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Finance Bill

Volume 884: debated on Wednesday 22 January 1975

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Again considered in Committee.

I was saying that both sides of the Committee would agree that many unpredictable and unexpected advances have been backed by wealthy men and that without such finance endeavours of that type would not have happened.

Will my hon. Friend guess how the late Lord Nuffield would have been able to operate under the provisions of the present Bill?

Lord Nuffield is one of the many names in a long history of generous men who have financed remarkable schemes throughout many years in this country. I agreed with the speech made by the hon. Member for Birmingham, Ladywood (Mr. Walden) and, like him, wondered about the morality of placing an effective limit on the gifts that wealthy men can make for charitable purposes. It appears to be all right if someone gives the money under compulsion for State services, but it is regarded as less worthy if he chooses to do so voluntarily. That is a difference of emphasis which I find difficult to accept.

In many ways there is a climate of opinion in this country that operates against the wealthy. They appear to be very much disliked and to be subjected to a great deal of criticism. But if they choose to give their money away, should it be made difficult for them to do so? Perhaps we underestimate the generosity of wealthy people. We all can give examples of wealthy people who have set up foundations for medical research, social service and a whole variety of voluntary activities, and perhaps we underestimate the eagerness of some people to donate money in this way.

For many years we in this country have not been anxious to encourage wealthy people to give their money away—certainly not as anxious as other countries have been to encourage that attitude. In the United States tax deductions are available for wealthy men who give their money to voluntary activities for social purposes. We may reach a meaningless and contradictory situation where on the one hand we criticise the wealthy for not using their money for social ends and yet at the same time we do not create a framework in which they can use their wealth for social purposes.

Many wealthy people would like to give their money away. One remembers how Andrew Carnegie gave his money away because he regarded the kept dollar as a stinking fish and thought that any man who died rich died disgraced. He made sure that he did not do so by giving away all his money and leaving to his widow and son only a life interest in his money. In our system, income tax as well as capital taxation should be designed to encourage people to contribute to voluntary activity. The Government's proposals will take us back a long way.

I hope that the Chief Secretary will accept the amendment. I am sure that the Labour Party does not wish our great charities to get into even greater financial difficulties than they are at the moment, when some are even in danger of closing down. I am sure that the Government have had the strongest representations from some of these charities.

Many wealthy people give generously and anonymously to charities. I am sure that the Labour Party would be happy if much of the wealth of which they wish so many to be stripped was given to charities working on behalf of society generally, and with no impost on the State.

I have been connected with charities for much of my life and am still closely connected with one of the greatest. Most of them are in great difficulties. Inflation has been eroding their reserves and their costs have not diminished. Their essential expenditure has risen considerably and they have had greater problems in raising money through flag days and other means that were so popular and productive in the past.

Many of these charities get little money in subscriptions, relying almost entirely on legacies and donations. Without some relaxation in the provision in the Finance Bill for those who subscribe in this way, some charities will not be able to continue. They all face problems of increased inflation in the cost of their staff, most of whom are tied to some public authority wage scale with threshold agreements. Many have undertaken considerable capital expenditure in buildings which must be maintained and staffed.

Most of us would like these charities to increase their operations. Unless something is done to help them now, there will be no possibility of increasing their activities, even to the extent of replacing staff who become redundant or of repairing buildings, etc.

I would ask the Minister urgently to go even further than accepting the amendment. This Bill may be the last chance to secure the future financial stability of some of our greatest charities. Not only is it the last chance to ensure their future stability. Unless there is encouragement for people to donate to these charities and the money starts to flow again, two or three years from now will see the end of some of the greatest charities not only in this country but in the whole world.

The more we examine the detailed implications of the capital transfer tax the more clearly it emerges that the Government have brought it forward without thinking through its consequences.

Like my right hon. Friend the Member for Farnham (Mr. Macmillan), I believe that capital taxation, properly thought out, has a rôle to play and that some form of transfer tax probably has a part to play within the concept of capital taxation. It is absolutely clear that the tax in this form will do very much more harm than good.

We have had lengthy debates about the effect of the tax on forestry. I will not add to that other than to say that if the Government persist in the attitude they have taken, for our children and our children's children the landscapes of Constable and Richard Wilson, with their great trees and cattle, will seem as exotic and as alien in 50 years' time as the landscapes of Van Gogh seem to us in England today, because it will be a country without great trees.

Equally, the effect on small businesses has been graphically illustrated by one after another of my hon. Friends. No reply has been forthcoming from the Government.

When it comes to charities, I endorse every word that was said by my hon. Friend the Member for Liverpool, Waver-tree (Mr. Steen). What stands out, above all, is the inopportuneness of the Government's proposals. They are proposing to alter fundamentally the tax laws governing charities at the very moment when two major committees are engaged in far-reaching inquiries into the whole future of charities and voluntary organisations.

There is the Goodman Committee, which is sponsored by the National Council of Social Service and which is looking into the whole of charity law. There is also the Wolfenden Committee, which is examining the rôle of voluntary organisations in the last part of this century.

It would seem to be only common prudence for the Government to defer any changes in the tax laws governing charities until at the very least these two committees have had a chance to issue their reports.

The right hon. Gentleman may also know that one of the sub-committees of the Expenditure Committee is likewise looking into the whole question of charities and the financial effect on them of the Government's tax policies. In this small field, too, therefore, we have a clear illustration of the very great damage that the Government are liable to do simply by acting prematurely. I do not go into the rights or wrongs of what the Government are proposing. I say at this stage merely that it is grossly premature and that a policy of attempting to block up loopholes which results in throttling windpipes is thoroughly retrograde.

I have no wish to throttle windpipes, although I am sometimes tempted. In saying that, I was not looking at the hon. Member for Blaby (Mr. Lawson) although perhaps I should have been.

I listened with great interest to the hon. Member for Liverpool, Wavertree (Mr. Steen). I hope he will not mind my saying that he spoilt a good case by seeming to imply that only he and not my hon. Friends cared for the voluntary services and charities. I hope he will agree that in that sense at least he was more than a little unfair.

10.15 p.m.

As my right hon. Friend the Chancellor made clear, we fully recognise the great strength of feeling on the question of charities. I entirely take the point made by the hon. Member for Gillingham (Mr. Burden). The hon. Member for Kingston-upon-Thames (Mr. Lamont) asked whether we would introduce substantial relief—those were his words—and I am happy to say that I can give that assurance. We have no wish to harm genuine charities. That is not our desire, and it never was. Having listened to this debate and the many other speeches in the debate yesterday, I now give the Committee that assurance.

I am sure the Committee realises that the amendment now before us does not necessarily give the best way to deal with this matter.

I am grateful to the right hon. Gentleman for what he has said, but will he give some indication of what the Government will do? That would be a great encouragement to charities. He must be able to give some indication, otherwise he would not be able to say that the Treasury intends to go a long way. Please, then, will the right hon. Gentleman come a little cleaner?

I know the hon. Gentleman very well, and I think that he understands me. I have gone pretty far. We did not finish listening to the debate until about eight o'clock this evening. I have given the Committee my assurance. We are now looking at it to see the best way of giving the relief.

I am glad to have that assurance. Without saying now the way in which he will implement it, can the right hon. Gentleman assure us that the Government will, in the letter and spirit, adhere to the pledge given in the White Paper?

As many hon. Members have understandably and reasonably said, the pledge in the White Paper is not altogether clear to everyone. I do not dispute that. I have said that we shall give substantial relief. I do not think that the Committee could expect me to go further than that so soon after the case has been made. I thought that that was what debates in the House of Commons were all about. We have agreed to look at it and to give substantial relief. We propose to look at the best way to do it. In the circumstances, I hope that the hon. Member for Wavertree will withdraw the amendment.

The amendment proposes that a donor should be free to give to charity as much as he likes, without limitation. Will that be honoured? Will the right hon. Gentleman give that undertaking?

I have been fair with the Committee. I hope that hon. Members will recognise that I have gone pretty far, considering how recently we have discussed the whole matter.

Amendment, by leave, withdrawn.

Amendment proposed: No. 53, in page 26, line 3, at end insert:

'(c) where the transfer is within section 20(1) of this Act, the rate or rates applicable under that table to the aggregate of the value of his estate immediately before his death and excluding the value of any transfers within paragraphs (a) and (b) of this subsection'.—[Mr. David Howell.]

Amendment negatived.

I beg to move Amendment No. 52, in page 26, leave out lines 11 to 27 and insert:

'Lower limitUpper limitPer cent
£££
030,000Nil
30,00040,00010
40,00050,00015
50,00060,00020
60,00080,00025
80,000100,00030
100,000120,00035
120,000160,00040
160,000200,00045
200,000240,00050
240,000300,00055
300,0001,000,00060
1,000,0002,000,00065
2,000,0004,000,00070
4,000,00075'.

We shall take at the same time the following amendments:

No. 93, in page 26, column 3, leave out lines 14 to 27, and insert:
  • '7
  • 10
  • 13
  • 17
  • 20
  • 24
  • 27
  • 30
  • 33
  • 37
  • 40
  • 43
  • 47
  • 50'.
No. 57, in page 26, line 27, at end add—
'(3) Each of the indexed figures shall with effect from 6th April 1975 and from every subsequent 6th April be altered in accordance with the formula set out below and the indexed figure as so altered shall apply during the period of 12 months beginning on the said 6th April in lieu of the indexed figure set out in this Part of this Act or, as the case may be, the indexed figure previously applicable:—
axb/c=d
  • "a" is the indexed figure as set out in this Part of this Act;
  • "b" is the retain price index for the month of March immediately before the 6th April on which the adjustment is to be made;
  • "c" is the retail price index for March 1974;
  • "d" is the index figure as altered.
  • (4) In this section the expression "the indexed figure" shall mean each of the figures in the first and second columns of the Table set out in subsection (2) above.
    (5) The tax charged on the value transferred by a chargeable transfer made after the figures in the first and second columns of the Table set out in subsection (2) above have been altered in accordance with subsection (3) above shall instead of being charged in accordance with subsection (1) above be charged as follows, that is to say—
  • (a) if the transfer is the first chargeable transfer made by that transferor, at the rate or rates applicable to that value under the Table set out in subsection (2) above as altered in accordance with subsection (3) above;
  • (b) subject to subsection 6 below if the transfer is not the first chargeable transfer made by that transferor, at the difference between the tax which would be chargeable at the rate or rates applicable under that 'Table as altered in accordance with subsection (3) above on a transfer of value equal to the aggregate of that value and of the adjusted total of the values previously transferred by that transferor, and the tax which would be chargeable at such rate or rates on the adjusted total of the values previously transferred by that transferor.
  • (6) Each chargeable transfer previously made by the transferor shall be adjusted as if it were an indexed figure and as if in the formula "b" were the retain price index for the month of March immediately before the time when the adjusted total of the values previously transferred is being ascertained and "c" were the retail price index for the month of March immediately before the transfer which is being adjusted and the aggregate of the values of charged transfers as so adjusted is in this section called "the adjusted total of the values previously transferred".
    (7) The Treasury shall as soon as practicable after 6th April 1976 and after every subsequent 6th April cause to be published in the Gazette the indexed figures as so altered and applicable during the period ending on the next following 5th April'.
    No. 86, in page 26, line 27, at end insert—
    '(3) If, at any time, the official retail price index shall rise above that obtaining on 25th March 1974 the Treasury shall, by order, specify that, for the purpose of subsections (1) and (2) of this section, "value" shall be taken to mean that value which, on 25th March 1974, had the same purchasing power (calculated by reference to that index) as the value transferred, and the tax charged on any chargeable transfer shall be that amount which has the same purchasing power (similarly calculated) at the time of the transfer as the amount of tax computed according to subsections (1) and (2) above had on 25th March 1974'.

    We come now to the set of amendments which go to the heart of the clause and the table set out in it. The figures in the amendment, by widening the tax bands, would substantially reduce the rate at which capital transfer tax would be charged. Throughout our debate so far the Chancellor and the Chief Secretary have maintained two things about the rate and the burden of the new tax. The Chancellor has argued more than once that his aim is to perfect what he believes to have been the aims of estate duty, and that these objectives should now be fully, roundly and perfectly achieved by the capital transfer tax. He has said more than once that the capital transfer tax will operate at a lower rate and that it will be a lesser burden, particularly on the less wealthy and people at the lower end of the scale. We believe that to be incorrect. We are not surprised that the right hon. Gentleman should say it because in his contributions last night and this afternoon he won the championship for getting the maximum number of incorrect statements into a speech. On this occasion he is flatly wrong.

    The right hon. Gentleman is wrong for three substantial reasons, and he cannot escape them merely by waving his hand and saying that the new tax replaces estate duty and tightens it up and that the rates are lower. The trouble is in the lifetime accumulation principle which is built into the tax. The fact that past gifts are taken into account means inevitably that transfers in many cases will be immediately lifted into the bands which would generate a far heavier burden than would have been the case with estate duty where it was paid. The accumulation principle makes straight comparison, rate with rate, absurd.

    Even greater complexity is added by the principle of the tax on the tax. I do not think that even now, certainly not outside the House and perhaps not even inside it, it is appreciated just what an additional burden this is and how the levying of CTT on the amount paid in CTT conceals the true scale of the tax, which is far higher than appears from the table in the clause. A complex set of calculations results.

    In an earlier debate one of my right hon. Friends challenged the Chancellor or anyone else to explain in intelligible and comprehensible terms what the rate of tax would be on any particular gift, on net gift value or on any grossed-up figure. The fractions and complexities are almost incomprehensible. If one tries to trace through the table one finds that on a gift of between £35,000 and £42,000 there would be a tax of £4,750 plus thirty-seventieths or 42·86 per cent. of any cost of the net gift over £35,250. That is one of the simpler examples. The cases get much more complicated after that.

    The additional twist of the tax on the tax means that the scale which appears so blandly in the clause is grossly misleading. Furthermore, I think we heard the Chancellor aright when he claimed that the same principles applied in the calculation and payment of estate duty. I fully support my hon. Friend who said that that, too, was incorrect. The estate duty principle is not the same as that which is proposed here. I do not know whether this was in the Government's mind, but the idea that donors would normally deduct from their chargeable gifts before payment seems to me to belong to cloud-cuckoo land like so much else of the tax. One has only to begin thinking about handing over a house and other things to realise the silliness of this proposition and the absurdities of the situation where part of the house has to be pulled down, or something equally absurd has to be done, in order to pay off part of the tax so that the gift may be made in the first place. It is a nonsense. The rates here are utterly misleading.

    That is the first set of reasons why the rates and the claim that the whole impost is lower than estate duty do not add up. The removal of the exemptions under estate duty for business assets and agriculture is yet another reason why the rates cannot be compared in the way in which the Chancellor tries to compare them.

    The second proposition concerning the rates has come up in a number of Labour speeches, inside and outside the Chamber, to the general effect that it is time we moved on to a capital transfer tax of this type because everyone overseas has one. They say that it is time we moved into the modern world and aligned ourselves with all those other countries with similar taxes. The implication, even if it is not spelt out, is that by doing so we are merely moving alongside them in our level of capital taxation. Comparisons with overseas countries can be misleading, and the whole of the Government's proposition which is based on such a comparison is also misleading. But if that is their ground they must expect to be fought on it. Therefore, it is worth looking at the reality of capital taxes overseas at the beginning of this debate.

