I beg to move Amendment No. 42, in page 16, line 23, at end insert:

'or at a price such as might be expected to have been freely negotiated at the time of the sale'.

This amendment honours an undertaking I gave in Standing Committee to reconsider provisions dealing with the transfers of unquoted shares. The effect of the provision was that a sale of unquoted shares for less than their full market value could not be exempted from charge as one made without donative intent and on arm's length conditions unless it were at a price freely negotiated at the time of the sale.

The amendment allows a sale to be excepted also if it were made instead at a price which might have been expected to be freely negotiated. This deals with the problem where in an unquoted company it is possible, as the hon. Member for Hertfordshire, South (Mr. Parkinson) appreciates and pointed out in Standing Committee, that there are problems in the case of the sale of unquoted shares. There may be a situation in which there could be a sale at less than the full market value but still a perfectly reasonable transaction. The purpose of the amendment is to ensure that there is no problem in that respect.

I know that the Opposition have tabled Amendment No. 529, which would seek to exclude all unquoted company transactions in this respect. But I hope that the Opposition will agree that that would be to go much too wide. I think that the Government amendment would deal with the problem that was pointed out in Standing Committee.

As the Chief Secretary says, the amendment goes some way to meet problems raised in Standing Committee. The Opposition amendment, which you, Mr. Speaker, have selected—Amendment No. 529, in Page 16, line 20, leave out from 'Act' to end of line 23 and insert:

'but notwithstanding the other provisions of this subsection, this subsection shall not apply to a sale of shares or debentures not quoted on a recognised stock exchange'.—

is one we should like to press strongly but, as we are denied the time to discuss these things properly, we cannot do so. Under protest, we would not move that amendment.

I beg to move Amendment No. 43, in page 16, line 27, leave out '25th' and insert 26th'.

With this it will be convenient for the House to discuss Amendment No. 44, in page 16, line 27, leave out '25th March 1974' and insert '12th March 1975'.

There are a large number of other amendments that are consequential upon this amendment. This arose, as hon. Members who served on the Standing Committee will recall, out of the birthday of my hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman).

We learned that it was her birthdaly on 26th March. The hon. Member for Weston-super-Mare (Mr. Wiggin) had moved an amendment to start the tax operating from 3.30 p.m. on 26th March. I suggested that, rather than have a start ing time in the middle of a day, it might be better to start on the following day.

As the Chief Secretary says, the amendment honours an undertaking which he gave in Standing Committee. There are serious fiscal reasons, as well as romantic reasons, for the amendment. We welcome it.

We should have liked to debate our Amendment No. 44, but we are denied the time. Therefore, under protest, we shall not move it.

I beg to move Amendment No. 46, in page 17, line 13, at end insert:

'(2A) Where the deceased was entitled to an interest in possession in settled property and on his death the settlor's spouse became beneficially entitled to that property, then if—

(a) the settlor's spouse was at the time of the death domiciled in the United Kingdom and resident (within the meaning of the Income Tax Act) in the United Kingdom in the year of assessment in which the death occurred; and

(b) neither the settlor nor the settlor's spouse had acquired a reversionary interest in the property for a consideration in money or money's worth;

the value of the settled property shall be left out of account in determining for the purposes of this Part of this Act the value of the deceased's estate immediately before his death'.

The amendment provides exemption from the tax charged on the coming to an end of an interest in possession on death, where the property then reverts to the settlor's spouse. The amendment and its counterpart in paragraph 4 of Schedule 5—Amendment No. 172—arises from our consideration of the argument in Committee for the provision of exemption from the capital distribution charge where property reverts to the settlor from a discretionary trust.

The amendment meets points made in the Standing Committee. We believe that it is a great improvement in the Bill. I assume that from now on the Chief Secretary will never refer to any such arrangements as a loophole for tax avoidance and something to be legislated out of existence in future legislation.

I beg to move Amendment No. 51, in page 18, line 7, at end insert:

'(5A) Where any part of the property which would have been included as mentioned in subsection (4) above would, by virtue of section 40(2)(c) of the Finance Act 1969, have formed an estate by itelf, the tax chargeable under this section shall be the aggregate of—

(a) the tax that would have been so chargeable if that part had not been so included; and

(b) the tax (if any) that would have been so chargeable if that part only had formed the estate of the deceased and the deceased had made no previous chargeable transfers;

but in a case where (by reason of an excess over £25,000) the part referred to in paragraph (b) above would have been a fraction only of any property, the tax that would have been chargeable as mentioned in that paragraph shall be taken to be the like fraction of the tax that would have been so chargeable if the remainder of that property had also been included in the estate of the deceased'.

It may be convenient to discuss at the same time Government Amendment No. 52, which is on the same points.

The amendments honour an undertaking I gave in Committee to meet the point of amendments moved by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). They relate to the transitional relief from aggregation under the old estate duty law for gifts of policies of insurance effected before 20th March 1968. That relief exempts the first £25,000 of policy proceeds from aggregation with the other property chargeable on the death. There is a similar relief for Northern Ireland.

I beg to move Amendment No. 54 in page 18, line 35, leave out 'includes every' and insert means a'.

With this amendment we may discuss Amendment No. 520, in page 18, line 37, at end add:

'but excludes any power in a fiduciary capacity'.

I am delighted to move the amendment formally, as I understand that that is agreeable to the Opposition.

I beg to move Amendment No. 502, in page 19, line 12, at end insert:

'(4) A dwelling is excluded property if on the death of the person with an interest in possession of that said dwelling and which is occupied by him at the time of his death it passes to an ancestor or descendant, brother or sister, or spouse thereof who has lived with him for not less than two out of the three years preceding'.

The amendment is designed to deal, so far as we can, with the fact that the new capital transfer tax designed and introduced by this Labour Government will prove to be, in a way that estate duty never was, a tax on homes, on the family and—if I may be forgiven the phrase, despite the mocking of the Chancellor of the Exchequer yesterday—on the natural bonds of love and affection that exist within a family. The Chancellor derided that concept.

Perhaps that is not surprising. We know that in Labour's house, or at least in those parts above stairs that are reserved for members of the Labour Cabinet, there are many mansions. Labour Ministers appear to collect houses with as much enthusiasm as commissars collect dachas. But that is not the life they visualise for the ordinary people. They have no natural sympathy with those who save, with those who own their own homes. I am sorry if the Chief Secretary feels underprivileged in having only one home when his colleagues have so many.

