Section provided in this very loose, vague and unsatisfactory way, the least we should insist upon is that there should be an appeal, as in every other case, from the Commissioners to the courts of law. For those reasons I very much hope that my hon. Friends will express their dissatisfaction with this unsatisfactory Clause by not accepting it in its present form.

5.45 p.m.

I want to refer briefly to subsection (7), which deals with the date of the application of the Clause. In doing so, Sir Charles, I shall be in some difficulty in keeping within your Ruling.

What influenced the Treasury or the Government in setting the date for bringing in this part of the Bill as the commencement of the Act? If there was a positive opinion on the subject, I should like to have it. We have been debating this Clause for some time and we might have felt that, if my right hon. Friend wanted to do good, he could possibly have done it at an earlier date. Why was this and not some other date—perhaps Budget Day—put into the Clause?

My right hon. Friend the Financial Secretary may say that he gave consideration to the amount of revenue which would be lost by using some other date, but I could show—although I doubt whether I should be allowed to bring the argument forward with you watching me so closely, Sir Charles—that, by taking another date, money would be saved. My right hon. Friend the Financial Secretary is undoubtedly aware of cases of this nature, because I have put one to him. I cannot carry this argument very far, but I should like my right hon. Friend to tell the Committee why this date was chosen and not some other date, for instance the date on which the Chancellor introduced the Budget.

I understand that my hon. and gallant Friend the Member for Roxburgh and Selkirk (Commander Donaldson) has spoken to the Financial Secretary on this subject and has had some discussion with him about it. I am afraid I cannot add to what he was told in those discussions.

Subsection (7) is very clear in its terms. It is required to specify from what date these provisions shall have effect, and it makes them take effect in relation to any death occurring after the commencement of the Act. I gather that my hon. and gallant Friend wanted the subsection to take effect in relation to any death occurring after the date of the Budget. That was considered in the discussions which my hon. and gallant Friend had with the Financial Secretary, and he was told that it was more usual in relief provisions of this sort to make them operate from the date of the commencement of the Act and not from the date of the Budget. But my right hon. Friend will be only too glad to discuss the matter further with my hon. and gallant Friend.

Division No. 175.]


[5.50 p.m.

Aitken, W. T.Baldwin, A. E.Bishop, F. P.
Alport, C. J. M.Baxter, Sir BeverleyBlack, C. W.
Amery, Julian (Preston, N.)Beach, Maj. HicksBoothby, Sir R. J. G.
Amory, Rt. Hon. Heathcoat (Tiverton)Bell, Philip (Bolton, E.)Bossom, Sir A. C.
Anstruther-Gray, Major W. J.Bell, Ronald (Bucks, S.)Boyle-Carpenter, Rt. Hon. J. A
Arbuthnot, JohnBennett, F. M. (Reading, N.)Boyle, Sir Edward
Assheton, Rt. Hon. R. (Blackburn, W.)Bennett, William (Woodside)Braine, B. R.
Astor, Hon. J. J.Bevins, J. R. (Toxteth)Braithwaite, Sir Albert (Harrow, W.)
Baldock, Lt.-Cmdr. J. M.Birth, NigelBraithwaite, Sir Gurney

this mood: they thought this a very important Clause in that it sets out to define what is meant by control and powers equivalent to control.

I do not want to delay the Committee by repeating arguments which I thought were put most succinctly and clearly by my hon. Friend the Member for Islington, East (Mr. E. Fletcher). I agree with him that the Clause is at present not in a satisfactory form. He has pointed to a number of serious uncertainties, and the right hon. and learned Member for Kensington, South (Sir P. Spens) also put his finger upon a point which has been left in an unsatisfactory state.

In a sense the Clause is crucial to the working of this part of the Bill. So many provisions of this part of the Bill hinge upon a precise understanding of what control is to mean in any particular context. If it is not clearly understood in any context whether there is control exercised within the meaning of Clause 28 or not, this part of the Bill will not work. Listening to the debate and the answers given by the Solicitor-General to my hon. Friend and to the right hon. and learned Member for Kensington, South, I was forced to the conclusion that the right decision would be to divide against the Clause. I hope my right hon. and hon. Friends will agree to do so. We recognise that the Clause must be there, because it is an important Clause, but we think that if it is left in this very un-precise form, Part II of the Bill will not work at all.

I do not want to repeat the arguments. They have been clearly put, but they certainly have not been adequately answered. My advice to my right hon. and hon. Friends on this side of the Committee is to signify their disapproval of the Clause being left in its present state by voting against it.

Question put.

The Committee divided: Ayes, 277. Noes. 228.

Bromley-Davenport, Lt.-Col. W. HHoward, Hon. Greville (St. Ives)Powell, J. Enoch
Browne, Jack (Govan)Hudson, Sir Austin (Lewisham, N.)Price, Henry (Lewisham, W.)
Buchan-Hepburn, Rt. Hon. P. G. T.Hulbert, Wing Cdr. N. J.Prior-Palmer, Brig. O. L,
Bullard, D. G.Hurd, A. R.Profumo, J, D.
Bullus, Wing Commander E. E.Hutchison, Sir Ian Clark (E'b'rgh, W.)Raikes, Sir Victor
Burden, F. F. A.Hutchison, James (Scotstoun)Rayner, Brig. R.
Butcher, Sir HerbertHyde, Lt.-Col. H. M.Redmayne, M.
Butler, Rt. Hon. R. A. (Saffron Walden)Hylton-Foster, H. B. H.Rees-Davies, W. R.
Campbell, Sir DavidIremonger, T. L.Remnant, Hon. P.
Cary, Sir RobertJenkins, Robert (Dulwich)Renton, D. L. M.
Channon, H.Johnson, Eric (Blackley)Ridsdale, J. E.
Clarke, Col. Ralph (East Grinstead)Johnson, Howard (Kemptown)Roberts, Peter (Heeley)
Clarke, Brig. Terence (Portsmouth, W.)Jones, A. (Hall Green)Robertson, Sir David
Clyde, Rt. Hon. J. L.Joynson-Hicks, Hon. L. W.Robinson, Sir Roland (Blackpool, S.)
Cole, NormanKaberry, D.Robson-Brown, W.
Colegate, W. A.Kerby, Capt. H. B.Rodgers, John (Sevenoaks)
Conant, Maj. Sir RogerKerr, H. W.Roper, Sir Harold
Cooper, Sqn. Ldr. AlbertLambert, Hon. G.Ropner, Col. Sir Leonard
Cooper-Key, E. M.Lambton, ViscountRussell, R. S.
Craddock, Beresford (Spelthorne)Lancaster, Col. C. G.Ryder, Capt. R. E. D.
Crookshank, Capt. Rt. Hon. H. F. C.Langford-Holt, J. A.Sandys, Rt. Hon. D.
Crosthwaite-Eyre, Col. O. E.Leather, E. H. C.Savory, Prof. Sir Douglas
Crouch, R. F.Legge-Bourke, Maj. E. A. H.Schofield, Lt.-Col. W.
Crowder, Sir John (Finchley)Legh, Hon. Peter (Petersfield)Scott, R. Donald
Crowder, Petre (Ruislip—Northwood)Lennox-Boyd, Rt. Hon. A. T.Scott-Miller, Cmdr. R.
Darling, Sir William (Edinburgh, S.)Linstead, Sir H. N.Shepherd, William
Davidson, ViscountessLlewellyn, D. T.Simon, J. E. S. (Middlesbrough, W.)
Deedes, W. F.Lloyd, Rt. Hon. G. (King's Norton)Smithers, Peter (Winchester)
Digby, S. WingfieldLloyd, Maj. Sir Guy (Renfrew, E.)Smithers, Sir Waldron (Orpington)
Dodds-Parker, A. D.Lloyd, Rt. Hon. Selwyn (Wirral)Smyth, Brig. J. G. (Norwood)
Donaldson, Cmdr. C. E. McA.Lockwood, Lt.-Col. J. C.Snadden, W. McN.
Doughty, C. J. A.Longden, GilbertSpearman, A. C. M.
Douglas-Hamilton, Lord MalcolmLow, A. R. W.Speir, R. M.
Drayson, G. B.Lucas, Sir Jocelyn (Portsmouth, S)Spence, H. R. (Aberdeenshire, W.)
Drewe, Sir C.Lucas, P. B. (Brentford)Spens, Rt. Hon. Sir P. (Kensington, S.)
Dugdale, Rt. Hon. Sir T. (Richmond)Lucas-Tooth, Sir HughStanley, Capt. Hon. Richard
Duncan, Capt. J. A. L.Lyttelton, Rt. Hon. O.Stevens, Geoffrey
Duthie, W. S.McAdden, S. J.Steward, W. A. (Woolwich, W.)
Eccles, Rt. Hon. Sir D. M.McCorquodale, Rt. Hon. M. S.Stewart, Henderson (Fife, E.)
Eden, J. B. (Bournemouth, West)Macdonald, Sir PeterStoddart-Scott, Col. M.
Elliot, Rt. Hon. W. E.Mackeson, Brig. Sir HarryStorey, S.
Erroll, F. J.McKibbin, A. J.Strauss, Henry (Norwich, S.)
Finlay, GraemeMackie, J. H. (Galloway)Stuart, Rt. Hon. James (Moray)
Fisher, NigelMaclay, Rt. Hon. JohnStudholme, H. G.
Fletcher-Cooke, C.Maclean, FitzroySummers, G. S.
Ford, Mrs. PatriciaMacleod, Rt. Hon. Iain (Enfield, W.)Sutcliffe, Sir Harold
Fort, R.Macmillan, Rt. Hon. Harold (Bromley)Taylor, Sir Charles (Eastbourne)
Foster, JohnMacpherson, Niall (Dumfries)Taylor, William (Bradford, N.)
Fraser, Hon. Hugh (Stone)Maitland, Comdr. J. F. W. (Horncastle)Teeling, W.
Fraser, Sir Ian (Morecambe & Lonsdale)Maitland, Patrick (Lanark)Thomas, Rt. Hon. J. p. L. (Hereford)
Fyfe, Rt. Hon. Sir David MaxwellManningham-Buller, Rt. Hn. Sir ReginaldThomas, Leslie (Canterbury)
Galbraith Rt. Hon. T. D. (Pollok)Markham, Major Sir FrankThompson, Kenneth (Walton)
Galbraith, T. G. D. (Hillhead)Marlowe, A. A. H.Thompson, Lt.-Cdr. R. (Croydon, W.)
George, Rt. Hon. Maj. G. LloydMarples, A. E.Thorneycroft, Rt. Hn. Peter (Monmouth)
Glover, DMarshall, Douglas (Bodmin)Thornton-Kemsley, Col. C. N.
Godber, J. B.Maude, AngusTilney, John
Gough, C. F. H.Maudling, R.Touche, Sir Gordon
Gower, H. R.Maydon, Lt.-Cmdr. S. L. C.Turner, H. F. L.
Graham, Sir FergusMedlicott, Brig. F.Turton, R. H.
Grimond, J.Mellor, Sir JohnTweedsmuir, Lady
Grimston, Hon. John (St. Albans)Molson, A. H. E.Vane, W. M. F.
Grimston, Sir Robert (Westbury)Monckton, Rt. Hon. Sir WalterVaughan-Morgan, J. K.
Hall, John (Wycombe)Moore, Sir ThomasVosper, D. F.
Harris, Frederic (Croydon, N.)Morrison, John (Salisbury)Wakefield, Edward (Derbyshire, W.)
Harris, Reader (Heston)Mott-Radclyffe, C. E.Wakefield, Sir Wavell (St. Marylebone)
Harrison, Col. J. H. (Eye)Nabarro, G. D, N.Walker-Smith, D. C.
Harvey, Air Cdre, A. V. (Macclesfield)Neave, AireyWall, Major Patrick
Harvey, Ian (Harrow, E.)Nicholls, HarmarWard, Hon. George (Worcester)
Harvie-Watt, Sir GeorgeNoble, Cmdr. A. H. PWard, Miss I. (Tynemouth)
Hay, JohnNugent, G. R. H.Waterhouse, Capt. Rt. Hon. C.
Head, Rt. Hon. A. H.Nutting, AnthonyWatkinson, H. A.
Heald, Rt. Hon. Sir LionelOdey, G. W.Webbe, Sir H. (London & Westminster)
Heath, EdwardO'Neill, Hon. Phelim (Co. Antrim, N.)Wellwood, W.
Henderson, John (Cathcart)Ormsby-Gore, Hon. W. D.Williams, Rt. Hon. Charles (Torquay)
Higgs, J. M. COrr, Capt. L. P. S.Williams, Sir Herbert (Croydon, E.)
Hill, Dr. Charles (Luton)Orr-Ewing, Charles Ian (Hendon, N.)Williams, Paul (Sunderland, S)
Hill, Mrs. E. (Wythenshawe)Osborne, C.Williams, R. Dudley (Exeter)
Hirst, GeoffreyPage, R. G.Wills, G.
Holland-Martin, C. J.Peake, Rt. Hon. O.Wilson, Geoffrey (Truro)
Hollis, M. C.Perkins, Sir RobertWood, Hon. R.
Holt, A. F.Peto, Brig. C. H. M.
Hope, Lord JohnPickthorne, K. W. M.TELLERS FOR THE AYES:
Hopkinson, Rt. Hon. HenryPilkington, Capt. R. A.Mr. Oakshott and
Horobin, I. M.Pitman, I. J.Mr. Robert Allan.
Horsbrugh, Rt. Hon. FlorencePitt, Miss E. M.


Allen, Arthur (Bosworth)Greenwood, AnthonyPannell, Charles
Allen, Scholefield (Crewe)Grey, C. F.Pargiter, G. A.
Anderson, Frank (Whitehaven)Griffiths, David (Rother Valley)Parker, J.
Attlee, Rt. Hon. C. R.Griffiths, Rt. Hon. James (Llanelly)Parkin, B. T.
Awbery, S. S.Hall, Rt. Hon. Glenvil (Colne Valley)Paton, J.
Bacon, Miss AliceHall, John T. (Gateshead, W.)Pearson, A.
Balfour, A.Hamilton, W. W.Peart, T. F.
Bartley, P.Hannan, W.Plummer, Sir Leslie
Bence, C. R.Hardy, E. A.Popplewell, E.
Benn, Hon. WedgwoodHargreaves, A.Porter, G.
Benson, G.Harrison, J. (Nottingham, E.)Price, J. T. (Westhoughton)
Beswick, F.Hastings, S.Price, Philips (Gloucestershire, W.)
Bing, G. H. C.Hayman, F. H.Proctor, W. T.
Blackburn, F.Healey, Denis (Leeds, S. E)Pryde, D. J.
Blenkinsop, A.Henderson, Rt. Hon. A. (Rowley Regis)Pursey, Cmdr. H.
Blyton, W. R.Herbison, Miss M.Rankin, John
Boardman, H.Hewitson, Capt. M.Reeves, J.
Bottomley, Rt. Hon. A. GHobson, C. R.Reid, Thomas (Swindon)
Bowden, H. W.Holman, P.Reid, William (Camlachie)
Bowles, F. G.Holmes, HoraceRobens, Rt. Hon. A.
Braddock, Mrs. ElizabethHoughton, DouglasRoberts, Albert (Normanton)
Brockway, A. F.Hudson, James (Ealing, N.)Roberts, Goronwy (Caernarvon)
Brook, Dryden (Halifax)Hughes, Emrys (S. Ayrshire)Robinson, Kenneth (St. Pancras, N.)
Broughton, Dr. A. D. D.Hughes, Hector (Aberdeen, N.)Ross, William
Brown, Rt. Hon. George (Belper)Hynd, J. B. (Attercliffe)Royle, C.
Brown, Thomas (Ince)Irving, W. J. (Wood Green)Shinwell, Rt. Hon. E.
Butler, Herbert (Hackney, S.)Isaacs, Rt. Hon. G. A.Short, E. W.
Callaghan, L. J.Janner, B.Shurmer, P. L. E.
Carmichael, J.Jay, Rt. Hon. D. P. T.Silverman, Julius (Erdington)
Castle, Mrs. B. AJeger, George (Goole)Silverman, Sydney (Nelson)
Champion, A. J.Jeger, Mrs. LenaSimmons, C. J. (Brierley Hill)
Chetwynd, G. R.Jenkins, R. H. (Stechford)Skeffington, A. M.
Clunie, J.Johnson, James (Rugby)Slater, Mrs. H. (Stoke-on-Trent)
Coldrick, WJohnston, Douglas (Paisley)Slater, J. (Durham, Sedgefield)
Collick, P. H.Jones, David (Hartlepool)Smith, Ellis (Stoke, S.)
Corbet, Mrs. FredaJones, T. W. (Merioneth)Smith, Norman (Nottingham, S.)
Cove, W. G.Keenan, W.Snow, J. W.
Craddock, George (Bradford, S.)Key, Rt. Hon. C. W.Sorensen, R. W.
Crosland, C. A. R.King, Dr. H. M.Soskice, Rt. Hon. Sir Frank
Crossman, R. H. S.Kinley, J.Sparks, J. A.
Cullen, Mrs. A.Lawson, G. M.Steele, T.
Daines, P.Lee, Frederick (Newton)Strachey, Rt. Hon. J.
Dalton, Rt. Hon. H.Lee, Miss Jennie (Cannock)Strauss, Rt. Hon. George (Vauxhall)
Darling, George (Hillsborough)Lewis, ArthurStross, Dr. Barnett
Davies, Ernest (Enfield, E.)Lipton, Lt.-Col. M.Summerskill, Rt. Hon. E.
Davies, Harold (Leek)Logan, D. G.Swingler, S. T.
Davies, Stephen (Merthyr)MacColl, J. E.Sylvester, G. O.
de Freitas, GeoffreyMcKay, John (Wallsend)Taylor, Bernard (Mansfield)
Deer, G.McLeavy, F.Taylor, John (West Lothian)
Delargy, H. J.McNeil, Rt. Hon. H.Taylor, Rt. Hon. Robert (Morpeth)
Dodds, N. N.MacPherson, Malcolm (Stirling)Thomson, George (Dundee, E.)
Donnelly, D. L.Mainwaring, W. H.Thornton, E.
Driberg, T. E. N.Mallalieu, E. L. (Brigg)Tomney, F.
Dugdale, Rt. Hon. John (W. Bromwich)Mallalieu, J. P. W. (Huddersfield, E.)Viant, S. P.
Ede, Rt. Hon. J. C.Manuel, A. C.Warbey, W. N
Edwards, Rt. Hon. John (Brighouse)Marquand, Rt. Hon. H. A.Watkins, T. E.
Edwards, W. J. (Stepney)Mason, RoyWeitzman, D.
Evans, Albert (Islington, S.W.)Mayhew, C. P.Wells, Percy (Faversham)
Evans, Edward (Lewestoft)Mellish, R. J.Wells, William (Walsall)
Evans, Stanley (Wednesbury)Messer, Sir F.West, D. G.
Fernyhough, E.Mikardo, IanWheeldon, W. E.
Fienburgh, W.Mitchison, G. R.White, Mrs. Eirene (E. Flint)
Finch, H. J.Monslow, W.White, Henry (Derbyshire, N. E.)
Fletcher, Eric (Islington, E.)Moody, A. S.Wigg, George
Follick, M.Morgan, Dr. H. B. W.Willey, F. T.
Foot, M. M.Morley, R.Williams, Rev. Llywelyn (Abertillery)
Forman, J. C.Morrison, Rt. Hon. H. (Lewisham, S.)Williams, Rt. Hon. Thomas (Don V'll'y)
Fraser, Thomas (Hamilton)Mulley, F. W.Williams, W. R. (Droylsden)
Freeman, John (Watford)Nally, W.Williams, W. T. (Hammersmith, S.)
Gaitskell, Rt. Hon. H. T. NNoel-Baker, Rt. Hon. P. J.Willis, E. G.
Acland, Sir RichardOldfield, W. H.Winterbottom, Richard (Brightside)
Adams, RichardOliver, G. H.Woodburn, Rt. Hon. A.
Albu, A. H.Orbach, M.Yates, V. F.
Gibson, C. W.Oswald, T.Younger, Rt. Hon. K.
Glanville, JamesPadley, W. E.
Gooch, E. G.Paling, Rt. Hon. W. (Dearne Valley)TELLERS FOR THE NOES:
Gordon Walker, Rt. Hon. P. CPalmer, A. M. F.Mr. Wallace and Mr. Rogers.