    One of the most recent authoritative surveys is one by the Confederation of British Industry on overseas inheritance and gift taxes and estate duty. I shall not delay the Committee by giving the full details of the complexities and tables. To compare like with like is difficult, but the survey comes to some general conclusions which are significant for the debate. First, it points out that above a net gift of £176,250 we are dealing with a 100 per cent. tax—in other words, it is at a confiscatory level—and that the 100 per cent. rate rises considerably further than that. The sum of £176,250 is not considerable when we are concerned with handing on a small business.

    After looking around the world for other levels with which to compare the British rates, the survey's conclusion is that
    "Sri Lanka"—
    in my school geography textbooks that was Ceylon—
    "is generally considered to place the highest tax burden on capital of any non-Communist country in the world. Its maximum rate on gifts is 100 per cent., and it only applies to the taxable slice of gift over £92,500."
    That is, at the level of £176,250, where we have 100 per cent., the average rate in Sri Lanka is 77 per cent.

    The survey continues:
    "In European countries the inheritance and gift tax are considerably lower than those envisaged in the United Kingdom, and the majority of these countries have different scales of rates according to the degrees of consanguinity of the beneficiary with the donor. The maximum rates applicable to beneficiaries other than close relatives average about 62 per cent. The highest rate in Spain is at 84 per cent., which applies to gifts or legacies over £745,000."
    That compares with the proposed 181 per cent. for gifts over £1,710,250 in the United Kingdom.

    The survey also points out that outside the United Kingdom the consanguinity rates are such that
    "where spouses are not exempt from gifts or inheritance taxes the maximum rates applicable to them are predominantly in the range of 15 per cent. to 19.2 per cent. The maximum rates applicable to children vary more widely, but in no major European country"—
    except this country, if the Government persist with this crazy tax—
    "are they in excess of 35 per cent."
    We have already touched on the way in which CTT rates and the principle of the tax strike at the structure and principle of the family. We shall return to the question many times.

    I think I have said enough to demonstrate that the Chancellor's claim that this is no worse a tax and possibly a lighter tax than estate duty is spurious nonsense. The principles built into capital transfer tax mean that it will be a confiscatory and destructive tax. It will be a tax that will automatically lead to the elimination of many small firms, businesses and farms. The comparisons with other countries prove that we have the privilege of rating alongside Sri Lanka—possibly a little ahead of Sri Lanka—in the heaviness of the impost that we place on transfers, gifts and the inheritance of capital.

    [Mr. GEORGE THOMAS in the Chair]

    It is probably entirely inappropriate, but the phrase "For many are called, but few chosen" sprang to mind as my name came out of your lips, Mr. Thomas. At that moment I was sitting down minding my own business. I am relieved to be able to say that I want to speak on this group of amendments. I associate myself with the remarks of my hon. Friend the Member for Guildford (Mr. Howell). There is an amendment in my name, Amendment No. 92, which proposes a slightly different scale of rates. The thinking behind that different scale and the reasons for proposing it to the Committee are exactly the same as the reasons that my hon. Friend put forward.

    I must declare my position straight away. I do not feel as strongly as some of my right hon. and hon. Friends about the principle of a capital transfer tax. I have for some time been in favour of a form of capital transfer tax. I know that a number of my hon. Friends feel exactly the same way. We object to the complexity of this tax and the proposed rates.

    It is wrong for the Chancellor to try to portray the Conservative Party as a party that wants to entrench loopholes into our tax system. We oppose Clause 17 because we feel that at this moment this tax in this form will do great damage to the country. The principle of a capital transfer tax and the idea that when a person parts with part of his assets to another generation or to another group of people a tax should be levied is not objectionable. What makes this tax objectionable are the penal rates and the complexities.

    Even if we are in favour of a capital transfer tax, we only have to listen to the Chancellor trying to justify it to have our feeling of support begin to erode and our confidence undermined that there is a case to be made for such a tax. If the right hon. Gentleman believes in a capital transfer tax, he should make a vow never again to speak in favour of it until he understands it. When he speaks in favour of it he should take the malice and envy out of his voice and out of his thinking.

    As I have sat here over the past two days I have tried to reconcile what the Chancellor was saying about entrenching wealth with my experience of 15 years in practice as a chartered accountant. A practising accountant immediately becomes aware—the right hon. Gentleman may be bored with this phrase, but we know that he had a distinguished practice as an accountant—that wealth is not entrenched and that there are wealthy people who are in the process of losing control of their wealth, and people who never had any wealth to inherit who are acquiring wealth.

    It may well be, as the hon. Member for Oldham, West (Mr. Meacher), now Under-Secretary of State for Industry, used to bore us by saying, that a proportion of people had control at any given moment of a proportion of the nation's wealth. But the fundamental fallacy in his thinking was that that proportion was an unchanging group. It is no more offensive to say that there is a reasonably fixed proportion of people capable of controlling, handling and using money than it is to say that there is a fixed proportion of people capable of running a mile in four minutes. There is a fixed proportion, but it is not always the same people.

    The fallacy in the thinking of the hon. Member for Oldham, West and of the Chancellor, judging from the right hon. Gentlemen's remarks over the last two days, is that they keep thinking of entrenched wealth being in the hands of a fixed, unchanging group of people. The whole of my personal experience in the commercial world, and as one who has attempted to build up a group of companies, has been to prove exactly the opposite. It has been that at any given moment there are people who prove to be incapable of handling the assets they have acquired, either by inheritance or by good fortune, and are in the process of losing control of them to people more capable of handling them. The sooner the Chancellor gets out of his mind the idea that only he is capable of promoting redistribution—by which he means confiscation—and the sooner he starts to understand the way our present system works, the better it will be for all of us.

    My principal objection to this tax stems from that. The Chancellor feels that he is promoting redistribution and that this is the instrument which will prevent a fixed group of people controlling a huge slice of the nation's wealth. There is no need for him to trouble about that. The market is constantly taking care to make sure that people incapable of handling money do not keep it for long and that it finds its way into the hands of more capable people. The Opposition believe that society is safer that way and that the power and the ability to control people's lives should be taken away from bureaucrats. We believe that people's ability to stand up to the State and to be independent is preserved by the present system.

    It is very difficult to make a nice, tidy case for a society in which wealth and power are diffused and apparently controlled on a haphazard basis, but the fact is that an economy based on that principle happens to work. The Chancellor, in his misguided way, is setting out to wreak vengeance on the successful. The Chief Secretary shakes his head, but anyone who has listened to the Chancellor in the last two days must have formed the distinct impression that the yield of this tax and the question whether it would be of any use to him were of secondary importance. What he was after was the settling of some old scores with people whom he has hated for a very long time. He does not mind destroying a lot of companies and enterprises in his search for vengeance.

    We as a party say that this tax in its present form is objectionable. Its most objectionable features are the swingeing rates proposed. I have often wondered how the Chief Secretary reconciles the things he has to say at the Dispatch Box with the sort of advice he used to give to the people in the world in which he lived very successfully for a long time. I ask him to go back to Manchester and talk to various people—not people whose fathers left them fortunes but people who have built up their businesses and made a success of their lives. He should ask them how they feel about this tax and what it will mean, and whether their enthusiasm for investing in and enlarging their businesses has been affected. He should ask them what they feel now about the Chancellor's other plea that they should invest and set about creating the machinery which can produce greater wealth for our country, and whether they believe that this tax, on the present basis, will do anything to encourage them.

    The answer from the real world is loud and clear. It is not coming from people who seek to protect vested interests. It is coming from people who have only one interest, which is to see a prosperous and thriving Britain. They say to the Chancellor of the Exchequer "If you do this, especially at the rates which you propose, you will inflict enormous damage on our country."

    In its wisdom the Committee has approved Clause 17, although I doubt whether the motives of Government supporters in voting can be described as wisdom. Most of them have taken care not to be here so as not to hear either the Opposition arguments or those of the Government. But the news that there should be a tax on transfers is not in itself objectionable. Many of us would support a sensible capital transfer tax. We say, however, that at the proposed rates it will be a very damaging instrument and, in the hands of a politically motivated, unattractive Chancellor of the Exchequer like the one we have at present, a particularly damaging instrument.

    Some years ago I read an interesting article by the hon. Member for Birmingham, Ladywood (Mr. Walden) in which he used a phrase which I never understood until tonight. He was describing a Government composed of "knee in the groin" politicians. Until I saw the Chancellor of the Exchequer operating tonight, I had never understood the meaning of the phrase. The right hon. Gentleman has brought to life for me a most distasteful phrase in a most colourful way. Whenever I read the phrase again, I shall have no doubt about who is the quintessence of that very unattractive sounding type of politician.

    But the Chancellor of the Exchequer said that he wanted to "make the pip squeak". I am surprised that my hon. Friend did not understand the meaning earlier.

    I led a very sheltered life before coming to the House of Commons.

    I have made my point. I believe that this tax, rid of some of the complexities and at a sensible rate—and I regard these proposed rates as nonsensical—could be a not unwelcome addition to the statute book. At the present rates it is totally unacceptable. Even if the Chief Secretary is unwilling to accept these amendments, I hope he will accept an amendment based on the principles that our amendments try to express and that he will recognise that the rates proposed by the Government are damaging.

    With this amendment we are discussing Amendment No. 57. This may make for a slightly untidy debate, but we appreciate that this course has been adopted to facilitate our business in the hope that we may finish a little earlier tonight than we did last night.

    Amendment No. 57 is slightly complex but its purpose is clear. It is to ensure that, taking the retail price index at March 1974 as the base, the indexed figures set out in the amendment are adjusted automatically every 12 months in accordance with the retail price index, so that the tax is charged on the real value of capital transfers and not on the inflated value.

    The proposed subsections (5) and (6) may cause concern or puzzlement to those who, like me, have difficulty in understanding even what they have written. They are designed, however, to ensure in real terms that a transferor whose estate has been reduced by gifts over a lifetime should not pay more tax than if no transfers had been made before his death.

    10.45 p.m.

    This is another form of indexation amendment, in rather more positive terms than that moved by the hon. Member for Cornwall, North (Mr. Pardoe) earlier. If the amendment were accepted—and I confess that, having heard the Chief Secretary's response to earlier amendments dealing with indexation, I am not too confident—we would need to apply the same indexation to the figures in Schedules 4, 6 and 8. I cannot do so in this amendment because we are to debate those schedules in Standing Committee and it would be out of order to include them here.

    It has already been said that rapidly-growing inflation is concentrating attention more and more on the subject of indexation. That has been defined in various ways. Perhaps I can define it as relating monetary obligations—that is wages, salaries, pensons, loans, insurance and so on and tax scales—to an index of the rise in price levels or the fall in the value of money. It is by no means a new concept. I think it was first advocated in about 1875. The apostle of it today is the Chicago sage, Mr. Milton Friedman, who has advocated such a system for wages, taxes and financial investment for a long time in the United States.

    I believe that some hon. Members share my view that if we are to have indexation it has to be across the board. I do not think it succeeds if we apply it only to some elements of the economy. This has probably been the mistake when it has been tried in other countries and failed. It must be all-embracing. We have to be content with small beginnings. The opportunities given to the Opposition to move amendments which introduce an all-embracing system of indexation are rather limited. We have, therefore, to start with this.

    It has been said, I think by the Chancellor although it smacks of the Chief Secretary, that if we are to introduce indexation we should not start with the tax scales because they are likely to affect only the most affluent. I remind the Committee that we already have, in various ways, indexation for wages and salaries and social service benefits. As I pointed out in an intervention, the social contract provides a form of indexation.

    If we look at a comparison between wage levels and the rise in prices announced recently it is clear that workers generally have managed to keep ahead, through this social contract form of indexation, of the rise in prices. However, it is not much use providing improved remuneration, in whatever form, if by so doing we merely push individuals into higher tax brackets. If we are thinking of the effect of inflation on tax scales, especially on capital, we have only to consider capital gains tax, which has been with us for a long time. The failure to apply indexation to that tax has meant that over the years it has been a tax on capital. Frequently the gain which becomes a taxable item does not represent a profit at all and is merely an accretion of capital, due entirely to the impact of inflation. If that continued it would lead to the virtual destruction of capital.

    At present there are opportunities for capital gains to be limited. Anyone wishing to dispose of assets in whatever form may find himself involved in a loss rather than a gain. In normal circumstances, under a Conservative Government and in a prosperous economy, people would be making real capital gains.

    The scales of the capital transfer tax are very severe. Even if the amendment were accepted they would still be severe within the structure of the Bill. That is likely to lead to the break-up of businesses, farms and woodlands and will discourage enterprise. It will penalise many individuals, reduce donations to charities and cause serious damage to the economy. High as the scales are, and high as they will be even if the Chief Secretary has the wisdom to accept the amendment, they will become still higher as inflation works its way.

    The rate at which capital is being destroyed will be accelerated by the proposed capital transfer tax. Within a short time thousands of workers who would not normally expect to come within the purview of the tax will find that inflation brings the price of the house they own and their possessions within its ambit. Unless we introduce a form of indexation, for the first time they will have to pay capital transfer tax.

    In the past every Chancellor has enjoyed the benefit of undeclared tax collected for him by inflation. That has been described as buoyant taxation. When inflation was running at between 2½ per cent. and 3½ per cent., one could accept that and adjust oneself to it. It gave an extra bonus to the Chancellor which one did not grudge, but with inflation at its present rate that cannot continue. It makes complete nonsense of taxation when the Chancellor relies on inflation running at the rate of 20 per cent.—plus to yield him ever-increasing revenue, and it destroys capital and savings in private hands.

    Perhaps that is the intention. If it is the intention to use the tax weapon and unindexed scales as a quick means of destroying private capital and savings, the Chancellor should have the courage to say so. If it is not the intention, I can see no logical reason why the Chief Secretary should persist in his determination to resist any amendment which is designed to introduce a proper element of indexation into our tax legislation.

    Although the Chief Secretary gave a dusty answer to the hon. Member for Cornwall, North on the previous amendment, I hope that he will think again. We still have the opportunity on the schedules in Committee to table amendments to draw to his attention the overriding importance of introducing indexation in our fiscal legislation. We should not in future introduce any fiscal legislation in which tax scales are involved without automatically indexing them.

    I should like to assist the Chief Secretary in rethinking his attitude on indexation in general and indexation of the capital transfer tax in particular.

    My Amendment No. 86 has been grouped with this series of amendments. It is not for me to say that it is a better amendment, but it is certainly briefer and easier to understand. The purpose of this amendment is to say that for the purposes of the capital transfer tax all the transfers made and all the various amounts should be expressed in terms of 1974 pounds—a common base date— and be aggregated in 1974 pounds, and that the tax should then be calculated according to the table set out in the Bill, whatever the table is when the Bill is eventually on the statute book. When the tax liability is calculated in 1974 pounds, it would then be adjusted up again in relation to the rise in the cost of living, according to the retail price index and according to the fall in the value of money; and this would be the tax that is then paid.

    It is manifestly the case that if it is held that a particular level of wealth should attract the tax and that a lower level should not, that can make sense only in real terms. Wealth can be defined only in real terms. If mere numbers change, that fact does not make anybody wealthy. Therefore, nobody should come into the bracket simply because numbers change.