It is not surprising that the tax will impose a new and growing burden on exactly those thrifty and hard-working people who own their own homes. It will impose a new and growing burden on right to keep the benefits of thrift within one's family. I am not dealing with the rich minority, on the subject of whom the Chancellor loves to dwell, and of which he is such an outstanding, if undistinguished, Member. I am dealing with that half of the families of this country who live in their own homes. Many of those homes already come near to facing the lower limit of the new tax, because it starts at £15,000. The average price of a new home in the South-East of England is now estimated at about £14,250. If inflation continues at the pace we have unfortunately come to expect under this Government, that figure will soon be reached in other parts of the country.

It is true that the rate of tax payable on death is no higher than under estate duty, but that argument, which we have heard so often from the Chancellor, overlooks the extent to which it is a cumulative tax, assessed over the transactions effected during the lifetime of the taxpayer or his family. The tax burden must take account of the lifetime gifts of any other part of the estate of the original house-owner above £1,000, whether in the form of savings, chattels, cars or anything of that kind.

The tax will inevitably impose a new and growing burden on dispositions within the family. Even if it did not do that, there is a good additional social reason for seeking to encourage home owership, as the amendment would. There is a good reason for seeking to encourage disposition of homes within the families of those who have saved in order to buy them.

Moreover, there is a good reason for encouraging succession to the family home by others than just the surviving spouse, although that certainly is desirable. One acknowledges that the legislation at least has that effect, as did the provisions made by the Conservative Government in 1972. But we want also to encourage succession to the home by, for example, a child or children living with the person who wishes to pass it on at death or at any other time. Perhaps even more, we wish to encourage the possibility of a home being passed on to elderly relatives, quite often dependent relatives. There is something positively socially desirable in the transmission of homes and dwelling houses to other members of the family.

That desirable aspect of policy has been recognised in many other parts of housing policy and taxation policy over many years. I begin by citing the remarkable example of the practice in local authority housing, where the original tenant has no continuing title, nothing resembling a freehold title to which he has contributed anything by any act of thrift on his part. I do not say that critically. In most parts of the country the members of the family living with the tenant who dies in practice have a title to succeed to the house.

Paragraph 208 of the Cullingworth Report says:

"So far as transfer of tenancies to adult children is concerned, a distinction is made between children who have been living in the parental household for a considerable time … and those who have been living separately … In the former case the transfer of tenancy is common; in the latter less common—though much depends on the nature of the local housing shortage."

Even in these circumstances of local authority housing, with no title, no acquisition, no thrift and no saving, our social policy recognises the desirability of allowing the family of the original tenant to succeed, and the case is even stronger where rent-controlled property or regulated property is concerned.

Here again we are dealing with property where the tenant has no continuing title, nothing resembling a freehold or a leasehold to the property. He has a statutory right to remain there at the expense of the owner of the freehold who is often poorer than the person who is enjoying the right to remain on. Yet even in that situation as set out in Schedule 1 of the Rent Act 1968 there is a right to the family of the original tenant to succeed to the statutory tenancy. The original tenant can pass his tenancy on to his widow who was residing with him at his death or to a person who was a member of the original tenant's family who had resided with him for six months before his death. If that first successor dies leaving his widow who was residing with him at the time of his death or a member of the family living with him for a minimum period of six months the tenancy can be transferred to them. There is therefore a statutory right to double inheritance to a tenancy which may be no more than a monthly tenancy. There again we see the extent to which social policy recognises the desirability of allowing families to continue living in their original homes.

Although that provision is in the 1968 Act, it dates from the original rent-control legislation passed in the palmy days of Messrs. Asquith and Lloyd George during World War I. Here at least is a residual contribution by the Liberal Party to one aspect of our current social policy. More recent legislation concerning capital gains tax allows for relief in respect of owner-occupied houses. In that situation relief is allowed without limit as to the amount, and beyond that it extends to a house that is occupied rent-free by a dependent relative. In that situation the dwelling is also relieved from capital gains tax.

That is another example of sensible social policy to adjust the impact of tax on actual social conditions. The reasons for the exemption are

"to encourage home ownership, to avoid any feeling of resentment there might be—and I think that it would be widespread if this was subject to tax—and, also, from a social point of view, to assist greater mobility, which is an important matter from a labour point of view. The effect of it, as I say, is to make home ownership very attractive front the investment point of view".—[Official Report, 27th May 1965; Vol. 713, c. 997.]

Those are not my reasons; they are the reasons for such an exemption from capital gains tax produced by the previous Financial Secretary to the Treasury. Mr. Niall MacDermot, as he then was. He held the office for, as far as I recollect, very many years, but thereafter advanced no further within the ranks of his party. I do not know whether that fate will befall his successor today.

The additional relief to which I have referred, again recognising the importance of social policy and taxation policy working together, is the one granting exemp tion from capital gains tax to the dependent relative living rent free in the house. That provision was enacted in 1965 as a result of the initiative by my hon. Friend the Member for Wycombe (Sir J. Hall). He moved an amendment on that same day's proceedings, and he was fortunate enough, again, not merely in the identity of the Financial Secretary but in the response of that Minister to the amendment. Mr. MacDermott said

"There is a popular fallacy that Treasury Ministers are cold and hard-hearted and never moved by an emotional appeal, and that it is only cold, remorseless logic which will make them shift at all."

In present times that fallacy has indeed given way to fact in the case of present Ministers. Mr. MacDermott went on,

"I would only point out in answering the hon. Member that in this case we do not feel that cold, remorseless logic is on this side, but, nevertheless, we are moved by the sympathetic and emotional considerations to support his case."

Those were the days, and would that we should see a similar compassionate response from present Ministers. Mr. MacDermott went on to commend the proposal to the Committee, saying

"I think the Committee will agree that this is a proposal which has an obvious appeal to it, that it is not unreasonable that someone who provides a home for a dependent relative should have some benefit in respect of such property, as he does in respect of a house he occupies himself."—[Official Report, 27th May 1965; Vol. 713, c. 1003–4.]