Clause ordered to stand part of the Bill.

Clause 29—(Aggregation)

6.0 p.m.

I beg to move, in page 35, line 15, to leave out from second "property," to the end of line 22, and to insert:

"settled by the will of the deceased."
As I understand it, the Clause was intended to create a straight rise of from £2,000 to £10,000 in small estates which need not be aggregated with anything else and which only have to bear duty at the rate applicable to their capital value. At first, one thought that this was the only alteration that was being made, but on looking into the present position it appears that under existing legislation a free estate of £2,000 is not aggregated with any settled property whatever, except property settled by the will of the deceased. That is the only portion of the very wide types of property which are included in the definition of settled property which has to be added in with any free estate to make up the £2,000.

One finds from the Clause, however, 'that the deceased's free estate has to be aggregated with a large amount of settled property. It has to be aggregated with any property
"comprised in a settlement made by the deceased or made, directly or indirectly, on his behalf or at his expense or out of funds provided by him …"
It has also to be aggregated with property not comprised in the settlement of which the deceased was
"competent to dispose and has disposed by the exercise by his will or otherwise of a power conferred by the settlement."
Finally, it has to be aggregated with property which
"devolves on his personal representatives as assets for payment of his debts"
which, as far as I remember, means property over which the deceased has exercised a general power of appointment.

That means that it is not simply a mere straight rise from £2,000 to £10,000 in the value of the free estate. It is a rise from £2,000 to £10,000 in respect of a quite substantial mass of property much greater than is at present aggregated with the free estate. In the circumstances, I wonder what the effect of the Clause is likely to be. It seems to me that there will be a very great deterrent for settlements to be made, not only by a person for his own benefit, but by other people for his benefit. If this misfortune happens, the benefits of the Clause will be minimised accordingly.

It looks at first sight as though the benefit of the increase from £2,000 to £10,000 is very largely taken away by the fact that any personal savings or free estate have to be aggregated with a mass of other settled property. I should, therefore, like an explanation as to what is thought to be the effect of the benefit of the Clause.

As my right hon. and learned Friend the Member for Kensington. South (Sir P. Spens) said, subsection (1) is mainly a relieving subsection whose purpose is to raise the total of free estate which does not require to be aggregated with settled estate from £2,000, without a taper, to £10,000, with a taper. As my right hon. and learned Friend has pointed out, the words to which his Amendment relate make an alteration in the existing law with respect to what is put in with the settled estate and what is put in what one might call the free estate bag.

Under existing law, property settled by the deceased in his will is added to the free estate and, therefore, not aggregated with other settled property. On the other hand, property settled by the deceased during his lifetime—for example. to himself for life with the remainder to his children—goes in with the settled estate. That seems to be a somewhat illogical distinction between property both sets of which have been dealt with by the deceased in effecting a settlement. Therefore, what the Clause does is to put both property settled by the deceased in his will and property settled by the deceased by an instrument during his lifetime in with the free estate and separate from the rest of the settled estate.

The logic, it seems to us, which justifies this provision is this. The object of the whole subsection is to deal with the very severe hardship which can and does arise on occasions when a large settled estate passes, in accordance with the settlement, possibly to persons other than the deceased tenant-for-life's near relatives, but requires to be aggregated with his quite small free estate. As a result, it may well be that his close relatives to whom the free estate comes obtain a small free estate minus the very high rate of duty which results from aggregating it with the settled estate. The extreme example could be of a free estate, under existing law, of £2,001, a very large settled estate passing in another direction and the unfortunate beneficiaries of the free estate finding their £2,000 subjected to duty at 80 per cent. and, therefore, receiving £400.

That is the object, and, therefore, in pursuit of that object it seems to us right to draw a distinction between, on the one hand, property of which the deceased could dispose and property of which he could not. That is to say, if the deceased is concerned, in the case I have suggested, to secure that his near relatives are properly provided for—that property which he can dispose of he will use for that purpose—it can go with the free estate.

On the other hand, in pursuit of the objects that I have outlined, one puts in a separate category the estate of which the deceased was tenant for life and whose destination he cannot control. The test, in other words, is whether the deceased could have freely disposed of the property. In both cases which directly arise—the case where the deceased creates a settlement by his will on his death or by deed during his lifetime—ex hypothesi the property is at his disposal.

It therefore seems to us logical and sensible, and in accordance with the intention of the subsection as a whole, that that property which he is free to dispose of should go with the other property which he is free to dispose of for purposes of aggregation and not be aggregated with the property of which he is not free to dispose.

I think my right hon. and learned Friend will see that this is the proper way to carry out the intention and to end the curious anomaly by which property settled by the deceased in his will went into one estate and property settled during his lifetime went into another. Therefore, the purpose of this subsection would be to the effect that the dependants of persons, being tenants for life of settled property, shall be given a chance to have a reasonably sized estate without suffering the disadvantage of having it considered with the settled estate. This draws a line of distinction between whether a deceased can dispose freely of the property or not. In both cases he can, and in this case it seems to us that it should go with the free property of which he could properly dispose.

Amendment negatived.

I beg to move, in page 35, line 16, to leave out:

"on his behalf or."
I suggest that the meaning of these words is doubtful and that they ought to be reconsidered. I fully understand the distinction which the Financial Secretary has made as to the dividing line between one's own property or property over which a deceased had power to dispose and property over which he had no such power. But I cannot understand exactly what is meant by
"property comprised in a settlement made by the deceased … or on his behalf."
Who by and what sort of property? Does it mean that if a stranger makes a settlement on the deceased, then that has to be treated as if it were his own property? The phrase seems to me to be a very doubtful one which I do not understand, and I am moving this Amendment to get an explanation.

My right hon. and learned Friend asks what is the purport of these words. If I may I should like to begin by saying what is not their purpose. I can certainly tell him that the case of a stranger settling money on the deceased, in our view, does not come within the meaning of these words.

These words have a curious history. They have appeared in previous Finance Acts in this context—my right hon. and learned Friend is probably familiar with Section 24 of the Finance Act, 1936—and they reappear in Section 28 (2) of the Finance Act, 1949. Their general purpose—and I use these words with some caution—is to deal with that sort of case which conceivably could arise of a company acting in this respect on behalf of a deceased who had been its governing director. I admit that the words are not completely clear in their meaning though, as I say, they have been used before. In view of what my right hon. and learned Friend has said, and remembering the authority with which he speaks on this sort of subject, I should like to have a look at them again.

I beg to ask leave to withdraw the Amendment, on the understanding that these words will be looked at and reconsidered.

Amendment, by leave, withdrawn.

6.15 p.m.

I beg to move, in page 35, line 25, after "life," to insert:

"entered into on or after the sixth day of April, nineteen hundred and fifty-four."

I think it would be for the general convenience if, with this Amendment, we took that in the name of the hon. Member for Putney (Sir H. Linstead), in page 35, line 32, to leave out "death occurring." and to insert:

"policy taken out."

It will be clear to the Committee that the purpose of this Amendment is to avoid Clause 29 operating with retrospective effect. The date chosen, 6th April, 1954, is the date on which the Chancellor of the Exchequer made his Budget speech. In that speech he gave notice of his intention to ask the Committee to amend the law in the sense in which Clause 29 seeks to amend it and, therefore, persons who were considering entering into life insurance policies under the Married Women's Property Acts can be deemed to have been acquainted with the intention of the Chancellor since that date.

There are two main reasons why I am asking the Committee to accept this Amendment, and I want to develop them quite briefly in view of the large amount of business which still remains to be done on this stage of the Bill. The first point I want to make, of course, is the one of general objection to retrospective legislation of this kind. I do not want to spend time going over the many arguments—with which Members of the Committee are familiar—as to why it is undesirable and unfair that legislation of this kind should be applied retrospectively. I think it is sufficient to say that when a transaction is entered into between two parties from which certain consequences of taxation flow that it is reasonable that any subsequent alteration of the law relating to taxation should apply only to new transactions entered into after that date and should not operate to the detriment of persons who have entered into contracts prior to that date. That is the general case against retrospective legislation of this kind and I do not want to develop the argument in general at any great length.

In this case it must be appreciated that there are many cases of insurance policies entered into as long ago as 50 years by a husband for the benefit of his wife. If the policies have been running for as long as 50 years, it is reasonable to assume that we are now very near to the point at which a claim is going to devlop under the policies. For 50 years the man has been paying premiums to provide his wife, on his death, with certain benefits, but if this Clause is allowed to operate without this Amendment he will be seriously and gravely prejudiced and, in many cases, he will not be leaving the provision for his wife and his family which he anticipated would be theirs when the policies were originally entered into.

That seems to me to be a most unjust and unreasonable state of affairs which would be cured by the insertion of my Amendment. In fact, in a good many cases, if the Amendment does not pass and the Clause operates retrospectively, the man in my illustration would have done much better, instead of paying premiums on policies each year over a period of 50 years, to have paid the money each year in the form of a gift inter vivos to his wife and then, if his death occurred and a claim for Estate Duty arose after the payments of gifts over 50 years, as far as 45 out of the 50 gifts were concerned, they would have escaped Estate Duty.

So it is very unfair on many grounds that Clause 29 should operate retrospectively. In this case, however, there is a second and a particular reason which adds great strength to the case I am outlining. It is that during the past five years there has been an extra-statutory arrangement between the life offices and the Inland Revenue authorities which has been freely entered into by both the parties with a view to minimising, if not entirely abolishing, the evasion against which Clause 29 is aimed.

The arrangement has taken the form of the life offices requiring from a prospective insurer, when he was about to enter into a policy under the Married Women's Property Acts, that he should answer certain questions and that, in connection with the answers to those questions, he should sign a declaration. The most important question in the declaration form is this:
"Have you effected a policy or policies of assurance on your life written under the provisions of the Married Women's Property Acts or similar trusts with any office or offices during the past 12 months?"
The purpose of this declaration has been to prevent the avoidance of tax against which Clause 29 is aimed, under which a large number of policies for relatively small amounts could be entered into in a short period by one individual, thereby gaining the benefit in the aggregate of a large amount of life insurance without the claims being aggregated on his death for Estate Duty purposes.

A friend of mine who recently entered into a policy, and was required to sign the declaration, not unnaturally asked the insurance company why he was required to sign a declaration which did not seem to him to be necessary in the nature of the transaction upon which he was embarking. I shall read out to the Committee an extract from the letter of explanation which the life office sent to my friend. It makes clear the nature of the extra-statutory arrangement betweeen the life offices and the Inland Revenue, and also makes clear the kind of representations which the life offices, on the strength of that extra-statutory arrangement, have been making to persons who were thinking of effecting insurances upon their lives under the terms of the Married Women's Property Act.

This is the letter:
"Policies under the Married Women's Property Acts, for the absolute benefit of one's immediate family, have always been recognized as a proper way of minimising death duties. As so often is the case, the privilege was abused by clients and indeed companies, and up to within the last five years it was possible for a man to take out, for example, 10 policies of £2,000 each, all for the absolute benefit of his wife, and as the policies did not aggregate with the main estate, or with each other, death duties were avoided entirely. The Inland Revenue were not prepared to stand for this, and they gave the life assurance companies to understand very firmly that unless they took steps to avoid obvious abuses they would have to find some means of stopping it by law. The Life Offices' Association, which represents the great majority of life assurance companies, gave an undertaking that they would do their best to see that no obvious abuses took place, and it was decided that one of the easiest ways was to devise a simple form such as the one under discussion."
This is the vital sentence:
"In this way, we are able to preserve the valuable concession for the genuine insurer."
So we have here a state of affairs in which the abuse against which Clause 29 is directed has been known to the Inland Revenue authorities for a number of years. About five years ago they entered into an arrangement with the life offices that it would be reasonable for one policy a year to be entered into, but no more. The life offices, so I am informed, have honoured the arrangement reached with the Inland Revenue authorities, although incidentally, they were under no obligation to enter into the arrangement. They did so, however, because they considered it a reasonable arrangement into which they ought to enter, and now the policies which have complied with the extra-statutory arrangement are being struck at retrospectively by Clause 29.

That is an additional reason against retrospective legislation which, in this case. is grossly unreasonable and unfair.

If I can understand his intention, what the Chancellor is endeavouring to do, under this Clause. is to bring to an end certain abuses. I do not imagine that hon. Members of this Committee have any objection to the general action proposed under this Clause. I am not opposing the Clause as far as the future is concerned and in respect of new policies but, for the reasons I have mentioned, and for many other reasons which could be given if time permitted. I hope very much that the Chancellor will agree to accept the Amendment.

It would be highly regrettable if it were thought that every hon. Member of the Committee identified himself with this Amendment and with the speech of my hon. Friend the Member for Wimbledon (Mr. Black). It is quite a long time since we have had a debate upon retrospective legislation and I understand that this Amendment is based on a general objection to it. The last occasion on which we debated the matter was in the previous Parliament, in 1950 or 1951.

Although it is difficult to summarise in a few sentences the conclusions of a debate, it would not be unfair to say that on that occasion there was a broad consensus of agreement within the Committee on the proposition that the Committee has a duty to protect its own legislation and on certain occasions, in exceptional circumstances, to do that it can resort to retrospective legislation although it should not do so without prior warning and in application to closed transactions.

6.30 p.m.

The first point which is obvious is that the Clause does not apply to closed transactions. Where people have derived the benefit from this form of tax avoidance the benefit remains. The Revenue does not attempt to recoup the loss. In that sense the Clause is not retrospective. The question remains, is it or is it not right to prevent transactions already begun from running to their conclusion? That seems to be the matter which we are debating.

My hon. Friend the Member for Wimbledon (Mr. Black) said that great hardship would be inflicted on those who entered into transactions, shall we say, 50 years ago, and who are now unable to complete them. I put it to him that in fact no greater hardship would be inflicted on them than would be inflicted on all of us if there were a sudden increase in Estate Duty. If the duty went up we should all find ourselves in the position of not having made proper provision for our families.

However, suppose we accepted the Amendment. Suppose we said, "Very well, these transactions may run to their full conclusion." What should we be doing? We are concerned in the Clause with tax avoidance. My right hon. Friend the Financial Secretary, in what I thought was a most impressive moment in his Second Reading speech, drew attention to this method of avoidance. All avoidance draws a most unwholesome and invidious distinction between those who have avoided the tax and those who have not avoided it. If we accepted the Amendment. we should be announcing to the general body of citizens that nobody in future may take advantage of this form of avoidance but that those who in the past have taken steps to profit by it may go on profiting by it for the next 10, 20, 30, 40 or 50 years

My hon. Friends say that that would be quite legal, but I seriously suggest that for the Committee to utter those words would be a great derogation from the dignity of Parliament and of the law. We have a duty to defend the dignity of the law and we should be abdicating that duty if we accepted the Amendment. The truth of the matter is that this form of avoidance became clear and could have been foreseen when the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) raised the exemption limit from a nominal figure to £2,000. It should have been foreseen then. No step was taken then to close the possible loophole.

It was not a statutory arrangement. I am talking of statutes and of the force of the law. It is that which we ought to be endeavouring to uphold. The right hon. Gentleman the Member for Bishop Auckland took no step to avoid this development, nor did any of his successors. It is only just that we on this side of the Committee should pay due tribute to my right hon. Friend the Chancellor for having taken the step which he has taken. I, for one, hope that he will adhere to the course on which he has embarked.

At the start I should declare an interest which I have declared before in similar debates. I am actively engaged in selling life insurance. Having said that, I express the hope that what I shall say will be as impartial as it is truly intended to be.

My view is that the Amendment must be considered with the next Amendment on the Paper in page 35, line 28, to leave out "included," and to insert:
"passing to any separate beneficiary."
I am glad that I am in order in referring to that Amendment. I am inclined to agree in a certain measure with my hon. Friend the Member for Hall Green (Mr. Aubrey Jones) that, if the matter is considered out of that context, it would appear to be giving licence to those who have been avoiding tax for years whereas it would be preventing others from avoiding it in future.

The first point which the whole Committee should realise is that the Married Women's Property Act is an extremely respectable old lady. It has been on the statute book for some 50 years. Reference has been made by my hon. Friend the Member for Wimbledon (Mr. Black) to this extra-statutory arrangement, or whatever it is, between the life insurance companies and the Board of Inland Revenue. I can tell the Committee that for years before that a very large number of life assurance offices flatly refused to issue policies to various applicants unless they more or less agreed with the views of the offices as to what was correct under the statute and what was attempting to dodge or to evade the law.

If we consider the matter with the next Amendment, then I feel that there is something to be said for applying a date. The subsection says that whereas people with large families have in the past been making provision—I maintain proper provision—not only for their wives but also for their children, they have always been allowed to take out separate policies for each individual.

The Clause as drafted, unless the second Amendment is accepted, will prejudice and victimise the family man and the man who wishes to save. I do not know whether the Chancellor realises that the Clause will be far more detrimental to the poorer rather than to the richer man. When I use the word "poorer," I use it in its context, because the Married Women's Property Act is designed for those who are beginning to get along in the world. As an example, I referred on Second Reading to a man who had a wife and three children. He had taken out four policies, one each, for £10,000. As the law stood, each of his beneficiaries on his death would have paid a duty of 4 per cent., or £400. In other words, each would have received £9,600.

On a point of order. Am I correct in stating that we are debating only the Amendment as to date and not the one as to separate beneficiary?

I was about to inform the hon. Gentleman that we are discussing the Amendment in the name of the hon. Member for Wimbledon (Mr. Black) and the last Amendment to the Clause in the name of the hon. Member for Putney (Sir H. Linstead). The Amendment which the hon. Member quoted raises a separate issue.

I understood that we were discussing the other Amendment in the name of the hon. Member for Putney which I quoted.

May I put the hon. Gentleman right? The Amendment is the one in page 35, line 32, to leave out "death occurring," and to insert "policy taken out."

I beg your pardon, Mr. Hoy. In that case, I wish to reserve my remarks until later.

I thought that the hon. Member for Horsham (Mr. Gough), even though his speech was truncated, put the debate in its proper context when he defined what was a "poorer man" for the purpose of his speech. Such a man was one with at least several insurance policies of over £2,000; otherwise, he would not be concerned with what we were discussing. Later he gave an example, and it is clear that nobody gets any benefit at all unless he has several insurance policies of over £2,000.