    The Chief Secretary has given an assurance that the tax will, of course, be reviewed every year. I am glad that the Chancellor has now come in and I hope that after consultation the Chief Secretary will be able to give a slightly more forthcoming assurance, because a review is never good enough, for the reasons pointed out by the hon. Member for Cornwall, North (Mr. Pardoe). It is also not sufficient assurance for the reasons cogently and tersely expressed by my right hon. Friend the Member for Finchley (Mrs. Thatcher).

    The promise of a review is certainly not good enough, particularly in this case. By what principle would the Treasury adjust the rates, even if in the annual review they were to adjust them? Simply adjusting the rates will not do the trick because if the rates were adjusted according to the increase in prices over a period this would have effects on somebody who had recently died without having given any gifts, with the whole estate taxed at that point. That is totally different from the effect on somebody who has been giving away most of his money in previous periods and when the aggregation covers different dates with the pound at different values.

    Whereas a rough and ready form of justice can be imported into the income tax system by a review, if that leads to regular adjustment, as it is for pension relief, it is a curious fact that in this form of taxation only an indexation formula, and of the kind I suggest in the amendment, would do the trick. That is the only way one can get an adjustment which is fair, just, and equal as between different taxpayers who have made their gifts at different times.

    Justice and constitutionalism lie in the root of the cry which is increasingly heard for indexation.

    It is appropriate that this amendment should be in my name and that of my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) because it was an amendment in his name and mine which in Committee on the Floor of the House on the last Finance Bill initiated the first debate in this Chamber on the principle of indexation. It was not a Liberal amendment, as we were erroneously led to suppose. [HON. MEMBERS: "Where are the Liberals?"] They are on their way to Annabel's or wherever Liberals go.

    11.0 p.m.

    We do not say that indexation would cure inflation, although we say that it would not make worse the rate of inflation. We do not say that it would have a direct effect, although it might have an indirect bearing in the sense that it would reduce the incentive to the Government to inflate. There is an incentive to a Government to inflate, because by doing so they can get increased revenue, and a Socialist Government, dedicated to increased taxation and to crippling various sectors of the economy and various groups of people through high income tax, see that inflation plus an unindexed tax system may have the combined effect of achieving Socialist ends more quickly.

    What we do say is that our proposal would be likely to bring justice into the tax system and into the way in which inflation affects different groups of taxpayers. It would, in general, remove some of the more difficult consequences of bringing down the rate of inflation.

    I quote as an example the indexing of the rate of interest on securities. If that rate is very high because the rate of inflation is high, when the rate of inflation comes down the borrower is in a bad way and there will be bankruptcies, failures and more unemployment. If, on the other hand, the borrowing is done in real terms, so that when the rate of inflation falls—we all hope that it will—the borrower is not left with the problems caused by the old high rate, there will be fewer bankruptcies and failures. What we propose would mitigate the undesirable side effects of curbing the rate of inflation.

    It is wholly wrong that the State should be able to increase taxation without getting the sanction of Parliament, but that is what happens with an unindexed tax system. It is also the case that the value of revenue from certain indirect taxes—the so-called specific duties—goes down all the time in real terms with rapid inflation whereas revenue from direct taxation goes up rapidly; thus, without the sanction of Parliament, there is a massive shift from indirect to direct taxation. Perhaps there should be such a shift, but if so it should be debated and agreed by the House of Commons.

    On several occasions the hon. Gentleman has lamented the amount of taxation that operates without the sanction of Parliament. Has not this been the practice in the past? Is he saying that taxation operating without the overall approval of Parliament is something new?

    I think it is deplorable that in recent debates the question of indexation has tended to be considered as a party political matter, with Labour Members feeling that they must support the tired old Treasury arguments against indexation without thinking matters out. This is not a party political matter. It has been around as long as inflation has been with us, but it has become much worse because the rate of inflation is very much higher. That is why it is urgent that we should do something about the situation now.

    I should like to make one last point, and I shall make it briefly because we sat so late last night. It was very cheap of the Chancellor of the Exchequer—I am not surprised that he has now slunk out of the Chamber—to accuse us of wanting to index the capital transfer tax and not being interested in indexing personal taxation which affects many more people. Not only did we discuss the question of indexation of personal taxation on Clause 5, as the Chief Secretary will bear out, but CTT was the one new tax which we had an opportunity to amend. We do not have the opportunity to amend personal income tax in the same way.

    I should like to make this offer to show our good faith. If the Chancellor will agree to introduce a new clause to give the Treasury power to index income tax, we shall be very happy to debate that matter whenever he sees fit to give us the opportunity to do so. With that assurance, I very much hope that the Chief Secretary will be able to support the amendment.

    I agree very much with all that my hon. Friend the Member for Blaby (Mr. Lawson) said about indexation, but I hope he will forgive me if I do not join him in debating that matter now since I have tabled a number of amendments on the subject for discussion upstairs in Committee. Therefore, I hope that we can leave the matter until later.

    I want to return to the point raised in Amendment No. 52—namely, the incidence and rates of tax to be levied under the Government's proposals. I accept the principle of a capital transfer tax, but one must look at the rates and the exemptions and make up one's mind whether it is broadly right or wrong. I have no doubt that in this case it is broadly wrong.

    I do not disagree when the Chancellor says that it would be right to block the old loopholes that exist in estate duty, but in the last few days the right hon. Gentleman has not leaned so heavily as he has in the past on his views about the unfair distribution and inequalities of wealth. I often wish that instead of using the word "inequalities" he would use the phrase "differences of wealth". I am sure even the right hon. Gentleman would accept that some people, with different qualifications and responsibilities, would accumulate more wealth in respect of the function they have to perform in society and the responsibilities which they fulfil.

    Much of the discussion about the distribution of wealth has been extremely muddled, as the hon. Member for Birmingham, Ladywood (Mr. Walden) said yesterday. There have been a number of publications by Left-wing academics on this subject. I refer particularly to that written by Professor Atkinson entitled "Unequal Shares". That book contributed significantly and misleadingly to the clouding of opinion on the distribution of wealth. The facts are hard to arrive at with any degree of certainty. It is noticeable that in the Green Paper on the wealth tax the Government could not come to firm conclusions about the distribution of wealth or the trend in that direction. I imagine that that is why the Royal Commission has been set up, to find out some of the facts, although the Chancellor seems to be prepared to leap ahead and make assumptions.

    The Government's Green Paper on the wealth tax made it clear that it is an uncertain area and that the distribution of wealth cannot be established from the figures for estate duty, because they leave out many small and medium estates and, therefore, understate the amount of such wealth—the amount of popular wealth and the number of insurance policies, often issued by the industrial companies and held by a large section of modestly-well-off people.

    Also, the statistics make little allowance for social benefits, for council housing or nationalised industries. The figures which are flung about say nothing about that sector of the economy which is in social ownership, yet in logic they should do so. The argument for nationalisation is that the community reaps the benefit. Therefore, one should ascribe a notional amount for one's ownership of British Rail or the docks. These figures are flung around with little justification.

    One figure often quoted by Labour Members is that 10 per cent. of the population own 70 per cent. of the wealth—a figure which is scarcely to be believed when it is accompanied in the next breath by the statement that 24 million adults have no wealth of any significance at all. That does not appear to be true when one considers the price of housing and the number of insurance policies issued. But even if that figure, which I believe to be untrue, is accepted, one has to make two significant adjustments. First, wealth in many families is usually concentrated in one member of the household, usually the senior male member. Second, older people tend to have much more in savings than young people. Statistics show that people over 75 have about seven times as much wealth as those in the 20–24 age group.

    Thus the figures are themselves suspect. Even if they were not, in the form in which they are presented they would not show that this country is markedly inegalitarian. A leading article in The Times a couple of years ago pointed out that if those two adjustments which I have mentioned were taken into account and applied to a society in which everybody earned the same amount but saved a proportion of their income through time, we would reach a society in which the distribution of wealth was not far different from what the statistics suggest it is today.

    It is remarkable that capital taxation should be increased before the facts about the distribution of wealth are clearly established. The Chancellor does not seem to be interested in listening to any evidence. He has continually swept aside objections because they have been made only by those who were affected by the tax. That was extraordinary, because in the Green Paper and in his announcement he said that he would be interested to receive representations from those affected by the tax. How are they to make their representations when, if they protest about it, their representations are to be dismissed because they are the people who are affected by the tax?

    11.15 p.m.

    We might ask how much redistribution and change has taken place in wealth in the recent past. Capital values have been eroded by the slump on the Stock Exchange and by inflation. We hear talk about vast agglomerations of wealth, but I wonder whether the wealthy in Britain are wealthy by comparison with those in many other countries and whether the "vast agglomerations of wealth" exist except in the Chancellor's mind. I suspect that there is more than a little truth in the remark of Rebecca West that we shall have a revolution in Britain only when the poor feel as poor as the rich.

    It is said that we wish to move to a society in which there will be a wider distribution of wealth. A wider distribution of wealth is not the same as concentrating that wealth in the hands of the State. Nor should spreading wealth throughout society be inconsistent with encouraging people to accumulate wealth and to save.

    Labour Members have little understanding of how people can accumulate wealth during their working life. A remarkable story appeared in The Times recently of a man who during his life had never earned more than £1,000 a year but had managed to save a few pounds each week. Eventually he had saved sufficient to buy himself a business. He ended up living in a hotel off the benefit of his business. He paid for his daughter's education. Now he is liable to the wealth tax and the capital transfer tax. One wonders whether those who framed this tax realise what can be achieved sometimes by people on modest and middle-range incomes.

    We on this side are not against the principle of a gifts tax. Inheritance is no more natural than property itself. Inheritance must be justified not by an appeal to natural rights, but by reason of the social utility of private wealth. The facts are that those who save or accumulate do this for the ends of society even though they themselves have narrower ends in view.

    As a result of this tax and as a result of the rates proposed by the Chancellor, the net stocks of savings will be lower. Savings which are well and efficiently managed will be transferred to consumption. We are always being told by hon. Members opposite that Britain does not invest enough. The other side of investment is savings. It is a noticeable fact, connected with our past economic performance, that Britain's savings ratio is very low compared with that of most other advanced countries. After this tax is introduced that ratio will be even lower.

    We believe that private wealth fulfils a social function. It helps to disperse power throughout society and to create different centres of power in opposition to the State. To confiscate wealth is simply to concentrate power in Whitehall. We are seeing in this tax and in the rates proposed nothing less than an envy tax designed to confiscate wealth. We are seeing the Chancellor's motives being revealed. It reminds me of an extract from Eva Peron's diary relating her discovery that there were poor and rich people in the world, but she decided that, on the whole, it was a fact that there were rich people in the world that upset her more than the fact that there were poor.

    This tax is an envy tax, a tax which will be socially destructive, a tax which will do immense harm to small businesses, to farms and to forests. Hon. Members on the Government side seem to think that all private wealth can exist only because one's great-grandfather was a robber or a pirate or achieved wealth by immoral or illegal means. The truth is that private wealth is the fruit of labour, and it ill becomes the Chancellor to take measures which will be utterly punitive and immensely damaging to our country's economy.

    I have hitherto restrained myself in this debate because I knew that I could look forward, if that be the right expression, to long exchanges with the Chief Secretary and the Financial Secretary during the night in the Standing Committee. I restrained myself despite considerable provocation from the Chancellor's inaccuracies and lack of knowledge about his own tax. I hope that I shall be forgiven now if, in view of the right hon. Gentleman's assertion that most of the critics of his tax were in favour of preserving the status quo, I make my own testament of faith before coming to the amendment itself.

    I am, and for a long time have been, in favour of reforms in capital taxation. I am in favour of a greater spread of wealth throughout the community. I wish to see a much better balance between taxes on income, including tax on savings income, and taxes on inherited capital. It follows from that that I want to see given to those without wealth who are trying to create some capital for themselves a much greater opportunity to keep more of their earnings and acquire savings up to a reasonable level, and a chance to pass some of that capital on, at reasonable levels, levels a bit beyond the present taxtion, to their dependants. It follows also that I agree with many of my hon. Friends that it would be right to close the loopholes in the present tax at the higher levels of inherited wealth.

    In that connection I take the point made by the hon. Member for Birmingham, Ladywood (Mr. Walden) last night when he said that in taxation often the lesser objective should be subservient to the greater. In this tax we see the opposite applying.

    I come now to the amendments, and I shall refer in particular to No. 52. Many of the deleterious effects of the Chancellor's tax would be at least mitigated by Amendment No. 52. If we cannot tear up the tax and start again, at least let us ease the situation by introducing these rates, because in many ways they go to the heart of the matter, since it is the rates as much as the method of the tax which are causing the difficulties.

    My first objection to the tax stems from the principle that no tax should be vicious and penal. The Chancellor made great play of the argument that at the lower levels of tax—I assume that by that he means lower levels of capital, that is, about £100,000 or less—his tax is more favourable than the present estate duty. That is just not true, and it is time we got that on the record once and for all. The right hon. Gentleman said that the tax was aimed at the vast estates, at a tiny minority. If that is the case, why penalise those of modest means?

    In fact, if we ignore the gifts element altogether and take the tax on death alone, where people have been prudent and taken advantage of the perfectly normal methods open to them under the estate duty system—that is, equalising assets between husband and wife and taking advantage of leaving a life interest to the surviving spouse—we see at every level, starting at £15,000, that this tax takes more away than does the estate duty. The Chancellor's argument about the benefits to the spouse is true only for those who have not arranged their affairs prudently.

    Moreover, as my hon. Friend the Member for Kingston-upon-Thames (Mr. Lomont) said, an enormous number of people will be brought into the net more disadvantaged by this tax than they would have been by the previous arrangements—brought in because of the inflation in house prices and the wide spread of life policies from which people are now gaining the benefit when they retire.

    The second reason why the tax is penal and vicious and why I support Amendment No. 57 is that the tax takes no account of the effects of inflation. It is unfair to compare the levels of this tax with the levels of estate duty. The Government should be raising the levels to take account of inflation. The third reason why it is vicious and penal lies in the combined effects of capital gains tax and the gifts tax, and because of the grossing-up. I do not believe that the Chancellor in his arguments last night dealt at all adequately with either of these points. I hope that we shall have some elaboration of what he said when we go into Standing Committee.

    A further objection that I have is that the rates of tax should be seen in the overall context of the rates of other taxes. Direct taxation is now at a very much higher level in Britain than it is in most of our competitors, and this applies to taxes on savings and capital gains tax. Here, surely, indexation is a necessity, because without it the present capital gains tax is a fraud since it is frequently not a tax on a capital gain. We shall have to take into account, too, other capital taxes in train.

    I would prefer to see lower rates of direct taxation, but I do not expect that from the Government. The rates in the amendment would therefore at least help to offset the very high levels of direct taxation generally.

    Finally, the capital transfer tax should be seen in the context of the general economic climate, and never more so than now. This is a time when we must go for expansion of agriculture for balance of payments reasons. More of existing earnings must go into savings, and jobs must be preserved. A lower rate of tax would help in all those respects.

    Much has already been said on savings, but I should like to give an illustration of the problem from something that has happened to me several times in the last few days. I have been visiting stores during their sales to try to acquire some of the things I need, and I have been talking to the sales staff at all types of stores. They have told me that the sales this year have greatly exceeded their expectations. I was told repeatedly that people seemed to be spending not only their income but their savings because they felt that their savings would be no longer worth keeping. This has happened before the capital transfer tax has appeared on the scene. The indications are that when the tax is law things will be very much worse.