That is the way in which we should tailor our tax legislation. We should not be introducing, as the Government are, a new tax with the mechanistic automatism of people without humanity or heart, with no exceptions, and designed to impose a tax of this kind upon the home and the family. The amendment is well designed to fulfil legitimate social purposes, and I commend it to the House.

I hope that in their response to the amendment the Government will not be over-influenced by the fact that it appears in itself to be ungrammatical and, much more serious, that as it is drawn it would clearly provide an immense scope for avoidance which cannot be the intention of those who designed and moved it. That is my belief and I detected no evidence in what the right hon. and learned Member for Surrey, East (Sir G. Howe) said that any such consideration was in his mind. There are circumstances in which it would be thought unreasonable that a dwelling which is a legitimate home, and probably the sole home and a home of long standing of the deceased person, should attract, in all circumstances, capital transfer tax along with the rest of the estate.

I do not wish to waste the time of the House by proposing what will more readily occur to the Government by way of methods to introduce safeguards which would reduce this innovation to its intended scope. For instance, one could imagine that there could be a fairly low upper limit upon the value of the property.

Far be it from me to intervene in a discussion between an ex-Treasury Minister and Treasury Ministers about tax avoidance, but the right hon. Gentleman is entirely right. If it were found necessary and sensible to propose limitations in order to prevent undesirable tax avoidance we would accept them, but the objective of the amendment is clear.

It is most helpful that the right hon. and learned Gentleman has made that clear, and I will not elaborate except to say that there could also be safeguards regarding the domiciliary connection with the particular house of the recipient under the will of the deceased person. Quite obviously as the provisions stand it would be possible to buy an immensely expensive dwelling and to arrange for the intended legatee to occupy it for two years so that it would be outside estate duty. Therefore I hope that the Government will overlook the obvious grave defects of the new subsection and have regard solely to the intention.

We are in a stronger position than usual, I believe, in making that kind of plea. I say that first because none of the rest of us has had an opportunity adequately to consider these amendments and therefore perhaps to bring points forward by amendments to amendments. That would be the proper way, rather than by this kind of debate. But even more, the fact that we are just looking forward to our next Finance Bill makes it possible for the Government in this case almost to treat it as one stage of legislation which will presently be succeeded by the next.

Whereas, therefore, it would normally be absurd for the Government spokesman to say, in responding, that he would see what could be done at the next stage, I hope that, since the next stage in financial legislation is so near in time, the Government spokesman in this case will find it in his heart to use some such well-honoured formula as that.

I rise to support what the right hon. Member for Down, South (Mr. Powell) has said. I am entirely in agreement with him on the amendment. It had occurred to me that it might be possible to seek your leave, Mr. Deputy Speaker, to introduce a manuscript amendment to the amendment which would make it very supportable on all sides of the House and even perhaps acceptable to the Government. Even as it stands, it is a very attractive amendment and I believe that its principle will gain sympathy on all sides of the House. But as the hon. and learned Gentleman has acknowledged, it is too wide. It would enable somebody, presumably on his deathbed, as has happened with agricultural land in the past, to buy an enormous house of prodigious value and thereby to a certain extent to overcome the problems of capital transfer tax. In that sense, I suppose one could say that as it stands this is almost a wrecking amendment.

I do not want to suggest to the Government how a change could be made if they were prepared to accept it in that spirit. Certainly, changes could be made to schedules later in the Bill, and on the Orders Paper there is an amendment which has not been selected which mentions an upper limit of £25,000. Whether or not that is the right limit is difficult to decide. We always discover that a limit that will do for one part of the country will not do for other parts, but that is probably as good a figure as any. Therefore, I suppose the insertion after the words "a dwelling" of the words "of a value of not more than £25,000" might well solve the problem, if not to the satisfaction of the parliamentary draftsmen.

I would say to the Government that hon. Members on all sides of the House accept that a dwelling is a rather special type of property and wealth. We accept that in relation to capital gains tax, and therefore it seems sensible that we should accept it in relation to capital transfer tax. In the spirit in which the right hon. and learned Gentleman moved the amendment, bearing in mind what he has said and what has been said by the right hon. Member for Down, South, I hope that the hon. Gentleman will accept its principle, and perhaps he can do something to overcome its wrecking nature, if that is not too strong a way of putting it. I do not know whether we can dignify the Opposition stance—is "mechanistic automatism" better than categorising that stance as "wrecking"?—but I hope the Government can meet the arguments put forward on this side of the House.

I hope that I do not have to reply in kind to the right hon. and learned Gentleman the Shadow Chancellor every time he gets up, because that would be rather tedious. But when he starts by criticising my right hon. Friend and myself for being hard-hearted and for damming up the milk of human kindness, and then criticises us for giving way, after so many proddings and so many amendments moved at his behest or by those of his hon. Friends who have studied the Bill, then the illogicality of his remarks stands out in stark clarity without further comment from me. As the right hon. Member for Down, South (Mr. Powell) has observed, this amendment suffers from obvious grave defects, to use his own words and would allow a coach and horses to be driven through the whole principle of the capital transfer tax. If one accepts the good motives of right hon. Gentlemen opposite, one can only marvel at their incompetence in producing so technically defective an amendment.

It is important to point out that in many ways the reliefs that the Government are already giving under the Bill are far in excess of those contemplated in Amendment No. 502. In the first place, we have introduced for the first time in British history the principle that there shall be no charge at all to the surviving spouse on the death of a spouse with respect to any property whatsoever that is passing from the deceased spouse to the surviving spouse. For the first time, a widow suffering bereavement and the additional economic loss of the breadwinner of the family will not simultaneously be faced with a liability to estate duty and perhaps the need to sell the home in which she has lived all her life, with a consequent rupture of friendships and social connections on which she would be particularly dependent at a time of bereavement.

This is a relieving provision which has been in the Bill from the beginning. It was introduced by my right hon. Friend without any suggestions or prodding. The idea was not even in the mind of hon. Gentlemen opposite in their proposals while in Opposition, let alone in their election manifesto.

Lest the hon. Gentleman should become too puffed up with glory, may I point out that this is one of the foundations of the argument that I have been putting forward, that a previous Chancellor of the Exchequer, Lord Barber, introduced in his Finance Bill in 1972 provisions giving precisely to the surviving spouse a doubling of exemption from estate duty up to a figure of £30,000 in order to cover a dwelling. There are very few dwelling houses occupied by a surviving spouse that have been helped by the generosity of this Government except those occupied by the tiny minority, for whom it has had little benefit.