The hon. Member for Hall Green (Mr. Aubrey Jones) made what I imagine was a very courageous speech. Certainly, it was an impressive speech. The hon. Member is certainly no crypto-Socialist. He normally opposes us very strongly, but on this point the views he put forward met with agreement on this side of the Committee far more than among hon. Members opposite.

The hon. Member for Wimbledon (Mr. Black) explained the purpose of the Amendment very clearly and I was glad to welcome him back to the Committee. I do not think we have heard him in the Committee since we were discussing Clause 15, when he made a rather surprising plea for the extension of the investment allowance to licensed premises.

I really must rise to protest at that remark. I referred to hotels, but there are hotels which are licensed and hotels which are unlicensed.

While I allowed the hon. Member for Wimbledon (Mr. Black) to make a correction, I must warn the Committee that we must not go on to debate that point.

Although we cannot debate it, the hon. Member will agree that—unfortunately as he no doubt regards it—the majority of hotels are licensed.

In the course of his speech, the hon. Member explained very clearly what had been happening in the more distant past and in the last five years since life insurance offices adopted this new rule. Although I do not know whether he intended it, I thought he made an extremely powerful case for the Clause itself.

I do not know why the hon. Member shakes his head, because he said he was in favour of the Clause provided this Amendment was put in. He advanced a very powerful argument for the Clause itself. I could not understand his point of view that in some way or other it would be extremely unfair to the life offices if what they have done under a voluntary arrangement were put in as a restriction now.

I was not so much concerned about being unfair to the offices as to people who insured their lives on certain assumptions.

There were several distinct points in the speech of the hon. Member. He dealt first with the position going far beyond the time when the arrangement came into operation. He went back over 50 years and argued cases of people who took out insurance policies then. He also put before the Committee at quite considerable length—although it was an extremely interesting point, and we do not complain about it—the views of the life offices on the position that had arisen in the last five years. He certainly gave the impression to me, and I think to some of my hon. Friends, that, in view of this position as it has operated in the past five years, it would now be extremely unfair to someone if the Government made this stautory change. I do not think the hon. Member will disagree with that.

I cannot understand why the hon. Member should take that view. The arrangement, which has been operated in the last five years seems to me to be very far short of closing a gap for tax avoidance. It merely says that one cannot take out more than one policy every year. The hon. Member himself was talking about an insurable period going back 50 years. If one wanted to avoid tax, one could get a great deal of benefit even if one operated within the voluntary agreement of the last five years. I cannot believe that the Chancellor or anyone would accept the view that, because of this voluntary agreement, the Government are behaving in any way unfairly to the life offices or to anyone else.

I think that the hon. Member for Hall Green dealt extremely well with the question whether this is retrospective legislation in the sense that it goes back and changes legitimate expectations on which certain people entered certain transactions. I think it absolutely undeniable, as the hon. Member said, that what is being done here is on all fours with the change in the weight of Estate Duty. If we accepted the position put before us by the hon. Member for Wimbledon, we should have to accept the position in which someone carrying out transactions in 1904 on the basis of certain expectations would be entitled to be protected against any change in our tax law now. That is the logical conclusion to what the hon. Member was saying. I cannot see how one can stop short at any logical half-way house between those points of view. I should have thought the point of view of the hon. Member for Wimbledon was quite unacceptable to the Government and certainly unacceptable to the Committee.

6.45 p.m.

If the Amendment were accepted, a great amount of the teeth of this Clause would be taken out and it would remain comparatively ineffective. [HON. MEMBERS: "No."] It would operate in the future; but, of course, there has been the tax avoidance—otherwise, what is the purpose of the agreement the life offices entered into? If this was a perfectly legitimate transaction such as any prudent family man would reasonably and properly enter, why was that agreement made?

My hon. Friend speaks with an authority which I envy. I should like to be clear on the point about the arrangement with the life offices that there should be only one policy issued a year. Is that one policy per year with the industry, or one policy per year per company?

I understand that it is the industry as a whole. Probably hon. Members opposite are much greater experts on this than I am. The point I was making was that unless there were real tax avoidance, how could this voluntary agreement ever have come about? Unless it could be shown that something was going on which was rather improper from a taxation point of view, why should life offices have considered preventing people from entering into business with them? In normal circumstances they are there to do business, not to prevent business from being done. Is it not the fact that it had been reasonably brought home to them that there was tax avoidance that caused them to contemplate such an arrangement? It is admitted on all sides that there has been a great deal of tax avoidance going on. Why should it be argued that in future people should be prevented from making this agreement which the hon. Member for Wimbledon regarded as proper but that those who have done it in the past should be allowed to benefit from it and should be in an entirely advantageous position compared with those who do it in the future?

There seems a possible anomaly here. As a correspondent in the "Financial Times" pointed out shortly after the Finance Bill was published, this Clause as it stands places people affected by it in the rather curious position that it would pay them to die before it becomes law. I do not know whether the position often arises in which people are given an incentive—which may or may not be very large—to expire within four months, but that seems a possibly anomalous position as the situation is at present. Perhaps it could be remedied by moving in the other direction and making the provision apply, not from the date of the Finance Bill, but from the date of deaths after the Budget.

Subject to that, I would not have much sympathy with the point of view of the hon. Member for Wimbledon. It is clear that he commands a great deal of sympathy among hon. Members opposite. I do not think we have seen as big an attendance in the Committee for some time. For a number of days we have been debating some extremely important Clauses relating to provisions for investment in industry and other points on company finance, but I am afraid that none of them has brought so big an attendance of hon. Members opposite as this point concerned with insurance policies. None the less, we are opposed to the Amendment.

I can assure the hon. Member for Stechford (Mr. Roy Jenkins) that the incentive which he suggested the Clause gave to people to die before the Finance Bill became law does not appear to be having any significant effect. I hope that will reassure him.

I listened with very great interest to the speech of my hon. Friend and political neighbour the Member for Wimbledon (Mr. Black). I will reply one by one to his arguments.

It might be of assistance to the Committee if in the first place I tried to make clear what would be the effect of incorporating in the Clause the words which the Amendment seeks to add. It would mean that in the case of all policies entered into before Budget day this year the abuse, or the possibility of abuse, by taking out a large number of policies would continue.

The Committee may remember that on Second Reading I gave the House an example, taken from an actual case—no doubt an extreme one—of the way in which the existing law could be abused. If we were to put into the Bill the date which my hon. Friend suggests, any such arrangements made up to Budget day could and would operate in respect of the payment of Estate Duty on deaths over a very considerable period of years to come. That, for better or worse, would be the position.

There is no doubt at all that this is a form of evasion which it is proper to stop. Indeed, I have not heard from either side of the Committee any suggestion that it should be allowed to continue. Therefore, hon. Members must face the fact that if the Committee accept the Amendment, cases of this sort will continue to occur over a great many years.

Therefore, from the practical point of view of stopping a leak of this sort, I think the Committee will agree that there is a strong case for bringing the provision into operation at once. I will therefore deal with the argument that, notwithstanding that practical fact, this is retrospective legislation and, in principle, obnoxious as such.

I fully agree with what my hon. Friend so eloquently said about the desirability of being at any rate extremely restrained in indulging in retrospective legislation. Indeed, I think that this Government can claim to have shown a very proper regard for that principle in respect both of certain provisions of Clause 14 and of our resistance to an Amendment moved by the Opposition to Clause 16. However, the first question that I would ask the Committee to consider is whether this is, in point of fact, a retrospective provision at all. [An HON. MEMBER: "It is."] I hope that my hon. Friend will allow me to put the Government's point of view; we shall then probably proceed more helpfully.

When the most serious of criminal offences is charged, it is a valid defence to say that one did not do it, and my first submission to the Committee is that this is not retrospecive legislation. It is a fact, if one troubles to look back over the precedents, that in the field of Estate Duty, broadly and generally, though I would not say without exception, the date of the death has been treated as the operative date for such purposes as this. That goes back to the earliest days of Estate Duty, to the Finance Act, 1894, which applied in the case of all deaths not taking place before the Act came into force.

The first anti-avoidance provision which operated in the same way operated also in respect of the date of death. That was put through in 1900 by the great-uncle of my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) who was Chancellor of the Exchequer, and I should have said that that gave the practice a most respectable parentage. There was also a very similar provision dealing with a form of evasion which arose from the transfer of property to companies. That was put through in 1938 by Sir John Simon. In that case, too, the operative date was the date of the death.

Looking at the matter broadly from the common-sense point of view, when one is in the Estate Duty field the date of the death is really the operative moment, for it is the moment which makes the Estate Duty payable and it is also, sadly enough, the moment which makes it impossible for the person concerned to alter his arrangements—at any rate in this world.

I would ask my hon. Friend to appreciate the difficulty that one gets into if one adopts as a general principle the contrary argument and suggests that all arrangements that are made on the basis of the existing law cannot be altered and only future arrangements can be made. It would mean that any form of tax evasion or avoidance which was discovered by human ingenuity—from time to time human ingenuity does exert itself on this diverting pastime—could be checked only in respect of new arrangements. I must remind the Committee that not only would that interfere seriously in the operation of the tax, but it would really be contrary to the practice which has generally been adopted for a good many years by Governments of all political colours.

My hon. Friend's second argument was that the proposal interfered with existing rights. I should like to analyse that. It does not interfere in any way with the agreement made between the person concerned and his insurance company. It operates only to affect the tax position arising in respect of his policy when he dies, and therefore it does not affect any right other than the right—if my hon. Friend so regards it—to avoid the payment of tax on the proceeds of the policy. Otherwise, it does not affect or avoid in any way the arrangements made with the company.

My hon. Friend referred at some length, as did the hon. Member for Stechford, to the arrangements made by the life offices a year or two ago. In view of one thing that my hon. Friend said, I should like to make it clear at the outset that there was no agreement or arrangement between the Government or the Inland Revenue and the life offices. This was an arrangement made on their own initiative by the life offices because, as I understand it, they were disturbed at the possibilities of tax avoidance arising from the use of this device. They very properly informed the Inland Revenue of what they were doing. It is not necessary for me to say that their initiative was considered very proper and very welcome.

I repeat that no arrangement or agreement was made in respect of this matter, and, in particular, no arrangement was made, or indeed could have been made, by a Government Department with outside interests that the law would be preserved in its existing form. Therefore, whatever else one may think about this proposal. it is not in breach of any arrangement made between any Government or Government Department and the life offices. It was a matter undertaken solely on the very proper initiative of the life offices.

Nor, of course, does the arrangement really fill the gap. As has already been pointed out, under this arrangement it is still possible to take out one new policy every year. In reply to a question which was put in the course of the earlier debate, I understand that that means one policy in all and not one policy from a certain company. Therefore, this still permits the taking out of one policy a year, and over a number of years arrangements of the type which we have been describing can be made.

Equally, the arrangement does not operate in a case where policies had already been taken out before this arrangement was made by the life offices. Therefore, though the action of the life offices can be taken as a very proper indication of their desire not to be mixed up in devices of this sort, I suggest to the Committee that it really is not a proper alternative to the statutory provision contained in the Clause.

7.0 p.m.

Can the hon. Gentleman tell us—I admit that I ought to know—when this arrangement was instituted? I understood the hon. Member for Wimbledon (Mr. Black) to say five years ago, but the right hon. Gentleman himself said a year or two ago.

I have not got the exact date, but I think it was early in 1952. It may have been earlier, but I will check the date, and, if I am wrong, I will communicate it to the hon. Gentleman.

My hon. Friend the Member for Horsham (Mr. Gough), who speaks with considerable authority on many of these subjects, indicated that the importance of the date from which this provision operates depends very much on the nature of the provision itself. I suppose it is clear, as a matter of ordinary common sense, that the more severe the provision the more onerous may be an early date of application, and the converse is equally true, I cannot, of course, discuss the next Amendment, which raises the very issue of the extent of this restriction, but I can perhaps suggest that, unlike almost every other Clause in this Bill, this is a subject matter with which the House may very well wish to concern itself on Report, and in any event, before even the Committee stage is concluded, it may be possible to discuss it.

There was great force in what my hon. Friend the Member for Horsham said on the fact that the operative date of the provisions, from the practical point of view, can be looked at very differently in accordance with the nature and the rigour of the provisions. It does not affect those who are seeking to deal with the matter as one of principle. If one takes the view that it is a matter of principle, one can take the logical view that it does not matter very much whether the provision itself is severe or not, but I would venture, on this question of principle, to say once again to the Committee that it is just not the fact that in the Estate Duty field at any rate, a provision of this kind has been regarded as being of a retrospective nature.

Certainly, as I have said, what we are doing here in proposing that this provision shall operate as from the date of the Bill becoming law is precisely what has been done in respect of similar provisions in dealing with similar loopholes over a good many years. Therefore, it is a little difficult to erect a great argument on, as it seems to me, the false hypothesis that this is retrospective legislation. The difficulty is not in finding adjectives with which to denounce retrospective legislation, but the real moment when to decide clearly in one's own mind whether a particular provision is retrospective or not.

This provision does not affect anybody who is alive at this moment. It cannot affect anybody except those who die after the Bill becomes law, and I would say, with great respect to the contrary views which have been expressed, that this is not, in my understanding of the matter, retrospective legislation; on the contrary, it is the normal method, hallowed now by 50 or 60 years of legislative practice, of terminating abuses which I feel ought not to be defended, and which this Government would be severely criticised for not ending.

I should like to say very shortly that we on this side of the Committee certainly support the standpoint which the right hon. Gentleman the Financial Secretary has taken. It seemed to me that one particularly cogent argument was that used both by the Financial Secretary and by the hon. Member for Hall Green (Mr. Aubrey Jones). It is only in a very qualified sense that we could describe this subsection as being retrospective at all, because it fastens upon the date of the death which is to occur in the future. As the hon. Member for Hall Green pointed out, when arguing the case at an earlier stage of our debate, exactly the same considerations apply to all cases of an increase in Estate Duty.

If one may assume the case of a decrease of duty, the hon. Member for Wimbledon (Mr. Black) would maintain that, if it were possible to decrease the Estate Duty, it should equally operate retrospectively in respect of Estate Duty on policies taken out before the date of the provision effecting the decrease, so that it is really a question of applying a general rate of increase, and that is bound, according to the ordinary practice of Estate Duty legislation, to affect policies and other transactions, within the scope of the increase effected before the date on which the increase is to take place.

Therefore, I support the Financial Secretary. In my view, the provision is only in a very qualified sense retrospective at all, but it does seem to me that this is a kind of provision which one might justifiably make fully retrospective.

The distinction between evasion and avoidance is sometimes not very easy to draw, and I think that here we are really dealing with pretty serious cases of abuse. as I think the Financial Secretary himself described them, by people who use this form of transaction. What is the situation with which we are dealing? It is the case of persons who, being lucky enough to hit upon a particular device, by striking upon that form of device have saved themselves a great deal of money in the form of taxation of their assets which other people, less fortunate or less ingenious, have had to pay. This has happened on a considerable scale, and it is quite obvious, from the fact that the Government have introduced this subsection, that they have found that the arrangement made by the life offices has not gone anything like far enough, and they have not been able to stop this form of evasion adequately. Quite obviously, it is the fact that the arrangement permits a fresh policy each year which still leaves a very wide area over which the evasion can be practised.

For these reasons, I was very glad to hear the Financial Secretary say that he does not propose to accept this Amendment. It seems to me that he cannot justify an Amendment which would enable a great deal of tax to be avoided when legitimately it ought to be paid, and I therefore hope that the Financial Secretary will stand his ground.

I want only to add a few comments on the interesting debate we have had on the Amendment moved by my hon. Friend the Member for Wimbledon (Mr. Black), and the main point that I want to emphasise is that, by implication, considerable injustice has been done to persons who have entered into this type of policy by the use of words such as "abuses" and "evasion," and by the phrase used by the hon. Member for Stechford (Mr. Roy Jenkins) implying that what they were doing was not legitimate.

If the word "legitimate" has any meaning at all, it means in accordance with the law, and no one will suggest that what has, in fact, been done has not been in accordance with the law. I do not think it is reasonable that we should stigmatise a group of people for action which they have taken, which presumably was entirely legitimate, because if it was not they would have been prosecuted or otherwise dealt with by the Inland Revenue.

I never used the word "evasion," but instead used the word "avoidance." I think there is a difference in the meaning of "legitimate" and "legal," which means in accordance with the law. The word "legitimate" has a slightly different meaning. If this is legitimate in the sense not merely of being in accordance with the law but of being a proper practice, why did the life offices, as the Financial Secretary said, on their own initiative take steps to stop it?

I am not arguing against the Treasury view, but against the implication that people who have entered into this type of policy are virtually criminal. That is an implication that might very easily be read into the terms used in the debate. We ought to recognise that this sort of provision used by our citizens arises from their purely natural desire to do the best they can for their widows and children, and that in so far as these methods are open to criticism it is largely because the high incidence of taxation drives people to devious ways of trying to get the better of the Inland Revenue authorities. What is being attacked is not criminal conduct so much as ordinary ingenuity by hard-pressed citizens, who are trying to do the best they can for their families.

What I regret about this change in the law is that it amounts to an extremely capricious alteration which will catch a lot of well-meaning citizens who have merely attempted to do the best they could for those dependent upon them.

Like a large number of hon. Gentlemen on this side of the Committee, I feel that the Clause and the Amendment which we are discussing have a lot in them that smacks of Socialism. We have not had anything like that before in this Budget debate, so I have not taken a very vocal part in it.

I should like briefly to make three points. First, I endorse what my hon. Friend the Member for Putney (Sir H. Linstead) said about the idea of there being something wrong in going to an astute lawyer and being guided by what the law happens to be. I was surprised to hear the right hon. and learned Member for Neepsend (Sir F. Soskice) say that it was unfortunate that somebody who went to a good lawyer should get away with the benefit of that advice. He seemed to suggest that if one went to a bad lawyer it was all right. That was an extraordinary argument.

A battle of wits takes place between such gentlemen as the right hon. and learned Gentleman and the Treasury Solicitor. It goes on year in and year out. It has been going on for a long time and it will still go on. The unfortunate thing is that my right hon. Friends. speaking on behalf of the Treasury from the Treasury Bench and trying to support their own case and possibly help their own officials, should use the term "evasion" that my right hon. Friend used this afternoon. That idea crept into the speeches of hon. and right hon. Gentlemen on the Opposition side of the Committee when they were in the Government. I was very sorry to hear my hon. Friend the Member for Hall Green (Mr. Aubrey Jones) echoing that sort of propaganda, which may be good Socialism but is not good Conservatism.

I said that many good Conservatives would regard it as their duty to uphold the dignity of the law.

7.15 p.m.

I did not say that my hon. Friend was not a very good Conservative but that what he said happened to smack of Socialism. The law is a device to show people what they may and may not do. There may be an abuse or a loophole in the law, and my right hon. Friend the Chancellor is right in coming to the Committee to block up this loophole—which I personally do not support—but I do not like the suggestion that it is improper for somebody to go to an astute lawyer and be advised.