    We have dealt with the arguments about agriculture. It is extraordinary that just when we need to expand agriculture for balance of payments reasons the Government are introducing a tax which will lead to a substantial loss of production. I fear that we shall see a decline of investment and of working capital, a fragmentation of the farms and an enormous loss of efficiency. I look forward to these arguments being developed in Standing Committee.

    There is also the question of the small businesses. There is a family firm adjoining my constituency which employed 182 people in a small rural town which is highly dependent on that employment. In the last 10 days the firm has gone into liquidation. I am not arguing that the reason for that is the capital transfer tax. The reason is the general economic situation and various other matters. But the capital transfer tax will cause this sort of thing to happen repeatedly to small firms in rural areas. In these rural areas there is frequently no alternative employment, and public ownership is certainly not the answer.

    For all the reasons I have given, therefore, I believe that it would help to mitigate the worst effects of the tax if the rates were reduced. Speaking as someone who has only recently become acquainted at firsthand with a rural area, I must say that as I listen to these debates unfold the conviction grows upon me that the Chancellor and his colleagues have simply not begun to understand the impact of a tax of this sort on the social and economic life of rural areas.

    This tax will seriously affect agricultural production, it will destroy woodlands and stop new planting, it will encourage the destruction and spending of savings, it will weaken the economy, it will make enterprise not worth while and it will seriously affect the fabric of society. At least if the Government were prepared to concede the amendment they would do something to lessen these effects.

    [Mr. ALAN FITCH in the Chair.]

    11.30 p.m.

    I too wish to speak to Amendment 52, but first I declare an interest in the matter. I apologise for not having declared it when I spoke about three hours ago on another amendment.

    Like my hon. Friends who have already spoken, I have no objection to the principle of a gifts tax, cumulative and inter vivos. But there are four points in the capital transfer tax—the double taxation element, the tax accumulated on the donor and not on the donee, the tax rates, and the allied point of grossing-up—that make me believe that the tax will place an intolerable burden on anyone who is endeavouring to save money or to build up a new business.

    Like my hon. Friend the Member for Norfolk, South (Mr. MacGregor), I think that the Chancellor has tried to mislead the Committee in saying that the burden of the tax will be less than that of estate duty on those of modest means and modest savings. He has totally ignored the basic concept of the tax, which is that, unlike estate duty, it will be a lifetime tax and many things will fall into its net that would not fall into the net of estate duty.

    Looking at the Chief Secretary, I am reminded of the words in "Alice's Adventures in Wonderland":
    "How cheerfully he seems to grin,
    How neatly spreads his claws,
    And welcomes little fishes in,
    With gently smiling jaws!"
    I wonder how many little fishes will swim into the jaws of the Treasury as a result of this new tax, and how many of them will be ordinary people who have tried to help their children, for example, by giving them a house on marriage or by paying a deposit towards a house—the sort of people who would never have been caught under estate duty.

    In support of his argument the Chancellor argued last night that the yield on CTT would be only about £380 million in the first year as opposed to £400 million with estate duty. But when Stock Exchange values have fallen by about one-half and property values are down by at least one-third we could normally have expected that the yield from estate duty would have fallen substantially in the period immediately ahead. The fact that the expected yield from CTT is only £20 million less shows just how buoyant a tax it will be and how large its net will be.

    The principle of grossing-up is incomprehensible to most laymen. I believe that it is a principle of taxation that it should be basically simple and easy to understand. This grossing-up is not. For example, in an inset in the Economist and the Investors' Review this week Barclays Bank said that on a gift of £50,000 the cumulative total of tax would be £7,750. A note put round about the CTT by some accountants said that on a gift of that sum the tax would be £12,083. The Times said today that it would be £19,000. On a simple, straight gift of £50,000, assuming no previous gifts, three sources estimate that the yield will be different. No one will be able to make a gift without seeing an accountant to try to calculate what the tax effect will be. Perhaps the Chief Secretary will tell us just what would be the tax on a gift of £50,000.

    Last night my right hon. Friend the Member for Finchley (Mrs. Thatcher) gave the example of someone who has a business worth £200,000 which he passes on to four people and pays a total of £211,000 in tax. I should like to develop that. Let us assume that he is then left only with a house, which he leaves to his daughter on his death, and that she has no other assets. The house is valued at £40,000, but the Revenue will seek to collect from the daughter tax of £61,696. Therefore the daughter, having received the house, will have no option but to sell the house and leave the country before the Inland Revenue can claim from her in tax £21,000 that she does not have. This is the effect of the Chancellor's tax and the combined and surprising effect of cumulative rates when they are matched with grossing-up.

    On the rates of the CTT, my hon. Friend the Member for Guildford (Mr. Howell) rightly said that we should not draw too many comparisons with rates in other countries. We must, of course, stand on our own feet in Great Britain. The fact remains, though, that tax rates on gifts throughout EEC countries are in every case except one substantially lower than the rates the Chancellor is proposing. In France, on gifts inter vivos to the spouse and children they range from 5 to 20 per cent., for example, and in Austria and Germany from 2 to 15 per cent. With the exception of Spain we, with rates at this level, will be far and away the highest in Europe.

    I speak in support of Amendment No. 52 moved by my hon. Friend, but I believe that the rates we suggest in that amendment for gifts tax are too high. When these are coupled with an extremely high burden of income tax in this country, I believe that for a cumulative gifts tax to work the rate should not be more than a low of 10 per cent. and a peak of perhaps 25 per cent., because it is only at that level that an individual starting his own business will be able to save enough money out of taxed earnings to put aside and to pay the gifts tax when he passes the business on to the next generation. It is essential that he should be able to do this.

    At the rates the Chancellor is suggesting, the tax will have two consequences. One will be massive evasion. I regret this. Internationally we have a very high reputation for paying our tax. A nation takes its stamp, however, finally from the people who govern it, and if we have a Government of evaders we shall turn into a nation of evaders.

    The final result of this tax will be that it will destroy private capital within a generation. If this is the purpose of the Government, if it is their wish to ruin those who go to work early, who have started a business and who have put their all into getting that business going, let them proceed with this tax at these rates but they should remember the cartoon which appeared the other day with the caption
    "Will the last business man leaving Britain kindly switch out the light."
    That will be the effect of this tax on British business men. They will leave. There will be a mass exodus from this country of just those people whom we need most. I sincerely hope that the Government will rethink the question of the rates.

    I know there are many who would like this debate to be brought to a fairly speedy conclusion. I start, therefore, by saying that I believe there is no reason whatever for curtailing discussion of any aspect of this measure. If we organise our business collectively in the House of Commons—this applies to all parties in turn as the change of democracy operates—so that we spend hours discussing minor matters and are then limited for time on matters which the Chancellor himself describes as being one of the most important tax changes since the war, that is no reason for curtailing the discussion, however inconvenient it may be to all concerned.

    Having listened to most of the debate on the capital transfer tax I am convinced, and I hope that every other Member is equally convinced, that never again should we have a major, complicated tax change introduced in legislative form without having a Select Committee to consider it first.

    We are often condemned in the House for being an irrelevant appendage to the life of the country. I am certain that none of the discussion on this measure that has taken place in the Press and which has been entered into by experts in other spheres has cast one fraction of the light cast by our discussion in Committee.

    Having said that, I make a plea to the Chief Secretary, for whose professional competence I have the highest regard, to take the opportunity to clear up the question of grossing-up. Just what is the difference between the tax on death and the tax when there is a gift inter vivos? Would I be right in assuming that the tax to be paid by the donor in any circumstances—I hope that the right hon. Gentleman is listening to me. I am trying to put these points as simply as possible. I suspect that he is not listening.

    Will the tax to be paid by the donor on a gift inter vivos correspond to the tax that would be paid by a sole beneficiary if there were a death? Secondly, will the right hon. Gentleman tell us in simple terms what the tax would be on £200,000 if there had been no previous gift? If the donor has no liquid funds of any kind on which he can lay his hands to pay the tax and if the donee pays the tax, will that be a loan to the donor attracting the penalties laid down for loans or will it be a gift to the donor on which tax will be payable and which will start the aggregation on disbursements by the donee?

    Those fairly simple questions show, as we all know, that this is a complicated tax. What worries me is that many people over the past eight or nine months will have committed themselves to a course of action which they probably cannot redress without having understood the consequences.

    I make one specific point on the levels of taxation which we are discussing. Again I feel that I should declare an interest, and to be on the safe side I shall do so. If I do not have an interest I shall be rather sorry. The Chancellor has said, and I accept this entirely, that estate duty was a voluntary tax. But I put to the Chief Secretary that our industrial structure exists in its present form and distribution because we have been operating a voluntary tax. What attempt has been made to assess the impact of the introduction of this tax on a business which does not have a Stock Exchange quotation and which may be family-owned or owned by a limited body of shareholders who are not related to each other?

    In my view the two-year stage will be too late. Maybe this is a tax that can be justified in logic and on the ground of social justice, but it is a tax—I admire the judgment of my right hon. Friend the Member for Finchley (Mrs. Thatcher) but on this point I must disagree with her—that will result in a life of about five years for many unquoted family companies.

    When this imposition—or this tax, if one wants to be non-controversial—is fully comprehended by people who, in order to keep such firms going, have to show great prudence in the handling of the company finances and in many cases substantial self-denial in the ordering of their affairs, find themselves faced with another complication, they will wait for the first opportunity to dispose of the business. I am not saying that that is right or wrong. I am saying that it is what will happen.

    11.45 p.m.

    Has any attempt been made by the Chief Secretary and his colleagues to discover how many businesses of this kind have continued because of gifts inter vivos? Have the Government made any attempt to weigh this particular change in our industrial structure against the advantages of a tax change which is dear to their hearts?

    Let me carry this one stage further. A host of smaller towns are largely dependent on just this kind of firm, so we are not discussing the one person in a thousand who is materially affected by estate duty or CTT. We are discussing a large number of the 37 per cent. of the working population who are employed by this kind of firm. We all know the process. The purchasers are a large organisation, and the employees are informed that, for good or bad reasons, the company has been sold. The purchasers say to the employees that they want to carry on the tradition of service and local employment and possibly expand it. In 12 months' time or two years' time, the premises are shut, the jobs are no longer there and the industrial and social life of the community is impoverished.

    That is what will happen as a result of this tax. It will happen not in 25 years or 20 years but: in about five years. When we assess the level at which this tax is to be levied, I hope that we do it with our eyes open as a House of Commons. I hope that hon. Members on the Government benches will not complain to their colleagues at the Dispatch Box in the course of the next year or two about rising unemployment in their constituencies, the loss of jobs and the lobbying to which they are being subjected because long-established firms are closing when they themselves have directly contributed to that situation by approval of this tax.

    By all means let anyone who thinks this is a good tax vote for it. But let him do so with full knowledge and comprehension of what the consequences will be for a very large number of firms and employees who are happy in their work and who would be very unhappy if they know the insecurity which lay ahead.

    I never find it difficult to offend the Whips. I shall not offend them tonight by taking very long.

    I associate myself with what my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) said about the general approach towards the tax. I do not object to the broad principle of a capital transfer tax. What I do object to are the confiscatory rates at which this tax is to be levied, the grossing up effect, and the fact that it is to be levied in conjunction with a capital gains tax and in conjunction with a stamp duty. I also object to the fact that it may be levied in conjunction with a wealth tax.

    For all those reasons, I believe that it will have a catastrophic effect, especially upon the industrial West Midlands. It is there that we see the typical small business. It is there that we see the typical risk-taker, the entrepreneur who has built up a great industrial concern from small beginnings. These small concerns are already heavily taxed. Often they are heavily taxed so that they may subsidise failing giants like British Leyland. The only reason why their owners hang on to them is the fond hope that the organisations may outlive their owners and may be passed on to their children. At the proposed rates of tax, that hope has gone for ever, and businesses like this are likely to be disbanded.

    I come now to the subject of indexation, which has been proposed as a fashionable panacea in this Committee on one occasion before. I disagree with my hon. Friend the Member for Wycombe (Sir J. Hall) and others who believe that to mention indexation is to be fashionable and trendy, and to suggest that there is some easy alternative to these harsh measures necessary to stop inflation.

    I do not think it will be possible to have indexation unless it is total indexation. I agree with the right hon. Member for Down, South (Mr. Powell). No Government could introduce total indexation in whole sectors of our economic activity. It would be impossible, for instance, to index all the loans which private individuals made to building societies. Equally, it would be impossible to index all loans made by building societies to people buying houses on mortgages. Even if all transactions surrounding the housing market were indexed, it is difficult to see how that would not affect all transactions in relation to the ownership or occupation of housing. It is difficult to see how it would be possible to avoid indexing contracts earlier to the date of indexation. Again, it is difficult to see how it would be possible to work out the indexing of private contracts. I am sure that some of my sophisticated hon. Friends say that it could be worked out very well. I am sure that it could, and I am sure that many of my hon. Friends who work for merchant bankers could work it out very well. But it is difficult to see how a notional Grannie Smith from Grazely in my constituency who lent her grandson £100 at 5 per cent. would be able to index that loan over a 20-year period. She would have the same difficulty in understanding indexation as some of my right hon. and hon. Friends have had in understanding the grossing-up effects of CTT.

    For all those reasons, I hope that my right hon. and hon. Friends will think long and carefully before jumping on board the indexation band wagon. I am highly sceptical of it, simply by temperament, because I am always sceptical of the fashionable. I believe that we should concentrate instead on becoming not the party of fashionable foibles but, most of all, the party of sound money.

    May I remind my hon. Friend that a number of us were talking about indexation and proposing it long before it became fashionable?

    I am sure that is so. I was not suggesting that all those who advocated it did so just because it was fashionable. In my enthusiasm, perhaps I was a little offensive. I withdraw the remark.

    I am aware of the hour, and I shall endeavour not to test the patience of right hon. and hon. Members. Equally, I hope that they will have sympathy for those of us who do not try to speak too often in this Chamber and who, just because we are not fortunate to be called earlier in the proceedings, might feel inhibited from speaking on subjects about which we feel strongly, when we believe that the interests of our constituents are seriously at risk.

    I will not traverse the ground covered at great length last night and this afternoon. I feel that there are points which have not yet been sufficiently forcibly made and which are germane to the question of the rate at which this tax is proposed to be levied. Last night the Chancellor made an effective debating point when he turned and grinned benignly at his hon. Friends behind him and said that it was unfair for us to argue that transactions should not be subject both to capital gains tax and capital transfer tax because it was the same as saying that because someone paid income tax they should not pay duty on a pint of beer. There is a fundamental difference between these two cases.

    It is that before any Chancellor fixes or revises the rates at which taxes on income shall apply, and the rates at which duties are to be levied, he takes careful account of the interaction of the two and of the spending power, after income tax, of those who will be required to pay taxes and imposts in other forms. The point which has emerged in the debate on capital transfer tax is that the rates proposed do not appear in any way to take account of the other weapons in this armament of taxes on capital which are now being slowly revealed.

    I agree with my hon. Friend the Member for St. Ives (Mr. Nott) and others, that it is difficult for us to make any objective estimate of the effects of this sort of taxation if it is revealed piecemeal and if we are still without the independent assessment, which the Chancellor has set in train, of the whole structure of wealth and income and therefore of the suitability of different types of taxation. It is because of the high rates at which the tax is proposed to be levied that its interaction with other taxes on capital becomes so relevant in considering its likely effects.