Clearly the hon. and learned Gentleman has failed to recognise that the impact of estate duty on a widow's other assets might make it necessary for her to sell the house in which she is living. I would have thought even the level of economic sophistication that the hon. and learned Gentleman has managed to reach under the tutorship of his colleagues would have instructed him on that. I am sorry that the hon. and learned Gentleman is being churlish. It is obvious that this relief, being provided by the Government without any prodding, for a widow or a widower at the time of the death of a spouse, goes far beyond anything that is on the statute book or was even conceived before my right hon. Friend entered office. Furthermore, in the terms of the amendment, the relief contemplated would be available only to a spouse who has lived with her husband for not less than two out of the three years preceding his death. Our relief in no way relates to how long they have been married, let alone how long they have been living together. Had such a provision entered into our proposal, I should have been very surprised had there not been a storm of protest from hon. Gentleman opposite that it was an impertinence to include such provision in this relief, that it was an outrageous intrusion into people's privacy, and stuff of that kind. The relief we are offering is an absolute relief, regardless of the time that a man and woman have been married and regardless of whether they are living together at the time that death occurs. It would be only gracious of the right hon. Gentleman to acknowledge that.

The hon. Member for Cornwall, North (Mr. Pardoe) pointed out quite clearly that there was a provision in capital gains tax law recognising the particular and peculiar nature of property, in addition to the property of a deceased, where it is held for a dependent relative. Certainly I take his point, but I am sure he will recall that only yesterday evening the Government brought forward an amendment to the Bill extending relief on transfers to dependent relatives as defined under capital transfer tax. I am obliged to him for acknowledging that.

I have to tell hon. Gentlemen opposite that we see no reason why any relief which could be given for particular types of assets should be tied to the ownership of a dwelling house. It is a matter entirely for the discretion of the family whether they choose to buy a house to live in or whether they choose to rent accommodation and to invest their savings elsewhere. We see no justification for benefiting the first category more than the second. That would introduce an unjustifiable degree of favouritism and distortion. If it became possible to reduce the rate of tax we would wish to spread it over a much wider class of beneficiary than the class to which the amendment relates, and I therefore have to advise my hon. Friends not to accept the amendment.

I had not proposed to intervene until I heard the words of the Financial Secretary. So outraged was I by his callous indifference and by the flimsy nature of his arguments that I felt obliged to rise to catch your eye, Mr. Deputy Speaker.

One might have accepted from practically any hon. or right hon. Gentleman on the Government benches other than the Financial Secretary the stringent criticism which he made of the technical defects of the amendment. Had we in Committee or on Report been aware that the Financial Secretary had even a glimmering of understanding of the technicalities of his own Bill, we might have been able to accept that criticism. But the notes that passed to and from the Box and rained on him like confetti—with which he has grappled with manly incompetence—convince me and my hon. Friends that he and the Chancellor, of all members of the Treasury Front Bench, have not condescended to master the technicalities of the Bill, and when he tells us that this well-conceived, modest, charitable amendment is so grossly technically defective, and pours ridicule on it and its authors, I am moved to intervene.

The Financial Secretary made great play of the fact that the Bill, for the first time, introduces total exemption from tax for transfers between husband and wife or wife and husband. That is the one redeeming feature of this odious tax. However, mere concentration of that feature will not commend the tax either to the Opposition or to the country.

The Financial Secretary is clearly busy mastering his brief for the next set of amendments. The House would appreciate a little more courtesy from him and more concentration on the arguments addressed to him. His present stony indifference suggests to us that, far from listening to our argument, he and his hon. and right hon. Friends had made up their minds on this important question long before my right hon. and learned Friend moved the amendment. The Financial Secretary does not appear to appreciate that homes stand in a special category. They are not like other assets. Indeed, his hon. and right hon. Friends recognised that when they conceded a measure of relief yesterday for historic homes.

4.45 p.m.

We have the bizarre situation, which gives the lie to the arguments put forward by the hon. Member for Cornwall, North (Mr. Pardoe), that a person buying Blenheim Palace may obtain a measure of exemption from capital transfer tax but a person buying a modest home in Hampstead or Highgate—to which the hon. Gentleman referred during the watches of the night upstairs—will obtain no exemption. It is not that I feel particularly tender of the interests of the spokesman for the Liberal Party, but I am moved to add my voice to that of the right hon. Member for Down, South (Mr. Powell). It may be that, at the margin, if the amendment were accepted some people might be moved to take advantage of it in a way in which the Financial Secretary and his hon. and right hon. Friends who prefer to live in rented accommodation would find unattractive.

I do not believe that one should judge these grave issues by such paltry considerations. We must take a broad view of fiscal matters. That is what the country elects us to the House to do. We must not concentrate on them the dogged gaze of the tax collector. In saying that, I intend no disrespect to that honourable and dutiful body of men. They have their duty and we have ours. Our duty is to look in a broad, farseeing, generous spirit at the fiscal measures which the Government put before us.

If a precedent is needed for this measure I remind the Financial Secretary that a special measure of relief from capital gains tax is given to those who sell their homes. If the Financial Secretary is looking for a precedent, I see no reason why a similar definition should not be inserted in the Bill.

There will be many situations in which the imposition of capital transfer tax on the death of the home owner will entirely disrupt family life. Transfers between husband and wife have been covered, but there are many widows and widowers who maintain a family home to whom the benefit of that exemption will not be available.

The Financial Secretary will say that there is relief for the first £15,000. I am sorry to have to tell him that in the South-East, in the part of the world which I have the privilege of representing, £15,000 will buy a house but not much more. It will not buy the chattels and furnishings necessary to keep the house going, and family capital invested in real estate will be so much dead capital. It cannot readily be realised or cut up and offered to the tax gatherer. I foresee that as a consequence of this ill-conceived measure a number of family homes, in circumstances of great melancholy, will have to be sold. I hope that that will rest on the conscience of the Financial Secretary and the Chief Secretary. It obviously will not rest on the conscience of the Chancellor of the Exchequer, because we know that in these matters he is conscienceless. His personal convictions are too well known for me to comment on them.