The effect of preventing this is to increase the burden of Estate Duty on certain people. I do not approve at this stage of increasing the burden of Estate Duty. In principle it is a bad tax, and I should like to see it reduced rather than increased. I am sorry that my right hon. Friend has had to come to the Committee to try to block the loophole, and in point of fact to increase the incidence of Estate Duty.

I hope that my hon. Friend who moved the Amendment will notice from where support for his policy is coming. I hope he will remember that the leaders on the Opposition Front Bench leapt up to support it. I hope that he will listen to some of the arguments put from this side of the Committee and will realise that some of us feel that there are certain aspects of the Clause which are not right in principle.

We have had the pleasure of listening to the most remarkable and revealing speech that has been made in the debate. The hon. Member for Heeley (Mr. P. Roberts) admits there is a loophole. The Government propose to close the loophole, and he objects to the Opposition Front Bench supporting the Government.

I am objecting to slurs and insinuations against people who have adopted a course which it is proper for them to adopt, although it may be improper for the Government to allow the opportunity to continue.

The hon. Gentleman said nothing of the sort. He was criticising my right hon. Friends for supporting the Government in blocking up the loophole. The whole tenor of his speech was revealing to an extreme degree. We now know that the pure doctrine of Conservatism is the greatest possible degree of tax avoidance by recourse to the cleverest possible accountants. Nothing said from the Government Benches got more support from hon. Members on that side than the hon. Gentleman's definition of what was Socialism and what was Conservatism in regard to trying to stop up loopholes.

We appear to have a clear party division. To stop up loopholes and prevent tax avoidance is Socialism. It will be worth while reading and quoting the hon. Gentleman's speech. It is good also that he came in at a rather late stage in our debate. The attendance in the Committee makes it clear that a serious issue of principle exists on tax avoidance. We are not discussing tax evasion or things which are illegal, but there is a clear-cut division of opinion between the two sides of the Committee as to how good or bad tax avoidance is, and how justified the Government are in trying to stop it.

What was particularly revealing in the speech of the hon. Member for Heeley (Mr. P. Roberts) was his statement—it was the second time it had occurred in the Committee—that the party opposite is more concerned with the reduction of Estate Duty than with the reduction of any other form of taxation. [HON. MEMBERS: "No."] That is what the hon. Gentleman said. In fact, his whole attack upon his own Front Bench and upon the Opposition Front Bench was that they were bound together to make Estate Duty effective and to prevent the perfectly legal method of avoidance which is taking place.

What the hon. Gentleman is asking the Committee to do is to deceive the public by introducing legislation which appears to impose certain levels of taxation and certain levels of Estate Duty, with a consequent effect upon the distribution of wealth, and then to find back-stair methods of avoiding it. Goodness knows that a Finance Bill is never very clear and simple to the layman, but at any rate we should try to ensure that our legislation is not deceptive. That is what the hon. Gentleman was asking for. The hon. Member was asking that, where existing Acts are clearly not what they appear to be, and where their provisions can be avoided—one does not know by what kind of jiggery-pokery—nothing should be done to make that legislation clear and straightforward. It is extremely interesting that stronger feeling has been shown, and more Members have been present during the discussion on this than on any other issue in Committee. It shows clearly that the real division between Conservatives and Socialists is that Conservatives believe in inherited wealth and Socialists do not.

Amendment negatived.

I beg to move, in page 35, line 28, to leave out "included," and to insert: "

passing to any separate beneficiary."

I think that it will be for the convenience of the Committee if with this Amendment we take that in page 35, line 30.

Under Section 11 of the Married Women's Property Act which is now, I think, 72 years old, there was a provision whereby a person could take out an insurance policy, the fruits of which were to inure to his wife or to any one or more of his several children. By invoking the aid of the Act he could so arrange that the piece of property represented by each of the insurance policies would be assessed as separate estates at his death. They would not be aggregated with his estate nor with each other. Each would be separate. That was a wise Victorian rule devised to encourage a person to save for his wife and children. It persisted for over half a century.

Owing to changes of the law into which I need not now go in detail it has become necessary, in the sense that it has become desirable, if one is to make the fullest possible provision for wife and children, having regard to very high estate duties, to look for every possible legal means of doing so. Some persons have discovered that this Clause of this old Act could be, so to speak, augmented by taking out more than one policy for each beneficiary. Instead of one for the wife and one for each child there might be a great many, and if all were below a certain value none fell to be accounted for estate duty.

This is the practice which, as the hon. Member for Wimbledon (Mr. Black) explained earlier, has been frowned upon by the insurance companies themselves. I think that they should be given credit for having taken that attitude and for having brought the matter to the notice of the Inland Revenue. Indeed, if I have any comment to make to the Financial Secretary it is to say that it is a little discouraging for the life offices or other responsible elements in private industry to know that if they bring such things to the notice of the Inland Revenue and take steps themselves to deal with the matters, only a few years will pass before some Government or other will legislate upon the matter.

I wonder whether possibly the Government, in their desire to stop up what they call a loophole, have gone further than they thought. They have not merely stopped a person taking out a number of policies for each one of his beneficiaries—his wife or children—but have said that all the policies for the beneficiaries must be aggregated, not, it is true, with the main estate but each with the other.

The purpose of my Amendment is to enable the Government still to carry out their desire to prevent a number of policies being taken out for each beneficiary but still to leave it possible for a person to take out one policy for each beneficiary and for that policy to remain a separate estate. That would be the effect of the words which I have put down. I cannot see why the Government, in seeking to stop up a loophole which has been brought to their notice, should take advantage of the occasion to take away what I will call a privilege enjoyed for over 70 years by a class of thrifty people who deserve well of all Governments and especially of this Government.

Much to my regret, on the last Amendment I found myself opposed by most of my colleagues on this side of the Committee. On this occasion I am happy to say I am only half in opposition. There is merit—I think possibly even greater merit than my hon. Friend the Member for Morecambe and Lonsdale (Sir I. Fraser) claimed for it—in this Amendment. There appears to be considerable demerit also, and I should like to indicate to the Financial Secretary a better method of dealing with the merits than by accepting the Amendment.

The Amendment's merit is that it incorporates quite a new principle, but incorporates it, I suggest, in a highly unfortunate way. I should not for one moment wish to question the desirability of taxation at death. I do question the form which that taxation now takes. We have at the moment what is called a mutation duty—a duty on the sum total of the property existing at death. I may be a poor man—as in fact I am. I may inherit a small fraction of a very large estate, but the rate of duty which I would pay on that very small inheritance would be related to the totality of the estate. The duty I would pay would, in fact, be related to someone else's wealth. If one cared to carry the analogy into the sphere of Income Tax, it would be as though I were to be assessed at a rate of tax with reference to the income of someone else, for instance, of my hon. Friend the Member for Wimbledon (Mr. Black). That, I venture to suggest, would be a most unjust proceeding.

For this mutation duty, therefore, I should like to see substituted something in the nature of an acquisition duty; that is, a duty related to what is actually received by the beneficiary—and possibly even to the wealth of the beneficiary. We had such an acquisition duty in the old legacy and succession duties. I am sorry that the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) is not here because it was he in his lecture room who first initiated me into these esoteric matters. Unfortunately, the legacy and succession duties were based on consanguinity—the nearer the relationship, the lower the rate of duty. The effect was that the heir to a very large estate might pay a relatively small duty whereas an old retainer inheriting a small part of the estate paid a relatively high duty.

7.30 p.m.

That did not matter very much until, in 1946, the right hon. Member for Bishop Auckland doubled the legacy and succession duties. Immediately he did so the discrepancy became apparent. Later, his successor, Sir Stafford Cripps, did what I hope no good Conservative will ever do; he threw out the baby with the bath water by doing away with the whole lot. Instead of ridding the legacy and succession duties of their defects, he abolished them altogether. I believe in the acquisition principle, and the merit of the Amendment lies in the fact that it introduces this principle for the first time since the abolition of legacy and succession duties. If the Amendment were to be carried, the rate of Estate Duty payable by the beneficiary of a life assurance policy would be related to that policy and not to the whole estate of which the policy formed a part. That, to me, is highly commendable.

But there are two defects in the Amendment. The first is that the acquistion principle is applied to property represented by life assurance policies and not other forms of property. I see no justification for that distinction. It seems to me to be almost unethical, because it confers an advantage on the heirs of people who have insurable lives as against those of people who have non-insurable lives. If I were the heir of somebody who had an insurable life because he is strong and healthy, I should be at an advantage compared with the heir of a weak and infirm person whose life was non-insurable. That is almost a new form of regressive taxation, and it seems to me to be quite objectionable.

Mention has been made of the Married Women's Property Act, 1882. I do not wish to weary the Committee with legal terminology, but I should like to refer to Section 11 of that Act. It was passed long before Estate Duty was introduced and its purpose was to protect the families of men who were threatened with bankruptcy. The creditors could not reach those families, because Section 11 provided that:
"A policy of assurance effected by any man on his own life, and expressed to be for the benefit of his wife … shall create a trust in favour of the objects therein named, and the moneys payable under any such policy shall not … form part of the estate of the insured or be subject to his or her debts."
That is perfectly proper. Then comes a proviso, as follows:
"Provided, that if it shall be proved that the policy was effected and the premiums paid with intent to defraud the creditors of the insured, they shall be entitled to receive, out of the moneys payable under the policy, a sum equal to the premiums so paid."
In other words, the authors of the Act were aware that advantage might be taken of that Section by a potential bankrupt in order entirely to avoid payment to his creditors. The proviso was inserted to stop that loophole.

In quoting this Act, some hon. Members have been pleading the principle of Section 11 by applying it to Estate Duty, but omitting the proviso. That is very serious. If the Amendment were adopted, it would still be possible for somebody to parcel his entire estate in the form of life insurance policies to the members of his family, thereby almost completely avoiding the payment of Estate Duty. That is the second objection to the Amendment.

Hon. Members opposite have used one or two phrases with which I agree. One was by the hon. Member for Edmonton (Mr. Albu), who said that if we thought that a tax was wrong we should not try to get out of it by a backstairs method. I entirely agree. I yield to nobody on my side of the Committee in my detestation of the principle of aggregation. If we accept the Amendment, we are really saying, "This provides a loophole by which we can avoid the disadvantages caused to us by the principle of aggregation." That is not compatible with the reputability of the House of Commons or the law. If the principle is wrong, we should deal with it, and not merely seek to provide a loophole out of it.

Rather than create a loophole, I suggest that my right hon. Friend should look at the principle afresh. Last year my right hon. Friend the Chancellor, in response to pressure by many of his hon. Friends, instituted an inquiry into anomalies. I suggest that this year he goes one better by doing something more fundamental, namely, by instituting an inquiry into the whole principle of Estate Duty. No such inquiry has been held since the matter was considered incidentally by the Colwyn Committee in the 1920s. The right hon. Member for Bishop Auckland was a very important witness before that Committee, which discussed the question of mutation duty as against acquisition duty and came down slightly in favour of mutation duty.

Circumstances have changed since those days. Then, when current rates of taxation were low, it could be said that Estate Duty rested upon the person who died, because he could make provision for it during his lifetime. He cannot do so today, and he does not, therefore, pay it. The heirs pay the tax related to a wealth which is not theirs but that of somebody else. That is an iniquity. I understand the obsession of my right hon. Friend the Financial Secretary with loss of revenue. If he changed the principle of Estate Duty, however, he would not incur any loss in the long term. There would be an initial loss, because the incidence of the death duty would be shifted from the moment of death to the moment of receipt by the beneficiary, but there would be no loss in the long term.

I appreciate that, for that reason, the principle could be incorporated only gradually. I am not asking for anything more than that. These are matters for the experts to decide. I suggest that my right hon. Friend institute an inquiry into this subject. He has a great opportunity to bring about justice in the incidence of Estate Duty, but that opportunity would be prejudiced if he were to accept the Amendment in its present form.

In spite of the opening words of the hon. Member for Hall Green (Mr. Aubrey Jones), I am not sure that his hon. Friends are quite so enthusiastic about what he has been saying as might have been expected. He made an extremely thoughtful speech. The only thing I cannot understand is why he had to put in the middle of it—probably it was in order to give encouragement to the benches opposite—the statement that he yielded to nobody in his detestation of the principle of aggregation. It seemed to me that he was talking not so much about the principle of aggrega tion as the basis upon which the taxation of an inheritance should be applied.

He made out a good case for some consideration of the relationship of the inheritance to the need of the heirs. I am not sure how far we can pursue that matter in a consideration of this Clause. Of course, on this side of the Committee. where we are not in favour of inherited wealth, at any rate above what may be considered reasonable levels, such a consideration of the needs of heirs would probably be different from that of hon. Gentlemen opposite.

My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) made some sweeping changes and introduced a quite substantial relief from Estate Duty, although hon. Members opposite may not consider it substantial. It ma!, be that that method of dealing with the needs of not-very-well-off-people is not the way to do it, and that it would be more just to deal with the relief from the point of view of those who inherit the estate, but we must bear in mind that in this Clause we are dealing with Estate Duty on the estates of comparatively wealthy men. We are not dealing, I think it will be generally agreed, with those in very great need, because there cannot be aggregation unless there is a fairly large number of sums to aggregate. I was extremely interacted to hear that the hon. Gentleman supported the Amendment of my hon. Friend the Member for Stechford (Mr. Roy Jenkins), which would aggregate the insurance policies, which are the main form of estate we are considering, and other forms of estate.

Not quite. I agree that the Amendment is logical if one accepts the principle of aggregation, as the hon. Gentleman opposite does. Personally, if I were Financial Secretary, I should not accept that Amendment pending a review of the principles of Estate Duty, as I suggested.

I still do not quite know where the hon. Gentleman stands on the question of aggregation. Most of his speech was devoted to saying that he would prefer a different form of inheritance tax. Whether such inheritance tax should involve aggregation or not, I do not know. What he said was that he preferred the acquisition basis of taxation to the Estate Duty basis. I am not enough of a tax expert to work out what the relationship of such a system would be to the present system, either before or after the passing of this Clause.

However, my purpose is not to deal with the Amendment that has been moved but to ask the Committee to support the Amendment of my hon. Friend the Member for Stechford, which would aggregate other property with property of this nature. I am not against a review. There may be a very good case for review of Estate Duty, but until such a review has taken place I am certainly not in favour of altering the present intended basis, the basis that was intended by Parliament when it passed the existing statute. I am not in favour of altering the basis so as to make it easier for estates to be passed without being subject to the Estate Duty Parliament thought it was imposing.

It is tempting to have a discussion of the general nature of Estate Duty and of the basis on which it ought to be imposed, but I feel myself that it is necessary to confine ourselves to exactly what the Clause does and what the Amendment would do. I join with my hon. Friend the Member for Morecambe and Lonsdale (Sir I. Fraser) in having the greatest respect for a provision that, down the decades since it has been in force, has been of the very greatest use, not to rich people, but to people of very moderate means. It was brought forward for the purpose of enabling people of moderate means to make provision for their widows and for their children, and it was for that reason that it was provided in the Act that each provision by a policy of insurance should be an estate by itself. It was for the very purpose of giving benefits to the poorer section of society that it was brought forward.

7.45 p.m.

This provision has been used recently to take a whole series of policies in favour of the widow and in favour of the children, and, prima facie, in dealing with that situation, there is a good deal to be said for aggregating the whole lot together, but, on the other hand, I ask the Financial Secretary to look at it from the point of view of the recipient of the money that is to pass. In many cases where a man may provide £1,000 or £1,500, or even £2,000, for his widow be is able to provide only a few hundreds for the child, and if they have all to be aggregated together it means that the rate of duty will be very severe and the benefit done to the child will be very much less. I cannot agree that in cases where a person has done that, and where there happened to be other policies on his life, the total aggregation is for the benefit of the recipients.

I hope, therefore, that, while we cannot object, if it is accepted that there is a loophole, to its being stopped up, it is not necessary to do it by aggregating all the policies on the life of the deceased. The alternative of aggregating policies for the benefit of each separate beneficiary is a quite sufficient sanction to stop up the loophole. I believe it would be of greater benefit.

As my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) said, it would be fascinating, although, no doubt, we should consume a great deal of time, if we were to have a philosophic discussion on the principle of Estate Duty. I doubt, however, Sir Rhys, whether you would rule it to be in order. It is, of course, important, in considering this provision, to remember that we are considering it. as my right hon. and learned Friend very properly reminded us, against the background of what has been the practice for some 60 years under the Married Women's Property Acts. Therefore, we are discussing it, not as we might be if we were constructing de novo a system of taxation in this respect, but against the background of what has been accepted policy in this country for some 60 years.

The purpose of the Clause is to deal with the abuse as I described it on an earlier Amendment—if hon. Members prefer, the tax avoidance device—of taking out a number of policies at or below the exemption level in favour of the same person, the proceeds of which fall to be treated as a separate estate not liable to duty; the amount of which may be, and in certain circumstances has been, quite a large total sum. I was glad to hear my right hon. and learned Friend say it was a purpose that he supported.

The method used in the Clause is to create, as it were, two ring fences, one ring fence encircling the main body of the estate, and the other the proceeds of all the policies of insurance taken out, no matter in favour of whom. The Amendment moved by my hon. Friend the Member for Morecambe and Lonsdale (Sir I. Fraser), in what I thought was a very agreeable speech, proposes that instead of the policies of insurance being in one, as it were, "policy of insurance ring fence," there should be separate ring fences in respect of each particular beneficiary. That is the proposal as I understand it.

My hon. Friend described the Amendment with great fairness, and I will endeavour to follow his example, but it is not as straightforward as it sounds. For example, complications can arise when we are discovering who is the beneficiary for the purpose of assessing Estate Duty in the case of a policy to a widow for life and afterwards to the children. Another difficulty arises with a policy taken out in respect of two or three named persons. It is not clear from the Amendment whether those two or three persons who benefit from the same policy are one beneficiary or two or three.

Still more complicated is the situation which arises when we do not know who will be the ultimate beneficiary. In the case of a policy taken out in favour of the survivors of various relations, there are what one must describe as unidentifiable beneficiaries. All those points are not dealt with in the Amendment, and I would not expect them to be dealt with in it.

What I understood my hon. Friend was trying to do—and he seemed to do it with great fairness—was to put before the Committee the general issue of principle as to whether or not, in aggregating all policies of assurance within the one ring fence, we were not going further than is necessary to deal with the abuse. My hon. Friend agrees that we must stop the abuse, but the practical question is, "As the Clause stands, are we going too far?"

No doubt there is a good deal of force in the argument that we are going too far when we consider the Clause, as I suggested to the Committee that we properly can, against the background of the practice for the last 50 years under the Married Women's Property Act. The essence of what we are trying to do is to stop people from taking out a multiplicity of policies for the benefit of the same person. My right hon. Friend is disposed to agree that it would be fairer to look at the matter from the point of view of the separate beneficiaries—that is to say, to take perhaps the simplest case of a wife and one child, to look at it from the point of view of one ring fence covering all policies in respect of the wife anal one ring fence embracing all the policies in respect of the child or, if he is the happy possessor of a larger family, separate ring fence in respect of each child.

In those circumstances, my right hon. Friend is in agreement with the spirit of the Amendment, but, in deciding precisely what we do to implement the spirit of the Amendment, we must be careful not to leave fresh avenues of abuse. I have pointed out some in passing and, if I thought it right to detain the Committee. I could give many more examples of the complications which undoubtedly arise when one accepts the principle.