    Many hon. Members will have found that they are deeply affected, on behalf of their constituents, in the two respects which have been so fully discussed, those of farms and private companies. Perhaps because of the depth and detail of the discussions we have had, the single, central reason for this has been a little obscure. The reason why so much attention has been devoted in these last two days to these subjects is that they are the sort of assets which are largely indivisible for purposes of raising money with which to pay capital taxes. A second reason is that the people who have wealth in that form are also very often the least likely to have other liquid resources or assets out of which they could meet such taxes.

    I represent a constituency only 30 to 40 miles from London. It has four small to medium-size towns in it. Hitchin and Letchworth have many factories run by private companies. In the surrounding area of countryside there are small to medium-size farms. From what my hon. Friends have said I know that I am far from being alone in this. We are anxious because the whole fabric and social pattern of this type of constituency will be seriously undermined by capital transfer tax at these rates.

    12 midnight.

    Last night I went through the Lobby in support of the amendment moved by the hon. Member for Cornwall, North (Mr. Pardoe), partly because the Chancellor's answer was inadequate and partly because much of the danger of the tax to private companies would be mitigated if the tax were to fall on recipients rather than donors.

    But I must return to agriculture, because there is an important issue which remains to be raised. High rates of tax are to be levied on small and medium-sized farms which are held in a discretionary trust. A rate of 30 per cent. of the applicable tax is to be charged every 10 years. The great danger here comes from dealing with assets which are not easily divisible. Let us suppose that a farm of 1,000 acres in the home counties was valued at £1,000 an acre. The farm would represent an asset of £1 million. If the farm were to be transferred a tax of approximately £600,000 would be payable. Thirty per cent. of that would be £180,000.

    How is the farmer to raise that amount of money for the trustees within 10 years? He cannot raise it by selling 180 acres of a 1,000 acre farm because 180 acres are not viable as a farm. A farmer who anticipated the effect of the tax is bound to have concentrated his buildings and investment on that part of the land of which he did not expect to dispose. To pay the tax he will have to sell a larger proportion of the land than is represented by a straight division on a value basis. A farmer who for precautionary and not evasive reasons had put farming land into a discretionary trust within the last four years, and who was now the tenant of the farm, would be virtually forced out of business.

    In my constituency trusts were set up because there was at the time a 45 per cent. concession on estate duty and there is always a political danger that such a concession may be withdrawn. [Interruption.] My argument does not depend on the reasons for the setting up of the trust but on the fact that it has been set up. For agricultural property, land values rose within a very few years from £200 or £300 an acre to £1,000 an acre, and that rapid rise in the market value left people in extremely exposed personal financial positions.

    Had the 45 per cent. concession been under threat of withdrawal and had there been a fall in the market value of agricultural land at the time of a death it might have been completely impossible for the family of the farmer to raise sufficient money to pay the estate duty. Therefore it was a perfectly reasonable precaution to set up such discretionary trusts. I make this point in the sincere hope that the Government may have overlooked it rather than deliberately have excluded it.

    I apologise for raising this at such a late hour, but it is one more point made so serious by the extremely high rates and the grossing-up basis on which the tax is to be levied. The whole tenor of the arrangements for a tax on this scale and at these rates, as my hon. Friends have been saying with great effect, demonstrates that the Labour Party is more offended by wealth than by poverty while we are more offended by poverty than by wealth.

    It will be no surprise to the Committee when I tell them that I shall advise my right hon. and hon. Friends to resist this amendment. My first ground, but by no means my main ground, is on the question of cost. The cost of Amendment No. 52, to reduce the rate, in 1974–75 would be only £7 million. But in 1975–76 it would be £80 million, or nearly 25 per cent. of the estimated yield, and in the long term the cost would be almost 40 per cent. of the yield. That is a reasonable argument for resisting, but not the main argument.

    Hon. Members will forgive me if I am reasonably brief, because much of the debate was covered in the long Second Reading-type debate on the motion that Clause 17 stand part of the Bill. The question of small businesses will be covered in the next amendment but one, whenever we reach it.

    I shall refer to the speech by the hon. Member for Hertfordshire, South (Mr. Parkinson). I have great respect for him as a fellow accountant and I am happy to learn that he has always led a sheltered life. I am particularly pleased to learn that in common with many who have spoken from the other side of the Committee, he supports the capital transfer tax in principle, but I must say that they had a strange way of telling us how they support the tax in principle when they voted against it in principle when we sought to introduce it in Clause 17.

    At least the tax is not objectionable to them in principle, only on the rates. However, that was no reason why they should not have voted for the tax and sought to amend the rates. It is only because a certain gentleman wrote in a certain Sunday newspaper and the right hon. Lady the Member for Finchley (Mrs. Thatcher) felt it necessary to say what she would do about the tax if she ever had the opportunity—but this is a strange reason if they all support the principle.

    The hon. Member for Kingston-upon-Thames (Mr. Lamont) said at some length that he doubted whether we should have done this before knowing more about the distribution of wealth, about which we are having a Royal Commission. While there may be some doubt about the distribution of wealth, there can be no doubt whatever—and I hope that there is none in the mind of the hon. Member for Kingston-upon-Thames—that substantial sums have been avoided and not paid because of the way estate duty worked.

    The hon. Member agrees, and I am happy that he does. He said that he supports the principle of the tax, so now I come to the rates.

    The hon. Member for Guildford (Mr. Howell), who opened this debate, said, and has said before on a number of occasions, that the rates here were no lower than those of estate duty. Among those who argued the case, he put it differently, saying that it was not true that it would be lower than estate duty where estate duty was paid. But even that is not true because, at death, the rates for estate duty were higher than under the CTT.

    Of course, there was the major difference that there was no tax in most cases when the transfer was made in a lifetime. That was just one of the ways of avoiding paying estate duty. As far as the rates at death are concerned, there can be no doubt that, under Clause 33, the rates now are lower than they were under estate duty.

    The hon. Gentleman said that it would be difficult to calculate the rate of tax on the gift. The hon. Member for Wolverhampton, South-West (Mr. Budgen) explained how difficult it would be if we were to be so foolish as to accept Amendment No. 57 to index the rate, because the grandmother to whom someone referred would have to calculate by using the formula axb/c=d, as shown in that amendment.

    Some could argue that that would be simpler than under the system we propose, but nevertheless I suggest that it would be quite a way for the average taxpayer to calculate his liability. The hon. Member for Wolverhampton, South-West had strong words about the general question of indexation—it seems that there is indeed something in the air at Wolverhampton. I shall not repeat what I have already said about indexation. I simply say that I cannot accept the argument for indexation of CTT.

    The right hon. Gentleman gave some estimates for the future yield of the tax for two years forward. He also said that the rate would be required to take account of the rate of inflation. Can he now say whether the precise figures he quoted were on the assumption of a change in the tax of that kind?

    When we make an estimate of tax yield, we cannot do it on what the tax might be in years to come. It would be impossible. We can only do it on the basis of present rates. For the reasons I have given previously, and for the excellent reasons given by the hon. Member for Wolverhampton, South-West, I cannot accept indexation in this case.

    I have been asked about grossing up. It is important to get the point clear because a number of hon. Members are not sure about it. The hon. Member for Guildford gave some figures about its being a 100 per cent. tax—he was using the net level—and said that it was much worse than under estate duty. I make it clear that the CTT arrangement follows estate duty.

    I was asked about the figure of £50,000, so I will use it as an example. The leader in The Times today referred to this question, and it seems that the person who wrote it did not write The Times leader on 14th August and does not quite appreciate the problems in relation to grossing up. On a first gift of £50,000, if the tax were paid by the donee as the person receiving the gift he would bear tax of £7,750, so that there would be a gross gift of £50,000 and the net benefit to the recipient would be £42,250. If the tax were paid by the donor he would bear tax of £12,083, because the gross gift would be £62,083 and the net benefit to the donee would be £50,000. That is the way in which estate duty works out at death—in other words, in exactly the same way. I hope that is now clear and that we can leave the question of grossing up.

    12.15 a.m.

    Could the Chief Secretary say under what circumstances the capital transfer tax could be paid by the donee in the first example which he quoted?

    The answer is simple. If the donor gives away total assets and has no assets left, it will be paid by the donee.

    A number of other points have been made which have been answered on a number of occasions throughout our many debates. We also have had many representations from people outside the House on the rates proposed in the Bill and their argument has been that the rates are intolerably high. They are lower than they were under estate duty, but the major difference is that they were not paid under estate duty.

    I should like to have heard the right hon. Member for Finchley say that she, too, did not like the idea of having a capital transfer tax which was as readily avoided as estate duty. There was nothing illegal about it, but what we are now doing is to stop that form of avoidance. We shall stop the situation whereby large numbers of people—in the comparative sense wealthy people—were able to avoid paying any tax at all.

    We on the Government benches believe that there is a considerable difference of opinion on the whole question of the avoidance of estate duty. I know that some Opposition Members have paid lip-service to wanting to stop avoidance, but are opposed to the idea of replacing it with a tax which would stop avoidance. They vote against the principle of a capital transfer tax but—

    If the right hon. Gentleman would like to introduce the kind of gifts tax which exists in France, many of us would be willing to support him. It is a totally different tax.

    I am happy with the one we have got, and so are my right hon. and hon. Friends.

    The right hon. Lady and many of her colleagues think that the tax is very penal. The fact is that the yield is similar to that from estate duty. In regard to all the people for whom the right hon. Lady has been pleading who have not previously paid estate duty and who will now pay capital transfer tax, who will pay less? I shall tell her. The people paying less are the small and medium-sized type of wealthy person who did not

    Division No. 71.]

    AYES

    [12.20 a.m.

    Adley, RobertCorrie, JohnGriffiths, Eldon
    Aitken, JonathanCostain, A. P.Grist, Ian
    Alison, MichaelCrouch, DavidGrylls, Michael
    Arnold, TomDavies, Rt Hon J. (Knutsford)Hall, Sir John
    Atkins, Rt Hon H. (Spelthorne)Dean, Paul (N Somerset)Hall-Davis, A. G. F.
    Awdry, DanielDodsworth, GeoffreyHamilton, Michael (Salisbury)
    Baker, KennethDouglas-Hamilton, Lord JamesHampson, Dr Keith
    Banks, RobertDrayson, BurnabyHannam, John
    Bennett, Dr Reginald (Fareham)du Cann, Rt Hon EdwardHarvie, Anderson, Rt Hon Miss
    Benyon, W.Durant, TonyHavers, Sir Michael
    Berry, Hon AnthonyEden, Rt Hon Sir JohnHawkins, Paul
    Biffen, JohnEdwards, Nicholas (Pembroke)Hayhoe, Barney
    Blaker, PeterElliott, Sir WilliamHeath, Rt Hon Edward
    Body, RichardEmery, PeterHicks, Robert
    Boscawen, Hon RobertEyre, ReginaldHiggins, Terence L.
    Bowden, A. (Brighton, Kemptown)Fairbairn, NicholasHolland, Philip
    Boyson, Dr Rhodes (Brent)Fairgrieve, RussellHooson, Emlyn
    Braine, Sir BernardFinsberg, GeoffreyHordern, Peter
    Brittan, LeonFisher, Sir NigelHowell, David (Guildford)
    Brotherton, MichaelFletcher, Alex (Edinburgh N)Howell, Ralph (North Norfolk)
    Brown, Sir Edward (Bath)Fookes, Miss JanetHutchison, Michael Clark
    Buchanan-Smith, AlickFowler, Norman (Sutton C'f'd)Irving, Charles (Cheltenham)
    Buck, AntonyFry, PeterJames, David
    Budgen, NickGalbraith, Hon T. G. D.Jenkin, Rt Hon P. (Wanst'd & W'df'd)
    Bulmer, EsmondGardiner, George (Reigate)Jessel, Toby
    Burden, F. A.Gilmour, Rt Hon Ian (Chesham)Johnson Smith, G. (E Grinstead)
    Carlisle, MarkGlyn, Dr AlanJopling, Michael
    Carr, Rt Hon RobertGodber, Rt Hon JosephJoseph, Rt Hon Sir Keith
    Carson, JohnGoodhart, PhilipKellett-Bowman, Mrs Elaine
    Chalker, Mrs LyndaGoodhew, VictorKershaw, Anthony
    Channon, PaulGoodlad, AlastairKimball, Marcus
    Churchill, W. S.Gorst, JohnKing, Evelyn (South Dorset)
    Clark, Alan (Plymouth, Sutton)Gow, Ian (Eastbourne)King, Tom (Bridgwater)
    Cockcroft, JohnGower, Sir Raymond (Barry)Kitson, Sir Timothy
    Cooke, Robert (Bristol W)Grant, Anthony (Harrow C)Knight, Mrs Jill
    Cope, JohnGray, HamishKnox, David

    previously avoid paying tax. I refer to wives and husbands who previously paid tax on death. That is what we are doing in this tax, and I do not think anybody on this side of the Committee wants to change that type of tax. We have a good one and we are going to stick to it.

    My hon. Friends have made it clear that tens of thousands of families and work people in smaller businesses will be directly hit by the tax, and that it is so complicated that many will not be able to work out their liability until too late. Whatever the Chief Secretary says, it is utterly misleading to compare it with estate duty and to imply that the effect will not be much different, that it will merely fill a few loopholes. It will do nothing of the kind. It will strike at the livelihood of many tens of thousands of small people, concerned with creating wealth, who can ill afford to pay it. The tax will destroy wealth. We shall vote for the amendment to show our deep disapproval of this type of tax.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 220, Noes 252.