It is interesting to note that often the cut-off point for relief is just sufficient to allow relief to Ministers on the Treasury Front Bench who have a house in Highgate, one in Sussex and a few more chattels, but for those who just transgress that limit there is no mercy. In the fullness of time they may be receiving considerable sums from the Press and, although it may be too late their attitude will alter. I ask the Financial Secretary to search his conscience once again and to allow full rein to the generosity that peeped through on occasions—

I want to be clear on this. Is the hon. and learned Gentleman suggesting that the level of the tax has been set deliberately at a point to benefit Treasury Ministers?

I am saying that it is a curious coincidence. The Financial Secretary can rebut this if he likes. I do not know the individual circumstances of Treasury Ministers and should be delighted to hear from the Financial Secretary just how he personally would be affected by it. It is a matter for comment that the cut-off point for most reliefs happens to be above a figure that would allow a modest house in Highgate, a small farm in Sussex, a country cottage here and there and the chattels that go with them. We all know that the Chancellor of the Exchequer, whenever he receives some money, goes out and buys—

Order. There are certain inferences which can be drawn from what the hon. and learned Gentleman is saying which I am sure he does not mean. Care should be used in approaching these matters.

I am delighted to hear the horrible little man again. Is he suggesting that the level of tax has been set to suit myself? If he is making that suggestion, will he withdraw it immediately?

If the Chancellor had paid the House the courtesy of coming more often to listen to our debates, he would not perhaps have derived the wrong impression from my remark. [HON. MEMBERS: "Answer."] I shall answer in my own way and in due time the challenge which the Chancellor put to me. [HON. MEMBERS: "Answer the Chair."] I shall direct my remarks to the Chair. The Chancellor—who, if I may say so, is never hesitant in making personal attacks on whoever happens to be speaking from the Opposition Front Bench—is showing undue sensitivity. Since he feels slighted by my remarks, I hope that in future he will exercise a litte more discretion and self-restraint.

I do not happen to know the Chancellor's financial circumstances, except to the extent that he has disclosed them to the Press. We know that he has a house in a somewhat favoured part of North London and a house in the country. We do not know whether he has a family business. All I was saying was that if he had a family business, he might have thought a little more carefully about the level of tax he has imposed. He seems to be quite unconscious of the damage he will inflict on a great number of family businesses, farms and woodlands.

The hon. and learned Member for Dover and Deal (Mr. Rees) made a deliberate and specific imputation that Government Ministers have manipulated the tax for their own financial advantage. Subsequently he denied knowing the financial circumstances of any of the Ministers. In those circumstances I ask you, Mr. Deputy Speaker, to request the Member specifically to withdraw the imputation which he has clearly made.

The hon. and learned Member for Dover and Deal (Mr. Rees) made certain passing references which were becoming in the nature of an implication. I urge the hon. and learned Member to explain the situation more clearly.

Make him withdraw.

I am always happy to respond to your invitation Mr. Deputy Speaker. My conscience is clear. If the cap fits hon. Gentlemen opposite, let them wear it.

Outrageous!

It is not good enough. The hon. and learned Gentleman must be courteous. He should respond in the appropriate manner.

I have been accused of having accused the other side—it is all getting a little tortuous—of manipulating for their own advantage a tax that is not yet in existence. I leave the House to judge for itself whether that could be regarded as an accusation. What I said was that the limits have been so fixed that it appears that those without family businesses or farms or woodlands will be less affected. It may be that the Chancellor has a farm. It may be that he has a family business or woodlands. If he has, fine—I admire his public spirit and the way in which he is so resolute in raising taxes for the salvation of the country by placing himself so fairly and squarely within the net. I am sorry that the right hon. Gentleman feels sensitive on this matter. [HON. MEMBERS: "Withdraw."] I am sorry that I have offended his delicate sensibilities. It is nice to know that he has delicate sensibilities because he is so ruthless about the sensibilities of others.

On a point of order, Mr. Deputy Speaker. We are familiar with the squalid and seedy insinuations of the hon. and learned Member on political quesions. Yesterday I described him as a moth-eaten McCarthy. But it is another matter to make an insinuation of improper financial motives. I suggest that the hon. Member, as I am compelled to address him, should withdraw the insinuation he has just made.

If I may intervene at this point, I think the hon. and learned Member for Dover and Deal should in all decency withdraw that remark. It was liable to misconstruction.

If, Mr. Deputy Speaker, you would say which remark of mine could be open to misconstruction, I will bow to your observation. But I am not conscious of having imputed any financial impropriety to the Chancellor of the Exchequer. If you can point to any remark of that kind, I should be as quick as anybody in the House to withdraw it. I await your direction.

It was a question of the implication of motives in the earlier part of the hon. and learned Gentleman's speech.

Further to that point of order, Mr. Deputy Speaker. It is within the recollection of the House that in the earlier part of the speech made by the hon. and learned Member for Dover and Deal (Mr. Rees), in the context of the amendment with which he was dealing, he referred to property that I own. Perhaps he gave the impression that I had spoken on the amendment because it was relevant to the price and value of the property that I own. I do not believe that was said in an offensive spirit. I do not believe that there was anything more offensive in what he said about the Chancellor of the Exchequer than in what he said about me. The Chancellor is being unnecessarily sensitive. If the hon. and learned Gentleman is being asked to withdraw the remark, it is all part of the childish nonsense in which the House has indulged in the last two or three days.

It was an implication that involved the Treasury Bench specifically. That is the difference.

Further to that point of order, Mr. Deputy Speaker. You will recollect that a moment ago my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) asked you to which remark in the earlier part of his speech you were addressing your request. You will also recollect that you intervened at that point to say that my hon and learned Friend was coming near to such an implication and you encouraged him to move away from it. In the circumstances your ruling went no further than saying that he was coming near to such an implication. Your warning was no doubt timeous, and my hon. and learned Friend continued his speech. Shortly after that, the Chancellor of the Exchequer arrived with such sensitivity on the scene.

Further to that point of order, Mr. Deputy Speaker. You will recall that I intervened in the hon. and learned Gentleman's speech and called on him to withdraw. So far he has not been man enough to do so. He has been getting as close as he can to making dirty financial innuendoes across the Floor of the House. He knows it, and it is high time that you enforced your ruling.