In some cases it may be impossible at, the time of death to identify at any rate some of the beneficiaries from a policy. A further complication arises with the possibility of avoidance by a person, for whose benefit the policy has been taken out, selling the policy before it is paid. Who is then the beneficiary for these purposes—the person who sold the policy or the investment company who bought it?

Clearly we must look at all those things. but nevertheless, in the light of the considerations to which I have referred, my right hon. Friend has authorised me to say that he accepts the intention of the Amendment with respect to separate and identifiable beneficiaries and that on Report he will lay before the House a Clause, which I am bound to say will be somewhat complicated, although not too complicated, endeavouring not only to Jo this but also to deal with the dangers which I have pointed out. In general, the intention will be that where the beneficiary is identifiable, then the policies in his favour shall be aggregated in his favour but not with other policies in favour of other beneficiaries. The provisions of the Clauses as it stands shall in general continue to apply in the case of unidentifiable beneficiaries and perhaps also to cases in which the policies have been sold.

That, I think, is the right way in which to approach this very difficult problem. I warn my hon. Friends that we shall have to meet these complications. I do not wish to mislead them by suggesting that it will be possible to deal with every policy in favour of any beneficiary, identifiable or unidentifiable, in this way. Leaving aside the question of the sale of the policy, it is my right hon. Friend's intention on Report to introduce an Amendment dealing with identifiable beneficiaries.

For the reasons which I have given, it is not possible to accept the terms of the Amendment, which neither deals nor attempts to deal with the more difficult subsidiary issues to which I have referred. The intention of the Amendment is quite clear, however, and we shall seek to implement that intention on Report.

I must confess that I am very much surprised at the Financial Secretary turning tail on the Clause. He has told us over and over again that he is concerned about an abuse. He says he has not been satisfied with the arrangements made by the Life Offices and thinks the abuse cannot be stopped in that way. Having called attention to the seriousness of the abuse, he now says that he proposes to water down the Clause until it does virtually nothing.

We on this side of the Committee take the view that the Clause as it stands does not go nearly far enough and we should have desired to see these policies aggregated, as we have suggested, with the whole of the rest of the property of the deceased person. If we look squarely at the position, here is a case of a deceased person, upon whose estate duty is being levied, giving away his property in a particular form—I will not say in a particular guise—which has been authorised by legislation of some long standing.

It is difficult to see what the justification for that exception, provided by that legislation, is in any case, and we think that in order to make the Estate Duty system coherent and systematic, there is a strong case for saying that the method of giving away money in form of policies should no longer be tolerated and that money given away in this manner to children and widows, for example, beyond a certain amount, should stand on exactly the same footing as that of any other gift which the testator makes by his will or while he is alive. It should be subject to the same rate of duty as any other portion of his property.

Opinions may differ about that, and hon. Members opposite will no doubt not accept that point of view. If they do not accept it, it seems to me extraordinary that the Financial Secretary and the Government, having taken what they regard as a serious abuse, having considered the task of putting an end to it—and the Clause goes some of the way necessary to do that—should now, when the suggestion is made for emasculating the Clause almost 99 per cent., suddenly change their point of view and say that they are ready to accept the suggestion. That is what it does. [HON. MEMBERS: "No."] Certainly, it does. It means that the testator who is well-to-do can now distribute his estate by granting a number of different policies, so long as he takes the precaution of avoiding falling into the error of giving several policies to the same person.

8.0 p.m.

Hitherto, he has been able to give several policies of small amounts to the same person and have them treated separately. What is proposed if the Government accept the Amendment is this: If the testator has a wife and a number of children or other people who are beneficiaries of his bounty, all that he must not do is to give to one of his children five, six or seven policies. If he does, all that happens is that these policies are treated as one. If the Clause goes no further than that, the Government are really playing with the position, and are not making any serious endeavour to stop this kind of abuse. That is not only an abuse and an evasion, but a vicious abuse. It is deplorable that the Government should turn tail in the way they are doing.

Therefore. I repeat that this is a deplorable abuse, and the Government are being asked, having taken their stand about it, to give in to some of their back benchers and run away from what they were about to do. That is really what they are doing. The argument will not benefit by repetition, and I do not propose to repeat it, but I appeal to the Financial Secretary, if he has self-respect, to think again before he falls in with That proposal, and not to put his pencil right through this Clause.

He is going to make it possible for these testators—and it does enure principally to the advantage of the best off— to do practically what they have been doing hitherto. The only thing that it stops them from doing is to practise the abuse in its greatest form. That is a poor performance on the part of the Government, and a deplorable attitude to take up.

We press on this Committee that, not only ought the Government not to accept the proposal made, but they ought to say that the time has come when these kind of policies should be put on the same footing as other gifts for the disposal of the estate. I hope that when the Financial Secretary has thought the matter over, and realises the feeling that his proposal will certainly cause in the country, when the country realises what he is doing, he will not only not accept it, but will go the whole length which he ought to go, and say that all these policies should be aggregated with the rest of testator's estate and subject to Estate Duty accordingly.

I apologise for detaining the Committee after the right hon. Gentleman has spoken, but I do so because there is an important point which needs going into, in view of the fantastic argument which we have just heard from the right hon. and learned Member for Neepsend (Sir F. Soskice).

He says that this Clause does not go far enough as it stands before my right hon. Friend indicated his acceptance of the Amendment. He says that he would go much further. The important point is that the Clause as it stands goes much too far to achieve its purpose anyway. The right hon. and learned Gentleman is once again riding his favourite hobbyhorse of taking away from the rich man. He is entitled to follow that view if he likes, but the point is this. In the way in which his Clause stands, it would not have that affect at all. It completely defeats its purpose as it stands, because the rich man, affected by this Clause as it is in the Bill—and the right hon. Gentleman wants to go further—will say: "If that is the way the law stands, I want it that way. I will make the gift inter vivos, and pay no tax at all."

In that case the Treasury would lose. I urge my right hon. Friend to withdraw this Clause, because the effect of the Clause is that the Treasury will not only lose the Estate Duty altogether, but also lose the Income Tax on the income that is being used to pay the premiums. After all, people do usually pay premiums out of income. If a man has great wealth and capital he can transfer the lot.

The right hon. and learned Gentleman and his hon. Friends may argue that that is a bad thing, and I may agree, but they never did anything about it. To suggest that the country would criticise the Government for not stopping the abuse, which he and his hon. Friends allowed to continue for six years without a single move to stop it, is the heighth of nonsense, and the right hon. and learned Gentleman knows it.

The point which I want to make to my right hon. Friend is that the Clause as it stands will completely defeat its object.

The concession which he has agreed to make to the hon. Member for Morecambe and Lonsdale (Sir I. Fraser) is a very wise one. It will allow people to do what the Married Women's Property Act has always intended to do, that is, make prudent provision for their children and their wives, and to allow the Bill to stand as it is, or to make it stronger as hon. Members opposite want to do, would be to encourage people to make more gifts and the revenue would lose and not gain.

I have no intention of detaining the Committee. When speaking on an earlier Amendment, I emulated the Solicitor-General and made most of my speech under that head. My hon. Friend the Member for Somerset, North (Mr. Leather) has disposed of what I was going to say to the hon. Member for Stechford (Mr. Roy Jenkins), because it is nonsense to say that the Married Women's Property Act was designed for rich people. I want now to confine my remarks to one thing, since I have heard the remarks of my hon. Friend the Financial Secretary, which gave me the greatest pleasure, because I think that it is not an abuse, as the right hon. and learned Gentleman for Neepsend (Sir F. Soskice) said, to look after one's widow and children. We on this side of the Committee feel that the words of my right hon. Friend were an emulation of our policy of a property-earning democracy.

There is one technical point which I would ask my right hon. Friend to consider when he is thinking about his Clause. That is in regard to pensions schemes and pension funds of which there are hundreds and thousands of beneficiaries up and down the country in every scale of life. In practically all these pension schemes, particularly the ones managed by insurance offices, there is a death benefit which, in the case of those of very long service, is a quite considerable amount.

I am perhaps throwing another spanner into the works and making this even more difficult, but I feel that where there is a benefit coming from the employer something might be done, if my right hon. Friend would consider it, to prevent it being aggregated with policies under the Married Women's Property Act. That is the only point which I have to make, except to thank my right hon. Friend for giving this matter his consideration, and I express the hope that he will be able to produce a Clause to deal with the Amendment which has been put forward.

I think that the speech of the hon. Member for Somerset, North (Mr. Leathers) put an extraordinary point. It seems to me that it was accepted by some hon. Members as shining a new light on our debates and having a good deal of validity. I do not think that this can be said to be so. The hon. Member's main argument was that this Clause does not have to be too effective, because if it is effective it will mean a great increase of gifts inter vivos, and the whole purpose of the Clause will be defeated.

The hon. Member is close, but not quite right. By "effective" I do not mean enforced and enforcible; I mean over-done. By making it too drastic, as with most things, one defeats one's own object.

It is difficult to know exactly what meaning one will apply to terms like "too drastic." Surely, the hon. Member's argument amounts to this. We all know the loopholes of gifts made inter vivos. If this one loophole is closed, people will automatically go to the other loophole. I am not at all clear as to the extent to which the hon. Member thinks that, holding the view which he does, it is worth having any Clause at all. The whole purpose of the Clause is to make it difficult for people to get round the provisions of Estate Duty by means of a variety of insurance policies.

I was trying to be brief and perhaps did not make myself clear. There is a great distinction between the rich man with lots of capital, who would do as I said—he was the person with whom I was dealing and with whom the right hon. and learned Member for Neepsend (Sir F. Soskice) dealt—but the middle-class man, on the £700, £800, £900 or £1,500 level, is in a very difficult position. He cannot make a gift inter vivos because he does not have the capital, but he can do it by insurance out of his income, which seems to me a thoroughly laudable thing for him to do, and he should not be stopped from doing it.

I understood that point, but I did not see how it led to the conclusion which the hon. Member attempted to draw. If what he is concerned about are middle-income people who, because they do not possess the capital, are not able to make gifts inter vivos, it is in no way apparent to me how any provision in the Clause can force these people into making such gifts. The purpose of the hon. Member's argument, as I understood it, was that they were not in a position to do so.

The hon. Member must not make this deliberately wrong. He would hit the middle class for no good purpose and he would merely force the rich man to avoid more tax, which is in every way a bad thing. There is no doubt that the rich man is being forced to avoid tax.

I am still completely bewildered by the hon. Member's argument. If it pays the rich to make these gifts inter vivos, obviously they will make the gifts rather than take out insurance policies and make themselves subject to any of these difficulties. If one is dealing with a category of persons who, as the hon. Member says, may be the most concerned with insurance policy avoidance, those people, as I understand it, are not in a position to do what the hon. Member says is the danger. Where, therefore, is the danger? The hon. Member's argument, which I think is completely untenable, was that if the Clause were put through without the Amendment of the hon. Member for Morecambe and Lonsdale (Sir I. Fraser), which is being considered by the Government, it would lead to a great increase in gifts inter vivos. That is what I understood the hon. ber to say.

I have tried hard to understand the hon. Member. He has been on his feet three times since his speech. If he likes to get on his feet again—the Government Chief Whip is not here—he could give a brief explanation and I would try to follow anything else he put forward, but on the basis of what he has said so far, the hon. Member's argument seems to be absolute nonsense.

I agree with my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) that this is an extremely disturbing concession which we have heard from the Government this afternoon. It greatly undermines the purpose of the Clause. I am not sure why the Financial Secretary bothered to incur the odium, which he certainly did incur, in resisting the previous Amendment if he was going to give so much away on this Amendment. I am not sure that the right hon. Gentleman has not got for himself and the Treasury the worst of both worlds. It would have been better for him either to have given way earlier or to have resisted both Amendments. There is no doubt that this concession undermines the value of the Clause. As is clear from the Amendment in the names of some of my hon. Friends, and which, I understood, we could discuss with the present Amendment, we would prefer to get away from the concept of insurance policies being separate property.

8.15 p.m.

The logic of that argument was recognised by the hon. Member for Hall Green (Mr. Aubrey Jones) in the second of his powerful speeches on the Clause. The hon. Member recognised that it was quite wrong to treat insurance policies in a way different from any other property for this purpose. It is true, as the right hon. and learned Member for Kensington, South (Sir P. Spens) and others have said, that this practice under the Married Women's Property Act is an old practice which has been in operation for about 70 years. But the Married Women's Property Act was a pre-death duties and pre-Estate Duty Act. It was certainly put upon the Statute Book with no thought whatever of the position which began in 1894 and which has grown up since. It was in no way intended to be the means of avoiding the payment of Estate Duty. The fact that it has become so in any way is a purely haphazard growth. Although it has existed for a long time, that is no reason why the existing position should continue.

The hon. Member for Hall Green put forward an interesting new point about his approach to the whole matter being to levy Estate Duty upon the point of acquisition rather than upon the point of succession, and one would like to consider its consequences, but the hon. Member certainly joined with us on this side in saying that now that there are very large death duties, it is completely illogical to allow the Married Women's Property Act or anything else which was drawn up before that period to create for insurance policies an entirely distinct position under our succession law. Such a course has no basis whatever in logic.

The Government are taking a step to support and strengthen family life. Their proposal is by no means deplorable but is, on the contrary, generous and sensible. I gladly accept the proposal to introduce on Report a Clause which will deal more adequately with the principle which I have in mind. I hope that its effect will be to encourage family life and to cause the people to increase and multiply. I beg to ask leave to withdraw the Amendment.

Amendment negatived.

I beg to move, in page 35, line 29, to leave out "is not leviable," and to insert:

"neither is payable nor would be if the duty were payable on estates of however small a principal value."
This Amendment is designed to make completely clear the words which appear in brackets in line 29. As the Committee is aware, the intention is to aggregate certain policies of insurance. The words in brackets in line 29 are designed to exclude from that aggregation the policies which on the death of the assured person are outside the Estate Duty charge. An obvious example would be a policy taken out on a deceased's life by his wife on which she had paid all the premiums out of her own resources.

Since the publication of the Bill, the question has been raised whether the word "leviable," which appears at the end of the passage in brackets, might not be thought to cover also policies whose total value, being below £2,000, was below the exemption level for Estate Duty purposes. It is not, of course, intended to exclude them and the words on the Order Paper are designed to make

Division No. 176.)


[8.23 p.m.

Acland, Sir RichardCorbet, Mrs. FredaGreenwood, Anthony
Adams, RichardCove, W. G.Grey, C. F.
Albu, A. H.Craddock, George (Bradford, S)Griffiths, David (Rother Valley)
Allen, Arthur (Bosworth)Crosland, C. A. R,Griffiths, Rt. Hon. James (Llanelly)
Allen, Scholefield (Crewe)Crossman, R. H. S.Griffiths, William (Exchange)
Anderson, Frank (Whitehaven)Cullen, Mrs. A.Hale, Leslie
Awbery, S. S.Daines, P.Hail, Rt. Hon. Glenvil (Coine Valley)
Bacon, Miss AliceDalton, Rt. Hon. H.Hall, John T. (Gateshead, W.)
Baird, J.Darling, George (Hillsborough)Hamilton, W. W.
Balfour, A.Davies, Ernest (Enfield, E.)Hannan, W.
Bartley, P.Davies, Harold (Leek)Hardy, E. A.
Bellenger, Rt. Hon. F. JDavies, Stephen (Merthyr)Hargreaves, A.
Bence, C. Freitas, GeoffreyHarrison, J. (Nottingham, E.)
Benn, Hon. WedgwoodDeer, G.Hastings, S.
Benson, G.Delargy, H. J.Hayman, F. H.
Beswick, F.Dodds, N. N.Healey, Denis (Leeds, S. E.)
Bing, G. H. C.Donnelly, D. L.Henderson, Rt. Hon. A. (Rowley Regis)
Blackburn, F.Driberg, T. E. N.Herbison, Miss M.
Blenkinsop, A.Dugdale, Rt. Hon. John (W. Bromwich)Hewitson, Capt. M.
Blyton, W. R.Ede, Rt. Hon. J. C.Hobson, C. R.
Boardman, H.Edelman, M.Holman, P.
Bottomley, Rt. Hon. A. G.Edwards, W. J. (Stepney)Holmes, Horace
Bowden, H. W.Evans, Albert (Islington, S.W.)Houghton, Douglas
Bowles, F. G.Evans, Edward (Lowestoft)Hudson, James (Ealing, N.)
Braddock, Mrs. ElizabethEvans, Stanley (Wednesbury)Hughes, Emrys (S. Ayrshire)
Brockway, A. F.Fernyhough, E.Hughes, Hector (Aberdeen, N.)
Brook, Dryden (Halifax)Fienburgh, W.Hynd, J. B. (Attercliffe)
Broughton, Dr. A. D. D.Finch, H. J.Irvine, A. J. (Edge Hill)
Brown, Rt. Hon. George (Belper)Fletcher, Eric (Islington, E.)Irving, W. J. (Wood Green)
Brown, Thomas (Ince)Follick, M.Isaacs, Rt. Hon. G. A.
Butler, Herbert (Hackney, S.)Foot, M. M.Janner, B.
Callaghan, L. J.Forman, J. C.Jay, Rt. Hon. D. P. T
Carmichael, J.Fraser, Thomas (Hamilton)Jeger, George (Goole)
Cattle, Mrs. B. A.Freeman, John (Watford)Jeger, Mrs. Lena
Champion, A. J.Freeman, Peter (Newport)Jenkins, R. H. (Stechford)
Chetwynd, G. RGaitskell, Rt. Hon. H. T. N.Johnston, Douglas (Paisley)
Clunie, J.Gibson, C. W.Jones, David (Hartlepool)
Coldrick, W.Glanville, JamesJones, T. W. (Merioneth)
Collick. P. HGordon Walker, Rt. Hon. P. CKeenan, W

it clear that the only policies to be excluded are the policies which do not come into the charge at all because of their nature, not those which are merely below the exemption level.

"Leviable" is such an ugly word that I cannot believe it has any place in the English language. Does the right hon. Gentleman happen to know whether it is a word in the English language or one from the collection of jargon which comes from Whitehall?

I do not know whether what I am going to tell the hon. Gentleman will please him, but I do not know whether the answer is "yes" or "no." It is language that appears in previous Finance Acts.

Amendment agreed to.

Amendment proposed: In page 35, line 30, after "estate," insert:

"with the other property passing on the death.—[Mr. Roy Jenkins.]

Question put, "That those words be there inserted."

The Committee divided: Ayes, 238; Noes, 270.