    Lamont, NormanNelson, AnthonySilvester, Fred
    Lane, DavidNeubert, MichaelSims, Roger
    Latham, Michael (Melton)Newton, TonySinclair, Sir George
    Lawrence, IvanOnslow, CranleySkeet, T. H. H.
    Lawson, NigelOppenheim, Mrs SallySmith, Cyril (Rochdale)
    Le Marchant, SpencerPage, Rt Hon R. Graham (Crosby)Smith, Dudley (Warwick)
    Lewis, Kenneth (Rutland)Pardoe, JohnSpicer, Jim (W Dorset)
    Lloyd, IanParkinson, CecilSpicer, Michael (S. Worcester)
    Loveridge, JohnPattie, GeoffreySproat, Iain
    Luce, RichardPenhaligon, DavidStainton, Keith
    McCusker, H.Percival, IanStanbrook, Ivor
    Macfarlane, NeilPeyton, Rt Hon JohnStanley, John
    MacGregor, JohnPink, R. BonnerSteen, Anthony (Wavertree)
    Macmillan, Rt Hon M. (Farnham)Powell, Rt Hon J. EnochStewart, Ian (Hitchin)
    McNair-Wilson, M. (Newbury)Price, David (Eastleigh)Taylor, Teddy (Cathcart)
    McNair-Wilson, P. (New Forest)Price, William (Rugby)Tebbit, Norman
    Madel, DavidPrior, Rt Hon JamesTemple-Morris, Peter
    Marten, NeilPym, Rt Hon FrancisThatcher, Rt Hon Margaret
    Mates, MichaelRaison, TimothyThomas, Rt Hon P. (Hendon S)
    Mather, CarolRathbone, TimTrotter, Neville
    Maudling, Rt Hon ReginaldRawlinson, Rt Hon Sir PeterTugendhat, Christopher
    Mawby, RayRees, Peter (Dover & Deal)van Straubenzee, W. R.
    Maxwell-Hyslop, RobinRenton, Rt Hon Sir D. (Hunts)Viggers, Peter
    Mayhew, PatrickRenton, Tim (Mid-Sussex)Wakeham, John
    Meyer, Sir AnthonyRidley, Hon NicholasWalder, David (Clitheroe)
    Mills, PeterRidsdale, JulianWalker, Rt Hon P. (Worcester)
    Miscampbell, NormanRifkind, MalcolmWalters, Dennis
    Mitchell, David (Basingstoke)Roberts, Michael (Cardiff NW)Weatherill, Bernard
    Moate, RogerRoberts, Wyn (Conway)Wells, John
    Molyneaux, JamesRoss, Stephen (Isle of Wight)Whitelaw, Rt Hon William
    Monro, HectorRoss, William (Londonderry)Wiggin, Jerry
    Moore, John (Croydon C)Rost, Peter (SE Derbyshire)Winterton, Nicholas
    More, Jasper (Ludlow)Royle, Sir AnthonyYoung, Sir G. (Ealing, Acton)
    Morgan, GeraintSainsbury, TimYounger, Hon George
    Morris, Michael (Northampton S)St. John-Stevas, Norman
    Morrison, Charles (Devizes)Scott, NicholasTELLERS FOR THE AYES:
    Morrison, Peter (Chester)Shaw, Michael (Scarborough)Mr. Adam Butler and
    Mudd, DavidShelton, William (Streatham)Mr. John Stradling Thomas.
    Neave, AireyShepherd, Colin

    NOES

    Abse, LeoCorbett, RobinGarrett, W. E. (Wallsend)
    Allaun, FrankCox, Thomas (Tooting)George, Bruce
    Anderson, DonaldCraigen, J. M. (Maryhill)Gilbert, Dr John
    Archer, PeterCrawford, DouglasGolding, John
    Armstrong, ErnestCrosland, Rt Hon AnthonyGould, Bryan
    Ashley, JackCryer, BobGourlay, Harry
    Ashton, JoeCunningham, G. (Islington S)Graham, Ted
    Atkins, Ronald (Preston N)Cunningham, Dr J. (Whiteh)Grant, George (Morpeth)
    Atkinson, NormanDalyell, TamGrocott, Bruce
    Bain, Mrs MargaretDavidson, ArthurHamilton, James (Bothwell)
    Barnett, Guy (Greenwich)Davies, Bryan (Enfield N)Hamilton, W. W. (Central Fife)
    Barnett, Rt Hon JoelDavies, Denzil (Llanelli)Hamling, William
    Bates, AlfDeakins, EricHardy, Peter
    Bean, R. E.Dean, Joseph (Leeds West)Harper, Joseph
    Benn, Rt Hon Anthony Wedgwoodde Freitas, Rt Hon Sir GeoffreyHarrison, Walter (Wakefield)
    Bennett, Andrew (Stockport N)Dell, Rt Hon EdmundHattersley, Rt Hon Roy
    Bidwell, SydneyDempsey, JamesHatton, Frank
    Bishop, E. S.Doig, PeterHayman, Mrs Helene
    Boardman, H.Dormand, J. D.Healey, Rt Hon Denis
    Booth, AlbertDouglas-Mann, BruceHeffer, Eric S.
    Boothroyd, Miss BettyDuffy, A. E. P.Henderson, Douglas
    Bottomley, Rt Hon ArthurDunn, James A.Hooley, Frank
    Bradley, TomDunnett, JackHoram, John
    Bray, Dr JeremyDunwoody, Mrs. GwynethHoyle, Douglas (Nelson)
    Brown, Hugh D. (Provan)Eadle, AlexHuckfield, Les
    Buchan, NormanEdge, GeoffHughes, Rt Hon C. (Anglesey)
    Buchanan, RichardEllis, Tom (Wrexham)Hughes, Mark (Durham)
    Butler, Mrs Joyce (Wood Green)Ennals, DavidHughes, Robert (Aberdeen N)
    Callaghan, Jim (Middleton & P)Evans, Gwynfor (Carmarthen)Hughes, Roy (Newport)
    Campbell, IanEvans, Ioan (Aberdare)Hunter, Adam
    Canavan, DennisEvans, John (Newton)Irving, Rt Hon S. (Dartford)
    Carmichael, NeilEwing, Harry (Stirling)Jackson, Colin (Brighouse)
    Carter, RayFernyhough, Rt Hon E.Jackson, Miss M. (Lincoln)
    Carter-Jones, LewisFlannery, MartinJay, Rt Hon Douglas
    Cartwright, JohnFletcher, Ted (Darlington)Jeger, Mrs Lena
    Clemitson, IvorFoot, Rt Hon MichaelJenkins, Hugh (Putney)
    Cocks, Michael (Bristol S)Ford, BenJohn, Brynmor
    Coleman, DonaldForrester, JohnJones, Alec (Rhondda)
    Colquhoun, Mrs MaureenFowler, Gerald (The Wrekin)Jones, Barry (East Flint)
    Concannon, J. D.Fraser, John (Lambeth, N'w'd)Judd, Frank
    Conlan, BernardFreeson, ReginaldKaufman, Gerald
    Cook, Robin F. (Edin C)Garrett, John (Norwich S)Kilroy-Silk, Robert

    Kinnock, NeilOgden, EricStott, Roger
    Lambie, DavidOrbach, MauriceStrang, Gavin
    Lamborn, HarryOvenden, JohnTaylor, Mrs Arm (Bolton W)
    Lamond, JamesOwen, Dr DavidThomas, Mike (Newcastle E)
    Latham, Arthur (Paddington)Padley, WalterThomas, Ron (Bristol NW)
    Leadbitter, TedPalmer, ArthurThompson, George
    Lee, JohnPark, GeorgeTierney, Sydney
    Lewis, Ron (Carlisle)Parker, JohnTinn, James
    Lipton, MarcusParry, RobertTomlinson, John
    Litterick, TomPavitt, LaurieTorney, Tom
    Loyden, EddiePeart, Rt Hon FredVarley, Rt Hon Eric G.
    Luard, EvanPerry, ErnestWainwright, Edwin (Dearne V)
    Lyon, Alexander (York)Phipps, Dr ColinWalden, Brian (B'ham, L'dyw'd)
    Lyons, Edward (Bradford W)Prentice, Rt Hon RegWalker, Harold (Doncaster)
    McElhone, FrankPrice, C. (Lewisham W)Walker, Terry (Kingswood)
    McGuire, Michael (Ince)Price, William (Rugby)Ward, Michael
    Mackenzie, GregorRees, Rt Hon Merlyn (Leeds S)Watkins, David
    Mackintosh, John P.Richardson, Miss JoWatkinson, John
    Maclennan, RobertRoberts, Gwilym (Cannock)Watt, Hamish
    McMillan, Tom (Glasgow C)Roderick, CaerwynWeetch, Ken
    Madden, MaxRodgers, George (Chorley)Wellbeloved, James
    Magee, BryanRodgers, William (Stockton)Welsh, Andrew
    Mahon, SimonRooker, J. W.White, Frank R. (Bury)
    Marks, KennethRose, Paul B.White, James (Pollock)
    Marshall, Dr Edmund (Goole)Ross, Rt Hon W. (Kilmarnock)Whitehead, Phillip
    Marshall, Jim (Leicester S)Rowlands, TedWhitlock, William
    Mason, Rt Hon RoyRyman, JohnWigley, Dafydd
    Meacher, MichaelSandelson, NevilleWilliams, Alan (Swansea W)
    Mellish, Rt Hon RobertSedgemore, BrianWilliams, Alan Lee (Hornchurch)
    Mikardo, IanSelby, HarryWilliams, Rt Hon Shirley (Hertford)
    Millan, BruceShaw, Arnold (Ilford South)Williams, W. T. (Warrington)
    Miller, Dr M. S. (E. Kilbride)Sheldon, Robert (Ashton-u-Lyne)Wilson, Alexander (Hamilton)
    Miller, Mrs Millie (Ilford N)Shore, Rt Hon PeterWilson, Rt Hon H. (Huyton)
    Mitchell, R. C. (Soton, Itchen)Silkin, Rt Hon S. C. (Dulwich)Wilson, William (Coventry SE)
    Molloy, WilliamSillars, JamesWise, Mrs Audrey
    Moonman, EricSilverman, JuliusWoodall, Alec
    Morris, Alfred (Wythenshawe)Skinner, DennisWoof, Robert
    Morris, Charles R. (Openshaw)Smith, John (N Lanarkshire)Wrigglesworth, Ian
    Morris, Rt Hon J. (Aberavon)Snape, PeterYoung, David (Bolton E)
    Moyle, RolandSpearing, Nigel
    Mulley, Rt Hon FrederickSpriggs, LeslieTELLERS FOR THE NOES:
    Newens, StanleyStallard, A. W.Mr. John Ellis and
    Noble, MikeStewart, Donald (Western Isles)Mr. Walter Johnson.
    Oakes, GordonStoddart, David

    Question accordingly negatived.

    [Mr. Oscar MURTON in the Chair.]

    12.30 a.m.

    I beg to move Amendment No. 56, in page 26, line 27, at end insert—

    'Provided that in the case of a lifetime transfer the rate of tax shall be the rate shown in the third column of the above Table reduced by the relevant factor set out in a Discount Table based on life expectancy such as the Treasury shall on the coming into force of this Act prescribe and may from time to time vary by order made by statutory instrument'.
    In the interests of time, I have desisted from commenting on Clause 17 or Clause 33 in our debates so far, but as this amendment deals with the amelioration of the rates of capital transfer tax, I wish to say a word about my own approach to this imposition.

    The Chief Secretary made much of the fact that several of my hon. Friends had said that they viewed some form of capital transfer taxation as permissible.

    I agree that it is, but only if rates of income tax are substantially lower, because it is just not possible to continue to take out of a capitalist system large chunks of its very lifeblood if at the same time the levels of income and corporation tax do not allow a sufficient margin to restore the capital position for the future requirements of industry or business.

    I draw this simile. If from that mythical creature the capitalist swine we take its blood supply at frequent intervals, never allowing a transfusion to make up the deficiency, the animal will die, and it will die a lot sooner than Treasury Ministers would have us believe.

    If we persist with the present rates of income and corporation tax and at the same time have the rate of capital transfer tax which the Government propose, the capitalist system as we know it will inevitably come to an end. I believe that a good many hon. Members on the Government side see that as the objective of the tax. If they achieve it, that system can be replaced only by State intervention on a massive scale, leading ultimately to all the other dangers of true Socialism which have been seen in other so-called democracies east of the German border.

    We have heard a good deal about the effect of the tax on agriculture and forestry. I have just been told that some forestry businesses have already begun to lay off their men. It is no good the Government thinking that this will be a slow process. The attractions of forestry will disappear almost overnight when the tax comes into effect. I appreciate that the Chancellor said that he would bring in measures to ameliorate the effect of the tax on agriculture and forestry, and I shall make it my business to pursue that promise in Standing Committee. I hope that the amelioration will be of a substantial nature.

    The Chancellor's wind-up speech this evening did no good to this House. We frequently wonder why the public regard us with less and less approval. But when the Chancellor chooses to reply in a frivolous and irrelevant fashion to a seven-hour debate in which major points have been deployed with immense skill is it surprising that the public feel that we waste a good deal of our time here? [[Interruption.] I am sorry if hon. Members feel that we are wasting our time now. This is a matter of immense importance. This is a completely new tax and very few Labour Members appear to understand it. Very few of them have taken the trouble to listen to the debate.

    On a point of order, Mr. Murton. The hon. Member below the Gangway, whose constituency I forget if ever I knew it, keeps interrupting in a loud voice which makes it very difficult for me to hear my hon. Friend. When I complained he had the impertinence to say "Shut up." Can you direct the hon. Member to shut up himself?

    These are matters which must be left to the Chair. I hope that it may now be possible for us to proceed with as few interruptions as possible.

    Because of the desire of the Treasury that there should be as much tax on a gift as there will ultimately be on a legacy, the tax which will ultimately be paid on a gift inter vivos will be higher than the sum paid on death.

    The amendment would make it possible for anyone wishing to make a gift to get a "discount" because the gift was made in advance. The principle is clear although I accept that the amendment is obscure. It refers to a table which shall be published but which does not appear in the amendment. Life tables are available according to well-established practice in life insurance and producing a table here would not present insuperable difficulties.

    It is clear that if a man of 60 makes a gift and voluntarily pays the CTT he should be better treated than if he were to live to 80 and the Treasury had to wait another 20 years for the money.

    Another crucial problem will arise if the amendment or something similar is not accepted. Small businesses and farms will be run by senile people because there will be no incentive to make provision for the undertakings to be handed on. The situation will arise where a man is considerably older than his wife. He dies at the age of 70 and his wife takes over the business and runs it for 20 or 30 years. By the time her son inherits he will be an old-age pensioner. I cannot conceive that the Government intend that the management of all small businesses should be by octogenarians.

    I do not propose to press the amendment to a vote. I simply want to sound out the Government on how they propose to deal with the problem.

    I support the amendment so ably moved by my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin).

    There are two points that I hope the Financial Secretary will take into account. First, whether by accident or design—it is rather difficult to tell with this tax, because sometimes one has the impression that those on the Government Front Bench do not entirely know their own tax—it seems that the impost on transfers during life are likely to be heavier than the impost on death. The amendment would slightly redress that balance.

    Secondly, on the basis that the Government are determined to exact tax on all transfers, whenever and however made, the Government should be encouraging transfers during life, not only for the reasons given by my hon. Friend but because they will be getting their tax that much sooner. It is a well-known commercial principle that if one is getting one's money earlier one should offer a discount.

    For those two brief but important reasons, I hope that the Government will consider the amendment sympathetically and perhaps even imaginatively.

    I am grateful to the hon. Member for Weston-super-Mare (Mr. Wiggin) for acknowledging that the amendment is a probing amendment, and saying that he does not intend to press it to a Division.

    The hon. Gentleman was also so candid as to say that the amendment is a little obscure. But we grasp the general intent, which is that by operating the table, which was based on an actuarial assessment of life expectancy, a lower rate of CTT will be made available for lifetime gifts. The hon. Gentleman seemed to think that it might be necessary to vary the schedule by order. Life expectancy may change over a period of years, but it hardly changes so dramatically as to necessitate any Government's making adjustments in such a schedule, if it were adopted, by order.

    The hon. Gentleman talked about the interplay between the capital transfer tax and the rates of income tax. He is on to quite a fair point. It would not be correct to say that the Government ignore such questions. While there is nothing specifically related to that matter in the White Paper on the CTT, I draw the hon. Gentleman's attention to the preface to the Green Paper on the wealth tax, where he will find a passage that is relevant to his remarks.

    It is a matter of opinion whether an individual should be encouraged to transfer control over his assets at any given age. The great obscurity in the amendment is that it does not specify whether the encouragement should be given when the taxpayer is 40, 50, 60 or until—in the hon. Gentleman's terminology—he becomes a geriatric. Reasonable people can reasonably disagree as to the desirability of the principle or the date at which it should operate, or the degree of incentive, if they accept both the principle and the age. For these reasons I cannot commend the amendment.