Further to that point of order, Mr. Deputy Speaker. With great respect, it is difficult to see what my hon. and learned Friend has been imputing—

We disagree.

When I am trying to clarify my point of order, the reaction from the Labour benches surpasses understanding. My hon. Friend and learned Friend asked you, Mr. Deputy Speaker, to identify the remark which he was to withdraw. You said that it was a remark made in an earlier part of the speech, but his remarks at that point of time preceded your suggestion that he was coming close to making an implication.

I am disturbed because I feel that there was some implication of motive. I shall be grateful if the hon. and learned Member will clear up that point, to put everybody's mind at peace on this matter, and withdraw the remark.

On a point of order, Mr. Deputy Speaker. In Committee, a direct insinuation was made against me that I had failed to declare an interest—

Whatever may have happened in Committee upstairs is irrelevant to what is taking place in the House.

With respect, it is not irrelevant, because there was a direct insinuation that I had failed to declare an interest. That turned out to be totally untrue.

Is the hon. Member still referring to the Committee stage? That is, by custom, irrelevant to anything which may be said in the House at this time.

On a point of order, Mr. Deputy Speaker. I suggest that the hon. Member for Cornwall, North (Mr. Pardoe) made a most sensible suggestion. Until the Chancellor walked in, this debate was entirely good-humoured, and both Treasury Ministers were smiling, although they might have disagreed, and that is fair enough. However, my hon. Friend was guilty of no dirty insinuation and should not be obliged to withdraw.

That is entirely a matter for the Chair.

On a point of order, Mr. Deputy Speaker. Could you, very kindly, clear up the point you made about the withdrawal of an imputation? It is very difficult for us to know what the imputation was and what implication is being withdrawn.

I do not know whether the hon. Member for Hendon, North (Mr. Gorst) was in fact here when the remarks were made.

rose—

I call the hon. and learned Member for Dover and Deal (Mr. Rees).

I am grateful for your protection Mr. Deputy Speaker, in this situation.

I am extremely sorry that the delicate sensibilities of the Chancellor, the Financial Secretary and the Chief Secretary should have been affronted by my inept use of words. From my long study of the Chancellor, I know how sensitive he is to other people's feelings in these matters. Therefore I should have matched his sensitivity with an equal sensitivity. I did not appreciate that the Chancellor was taking a close personal interest in my remarks. Let me endeavour to explain.

I see that the Chancellor is now in a good humour. He appreciates this and takes it in good heart—

How much longer shall we have to endure this drivel? It is a disgrace. I was in the House. I rose on the original point of order when the hon. and learned Member for Dover and Deal suggested that the rate of this tax had been carefully set to benefit members of the Treasury Bench.

My hon. and learned Friend did not say that.

He did say that.

May I refer the House to Erskine May page 419, where there is a ruling on the question of imputation of false or unavowed motives. That is the matter which troubles the Chair, and I shall be grateful if the hon. and learned Member for Dover and Deal will withdraw any imputation.

I never intended to suggest that there was fianancial manipulation by the Treasury Bench. How could I? We know that their inexperience in these matters is so total that they have never become involved in any serious financial affairs.

Allow me to try to clear up the point, so that the record is absolutely clear. If Treasury Ministers owned family businesses, farms or woodlands, they might have been a little more sensitive to the damage which they will inflict. I shall not be deterred by a flurry of indignation from the Financial Secretary. We had to endure him for five weeks in Committee upstairs—

Upstairs is no concern of the Chair in the House. Will the hon. and learned Member be generous and withdraw any possible imputation which he now made, possibly in error, on this point?

Of course I realise that because of my inexperience and my inept use of language, I frequently blunder. I am grateful to you, Mr. Deputy Speaker, for the guidance which you have given to me. If in any way I have trodden on or affronted the sensibilities of the Chancellor or of the Financial Secretary, of course I unhesitatingly withdraw. I have tried to explain that.

The hon. and learned Member has been graceful enough to withdraw. I think it would be as well if we did not pursue the matter any further and now continue with the business of Amendment No. 502. Mr. David Howell—

Although the House may long ago have lost the thread of my discourse, I was addressing myself to the amendment.

Inevitably, as a result of these exchanges, there has been some lapse in time. I agree that the hon. and learned Member was on his feet originally. Perhaps he will kindly continue his speech.

Just as the Opposition have uncovered, not for the first time, the sensitivities of the Government Front Bench, so the Opposition also have their sensitivities. Our sensitivities are for the continuance of family life. That is the point of my brief intervention, which was slightly prolonged. I was prompted to speak by the intemperate remarks of the Financial Secretary.

The Opposition are concerned to maintain the continuance of family life, and that is the argument behind the amendment. I believe that the Financial Secretary should rise above his indignation, ignore the technical defects, and accept it with as much a good grace as he can now muster.

I am sorry that our debate on this important subject should have been marred halfway through by this outbreak of ill humour from the Treasury Bench.

On a point of order, Mr. Deputy Speaker. The hon. Member for Guildford (Mr. Howell) has implied that the delay in the proceedings was due to the ill humour of the Treasury Bench, whereas it was at your specific request and command, Mr. Deputy Speaker, that the hon. and learned Member for Dover and Deal (Mr. Rees) withdrew his totally unfounded imputation.

I am aware of that point. Now perhaps the hon. Member for Guildford will continue.

I shall do that, Mr. Deputy Speaker. I did not intend to delay the House. But I think that Ministers should be a little less sensitive about this matter.

I was referring to the considerable importance of the amendment and to our desire to secure the family home from the onward march of this tax and Socialist policy. The Financial Secretary rested much of his defence or rejection of the argument on the repeated claim of the Chancellor, the Chief Secretary, and the Financial Secretary that this legislation exempted the spouse and was an improvement on what had gone before. None of us has been churlish enough to deny that.

It is worth pointing out that if the spouse owns any assets, there will be a powerful incentive for the husband or wife to leave assets in a way which will leave less to the spouse and more to the children in order to minimise the capital transfer tax so that only in a case where the spouse has very little property will the benefit claimed by the Chancellor of the Exchequer work. Like so many of these other examples, it depends on the circumstances and the details.