Key, Rt. Hon. C. WPalmer, A. M. F.Strachey, Rt. Hon. J
King, Dr. H. M.Pannell, CharlesStress, Dr. Barnett
Kinley, J.Pargiter, G. A.Summerskill, Rt. Hon. E
Lawson, G. M.Parker, J.Swingler, S. T.
Lee, Frederick (Newton)Parkin, B. TSylvester, G. O.
Lee, Miss Jennie (Cannock)Paton, J.Taylor, Bernard (Mansfield)
Lewis, ArthurPearson, A.Taylor, John (West Lothian)
Lindgren, G. SPeart, T. F.Taylor, Rt. Hon. Robert (Morpeth)
Legan, D. G-Plummer, Sir LeslieThomas, Ivor Owen (Wrekin)
MacColl, J. E.Popplewell, E.Thomson, George (Dundee, E.)
McGovern, J.Porter, G.Thornton, E.
McKay, John (Wallsend)Price, Philips (Gloucestershire, W.)Tomney, F
McLeavy, F.Proctor, W. T.Viant, S. P.
McNeil, Rt. Hon. H.Pryde, D. J.Wallace, H. W
MacPherson, Malcolm (Stirling)Pursey, Cmdr. H.Warbey, W. N.
Mainwaring, W. H.Rankin, JohnWatkins, T. E.
Mallalieu, E. L. (Brigg)Reid, Thomas (Swindon)Weitzman, D.
Mann, Mrs. JeanReid, William (Camlachie)Wells, Percy (Faversham)
Manuel, A. C.Roberts, Rt. Hon. A.Wells, William (Walsall)
Marquand, Rt. Hon. H. ARoberts, Albert (Normanton)West, D. G.
Mason, RoyRoberts, Goronwy (Caernarvon)Wheeldon, W. E.
Mayhew, C. PRobinson, Kenneth (St. Pancras, N.)White, Mrs. Eirene (E. Flint)
Mellish, R. J.Rogers, George (Kensington, N.)White, Henry (Derbyshire, N. E.)
Messer, Sir F.Ross, WilliamWigg, George
Mikardo, IanRoyle, C.Wilcock, Group Capt. C. A. S.
Mitchison, G. RShackleton, E. A. A.Willey, F. T.
Monslow, W.Shinwell, Rt. Hon. E.Williams, David (Neath)
Moody, A. S.Short, E. W.Williams, Rev. Llywelyn (Abertillery)
Morgan, Dr. H. B. WShurmer, P. L. E.Williams, Rt. Hon. Thomas (Don V'll'y)
Morley, RSilverman, Julius (Erdington)Williams, W. R. (Dreylsden)
Mulley, F. WSilverman, Sydney (Nelson)Williams, W. T. (Hammersmith, S.)
Nally, W.Simmons, C. J. (Brierley Hill)Willis, E. G.
Noel-Baker, Rt. Hon. P. J.Skeffington, A. M.Winterbottom, Richard (Brightside)
O'Brien, T.Slater, Mrs. H. (Stoke-on-Trent)Woodburn, Rt. Hon. A.
Oldfield, W. H.Slater, J. (Durham, Sedgefield)Wyatt, W. L
Oliver, G. HSmith, Ellis (Stoke, S.)Yates, V. F.
Orbach, M.Smith, Norman (Nottingham, S.)Younger, Rt. Hon. K.
Oswald, T.Snow, J. W.
Padley, W. E.Sorensen, R. W.TELLERS FOR THE AYES:
Paget, R. T.Soskice, Rt. Hon. Sir FrankMr. J. T. Price and
Paling, Rt. Hon. W. (Dearne Valley)Sparks, J. A.Mr. James Johnson.
Paling, Will T. (Dewsbury)Steele, T.


Aitken, W. T.Clyde, Rt. Hon. J. L.Graham, Sir Fergus
Alport, C. J. M.Cole, NormanGrimond, J.
Amory, Rt. Hon. Heathcoat (Tiverton)Colegate, W. A.Grimston, Hon. John (St. Albans)
Anstruther-Gray, Major W. J.Conant, Maj. Sir RogerGrimston, Sir Robert (Westbury)
Arbuthnot, JohnCooper, Son. Ldr. AlbertHall, John (Wycombe)
Assheton, Rt. Hon. R. (Blackburn, W.)Cooper-Key, E. M.Harris, Frederic (Croydon, N.)
Astor, Hon. J. J.Craddock, Beresford (Spelthorne)Harris, Reader (Heston)
Baldock, Lt.-Cmdr. J. M.Crosthwaite-Eyre, Col. O. E.Harrison, Col. J. H. (Eye)
Baldwin, A. E.Crouch, R. F.Harvey, Air Cdre. A. V. (Macclesfield)
Baxter, Sir BeverleyCrowder, Sir John (Finchley)Harvey, Ian (Harrow, E.)
Beach, Maj. HicksCrowder, Petre (Ruislip—Northwood)Harvie-Watt, Sir George
Bell, Philip (Bolton, E.)Darling, Sir William (Edinburgh, S.)Hay, John
Bell, Ronald (Bucks, S.)Davidson, ViscountessHead, Rt. Hon. A. H.
Bennett, F. M. (Reading, N.)Deedes, W. F.Heald, Rt. Hon. Sir Lionel
Bennett, Dr. Reginald (Gosport)Digby, S. WingfieldHeath, Edward
Bennett, William (Woodside)Dodds-Parker, A. D.Henderson, John (Cathcart)
Bevins, J. R. (Toxteth)Donaldson, Cmdr. C. E. McA.Higgs, J. M. C.
Birch, NigelDoughty, C. J. A.Hill, Dr. Charles (Luton)
Bishop, F. P.Douglas-Hamilton, Lord MalcolmHill, Mrs. E. (Wythenshawe)
Black, C. W.Drayson, G. B.Hirst, Geoffrey
Boothby, Sir R. J. GDrewe, Sir C.Holland-Martin, C. J
Bossom, Sir A. O.Dugdale, Rt. Hon. Sir T. (Richmond)Hollis, M. C
Boyd Carpenter, Rt. Hon. J. ADuncan, Capt. J. A. L.Holt, A. F.
Boyle, Sir EdwardDuthie, W. S.Hope, Lord John
Braine, B. R.Eden, J. B. (Bournemouth, West)Hopkinson, Rt. Hon. Henry
Braithwaite, Sir Albert (Harrow, W.)Erroll, F. J.Horobin, I. M.
Braithwaite, Sir GurneyFinlay, GraemeHorsbrugh, Rt. Hon. Florence
Bromley-Davenport, Lt.-Col. W HFisher, NigelHoward, Hon. Greville (St. Ives)
Brooke, Henry (Hampstead)Fletcher-Cooke, C.Hudson, Sir Austin (Lewisham, N.)
Brooman-White, R. C.Ford, Mrs. PatriciaHulbert, Wing Cdr. N. J.
Browne, Jack (Govan)Fort, R.Hutchison, Sir Ian Clark (E'b'rgh, W)
Buchan-Hepburn, Rt. Hon. P. G. TFester, JohnHyde, Lt.-Col. H. M.
Bullard, D. G.Fraser, Hon. Hugh (Stone)Hylton-Foster, H. B. H.
Bullus, Whig Commander E. E.Fraser, Sir Ian (Morecambe & Lonsdale)Iremonger, T. L.
Burden, F. F. A.Galbraith, Rt. Hon. T. D. (Pollok)Jenkins, Robert (Dulwich)
Butcher, Sir HerbertGeorge, Rt. Hon. Maj. G. LloydJohnson, Eric (Blackley)
Campbell, Sir DavidGlover, D.Johnson, Howard (Kemptown)
Channon, H.Godber, J. B.Jones, A. (Hall Green)
Clarke, Col. Ralph (East Grinstead)Cough, C. F. HJoynson-Hicks, Hon. L W
Clarke, Brig. Terence (Portsmouth. W.)Gower, H. RKaberry, D

Kerby, Capt. H. B.Nicholson, Godfrey (Farnham)Spence, H. R. (Aberdeenshire, W.)
Kerr, H. W.Noble, Comdr. A. H. PSpens, Rt. Hon. Sir P. (Kensington, S.)
Lambert, Hon. G.Nugent, G. R. H.Stanley, Capt. Hon. Richard
Lambton, ViscountNutting, AnthonyStevens, Geoffrey
Lancaster, Col. C. GOakshott, H. D.Steward, W. A (Woolwich, W.)
Langford-Holt, J. A.Odey, G. W.Stewart, Henderson (Fife, E.)
Leather, E. H. C.O'Neill, Hon. Phelim (Co. Antrim, N.)Stoddart-Scott, Col. M.
Legge-Bourke, Maj. E. A. H.Ormsby-Gore, Hon. W. D.Storey, S.
Legh, Hon. Peter (Petersfield)Orr, Capt. L. P. S.Strauss, Henry (Norwich, S.)
Lennox-Boyd, Rt. Hon. A. TOrr-Ewing, Charles Ian (Hendon, N.)Stuart, Rt. Hon. James (Moray)
Linstead, Sir H. N.Osborne, C.Studholme, H. G.
Llewellyn, D. T.Page, R. G.Summers, G. S.
Lloyd, Rt. Hon. G. (King's Norton)Peake, Rt. Hon. O.Sutcliffe, Sir Harold
Lloyd, Maj. Sir Guy (Renfrew, E.)Perkins, Sir RobertTaylor, Sir Charles (Eastbourne)
Lockwood, Lt.-Col. J. C.Peto, Brig. C. H. M.Taylor, William (Bradford, N.)
Longden, GilbertPickthorn, K. W. M.Teeling, W.
Low, A. R. W.Pilkington, Capt. R. A.Thomas, Rt. Hon. J. P. L. (Hereford)
Lucas, Sir Jocelyn (Portsmouth, S.)Pitman, I. J.Thomas, Leslie (Canterbury)
Lucas, P. B. (Brentford)Pitt, Miss E. M.Thompson, Kenneth (Walton)
Lucas-Tooth, Sir HughPowell, J. EnochThompson, Lt.-Cdr. R. (Croydon, W.)
McAdden, S. J.Price, Henry (Lewisham, W.)Thorneycroft, Rt. Hn. Peter (Monmouth)
McCorquodale, Rt. Hon. M. SPrior-Palmer, Brig. O. LThornton-Kemsley, Col. C. N.
Macdonald Sir PeterProfumo, J. D,Tilney, John
Mackeson, Brig. Sir HarryRaikes, Sir VictorTouche, Sir Gordon
McKibbin, A. J.Rayner, Brig. R.Turner, H. F. L.
Mackie, J. H. (Galloway)Redmayne, M.Turton, R. H.
Maclay, Rt. Hon. JohnRees-Davies, W. R.Tweedsmuir, Lady
Maclean, FitzroyRemnant, Hon. P.Vane, W. M. F.
Macleod, Rt. Hon. Iain (Enfield, W.)Renton, D. L. M.Vaughan-Morgan, J. K
Macmillan, Rt. Hon. Harold (Bromley)Ridsdale, J. E.Vosper, D. F.
Macpherson, Niall (Dumfries)Roberts, Peter (Heeley)Wade, D. W.
Maitland, Comdr. J. F. W. (Horncastle)Robertson, Sir DavidWakefield, Edward (Derbyshire, W.)
Maitland, Patrick (Lanark)Robinson, Sir Roland (Blackpool, S.)Wakefield, Sir Wavell (St. Marylebone)
Manningham-Buller, Rt. Hn. Sir ReginaldRodgers, John (Sevenoaks)Walker-Smith, D. C.
Markham, Major Sir FrankRoper, Sir HaroldWall, Major Patrick
Marlowe, A. A. H.Ropner, Col. Sir LeonardWard, Hon. George (Worcester)
Marples, A. E.Russell, R. S.Ward, Miss I, (Tynemouth)
Marshall, Douglas (Bodmin)Ryder, Capt. R. E. D.Waterhouse, Capt. Rt. Hon. C
Maude, AngusSandys, Rt. Hon. D.Watkinson, H. A.
Maudling, R.Savory, Prof Sir DouglasWebbe, Sir H. (London & Westminster)
Maydon, Lt.-Comdr. S. L. CSchofield, Lt.-Col. W.Wellwood, W.
Medlicott, Brig F.Scott, R. DonaldWilliams, Rt. Hon. Charles (Torquay)
Mellor, Sir JohnScott-Miller, Cmdr. R.Williams, Sir Herbert (Croydon, E.)
Molson, A. H. E.Shepherd, WilliamWilliams, Paul (Sunderland, S.)
Monckton, Rt. Hon. Sir WalterSimon, J. E. S. (Middlesbrough, W.)Williams, R. Dudley (Exeter)
Moore, Sir ThomasSmithers, Peter (Winchester)Wills, G.
Morrison, John (Salisbury)Smithers, Sir Waldron (Orpington)Wilson. Geoffrey (Truro)
Mott-Radclyffe, C. E.Smyth, Brig. J. G. (Norwood)Wood, Hon. R.
Nabarro, G. D. N.Snadden, W McN.
Neave, AireySpearman, A. C. M.TELLERS FOR THE NOES:
Nicholls, HarmarSpeir, R. M.Mr. T. G. D. Galbraith and
Mr. Robert Allan.

Amendment made: In page 35, line 32, leave out "That," and insert" This."—[ Mr. Boyd-Carpenter.]

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

This is one of the Clauses in the Finance Bill which has produced the greatest possible division between the two sides of the Committee. I am sorry that the hon. Member for Heeley (Mr. P. Roberts) is not present, because I want to refer to some of his remarks.

Before I do that, however, I shall say something on a point raised by the hon. Member for Horsham (Mr. Gough), who objected to the fact that my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) had used the word "abuse" to describe the method of tax avoidance which we have been discussing on this Clause. The hon. Member for Horsham asked whether we on this side of the Committee think that it is an abuse for a man to make provision for his wife and children. Of course we do not think that, but we do think it is an abuse for him to make it in a way deliberately designed to escape tax. That is the only abuse with which we are concerned.

I now come to the general question of tax avoidance and the attitude to it taken by the other side of the Committee during the last two hours. The hon. Member for Heeley admitted that there was a loophole in the law. He also admitted that a great number of people had taken advantage of it and that the Government were right to close the loophole by this Clause. Having admitted all these things, he still went on to say that a large number of the speeches, including that of the Financial Secretary, smelled of Socialism. He appeared to be giving vent to some really deep-seated emotional feeling on his part which met with a great deal of support from his hon. Friends.

This suggests that here is a basic difference between the two sides of the Committee on whether we think tax avoidance is or is not a good thing. It is clear that the hon. Member for Heeley thinks that tax avoidance is a good thing. He said that it smells of Socialism to give the appearance of condemning tax avoidance. That was his phrase, and it was applauded by all hon. Members on his side of the Committee. He said that it was a thoroughly desirable thing to do for people to employ the best lawyers and the best accountants in order to find the maximum loopholes in the law. It is important to bring out the fact that this is the view of hon. Members opposite and that it certainly is not the view of hon. Members on this side of the Committee.

The most obvious reason we do not believe in tax avoidance is that the basic principle of our tax system, which has been accepted by Tory Chancellors of the Exchequer as well as by Labour Chancellors. is that taxation is levied on different people according to one thing and one thing only—their capacity to pay. The more tax avoidance there is, clearly the further we get away from taxation according to people's capacity to pay. What we get to is taxation not according to people's capacity to pay but according to people's capacity to pay expensive accountants. That is what it leads to.

The more frequent and regular the tax avoidance becomes, the more farcical the whole of our taxation system becomes. It ceases to bear any relation whatever to people's capacity to pay and merely bears a relation to the extent to which they are prepared to go to really competent accountants. If this is a Tory principle of taxation, it is a very good thing that it should be made clear to the Committee.

One could go further and say that if we are to agree with the hon. Member for Heeley and praise tax avoidance and encourage people to go to expensive accountants in order to find loopholes, we do not merely get away from the whole idea of capacity to pay but we actually get to a system in which the wealthier the person is the less tax relatively he is likely to pay. It is the wealthy people who are likely to employ the best accountants, generally speaking, compared with those of modest means. The result of this encomium of tax avoidance which we have had from the other side of the Committee would mean that the better off people were the less likely would they be to bear their share of the total tax burden. Again, if this really is a Tory principle of taxation it is a very good thing that it has been made clear to the Committee.

The third point to be made about tax avoidance in view of what the hon. Member said—and I am sorry that he is not here—is that the present concentration on tax avoidance, which is notorious and beyond any dispute, involves a really serious waste of people's time and effort which could be very much better spent in other directions. The time and effort of the taxpayers themselves, and the time and effort of their accountants and lawyers—all this would be better spent on productive purposes instead of being spent on finding means of circumventing the laws which Parliament has passed. If it is really the view of the hon. Member for Heeley that there is nothing wrong about this diversion of time and effort, it is excellent that that should have been clearly stated tonight.

The last thing to be stated about tax avoidance is that the more successful it is—the hon. Member wants it increased and wants us all to go to expensive accountants—the more the non-tax avoiders will have to pay. We shall have a redistribution of the whole burden of tax payment between the clever people who go to clever accountants and the rest who do not. The latter will have to pay more for the losses of taxation which the friends of the hon. Member will incur to the Treasury. We have not said that in this sense tax avoidance is illegal; tax evasion is illegal, not tax avoidance, but we certainly say it is an undesirable practice.

If it is a Socialist principle to be against tax avoidance, we are glad to be Socialists, and if it is a Tory principle to believe in tax avoidance, we are glad to be anti-Tory. The party opposite has ceased to be a party of active business men and entrepreneurs and has become a party of accountants and lawyers, willing to praise tax avoidance. [An HON. MEMBER: "Tax dodgers."] This Clause would have been well worth while considering if only to enable us to hear the speech of the hon. Member for Heeley and what he thinks Tory principles are. I hope the country will hear of this and will ponder it very seriously.

We on this side of the Committee would be very glad to see this Clause stand part of the Bill, but we know that hon. Members opposite who agree to this Clause standing part of the Bill are looking forward to the Amendment which the Financial Secretary has promised to bring forward on Report stage that will destroy any effective step against this form of tax avoidance.

One aspect of life insurance provisions which has not been mentioned in the debate so far is an important reason against giving life assurance provision on death the special privileges now enjoyed and which this Clause as it stands would severely modify. Life insurance premiums are already given tax relief for Income Tax purposes so that all premiums paid towards life insurance policies passing to beneficiaries on the death of the insured person are to an extent subsidised out of the taxation from the very first premium to the last. I acknowledge that the relief is not at the standard rate of Income Tax and does not apply to Surtax, but, nevertheless, on large policies involving large premiums the Income Tax relief is considerable.

Under the Clause as it stands there was still a very valuable concession left to policies taken out in that way. The valuable concession left was that the aggregation of the proceeds of the policies could still be kept separate from the real estate, the free estate of the testator. There would, in fact, have been two separate estates on death, as the right hon. Gentleman explained—one with the fence round it being the free estate of the testator liable to Estate Duty at the appropriate rates, and another the separate estate belonging to beneficiaries, which, aggregated, would suffer Estate Duty at its own appropriate rate—the two being kept quite separate.

Had they been added together, as the Amendment moved by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) proposed, these would have been in the complete aggregation a very big difference in the ultimate amount of Estate Duty payable. But the Chancellor proposes in this Clause as it stands still to retain the substantial benefit of two separate estates for one testator—one composed of his normal estates, real estate and the rest of his personal possessions, and the other the provision made by life insurance policies for beneficiaries, wife, children and so on.

8.45 p.m.

Now, the right hon. Gentleman, in his proposed Amendment to the Clause, will sub-divide the second aggregated estate provided by life insurance policies and revert to the present arrangement of having one separate estate for each beneficiary. In fact, the only thing that the Clause will do if it is amended as forecast by the right hon. Gentleman is to stop the more extreme case of a series of policies being taken out by the testator in the interests of one beneficiary.