    There is an incentive of a sort to gifts during lifetime, because the earlier a gift is made the more likely it is to fall into the lower band structure, and therefore attract a lower rate of tax. To that extent there could be said to be an incentive with respect to a series of gifts that someone might programme through his life, anticipating gifts at death, scheduling them in a certain order so as to attract the lower rate for certain gifts.

    12.45 a.m.

    Surely, if that were true the Government would not be levying capital gains tax on lifetime gifts and not on death gifts, and they would be allowing interest on lifetime gifts for the payment of tax and not on death gifts. The Government's policy is the reverse. Therefore, what my hon. Friend said was accurate and what the hon. Gentleman is saying is bunkum.

    That is strong language even for the hon. Gentleman. I am certainly not standing here to defend the present structure of the capital gains tax in all its aspects. That is not part of my function tonight.

    The hon. Gentleman has made a most important statement. May we therefore expect, if not in this Bill at least in the next, which we are led to expect in March, substantial reform of the whole structure of capital gains tax in the light of what the hon. Gentleman has just said?

    As my right hon. Friend the Chief Secretary remarks to me, hope springs eternal. I make no forecast about future changes of the tax structure. All I am saying is that I am not defending the structure of capital gains tax tonight any more than I am defending the structure of any other tax except the CTT. That is my purpose tonight.

    I rest on what I said a moment or two ago in response to the hon. Member for Weston-super-Mare that an incentive, albeit a modest one, is built into the tax for people to make gifts during their lifetime in so far as the earlier a gift is made, the lower tranche it will fall into in capital transfer tax terms and, therefore, the lower the rate of tax that will apply. I recognise that this does not meet the hon. Gentlemans' case—and, of course, I did not expect that it would and he would not have expected me to accept his amendment. I have to leave it at that.

    I am rather disappointed at that reply. The hon. Gentleman has not dealt with the point that, far from being a gifts tax, in the matter of large gifts this is a prevention of gifts tax.

    The philosophy behind the amendment was helpful to the Government since it would produce the revenue earlier; it would encourage those who had gifts to make to do so earlier in their lives. There is no great difficulty about grasping the point. If one is aged 30, one gets a discount; if one is 40 one gets slightly less discount, and so on. At the end of the day the Government would collect on death. By making it easier inter vivos, however, it would be a good business bet for the Government.

    I am sorry that the hon. Gentleman cannot give me further hope that he might deal with the point in Committee upstairs, but I have a feeling that we shall have to return to the basic principle because it is an important one. However, I beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    I beg to move Amendment No. 88, in page 26, line 27, at end add—

    '(3) Where the value transferred by a chargeable transfer is determined by reference to the value of shares in a trading company not quoted on a recognised stock exchange, or by an interest in a partnership or business where the total value of all the shares in the company or companies or all the interests in the partnership or partnerships or business or businesses does not exceed £250,000, then any rate shown in the third column of the Table set out above shall be halved'.
    The amendment provides for small businesses to pay capital transfer tax at half the rate of larger businesses and other goods and chattels up to a value of £250,000 of the assets of the business, not of the assets of the donor.

    The Government say that they are in favour of a healthy private sector. We would all agree that actions speak louder than words. Therefore, in listening to what the Government say tonight we shall be able to judge from the actions they propose just how genuine is their concern for the smaller business sector and how genuine is their assurance that they want a healthy smaller business sector.

    I happen to believe that the Chief Secretary has some understanding of these matters. I hope, therefore, that we shall have from him a thoughtful and serious reply to a very important problem which arises from the capital transfer tax as it is proposed in the Bill. A healthy private sector requires a small business sector. A third of the employment outside the nationalised industries is provided by small firms. Those firms make up approximately 25 per cent. of the gross national product. They are important. The small firms need the capital of the proprietors. The Labour Government of 1969 set up the Bolton Committee to consider the problem of small firms. The committee found that small firms were financed by the capital of the proprietors.

    If the clause is passed unamended without the Government producing some special arrangements, every small business of consequence will be broken up or sold at the present proprietor's death or the death of his widow. I should like the Government to give the Committee some idea of how widely they consulted before putting forward these proposals. Did they consult Smaller Businesses Association Ltd.? That is very active on behalf of small businesses. Have they consulted the CBI council which is concerned with small firms and which has devoted considerable resources to considering their problems? Have they consulted the chamber of commerce? Those are organisations which are much involved with the problems of the small businesses. They have all told me that they believe that if the clause remains as it stands small businesses will be wiped out on the death of the present generation of proprietors.

    Perhaps it is worth explaining just how serious is the impact of this proposed tax on small businesses. If a small business is worth £250,000, for example—there are many small businesses that are worth that or perhaps slightly less—and it provides employment to a number of people whose jobs are dependent upon its continuance, and if the proprietor is to give it intact to the next generation so that it can continue its work and the service it is providing, he will require to have no less than £542,193. Under these provisions the tax liability is greater than the value of the business that I have used in my example—namely, £292,193. From the look of puzzlement on the face of some Labour Members it seems that they too, like the Chancellor, do not realise some of the consequences of the clause.

    The result of these proposals is that someone will have to buy the businesses that become the subject of this proposed taxation. In many cases they will not be bought. They will then be broken up and the remains will continue as broken-backed under-capitalised companies which will be unable to pay decent wages to their employees and which will be unable to make their proper contribution to the national economy. I was going to say that I could see the unhappy face of the Minister responsible for small firms, the Under-Secretary of State for Industry, but I now see him smiling. I do not know what he has to smile about when legislation is passing through the Committee which will wipe out many of the businesses that he is supposed to protect. [Interruption.] Hon. Members who are making their contributions from a sedentary position may not be concerned about those who work for small firms, but the position is that many people are employed by the sort of small firms that will either be wiped out or sold and taken over as a result of the clause as it stands. There will be the broken-backed continuation which I hope the Chief Secretary is as worried about as I am. But let us suppose that someone does buy the business. It will be a larger business—and less efficient, for larger businesses are not as efficient in their use of resources, capital and investment as small businesses. Is that in the national interest?

    What about the regional problem? Scotland, for example, continually finds that when a small business changes hands and is taken over by another company, time after time there is rationalisation, and it is the peripheral regional area which is closed up, and there is a concentration of the business with its new found owners in the South or the industrial Midlands. Time and again it is the regions which suffer from that sort of situation.

    What about the older men who have served such businesses loyally during their lives? Anyone who knows a small business will know of many instances of employees being kept on although they are only marginally effective. They are kept on because they have been with the firm a long time. They have been loyal to the firm and the firm is loyal to them. But once the business is taken over, all that is gone. The new owners do not feel that sort of responsibility. They are concerned simply with the balance sheet and the amalgamation.

    Does my hon. Friend realise that if this tax is passed as it is proposed, a very large number of small businesses will go on the market almost immediately? If a lot of them go on the market immediately, who will there be to buy them? There will be so many businesses on the market that there will be no buyers. In that case, they will not be sold at all. They will be broken up and simply liquidated in order to turn the assets into cash.

    My hon. Friend's interjection reflects his experience and contacts in small businesses.

    There is another point of some consequence here for the Chief Secretary. Perhaps the Minister responsible for small firms may also care to bear it in mind. Once the proprietor of a business reaches the age of about 50, his employees and management team will start to say to themselves "When the boss dies, what happens to me? The business will not be able to continue." In that situation the proprietor will see a constant dribbling away from the business of what would have been and should have been the team which would carry that business on for the next 20 or 30 years as he gets to a greater age.

    The truth of the matter is that so many hon. Members on the Government benches, and the Treasury advisers, have not the faintest comprehension as to what motivates those who operate small or medium-sized businesses. The late lain Macleod said that one must learn to work with the grain of human nature. The difficulty is that the Government seem to have entirely forgotten the need to do that. They do not seem to appreciate that businesses do not just happen and continue automatically, and that they are not machines. Businesses have to have the motivation of those who own them, work in them and invest in them.

    It is not only a matter of money. It is also a matter of building for the future. For no businessman who has a business of £250,000, or something of that size, is really concerned about where tomorrow's bread and butter is to come from. He can sell the business and live off the proceeds for the rest of his life. But what does he do now? He builds up the business to pass to the next generation. However, he will not be able to do that if this tax becomes law. Therefore, why should he not let the business run down and live well as he goes? The expectation of continuity is an essential incentive to building up any business. I hope, therefore, that the Government will look at this and give the Committee a reasoned answer about how they propose to deal with the problem.

    1 a.m.

    The Chief Secretary and I agree that the problem does not arise with a company which is large enough to be quoted on the Stock Exchange, because the proprietors can put their share holding on the Stock Exchange and raise the money that they need to pay the capital transfer tax—at least in part. But where a company is not big enough to be quoted on the Stock Exchange and where there are no other assets, there is not the money available to pay the tax. It is that size of company with which we are dealing in the amendment.

    Even if the Government cannot accept this amendment, I hope that they will recognise that they have to do something. Large companies grow from small ones. Industry is alive. It does not just happen. Older firms contract. New firms are born and grow. We must have a constant growth of new firms coming up and continuing for more than the lifetime of one man. So often the foundations are laid by one generation, the next generation adds another storey and the next another, so that companies which are important employers can be seen to grow over generations.

    The estate duty system encouraged a father to give his business to his children while they were young enough to make a dynamic contribution to it and to continue its management. These proposals will encourage him to wait until the last minute, when his widow finally comes to be buried, before the business passes to the next generation. As one of my hon. Friends pointed out, sometimes the sons may even be old-age pensioners before they get the management of the business in their hands.

    Reading the Bill as it is drafted, I get the impression that the Government have no comprehension of what makes people work, of what people's motivations are, or of the need to work with the grain of human nature. I ask the Minister to give a serious and considered reply and to tell the Committee what steps he proposes to take to enable these businesses to continue and to make their contribution to the national economy.

    The hon. Member for Basingstoke (Mr. Mitchell) and I have debated the problems of small companies on many occasions over the past 10 years. I know of all the work that he has done in this connection, and I respect it.

    We have given some relief already in the Bill by way of the eight years in which a small firm will have to pay the amount of capital transfer tax levied upon it, although I appreciate that the hon. Gentleman does not think that it is enough. We intend to look at it again. I can give him that assurance, although I cannot enter into any commitment.

    There is an important problem. Even if we had the lower rates which the right hon. Member for Finchley (Mrs. Thatcher) wanted, it would be unfair, all other things being equal, for one taxpayer to pay considerably less than another. That would not be right. However, other things are not always equal and in certain circumstances we are prepared to give some relief. Agriculture has been one such case and small businesses have been granted some relief, although not as much as some would like. I can give the hon. Member the assurance that we are looking at this again. No doubt there will be opportunity to consider the matter further.

    I support the amendment. I have not spoken today on capital transfer tax, so I do not feel inhibited, even at this hour, from making one or two points which I hope the Chief Secretary and his colleagues will take into account as they review the position of small businesses under this tax. I was delighted to hear what the Chancellor said about the Government's mind not being closed. The Chief Secretary repeated this. I am also pleased to see that the Under-Secretary of State for Industry who is responsible for small business is present yet again.

    We have to consider what the effect of this tax will be on small businesses. There is no doubt that it will remove from many such businesses one of the most important motivations, particularly in the latter part of a man's career. It is a totally admirable motivation for a man to want to go on building up his business, to pass it on to his sons and daughters so that they might have a better start in life than he had. The effect of the tax will be to dampen such a motivation considerably.

    I do not pretend that estate duty, with its 45 per cent. relief, was perfect. Here I can pray in aid the report of the Bolton Committee, which drew attention to the adverse effect of the burden of that duty on small firms, in spite of the 45 per cent. relief. It said that the increasing incidence of estate duty had increased the difficulty of passing on the ownership of a business from one generation to another and had weakened this important motivation. It was concerned about the possibility of small businesses being broken up or starved of working capital as a result of estate duty. Such points have been made in connection with this new tax. The Bolton Committee was set up by the previous Labour Government.

    The Chancellor made another point about agriculture duty which applies equally to small businesses. This concerns the so-called artificial, or unreal, increase in the value of agricultural land as a result of the 45 per cent. remission of duty. He gave the impression that agricultural land had risen tremendously in value as a result. The truth is that the relief of duty, even at the highest level on the largest estates, was only worth 34 per cent. so that there would be no point in the price rising anything like as much as that to take account of it. I should be surprised if the price of agricultural land, or of small business assets covered by that relief, rose more than 30 per cent. at the outside, in particular cases. That is not an argument for resisting the amendment, either from the point of view of agriculture or of small businesses.

    In view of what the Chief Secretary said, I shall be brief. I should perhaps declare a contingent interest in this subject in the event of my death. What my hon. Friends said carries great weight, and I know that the Chief Secretary is to reconsider the matter.

    For a business of medium size the possible charges to be met under the tax, if implemented as first proposed, might amount to almost as much as the total value of the business. How could such charges be met? Businesses may have reached the reasonable limits of borrowing from the banks to cover past expansion in property factories and stock, and profits will normally need to be applied to bank repayments. Even with eight years to pay, it is difficult to see how a medium-sized family-owned business can find the money to meet the tax bills.

    Solvency would be in danger, and the banks, as they must repay cash on demand when their customers want it, would not often be willing to make such substantial loans, even on the declining balance over eight years. Nor would it always be possible to obtain insurance to cover death, because the charges for insurance might be too high.

    I accept the Chief Secretary's assurance, and I give him the comfort that I hope the Committee will soon release him to go home to bed.

    I rise to pursue the complaint I made in the Second Reading debate about the arrogance and impertinence of the Financial Secretary. It would be far better if, instead of muttering to his neighbour, he paid close attention to me, as I shall go on all night unless I am clear in my mind that he is listening to me and drinking in every word I pour forth. I shall go on talking quietly, as he is to his neighbour, until he pays attention to me.

    Order. I shall be grateful if the hon. Gentleman will address his remarks to the Chair.

    Mr. Murton, I am indeed addressing my remarks to the Chair, but though I speak to your ears I can keep my eyes upon the Financial Secretary, and unless that arrogant gentleman will be kind enough at least to address his eyes to me I shall go on. We had exactly this little interlude at 10 o'clock on the Second Reading debate, and we shall have it at 1.15, 1.30 and 2 o'clock and I know not at what hour this morning until I have the attention of the Financial Secretary.

    1.15 a.m.

    I will give the hon. Gentleman the opportunity of listening to me because the Chief Secretary has some manners although his arrogant colleague has not. The subject I was speaking on in the Second Reading debate was the anxiety of certain farmers who operate their businesses as limited companies. My hon. Friend's amendment deals with the smaller limited company, and I want to draw attention to the problems of the farming community who cannot make their farms over—or are unwilling to do so—until they reach a considerable age themselves, and then farming enterprises fall into the hands of aging widows.

    I know that we live in a feminist age and that there are many ladies, including elderly ones who are very good farmers; but, as a sweeping generalisation, the ideal age for farming is middle age and the ideal sex for farming is male. The effects of the Bill without the amendment would be that a continuing number of farms would fall into the hands of elderly ladies. This must be to the detriment of the British farming community. I therefore hope that the Chief Secretary's assurance that he is looking at this again, which was extremely good news, will go along with the Chancellor's assurance some 24 hours ago, that he was going to look again at the farm proposals in general.