I hope that neither the Chief Secretary nor the Financial Secretary will suggest that, if that advice is followed in the case of the spouse and the husband leaves assets not entirely to the spouse in order to minimise the liability to CTT, that should be described as a loophole, though I have no doubt that it will be so described by the Chancellor of the Exchequer. We gain the impression sometimes that in the right hon. Gentleman's view life is a loophole to escape death. That seems to be his attitude about estate duty—that anyone ill-judged enough not to die and who hands on during his life avoids death duty by doddering through a loophole. That is an absurd concept of taxation which we reject.

As for the amendment, the Financial Secretary made play with the point about there being no upper limit proposed. If he prefers an upper limit, there is a later amendment to Schedule 6, although it has not been selected, which would put an upper limit on the residence of £25,000. If the Government think that that is the right way to go about it, I have no doubt that they can submit a manuscript amendment which may find favour with the Chair for debate later. I hope also that that later amendment will stand up to the very proper grammatical demands of the right hon. Member for Down, South (Mr. Powell).

If the Government were interested in preserving quite modest family homes from this tax and in preventing people from having to sell homes and the furniture in them in order to meet the tax, they could accept such an amendment. However, they have indicated that they are not interested in doing that. They are interested in smashing up family homes and preventing them and the furniture in them from being passed on. They will cause much misery and suffer

I beg to move Amendment No. 55, in page 19, line 18, leave out from provisions' to end of line 21.

With this we may discuss the following amendments:

No. 56, in line 25, after 'transferee', insert:

'Provided always that the transferor and the transferee or, when appropriate, the personal representatives of either of them, may within two years of the date of a chargeable transfer, Jointly state by notice in writing to the Board that one or the other shall be primarily liable, in which event the other shall be discharged from all liability unless and until the one made primarily liable shall fail to pay the tax assessed on him;'.

No. 153, in Schedule 4, page 62, line 6, at end insert:

'(2) In the case where the instalments of tax mentioned in sub-paragraph (1) above are paid by the transferor, they shall not be regarded as chargeable transfers, and no tax shall be payable upon them.'

This is a paving amendment to Amendment No. 56. I hope that this will be a briefer debate than the last one. Now that the Chancellor has left the Chamber it will be a much more courteous debate. What is at issue is a problem that we came up against in Standing Committee. Unfortunately it was not satisfactorily resolved on that occasion. I do not think that there is any fundamental difference between the two sides of the House on this issue. What is wrong with the Bill as it stands and what the amendments seek to put right is that the Bill is not precisely as the Government intend it to be. If we can we intend to persuade the Government to accept these amendments and so to put the Bill right.

The question is whether the liability for paying tax rests with the donor or with the donee or whether it is the Government's intention—and we believe this is necessary—that the two parties to a transfer shall have the right to elect which one will bear the tax. At first sight it may seem relatively unimportant whether the tax is paid by the donor or by the donee. In terms of a single transfer the same amount of tax will be payable either way. In fact, it is very important whether the donor or the donee pays the tax. Under Schedule 4 the donee can pay by either eight annual or 16 half-yearly instalments with no interest payments if he pays on the due date, whereas the donor has no right to spread his payment of the tax over eight years. That makes a big difference.

The difference between whether the donor or the donee pays the tax is further increased because of the £1,000 exemption. If the donor pays, and he has to pay in one year, he receives only the £1,000 exemption, whereas if the donee pays he can spread the payments over eight years and he will have an £8,000 exemption. It is a matter of considerable importance whether the donee can elect to pay the tax.

As I have said, this matter was discussed in Standing Committee. On 12th February, which was one of the days on which the matter was discussed, the Financial Secretary said:

"As regards the grossing up provisions, it is immaterial when the transferee and the transferor make the agreement between them, if they do make such an agreement, as to where the burden of the tax shall fall. In the absence of any agreement, it falls on the transferor, and recourse is had to him until his assets are exhausted. The hon. Gentleman"

—the Financial Secretary was referring to me—

"is quite right. But that presumption can be rebutted if there is an agreement between the transferor and the transferee that the transferee shall pay the tax."—[Official Report, Standing Committee A, 12th February 1975; c. 1336.]

We are seeking to make it clear that there is the possibility of such an agreement. Clearly that is the Government's intention. On 17th February the Chancellor, rather surprisingly, made a statement to the Daily Express rather than to the House. I refer to the article which appeared on 18th February. I shall not read it at length, but there was a section headed "Spreading the payments". The Chancellor was asked:

"Suppose I own a filling station or a shop valued at, say, £50,000. I give it to my son. How much tax must be paid and—assuming there are no other assets—would the filling station or shop have to be sold to pay the tax?"

The Chancellor replied:

"The tax cannot be spread in this way if you are paying it, but, provided your son undertakes the responsibility of paying the tax, you can, in practice, get the benefit of the instalment arrangement by making a gift to him of the amount of each tax instalment as it becomes due, which he can then pass on to the Revenue."

That is very important. It is slightly surprising, but we understand that the Chancellor does not feel up to facing the interrogation of my hon. Friends in the Chamber; it seems that he is prepared to answer only questions put by the reporter from the Daily Express. But we are grateful for his answers.

They are wrong.

My hon. Friend says, "They are wrong." However, I think that we must take it that the Chancellor intended to do this. There is nothing in the Bill which makes the position clear. This was conceded by the hon. Member for Llanelli (Mr. Davies), a distinguished lawyer, who said, when the point was raised,

"The hon. Member for Blaby (Mr. Lawson) was, I think, on a good point when he asserted that there was nothing in the Bill to state that one could elect as between donor and donee. My understanding also was that the liability was a joint and several liability, according to the Bill".—[Official Report, Standing Committee A, 12th February 1975; c. 1344.]

That is how the Bill is drafted. We had hoped that there would be an amendment, but there is no amendment other than that which we are now discussing.

This is an important matter because it affects the amount of tax that is payable and the time over which it is paid in view of the £1,000-a-year exemption over the period. If it is not clear that the donor or the donee can elect who is to pay, the Revenue will be able to go for the tax against the donor and get the money in one year instead of eight years and, indeed, get more money that way. Clearly, that was not the Government's intention, as was made abundantly plain by the Chancellor's answer in the Daily Express, which I am sure the Government will wish to honour, but which has not been honoured in the Bill.

There is another point about the Chancellor's interview which is reported in the Daily Express. The right hon. Gentleman—I will repeat this section—said:

"… you can, in practice, get the benefit of the instalment arrangement by making a gift to him of the amount of each tax instalment as it becomes due, which he can then pass on to the Revenue."