An extreme example was quoted by the right hon. Gentleman on Second Reading, where a person took out 50 separate policies in the name of his wife. Each was a separate estate, and, being under the exemption limit, paid no Estate Duty at all. There is a considerable amount of life insurance provision being made for wives and children which will have the full benefit of the Clause if it is amended in the way suggested.

I am very interested in the example quoted in which 50 insurance policies were taken out. Will it still be possible for that to be done under the Clause?

No. I have just pointed out that that type of case is the only one which the Clause will affect if it is amended in the manner suggested by the right hon. Gentleman. The Opposition would like the Clause to stand part of the Bill and to remain part of the Bill, particularly subsection (2) which deals with the problem of aggregation.

I regard this as a disgraceful surrender to the clamour which has obviously arisen on the benches opposite for modification of the Clause in the direction indicated. It is significant that a great deal of professional propaganda has been going on from the life insurance interests and the insurance brokers to get the Clause amended in that sense.

The life insurance interests have already recognised the abuses—that is a word which was used by the Financial Secretary; it has not been used exclusively on this side of the Committee—which were being employed by people in taking out a succession of policies of low denominations in the name of the same person in order to gain exemption eventually. That is why the life insurance interests voluntarily, and not by any agreement with the Inland Revenue, decided to restrict the number of policies that could be taken out in succession in that way to one per year.

I think that the life insurance companies in taking that step were not only concerned with ethical considerations and consideration of public interest, but also saw the danger that unless they put some check upon the abuse legislative steps would have to be taken to do so. There is no doubt that they have procured a reprieve from a legislative check upon the abuse by voluntarily taking the step which they have done. I am not criticising them, but let us be realists. I believe that they had their own interests very much in mind indeed when they took the step to which the Financial Secretary referred and about which he expressed a considerable measure of praise and approval.

The life insurance brokers and the life insurance interests, realising that the game is up so far as a succession of policies in the name of one person is concerned, have concentrated their propaganda on the part of the Clause which aggregates the insurance policies for all beneficiaries into one separate estate, which, as I pointed out, would in any case carry considerable advantages from the point of view of the total amount of Estate Duty payable, because it is obviously cheaper from an Estate Duty point of view to have two separate estates instead of one. If we have the one, the total is bigger, and the incidence of the duty rises sharply.

Coming from hon. Gentlemen who have recently been reminding hon. Members of the plight of the old-age pensioners, and who have recently said that it would be unseemly for hon. Members to improve their own financial position as Members, having regard to public opinion and to the plight of old-age pensioners, it is shameful that that amount of money, and a good deal more, is being given away by concessions in this Clause.

Let me remind hon. Members opposite of a further point. If we are to make proper provision for old-age pensioners, if we are to improve our welfare services, if we are to regard family life as sacred at the bottom as well as in the middle and at the top, and if we are to preserve those things in life and in our enlightened society to which we all pay lip service and which we should all be working to achieve, every £ in taxation counts. Everything that the revenue can yield has its place in the national interest, and, in these circumstances, if we are to give reliefs which are not justified on the grounds of equity, which are not justified on the grounds of personal or family need, we are merely surrendering to the clamour of the people who believe that these things are the most precious in our society.

Hon. Gentlemen opposite extol the virtues of social equality, of fiscal justice and all the rest, but, when it comes to the point of making a proposal which will make Estate Duty more equitable as between those who can adopt this device and those who cannot, the hon. Member for Heeley (Mr. P. Roberts) says that this smacks of Socialism.

This is the most regrettable episode in the debate on this Bill, and I can promise the right hon. Gentleman that we on these benches will look very critically indeed at the next step in this surrender to the protests of his hon. Friends behind him. The right hon. Gentleman has, in fact, forecast that, although we are asked to agree to this Clause standing part of the Bill, he does not mean it to stand part, but that it will be a different and less effective Clause, and one which really will not bear comparison with the proposals in their original form.

The discussion on this Clause, it seems to me, can be clearly divided into two halves. During the first half, we had the position in which a number of hon. Gentlemen opposite were pressing the Government with great vigour and great determination to make important concessions to them. They were asking that people who had taken out these policies, but who have not yet died, should have the benefit of the very substantial gains which the law as it stands allows them to have.

At the same time, we had the Financial Secretary putting up a gallant fight against these attacks. He was defending the right of the Government to insist on the law being applied as it was always applied before, and that the change should occur at the date of death and not at the time the policies were taken out. For our part, we on this side of the Committee were glad to see that the Financial Secretary was opposing what seemed to us to be a quite indefensible Amendment submitted from the other side of the Committee.

We then came to the second half, when we found, on the contrary, that the Financial Secretary was indulging in what can only be described as an abject surrender to the pressure put upon him, and I must join with my hon. Friends in protesting at such an extraordinary concession being made. Let us consider for a moment what is involved here. Let us suppose that we have the case of a man who is leaving £100,000 in the form of insurance policies. Admittedly, under the law, he can almost avoid duty altogether if he has enough insurance policies through which that £100,000 is bequeathed. Under the Bill as proposed, he would be obliged to pay duty on that £100,000 at the full rate, namely, £45,000.

Now the Financial Secretary has told us that that individual will not be obliged to do that at all. He is to be allowed to give all the beneficiaries in his will a separate sum under an insurance policy, and of course each separate insurance policy will be assessed separately for the purposes of Estate Duty. Suppose there are five persons in the family to whom he leaves this £100,000 and that they all get £20,000. The amount of duty which will be paid on this part of the estate will not be £45,000 but £12,000, a loss to the Exchequer of £33,000. That is an astonishing proposition. Surely the Government must have thought of this possibility before. To come to the Committee and suddenly give way on this issue smacks of the worst possible surrender to the vested interests of the Conservative Party.

We do not propose to divide the Committee on this Clause because, despite all that I have said and despite the fact that what is now proposed goes a large way to lessen the benefits of the Clause, we recognise that it is not quite as bad as it was before. I must warn the Financial Secretary that we shall contest very strongly the Government Amendment that he has promised to introduce on the Report stage and which he has said will be long and complicated. Our arguments against it will be long and complicated as well.

Hon. Gentlemen on the Government side have said that it is all very well for us to criticise now, when we did not stop up these very loopholes. Coming from hon. Gentlemen who protested again and again against the tax-avoidance methods which we brought in when they were in opposition, this is a little too much. We made considerable progress while we were in office with dealing with the problem of tax avoidance. I should be the last to claim that we did the job completely, but we shall do it completely when we are back in power again. I can assure hon. Gentlemen of that. I trust that we shall then have the support of the hon. Member for Somerset, North (Mr. Leather) who, in that glib way of his, assured us that of course he was against all this avoidance by gifts inter vivos. This problem is serious and must be tackled, but it is not a very easy one to tackle. I hope we shall be able to tackle it and that we shall have the support of the hon. Member when we come forward with measures to do that very job.

This has been one of the most disappointing discussions that we have had, although I agree with my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) that it has been very revealing. In the early part of the debate I thought the Government would at least stand firm, but now we have this complete collapse. I can only express my very greatest regret and say again that we shall resist the proposed Amendment strongly when it is brought forward on Report.

9.0 p.m.

Neither the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) nor the Committee would wish me to anticipate the discussion on an Amendment which has not yet been put down and a stage of the Bill not yet reached, but it would be a discourtesy to the right hon. Gentleman and to the Commitee if I did not speak for a moment.

In reply to the right hon. Gentleman's strictures, I can only say two things. First of all, as I anticipate the Clause will stand after discussion on Report, it will deal with the precise type of case to which I referred on Second Reading, to deal with which was the main purpose of introducing this particular Clause into the Bill. Secondly, I think that the Committee would do well to remember that what we are doing here—and from all aspects it is a serious thing—is to interfere with the old arrangement, which has lasted a good many years, under the Married Women's Property Act which provides that these insurance policies and their proceeds constitute wholly separate estates. The only difference that appears to arise between the two sides of the Committee—and will no doubt arise between the two sides of the House—is the degree of tightening of the law necessary in those circumstances. I would suggest, Sir Charles, that that is not a matter which we can properly or easily discuss at this stage when the Amendment is not before us.

The right hon. Gentleman has promised to bring forward on Report arguments not only long but complicated. I am sure that we shall be prepared to meet them when they come. Having said that, and as the Committee has a good deal of work before it, I wonder whether hon. Members would be prepared to give us this Clause and proceed to the other business?

Question put, and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 30—(Amendments As To Sinking Funds, And As To Manner Of Accounting For Issues Out Of Consolidated Funds)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

This Clause is certainly nothing like so important as that with which we have been dealing, but although, as the Financial Secretary said just now, we still have a good deal of work before us this evening, it would not be right to pass over it without some comment on what it contains and without eliciting some explanation from the Financial Secretary.

What this Clause does, I understand, is to abolish the permanent annual fixed debt charge which was instituted by Section 23 of the Finance Act,1928. Under the provisions of that Section, £355 million were automatically to be earmarked year by year to meet interest, management and sinking fund on the National Debt. It is perhaps interesting, looking back, for us to remember that this provision was inserted by the present Prime Minister, when Chancellor of the Exchequer. I took occasion to turn up what he had to say on that occasion. I do not intend to inflict—if "inflict" is the right word for any speech of the right hon. Gentleman—nor do I intend to read the whole of what the present Prime Minister had to say then, but it may be of interest if I do quote one or two passages. He said:
"I propose to comprise both our proclaimed shortcomings and our equally veiled virtue in a general treatment of the problem of the National Debt. I have noticed a good deal of anxiety and loose-thinking in recent public discussions on this subject. Even quite high authorities tell us that we are making no headway in paying off our gigantic Debt, and they preach the need of some drastic taxation like a surtax or a capital levy. …"
He goes on later to say that he proposes:
"… to recur to the policy instituted in Mr. Disraeli's Government by Sir Stafford Northcote in 1875 …"
and I take it that tonight we shall hear from the Financial Secretary whether it is true or not that the present Government intend once more to recur, in quite another way, to the same Act of 1875.

The right hon. Gentleman the present Prime Minister then indicated that he proposed to establish a fixed debt charge and to put that charge at £355 million a year, which compared favourably with Sir Stafford Northcote's debt charge of £28 million. Then he said:
"I propose, as far as I have any thing to say to it, that the Income Tax payer shall look forward to any relief which may be yielded by the conversion of the Debt or any large portion of the Debt to a lower rate of interest. He has that hope for the future. That is not included in the calculations of the fixed Debt charge. All the rest of the annual sum will continue to roll up until, or unless, the day dawns when some unholy hand is laid upon it."
We have had to wait until tonight, with a Government presided over by the same right hon. Gentleman, for unholy hands to be laid upon this Fund.

The right hon. Gentleman went on:
"The payment of £355 million a year, if steadily maintained, even if the rate of interest falls no lower than 4½ per cent., will extinguish our entire Debt, internal and external, including our Debt to the United States, without any addition to present taxation in a period of exactly 50 years."—[OFFICIAL REPORT, 24th April, 1928; Vol. 216, c. 828–830.]
It is true that we have not yet completed the 50 years to which the right hon. Gentleman referred, but we have certainly covered more than half the distance. Whereas, when the right hon. Gentleman was speaking in 1928, the National Debt was about £7,500 million, it is now something like £26,500 million. That is a vast increase, and it seems, if anything, to be growing larger each year. I know that the Government and the party opposite are very fond of complaining that the Labour Government were extremely extravagant, and piled debt upon debt, but it has been left to the present Government to increase the National Debt instead of reducing it as we tried to do, and I think did, when we were in office.

I realise that another devastating war has occurred since the right hon. Gentleman the present Prime Minister instituted this Fund in 1928, and that both the Labour Government and the present one have sometimes not been able strictly to comply with the provisions of Section 23. It has, I know, been suggested more than once that, as it is impossible, year by year, to allocate the £355 million, something should be done to abrogate that Section, but we are entitled tonight to hear what are the Government's proposals, and how much of Section 23 still subsists. It is a fairly long Section, much of which remains, I assume, in operation, and we should like to know the Government's intentions in regard to it.

It would also be interesting to know what is going to happen to the old Sinking Fund Act of 1875. I gather that the future repayments of the Debt will be made under the provisions of Sections 4 and 5 of that Act, but, as I understand it, any moneys which fall to be paid thereunder must be applied to the Rating Relief Suspense Account. We should, therefore, like to know whether anything is to be done in order to change the destination of such moneys as may be paid from the Consolidated Fund to the National Debt Commissioners under that Measure.

I shall listen with great interest, as I am sure will my right hon. and hon. Friends, to what the right hon. Gentleman has to say. I hope that he is not going to tell us that the 1922 Committee has been busy again and has decided that the promises made by the present Prime Minister as far back as 1928 have now to be abrogated. I hope, therefore, he will let us know what the Government propose to do, because the Debt is mounting up, and is now of a size that previous generations would have thought impossible to be borne either by themselves or by any future generation.

As the right hon. Gentleman has pointed out, the effect of the Clause is to dismantle the provision for the permanent annual charge for the National Debt which was provided by Section 23 of the Finance Act, 1928. The right hon. Gentleman has quoted from HANSARD the description of the purposes of that provision which was given at the time, by the then Chancellor of the Exchequer the present Prime Minister. I think it would be gross impertinence for any of us to try to re-describe what has already been described in his customary majestic language, but, as the right hon. Gentleman has pointed out, its purpose is to provide for paying off the National Debt, then totalling £7,528 million, in 50 years, and the annual debt charge prescribed, £355 million, was, on certain assumptions, actuarially calculated to pay off the Debt in that period.

In fact, as the right hon. Gentleman has said, the hope of so paying off the National Debt has faded. As he said, one of the major causes is that this country fought a Second World War. As a result largely of that, the National Debt now stands at £26,583 million. The main cause of that increase was undoubtedly the war, though right hon. Gentlemen opposite contributed a little to it, and we have made our contribution, largely, in our case, in respect of the financing of housing.

The proposal before us, therefore, really amounts to no more and no less than the bringing of the technical position into line with the real position. For many years past this provision has not operated. It has become almost a custom to put into every Finance Bill a Clause solemnly suspending this provision and substituting some other figure calculated in accordance with the needs and policies of the time. It seemed to us that it was a somewhat unreal procedure solemnly to go on suspending year by year a proposal which had ceased to operate, and when the circumstances in which it had been considered had altered so drastically. Therefore, we are proposing its repeal.

The right hon. Gentleman asked what we are doing. If he will look at the Sixth Schedule to the Bill he will see that the whole Section is repealed. Consequently, in future the provision, which is, of course, from the Consolidated Fund, for the service of the National Debt and for the payment of the statutory sinking funds will be made, as it has been in recent years, but it will not be necessary, in so making it, to suspend that Section.

9.15 p.m.

Opportunity is similarly taken to dispose of two other obsolete provisions. Just as in each year we have suspended the operation of Section 33 of the Finance Act, 1928, so we have suspended the operation of certain provisions of the Sinking Fund Act of 1875. It has been necessary to do so because under the old provisions, when money was to be used for the redemption of debt, it had to be retained until the end of the year and the debt then redeemed. That is obviously a wasteful method of proceeding as a result of which modern Governments have suspended that provision and when a balance has been available have used it for the redemption of debt. In the second subsection we propose to repeal that provision.

In the third subsection we propose to repeal another out-of-date provision with respect to quarterly accounts, which were never laid before the House in any event but which were required by Section 12 of the Exchequer and Audit Departments Act, 1866. These Amendments will bring our procedure on the Finance Bill into line both with modern practice and with modern requirements. Like the right hon. Gentleman, one cannot forbear a sentimental tear over the high hopes which ranged in 1928, but it is perhaps wise to face realities and not waste time in solemnly maintaining provisions which it is annually necessary to suspend.

The right hon. Gentleman has told the Committee that he is bringing this procedure into line with reality. I would add that he is bringing the attitude of the Conservative Party towards the National Debt into line with reality, too, because if there is anything for which the Conservative Party stands, it is the National Debt. Surely the whole reason why the Conservative Party is in existence is to provide methods, instruments and opportunities whereby some people may live without working through exercising the claims of ownership.

As long ago as the reign of William III it was recognised that what was then called "the funds" was a very useful system whereby people could live by owning and not by working. I never could understand why the Conservative Party, including the ancestor of the hon. and gallant Member for Cheltenham (Major Hicks Beach), used to genuflect, as they always did, on the altar of the sinking fund. The ancestor of the hon. and gallant Member for Cheltenham would rather have gone to live in the East End of London than fail to apply a sinking fund to the National Debt.

Before you came into the Chamber, Sir Rhys, the Financial Secretary was pointing out that it was no longer practicable to apply a sinking fund, and all I am doing is pointing out that the Conservative ideology, in taking cognisance of this fact, is reflecting what Conservatives really think. My right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) quoted a speech of the present Prime Minister, when he was Chancellor of the Exchequer, in 1928, supporting Section 23 of the Finance Act of that year, which is repealed under this Clause and its consequent Schedules. I put it to you, Sir Rhys, that I am therefore quite in order in discussing the motives which influenced the Conservative Party of that day in including Section 23 in the Finance Act, 1928.

That may be historically interesting, but it does not come within the Clause.

My right hon. Friend quoted what the Prime Minister, then Chancellor of the Exchequer, said. I was not there, but I was here when Section 23 of the Finance Act, 1928, was laid before the House. I happened to be in the Press Gallery at the time, and I remember the occasion very well.

The whole case for that Section, which is now to be repealed, was that if one repaid debt, that was rectitude; if one did not repay debt, that was turpitude. The Financial Secretary, the successor to Mr. Arthur Michael Samuel, of 1928, who said that one was no good if one did not repay but was good if he did repay, is saying that it does not matter whether we repay debt or whether we do not. We on this side much regret that this Clause should have been included in the Finance Bill of this year. We think it is a bad thing that the Government of the day should make no serious attempt to deal with what we regard as the evil of a big National Debt.

The Financial Secretary has just said, "We cannot do anything about it, anyway. Let us bring our legislation into line with reality. Let us admit that we cannot pay off this National Debt." We challenge the whole conception behind the Clause. First, it is not a good thing for the country that a huge National Debt. no matter how created, should continue to be in existence. We say that any Government occupying the Front Bench opposite that was worth its salt would do its best to get that National Debt down, because it is a burden. The Tory Government of 1954, including this Clause in their Finance Bill of 1954, are shirking a responsibility and acquiescing in an evil: namely, the existence of the National Debt, the effect of which is to make all of the people as taxpayers contribute to some of the people as moneylenders.

It so happens that the "some of the people as moneylenders," whether individuals or institutions, are most supporters of the party opposite. In this, as in the preceding Clause and as in everything it does, the Party opposite is looking after its own kind. But the people whom we represent are the people who pay taxes in order that the larger part of the yield of those taxes should be handed to these holders of the debt. The Conservative Party is running away from all the things it used to pretend to believe in, but in doing what it is doing, in saying, "Yes, here is this National Debt; nobody can do anything about it," the Conservative Party is merely meeting and suiting its own convenience.

He did not do it, but it would have been possible for the Financial Secretary, when he said that at the time of the 1928 Act the National Debt was of the order of £7,500 million, whereas now. he said, it is £26,000 million, to have said, had he wished, that there really was not much change, that the change was more apparent than real, that the debt, it is true, had been multiplied by three and a half, but that the purchasing value of the money, the units of which the debt is made up, had depreciated in about the same proportion.