    As I understood it, the Chancellor this afternoon somewhat reneged on what he said 24 hours ago, so I hope the Chief Secretary will not renege tomorrow on what he said tonight.

    My second point concerns the enterprise usually displayed by the smaller companies. This is a field of activity where British companies tend to put forward their best feet in new inventions and developments.

    It may well be that the middle-sized company does not go in for great research programmes, like ICI, but there is a better spirit of enterprise and new effort among the middle-sized limited but unquoted companies. In my constituency there are a number of such enterprises that supply the farming community with equipment and so on. Businesses of this sort have been far too heavily penalised by taxation of all sorts in recent years and will be even more heavily penalised by these measures unless the amendment is accepted or the Chief Secretary comes forward with something very like it.

    In all my experinece in the House of Commons, which is considerably longer than that of the Financial Secretary—[Interruption.]—I am not geriatric yet. In all my experience, which goes back over many years, I have never yet met such a plain, arrogant conceited fellow as that man.

    I came here determined to press this amendment to a Division if the Government did not give a satisfactory reply, but I am grateful to the Chief Secretary for the sensible and serious way in which he has looked at the genuine problems which arise for small businesses and which have been mentioned in the debate.

    As the right hon. Gentleman rightly said, over the years he and I have many times debated the problems of small businesses and from time to time have found ourselves in agreement, and not necessarily in line with our respective Front Benches. I am delighted that he is in a position to do something about the problems of small businesses, and I think that the Committee would be well-advised to allow me to withdraw the amendment. I look forward to seeing the right hon. Gentleman's assurance put into legislative form at a later stage.

    I beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    The next amendment to be dealt with is Opposition Amendment No. 54, in page 26, line 27, at end add—

    '(3) In the case of a chargeable transfer which is an absolute gift to an ancestor, lineal descendant of the transferor or spouse of such descendant or a chargeable transfer to trustees of a settlement whose beneficiaries are restricted to such persons, the tax attributable to such a transfer shall be charged as if the rates shown in the third column in the table under subsection (2) of this section were reduced by one-half.'

    I understand, Mr. Murton, that if we do not move the amendment now we have a very good chance of moving it on Report and having a very full discussion then. That would be acceptable to us. The arrangements having been made through the usual channels, I hope that they will be fulfilled. I shall not, therefore, move Amendment No. 54.

    The point raised by the right hon. Lady is for Mr. Speaker to decide.

    Clause 33 ordered to stand part of the Bill.

    Clause 49

    Local Loans

    I beg to move Amendment No. 66, in page 35, line 3, leave out '£2,000' and insert '£1,000'.

    With this amendment, the Committee may discuss Amendment No. 67, in line 8, leave out '£2,000' and insert '£1,000', which also stands in the name of the hon. Member for Hertfordshire, South-West (Mr. Dodsworth).

    Clause 49 permits an increase in the borrowing limits of the Public Works Loan Board and is an administrative arrangement. It is in itself a commentary that a clause which increases borrowing limits from £4,000 million to £8,000 million is taken at this late hour after protracted debate on many other matters which, while significant and important in principle, do not reflect the distribution of such large sums of money.

    In its present form, Clause 49 doubles the amount of funds available to the board for lending. The amounts of authorised lending are, of course, fixed by the Chancellor of the Exchequer from time to time. Funds provided under the clause are not for any fixed period. They last just as long as there is money in the kitty—that is, until they run out.

    Under the clause, the tranches of funds are double in amount from £1,000 million to £2,000 million, and the overriding limit is increased to £8,000 million. The original limit, specified in Section 132 of the Finance Act 1972, was £4,000 million. The last increase approved by the House was £1,000 million, on 8th November 1974, at that time bringing the total to £4,000 million. This clause therefore has the effect of doubling that permitted level.

    I understand from the Second Reading debate—I am grateful to the Financial Secretary for his assistance and explanation—that the reason for the clause is primarily to account for and reflect inflation and so reduce the number of occasions on which the board has to apply to Parliament for more funds.

    The board is, of course, purely a lending agency and its rôle does not include the control of the spending of funds. Any local authority which receives a loan from the board for a specific project is accountable to the Government Department concerned. For example, if the loan is to be used for a school building, the local authority is accountable to the Department of Education and Science for the way in which the money is spent.

    That is fine as far as it goes, and it would be easy to say, as I believe the Financial Secretary did on Second Reading, that a change in these borrowing limits does not reflect any increase in local authority capital expenditure. However, discipline is good for the soul—that is, if the Treasury has one—and I see no reason why the Committee should do anything to make it easier for larger sums of money to be made available for approval for local authority capital programmes.

    If there is one way to ensure that the loan quotas are reduced, it is to ensure that additional funds are not provided by Parliament. In that connection I wish to refer to Circular No. 37 of the Public Works Loan Board dated 21st March 1974, the first sentence of which says:
    "I am directed by the Public Works Loan Commissioners to inform you that after consultation with the Treasury it has been decided that, subject to the provisions of funds by Parliament, the arrangements for the raising of financial year 1974–75 shall be as detailed below."
    That circular contains hard evidence that approval of these new limits incites approval of increased quotas, and of course the approval of local authority programmes is subject to the scrutiny of the Treasury and of individual Government Departments.

    But how successful have they been? In July 1974 the Secretary of State for the Environment said that there had to be a levelling off in the rate of growth in local authority expenditure. He said that the rate of public spending must be related to the national economic situation, and I agree with him. He went on to say that local government expenditure had been increasing at about twice the rate of public expenditure overall and three times the rate of growth of the gross national product.

    That is evidence from the Government that the expenditure programme must be controlled. But the demand for funds is accelerating at an incredible rate. All the evidence that we have is that local authorities throughout the country are struggling to contain their rate demands. One of the most effective means of doing so is by a restriction of capital expenditure with often very substantial revenue costs and consequences. That is one way to help the local authorities. When we have a net borrowing requirement of £6·3 billion, surely the time has come to say that we must state some order of priorities.

    As recently as the day before Christmas Eve—what an immaculate piece of timing—there was a joint circular from the Department of the Environment, the Home Office, the Department of Health and Social Security, the Department of Prices and Consumer Protection, the Department of Education and Science, the Department of Employment and the Welsh Office explaining that expenditure must be contained to meet only inescapable commitments.

    The nation as a whole has a need for prudent housekeeping. The Chancellor of the Exchequer may have been abroad to renegotiate our borrowing position, but unless we curtail our national and local government expenditure we shall lose any remaining credibility abroad and the collapse of confidence involved would ensure national disaster and distress.

    These amendments seek to set a standard and a target for the Government. It is important that if the Government wish to increase their borrowing limits, they should come back to Parliament. The next circular fixing quotas controlling local authority expenditure will be issued, I understand, in March. That is the time for the Chancellor to come to the House to report his success in controlling local authority expenditure. We can then consider whether the increased borrowing level should be approved, and that is the time to do so. Until then the matter must be kept under review. For that reason, I ask the Committee to support what at first may seem to be matters of only administrative significance. They are not. The strike at the heart of parliamentary control over Government affairs.

    1.30 a.m.

    I am grateful to my hon. Friend because the amendment raises an important point. On the last occasions when these authorisations have been required in Finance Bills, these tranches have been in £1,000 million groups. There has been an enormous increase in the last two or three years in the rate at which they have come before the House. There was one in May and another in November 1974. On the latter occasion, the Minister of State, Treasury, said:

    "It is not possible to forecast with precision the timing of local authority borrowing from the commissioners, and in the last few months they have been taking up their entitlement more quickly than had been expected. The House, is therefore, asked to approve this order so that the flow of essential capital funds during the current period may be maintained."—[Official Report, 4th November 1974; Vo1 880, c. 831.]
    We see in that one worrying problem about the rate of local authority expenditure and perhaps one reason for this present increase.

    I understand that on 31st March 1974, the general level of borrowing from the Public Works Loan Board was about £9,000 million; now, it is about £10,000 million. This all shows the speed at which local authority expenditure has been gobbling up the tranches from the board. It has been going ahead much faster than any other form of public expenditure.

    We know from the debates on the rate support grant that local authority expenditure has been increasing at roughly 8 per cent. in real terms per year over the last three or four years. I recognise that part of this was in the period before the present Government took office, but the oil crisis and the developing economic situation since then has made it clear that we must put real question marks over this rate of growth. Many Ministers have been saying as much recently. Our other economic objectives make this necessary, and the Government must justify this increase in the tranche. Part of it is no doubt the result of inflation, but that cannot be the only answer. What else is there?

    This increase makes one wonder whether the Government are firm in their decision to control public expenditure. I certainly agree with my hon. Friend about the Government borowing requirement. If the tranche had been kept at £1,000 million, there would at least have been some sort of discipline in the Government having to come back to the House to ask for more. So I should like to hear their justification.

    Second, to what extent is this provision necessary to refinance maturing debt and to what extent is it concentrated entirely on new expenditure? I understand that it does not take account of maturing debt in normal situations. I believe that the amount quoted in authorisations is usually the gross amount and I understand that a great deal of debt is maturing which must be refinanced, but, if that does not come into this area, it emphasises the need for restraint and for not increasing the tranches.

    May we be reassured that the Government do not intend to allow an increase of more than the strict 4 per cent. in real terms to which the Secretary of State for the Environment has referred, and that indeed they intend to diminish that until the economic situation improves?

    Third, the Public Works Loan Board circular says:
    "The Commissioners will be prepared to make loans in excess of the quota"—
    for local authority expenditure, which is normally 30 per cent., but 40 per cent. for authorities in development areas—
    "only if they are satisfied that an authority cannot raise money elsewhere either from local sources or in the money market."
    Again, the Government should exercise the strictest control over the way in which that discretion is exercised by the board.

    Finally, I seek an assurance that none of the extra tranche we are authorising tonight will be provided for the nationalisation of development land. This is a costly exercise which neither the nation nor the ratepayer can afford and which the Public Works Loan Board should not be authorised to under-write and finance through this extra tranche.

    In short, we seek assurances that, although in theory this is a technical matter, in practice the Government will exercise the strictest control over the way in which these extra tranches are used, and we want to know why it is necessary in these circumstances that the House of Commons should be asked to approve a doubling of the normal authorisation.

    The Commitee is indebted to the hon. Members for Hertfordshire, South-West (Mr. Dodsworth) and for Norfolk, South (Mr. MacGregor) for speaking so lucidly and so fairly on this inevitably complex and possibly misleading subject.

    It is right that from the beginning I should make it clear, as both hon. Gentlemen recognised, that this increase in the tranche and the increase in the ability of the Public Works Loan Board to raise money in no way derogates from parliamentary control over funds voted to local authorities, nor does it in any way imply any diminution in the present Government's intention to restrict the rate of local authority expenditure in real terms.

    The hon. Member for Norfolk, South referred to the 8 per cent. real rate of increase in local authority expenditure. The two sides of the Committee are at one that such a continuing rate of increase in real terms is not acceptable and is not possible for the country to sustain. I am happy to endorse what my right hon. Friend the Secretary of State for the Environment said.

    Once we have got those two firm assurances in perspective, most of the other points raised by the hon. Members fall into place reasonably easily. This is the first increase that has been requested in the size of the tranche since 1968, which is the real reference point. In other words, it is very nearly seven years. The powers voted in the National Loans Act 1968 lasted for about four and a half years, and the powers that were voted in the Finance Act 1972 lasted for just under three years.

    Our estimate is that if there were to be a re-enactment now of the 1972-type powers—in other words, without an increase in the sums available to the Public Works Loan Board—those powers would last for only about two years. Even with the increase that we are proposing now, we estimate that they should continue to allow at least one parliamentry debate each year on the subject of these drawings by the Public Works Loan Board. I hope that hon. Members will agree that that will be an adequate frequency for these matters to be ventilated, as they should be ventilated by hon. Members.

    When these matters were discussed in 1968, I believe that my then predecessor as Financial Secretary to the Treasury suggested that once about every 18 months would be an appropriate interval for these matters to be debated. I do not believe that there was any great dissent at that time from that proposition. Our estimate is that at the present rate these matters should fall to be debated at least once every year with the enhanced powers we are proposing to legislate in the clause.

    I come now to two specific questions put to me by the hon. Member for Norfolk, South. He asked to what extent the funds were necessary to refinance a mature debt. I regret that I cannot answer that now. I am advised that the formula setting a local authority's entitlement takes account both of its needs for capital expenditure and for debt financing. I cannot help the hon. Gentleman further, I am afraid.

    The loans which come from the Public Works Loan Board are available to meet all requirements for capital expenditure of local authorities, including such expenditure on land acquisition as is approved. I emphasise again "as is approved", which is the essence of the matter, as hon. Members are aware.

    This debate, which very properly should take place to draw attention to the real matters of concern which hon. Members have raised, is not the occasion, I submit, on which we should seek to consider special or individual items of local authority expenditure, which fall to be discussed at a different time in our procedures.

    I hope that I have managed to set at rest the concern which hon. Members have expressed. I recognise their concern, and I share it, as do my right hon. Friends. Our determination to reduce the rate of growth in real terms of local authority expenditure is in no sense diminished or affected by these proposals. In the light of those assurances, perhaps the hon. Gentleman will wish to withdraw his amendment.

    I am greatly obliged to the Financial Secretary for his kind, helpful and thoughtful reply, although I have to tell him that it gives me no satisfaction whatever. It is not my view that the tranches of £2,000 million make no difference to parliamentary control. They halve parliamentary control. Twice as much money is available at each slice. That is a fact. It may be convenient for the Minister that we do not have to come to Parliament more than once a year. In the present state of the economy, I should prefer that we came every six months. We should have our debate at a different time of day, with a much fuller Chamber, so that we could fully examine what was happening to the resources which are made available. For that reason, I am not satisfied, although I am grateful for the thoughtful nature of the hon. Gentleman's reply.

    Perhaps I can assist the Financial Secretary to reply to one question put to him by my hon. Friend the Member for Norfolk, South (Mr. MacGregor). I refer here to Cmnd. 5580, Loans from the National Loans Fund, where the estimate for 1974–75 for new loan advances is £1,625 million. If one adjusts that for the new formula, one finds, in effect, after making the adjustments for maturities and the new form of advances, that that is an increase of 14·3 per cent. I think that that information might be helpful.

    I think that my hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth), since he has plainly done so much work on this matter, should cross the Floor for a few minutes and answer from the Government Dispatch Box.

    We are under a certain handicap here in that the public expenditure White Paper is not published, so that we do not know what the increased money is being spent on. In fact, there should not be such a large increase as this in view of the substantial capital expenditure cuts of 17th December 1973, which should now be working through into the figures—unless they somehow did not turn out to be cuts at all.

    The Financial Secretary spoke of the control over local authority expenditure. It is still very lax. We have only the rate support grant settlements coming before us here. My recollection—I am sure that the right hon. Member for Down, South (Mr. Powell) will know this better than I do—is that capital expenditure has to be sanctioned by loan sanction through the Department of the Environment, but we have no direct control over it apart from the large slices of expenditure. Our complaint now is that it is being used up rather fast on we know not what. By the time we come to Report, the Chief Secretary will, no doubt, have got out his public expenditure White Paper, and, if need be, we can re-examine the matter further.

    Amendment negatived.

    Clause 49 ordered to stand part of the Bill.

    Bill ( Clauses 5, 14, 16, 17, 33 and 49) reported, without amendment; to lie upon the Table.