It is approximately true that the debt, in so far as it is a burden, is about the same—it is not very much more, anyway—as it was in the period to which the Financial Secretary referred. He might have said that, because had he said it he would have been dealing with reality. But in this business of money we are not dealing with realities, and where the right hon. Gentleman—no doubt unintentionally and through lack of knowledge of the facts—misled the Committee was when he said, just before you came in, Sir Rhys, that this large increase in the nominal amount—

I do not understand how this is related to the provisions of the Clause.

It is related in this way. The Government include in the Finance Bill a Clause the effect of which is to abandon all pretence at statutory provision for annual reductions of National Debt. The Financial Secretary justified that on the grounds that it was not practicable to carry out any reduction any way, and he gave the Committee to understand that this was the inevitable result of World War II.

He said that the great increase since the Act of 1928—of which Clause 23 is now being repealed under Clause 30 of this Bill—in the National Debt had been due to World War II. He ought to know—it is his duty to know such things—that that is entirely due to the circumstance that we are dealing with interest-bearing paper as distinct from currency notes. We do not allow the Government to create it; we allow the private institutions to create it.

I feel that in this matter the Government and the Financial Secretary have been less than candid with the Committee. They are the great opponents of inflation. They are telling us that inflation is all wrong. But if anything is inflationary it is the existence of a large National Debt, because that means the existence of an enormous quantity of negotiable paper. It is currency with a difference. Instead of bits of paper bearing no interest, it is bits of paper bearing interest. He might have faced the inflationary implications of the existence of a large debt, but he did not do so.

He replied to my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall), in complacent purring tones, as if the whole thing did not matter. He is perpetuating the thing which he and his hon. Friends believe in. I am sure that I should be out of order if I proceeded to give the Committee a method of reducing the National Debt. I take it that that would be out of order, Sir Rhys.

This is a very happy occasion. For once, I find myself in complete agreement with the occupant of the Chair. Tonight the Committee is doing a had thing and the Government are doing a bad thing. They are giving up any attempt to fight against inflation, and they are doing so for the good old Tory reason that the cause of inflation, in this case the existence of an enormous amount of negotiable paper, is a good thing for them and their hon. Friends, because it helps them to live without work.

We do not intend to divide on this Clause, but at the same time I do not think that the Government should be under any illusion. We are not satisfied with the explanation given by the right hon. Gentleman. We realise that during the past years it has been inevitable that the payment of a fixed sum year by year was a great strain on both the Labour Government and, to a certain extent, this Government. It has, as the right hon. Gentleman said, been impossible for them to implement in full the sinking fund which was provided for under Section 23 of the 1928 Act.

But he should recollect that the provision has been there as a constant reminder year by year that it was not a bad thing, other things being equal, to do something to try and reduce the National Debt. After all, the service of the debt alone now is something over £500 million a year, which is a considerable sum. That money in happier times could be used for education, hospitals and for all sorts of other amenities for the people. It could have been used for these purposes without increasing taxation. We cannot therefore pass this over as something which does not matter, in spite of what my hon. Friend the Member for Nottingham, South (Mr. Norman Smith) has said, although much of what he said is, of course, true. A great part of this debt has been created by the banks, but we cannot go into that tonight, although in passing we can note it.

We have had no indication from the Financial Secretary that the Government are alive to the fact that something should be done to try and reduce this enormous burden which, as I say, takes over £500 million each year in interest alone. Finally, he did not make it clear what use the Sinking Fund Act, 1875, now performs. That Act has not been repealed, but I am not quite sure what use it now is. Perhaps the right hon. Gentleman will make it clear.

9.30 p.m.

The only point at which the 1875 Act is affected by this Clause is that the annual exercise known as suspending the old Sinking Fund will no longer be required, because the particular provision of that Act is abrogated by this Clause.

On the broader issue which the right hon. Gentleman raised, I did not think from his earlier speech that he wanted to deal with this matter otherwise than on the basis of a rather interesting change in procedure which is involved in the Clause. I would not, however, wish to leave him or anyone else under the impression that we were not at least as concerned as he is with the desirability of keeping the growth of the debt in check. As the right hon. Gentleman knows, the practice over a good many years has been that any Budget surplus is applied for the reduction of the debt and it has certainly been the case that from time to time that has had some effect on the debt.

I should not like to leave him under the impression that in repealing this provision, which, of course, provides for a much smaller figure for the service of the debt than annually has been provided for a great many years, we do not regard it as a serious matter. We do, but what we are concerned with here is very largely a question of machinery, and I am afraid that it is so out of date machinery that it would hardly be entitled to an investment allowance.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.

New Clause'—(Extension Of Certain Exemptions To Entertainments Provided By Local Authorities Or Their Committees)

.—(1) The expressions "society, institution or committee" and "society in the enactments conferring the following exemptions from entertainments duty, that is to say—

  • (a) the exemption for performances provided by a body whose aims, objects and activities are partly educational,
  • (b) the exemption for certain amateur performances.
  • (c) the exemption for certain amateur sports,
  • (d) the exemptions for exhibitions,
  • (e) the exemption for entertainments provided for partly scientific purposes,
  • shall, for the purposes of those exemptions, include a local authority and any committee or sub-committee of a local authority.

    (2) On a claim made by a local authority (but not by a committee or sub-committee) in respect of the exemption for performances provided by a body whose aims, objects and activities are partly educational, or of the exemption for certain amateur performances. the Commissioners shall have regard to the entertainments provided by the local authority, being entertainments which are, or apart from either of those exemptions would be, chargeable on the first scale of duty, and shall treat the local authority as not established or conducted for profit if they are satisfied that those entertainments are not provided for profit; and in considering for the purposes of the first of those two exemptions whether the local authority's aims, objects and activities are partly educational, the Commissioners shall have regard to those entertainments, and not to any other activities of the local authority.

    (3) On a claim made as aforesaid in respect of the exemption for certain amateur sports, the Commissioners shall have regard to the entertainments provided by the local authority, being entertainments consisting of games. races or other sports which are, or apart from that exemption would be, chargeable on the second scale of duty, and shall treat the local authority as established and conducted for the promotion and furtherance of amateur games or sports and as not established or conducted for profit if they are satisfied that the local authority provides the entertainments to which they are to have regard under this subsection for the promotion and furtherance of amateur games and sports, and not for profit.

    (4) On a claim made as aforesaid in respect of any of the exemptions for exhibitions or the exemption for entertainments provided for partly scientific purposes, the Commissioners shall have regard to the entertainments provided by the local authority of a kind to which the exemption relates, and shall treat the local authority as not established or conducted for profit if they are satisfied that those entertainments are not provided for profit.

    (5) The provisions of this section shall not restrict the cases in which a reduced rate of duty is chargeable under section fifteen of the Finance Act, 1950 (which relates to entertainments consisting partly of a cinematograph film and partly of some entertainment which by itself would be chargeable on the first scale of duty).

    (6) This section shall apply, and shall be deemed to have applied, to payments for admission (whenever made) to any entertainment held on or after the first day of July. nineteen hundred and fifty-four, and to any previous entertainment as respects which a claim for exemption made before that date had not then been disposed of by the Commissioners.

    (7) In this section—

  • (a) "the exemption for performances provided by a body whose aims, objects and activities are partly educational" means the exemption conferred by section eight of the Finance Act, 1946, in respect of entertainments consisting of one or more of the items mentioned in paragraphs (a), (b), (c), (e), (f) or (i) of subsection (1) of that section;
  • (b) "the exemption for certain amateur performances" means the exemption conferred by section ten of the Finance Act. 1949;
  • (c) "the exemption for certain amateur sports" means the exemption conferred 13) section seven of the Finance Act, 1953;
  • (d) "the exemptions for exhibitions" means the exemptions conferred b) section eight of the Finance Act, 1946, in respect of entertainments consisting of one or more of the items mentioned in paragraphs (g) or (h) of subsection (1) of that section and the exemption conferred by section eleven of the Finance Act, 1923;
  • (e) "the exemption for entertainments provided for partly scientific purposes" means the exemption conferred by subsection (5) of section one of the Finance (New Duties) Act, 1916, in respect of entertainments provided for partly scientific purposes.—[Mr. Boyd-Carpenter.]
  • Brought up, read the First time.

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

    This Clause is designed to secure the eminently conservative purpose of restoring the law to what it was recently believed to be. The Committee will recall that until recently entitlement to exemption from Entertainments Duty on the various grounds under different Acts of Parliament has been available to local authorities providing entertainments in the same way as anybody else. It is broadly with the intention of restoring that position in circumstances which I will briefly describe that we have thought it necessary and desirable to bring forward this new Clause.

    The new Clause covers the various grounds on which exemption can be granted but is perhaps particularly and most directly concerned with the exemption to be obtained under Section 8 of the Finance Act, 1946, which is the partly education exemption. To complete the background, the Committee will remember that in 1952 the House approved of a provision in the Finance Act of that year which was designed to prevent an abuse, in particular in connection with the provision directly or indirectly of variety or music hall entertainment.

    The subsequent history leading up to this Clause is this. A case was fought in the Chancery Division of the High Court recently between the Eastbourne Corporation and Her Majesty's Commissioners of Customs and Excise. The Commissioners had the advantage of being represented by my right hon. and learned Friend the Solicitor-General, and the Committee will therefore not be surprised to know that they were highly successful. In the course of this case—with the facts of which I need not trouble the Committee, because they relate to specific circumstances—the question arose for consideration as to whether as a matter of law local authorities were entitled to apply for such an exemption. We were advised that as a local authority cannot be properly described as "a society, institution or committee," which are the words of the Finance Act, 1946, Section 8, it was not possible in law for these exemptions to be granted to a local authority.

    The result, if we accepted the position, would be that it would not be possible for local authorities, providing entertainments of the appropriate character and quality, to seek the exemption which they had sought successfully for a number of years. This difficulty arises not only in connection with the seaside towns, which naturally have a considerable interest in the provision of entertainment to attract visitors, but even with such institutions as the Festival Hall on the other side of the river and entertainments provided by the London County Council.

    Consequently we had to consider what was the best step to take. The courses open to the Government in those circumstances seemed to be two. One was to accept the view of the law which we were given as the result of consideration of the matter after the Eastbourne case, and accept the position that although—as it now appears wrongly—exemptions had been granted to the local authorities for a number of years, we must now consider ourselves unable to give those exemptions. That would have had the consequence that all entertainments of whatever character provided by a local authority would have attracted Entertainments Duty.

    The other course to take is the one I am recommending to the Committee. It is that we should put into this Finance Bill a new Clause which will broadly restore the position to what it was believed to be before the Eastbourne case. It is with that purpose that I have moved this Motion.

    There is one subsection to which I ought specially to invite the attention of the Committee. Subsection (6) reads:
    This section shall apply, and shall be deemed to have applied, to payments for admission (whenever made) to any entertainment held on or after the first day of July, nineteen hundred and fifty-four, and to any previous entertainment as respects which a claim for exemption made before that date had not then been disposed of by the Commissioners.
    The reason we have thought it desirable to insert that provision is that, since we received the advice of the Law Officers, it has been thought proper for the Commissioners not to grant exemptions and, therefore, a number of cases have been held up for consideration. The date 1st July appeared as a long shot to be a fairly accurate forecast of the date at which it might be possible to seek the approval of this Committee for this Clause. If the Committee, and in due course the House, accept the Clause, it will then be possible to resume the practice of granting exemptions with the minimum dislocation.

    The Committee will appreciate that this is the time of year, so far as the seaside towns are concerned, when they are naturally particularly concerned with the provision of entertainments. It is equally the fact that if we are to restore the law to the position in which it was believed to be, we ought to do our best to minimise the dislocation. It is for that purpose that this subsection has been inserted in the new Clause.

    The law on the matter is complicated and, if any specific point of law arises, my right hon. and learned Friend is available to deal with it. The broad purpose and policy is to secure that the law as it affects the power to grant exemption to local authorities shall be restored to the position in which it was believed to be before that case, a situation which I suggest to the Committee operated not unsatisfactorily The choice is between doing that and regarding local authorities as not being qualified for an exemption for which other people can apply. In the circumstances, it seems right to restore the law to what we believe to be the position.

    I should like to ask two questions. In subsection (2) the first line reads:

    "On a claim made by a local authority (but not by a committee or sub-committee) …"
    I want to ask a purely technical question. Certainly there are some activities that might fall within the Clause which are carried on by a committee or subcommittee of a local authority. Unless there is a purely technical reason, I do not see why they should be excluded from the Clause.

    The other question is about subsection (6). At first sight it seems a curious provision that the Clause should take effect from a certain date but that it should also cover cases which had not been finally disposed of by the Commissioners before that date. I was not clear from what the right hon. Gentleman said whether or not there are some cases which were, or which will be, disposed of by the Commissioners before that date and others which are virtually on all fours which will not be disposed of. Obviously, that would be an unfortunate position.

    Would not it be better to fix a definite date or to say that all outstanding cases which were thought to be covered by an exemption should not now benefit from that exemption? I think that the right hon. Gentleman said that the impression was that the local authorities were exempted. It is now discovered that they are not. Would not it be better to make the Clause completely retrospective in this connection rather than to allow some cases to fall within it and to exclude others?

    The hon. Gentleman raised the question of the complicated drafting of subsection (2) that is necessary to secure that local authorities shall be able to come within the provisions of Section 8 of the Finance Act, 1946—the partly educational provisions. Under that Act, only if all such entertainments are not provided for profit and, in the case of this exemption, demonstrate partly educational aims, objects and activities, can the local authority establish its title to exemption. One has therefore to provide here what is to be treated for the purposes of Section 8 of the 1946 Mt as relevant. Otherwise, it might be possible for another committee of a local authority otherwise engaged to lose the entitlement to exemption.

    The hon. Gentleman asked about subsection (6). The practice has been that pending a decision of the Committee—and later of the House—applications have been suspended with a view to dealing with them favourably, if they can be dealt with favourably, on their merits.

    Question put, and agreed to.

    Clause read a Second time, and added to the Bill.

    New Clause—(Amendment Of Finance Act, 1948, In Respect Of Second Rate Of Purchase Tax)

    (1) The second rate of purchase tax shall be forty-five per cent. of the wholesale value of the goods instead of fifty per cent. of that value, and Part I of the Eighth Schedule to the Finance Act, 19443 (as amended by subsequent enactments, and by orders of the Treasury under section twenty-one of that Act), shall have effect as if for the words "fifty per cent." wherever these words occur, there be substituted the words "forty-five per cent."

    (2) The provisions of this section shall take effect as from the thirtieth day of September, nineteen hundred and fifty-four.—[ Mr. Jay.]

    Brought up, and read the First time.

    9.45 p.m.

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

    It would be convenient if we might also discuss the new Clause "Amendment of Finance Act, 1948, in respect of first rate of purchase tax at the same time. That would give my hon. Friends an opportunity to put forward claims for some concessions on Purchase Tax and also enable the Government to tell us why they have given no relief of any kind on Purchase Tax in the Budget this year.

    At present there are three rates of Purchase Tax—75 per cent., 50 per cent. and 25 per cent. These two Clauses together seek to reduce the 50 per cent. rate to 45 per cent. and the 25 per cent. rate—which of course covers much the largest amount of actual goods—to 16⅔ per cent. It has become customary in recent years in these debates to have a discussion on Purchase Tax, as I think this Committee ought every year to do, on a new Clause of this character, which seeks to reduce the rate, rather than to introduce reductions or exemptions for individual commodities. It would be out of order on this Bill, as it would have been on recent Finance Bills, to do anything else.

    Therefore, we have put down these new Clauses in order that, in the course of the debate, my hon. Friends may mention certain individual classes of goods on which we feel that concessions should be made as well as to discuss the actual rates. In the course of these debates the Committee ought to consider the case, for instance, of the textile industries for some relief from Purchase Tax. Do not let us forget that the very wide range of textiles, as well as boots and shoes and many other ordinary articles of consumption which enter widely into the cost of living, are still paying Purchase Tax at 25 per cent. today.

    It was the policy of the Labour Government, carried out in successive Budgets, to exempt an increasing number of ordinary household goods from Purchase Tax altogether. That policy has been completely abandoned by the present Government. Not merely textiles, boots and shoes and all sorts of household goods of that kind, are still subject to tax, but the present Chancellor is still imposing Purchase Tax on absolute necessities like soap, cutlery, razor blades and a host of other goods of that kind.

    In view of all that was heard from hon. Members opposite about the cost of living and about the alleged onerous effect of Purchase Tax in maintaining the high cost of living during the life of the Labour Government, we are entitled to ask why more exemptions of this kind have not been made and why, in particular, there has been no relief from Purchase Tax this year at all. The Chancellor made a statement in about the first week of January informing the public that there was to be no Purchase Tax concession in the Budget this year. The fact that he made that announcement then is no reason why the Financial Secretary should not explain to us tonight the Government's ground for refusing any concessions this year. I hope that the Financial Secretary will listen carefully to the case put by my hon. Friends in reference to textiles and a number of other individual types of goods, and also explain why there has been no relief from Purchase Tax this year, and what are the intentions of the Government in future years in regard to this tax.

    Can the right hon. Member explain why 30th September, 1954, is included in these new Clauses? Surely it would stop sales of materials if it became operative.

    If the hon. Member is going to support the Clause and has suggestions for improving it in detail, I am sure we would be very willing to consider them.

    I want briefly to raise a question about Purchase Tax, one which I have raised on the four previous Finance Bills. My reason for raising the subject again is based on the principle held by the Jesuits, good educationists, that constant repetition was the secret of good education.

    I refer to the Purchase Tax on school requisites. More than 60 requisites used in our schools are now subject to Purchase Tax. It is true that the tax was reduced from 33⅓ per cent. to 25 per cent. last year, but, even with that reduction, it is still a considerable burden when one realises that local education authorities have to pay about £1 million per year in tax on the school requisites which they provide for the use of the children.

    The tax on school requisites was first introduced by the present Leader of the House when he was Financial Secretary to the Treasury. When he introduced it he said that he regretted very much indeed having to put a tax on school requisites. The tax on school requisites is very much like the ancient tax on newspapers, which was described at the time as a tax on knowledge. The right hon. Gentleman said that the circumstances compelled him to introduce a tax upon school requisites, but he was sure that it would be of short duration and would be remitted immediately the war ended.

    The war has now been over for nearly nine years, but the tax has not yet been remitted. In fact, the burden upon the educational services is much heavier than it was when the tax was first imposed. In the first place, there are one million more children in our schools for whom educational requisites have to be supplied than there were when the tax was first imposed, and, in the second place, apart from the actual Purchase Tax, the cost of the school requisites is two or three times as much as it was when the tax was first imposed.

    The peculiar thing about the imposition of the tax on school requisites is that on the money which the local educational authorities spend in meeting the Purchase Tax the Ministry of Education make a grant varying between 40 and 80 per cent. We thus have the curious position that the Treasury takes some of the money with one hand and pays some of it back through the Ministry of Education with the other hand. That does not seem to be very clever finance.

    I do not want to weary the Committee by quoting a lot of figures, but hon. Members may be interested to know what the Purchase Tax on some school requisites amounts to. In the case of exercise books, note books and draw