Hon. Gentlemen opposite may not appreciate that there is some curiosity about this point. It would appear that if a father passes money to the son to pay the instalment of tax, that instalment will be liable to capital transfer tax. Therefore, he will not be able to pass it on to the Revenue.

Therefore, we have put down Amendment No. 153, which is being discussed with this group of amendments, which ensures that no capital transfer tax will be payable on payments made by the transferor to the transferee to enable the transferee to pass them on to the Revenue. That appeared to be what the Chancellor was saying in the Daily Express interview. We wish to allow him to keep faith with what he said there. Despite the performance that we have witnessed recently, we believe that the Chancellor will wish to keep faith with what is printed in the Daily Express. We had various other debates in which it was clear that that was the sense of what the Government intended.

Finally, in commending the amendment to the House and hoping that the Government will accept it because it fulfils what clearly is their intention, I point out that the rates for this tax are very high. The Government have sought to reduce those rates, but the reduction is not very great. When the rates first came out, the tax payable on the transfer of a business with a net value of £250,000, according to a Written Answer given to my hon. Friend the Member for St. Marylebone (Mr. Baker) by the Financial Secretary, worked out at roughly 117 per cent. When the new lifetime scheme was introduced, which reduced the rates, which the Government accepted were too high, the tax payable on a business worth £250,000 seemingly—again this appears in a Written Answer by the Financial Secretary to me on 21st February—went down to 74 per cent., which was a very big drop.

When I asked, in a further Written Question, to which the hon. Gentleman gave a Written Answer on the same day, 21st February, what would happen if capital gains tax were included, assuming, looking to the future, that the business had been held for 25 years and that there had been inflation at 10 per cent. per annum and during that time the business had merely maintained its value in real terms—in other words, had gone up by 10 per cent. per annum in money terms but was worth no more—the amount of tax payable as a proportion of the asset transferred was given as 121 per cent. That is a staggeringly high figure, which the Government originally conceded was too high, which gives the lie to another of the Chancellor's remarks about the rates being no higher than estate duty.

Under the old estate duty, during lifetime one paid capital gains tax on disposal, not estate duty, and on death one had estate duty, not capital gains tax. However, under the Government's proposals we have both taxes both in lifetime and on death. Therefore, what the Chancellor has been saying ad nauseam about the rates of tax being no higher than the old estate duty is sheer nonsense. That can be put down only to his ignorance of the tax which he is nominally fathering. Therefore, anything which can minimise the savage impact of this tax is important.

The amendment would seem technical, but, if accepted—I am sure that the Government's intention is that it should be accepted and that there should be a right of election whether the donor or the donee should pay—it would slightly mitigate the severity of the tax. I hope that the amendment will be accepted without a Division.

How calm and pleasant the atmosphere has become now that the Chancellor has again left the Chamber. I hope that he will not attend our debates too often because he generates more heat than light. Whenever the right hon. Gentleman has talked about this tax he has revealed his total lack of comprehension of it. It is all good, clean fun in the House of Commons, but when he starts extending it to the Daily Express it is going too far.

I must remind the Financial Secretary of what we read in the Daily Express. That paper, unlike Hansard—nobody reads Hansard—is read by millions of people. The Daily Express has the biggest circulation of any newspaper.

It is a paper with one of the biggest circulations, not the biggest.

My hon. Friend always puts me right on matters of fact. Referring to this famous shop or garage having been transferred, the Chancellor said that the donor, the transferor, could pay the instalments of tax if the transferee accepted liability for the tax. That is not so. If the transferor pays the instalments they are capital transfers which attract further taxation.

It is no good saying, as the Chief Secretary said in Committee, that he was not defending the Chancellor and was not interested in his remarks, but merely wanted to talk about the amendment. We want to know how that article, with its terribly misleading statement, appeared under the name of the Chancellor of the Exchequer. The Chancellor showed himself woefully ignorant of everything to do with the tax by using his brute force rather than the skill and expertise that we have come to expect from the Chief Secretary and the Financial Secretary. We welcome their careful attention to the details of the tax. We wish that the Chancellor would emulate them. The matter must be cleared up. Is what is reported in the Day Express right?

I have put down some amendments to meet all the Chancellor's points in the Daily Express article. I am surprised and saddened that his name has not appeared under my name on the amendments, signifying that the Government wish to accept them. I put down amendments all over the Bill. I spent a whole evening working out the legislative implications of the article in the Daily Express and I have drafted the amendments with great care. I am surprised that I have not yet seen the Chancellor's name on my amendments. However, we know that the Treasury is very late in getting its amendments down and is having great difficulty in doing the drafting. Therefore, I am living in hopes that it has not yet got around to it and that the amendments will appear on Monday with the Chancellor's name on them.

Another worry arises from the amendments. I should like, for the sake of example, to take Mr. Freeman and Mr. Hardy. Mr. Freeman gives Mr. Hardy a sum of money. Shall we say it is shares? Suppose Mr. Freeman gives £100,000 worth of shares in the National Enterprise Board to Mr. Hardy, and two years later Mr. Freeman dies. The original transfer will have been taxed at lifetime transfer rates. The tax liability arose at the time of the transfer, and Mr. Hardy, who received the gift, had agreed to pay the tax. Unfortunately, in those two years the NEB does not do frightfully well and the £100,000 worth of shares which Mr. Hardy received are worth £10,000—a likely forecast of how that corporation will proceed. On the death of Mr. Freeman the tax has to be increased because it counts for tax within the three-year period and Mr. Hardy is called upon to pay a far greater sum of tax. Indeed, it may be greater than the amount he has left of the gift that was given to him if he has been foolish enough to invest in the NEB.

That is a possible set of circumstances, and it is directly relevant to the amendment. It shows how iniquitous is a tax when somebody who is a recipient of a gift carries a liability of unknown dimensions till such time as three years are up. In no sense, under estate duty, did anybody carry this liability, because the assessment to tax was on the value of the estate at the time that the transferor died, whereas in the case of an earlier death the liability to tax arises two years before and the valuation is taken then.

This is an example of a gross injustice, and the amendment would go a long way to meeting it. If the Financial Secretary is not keen on the amendment will he consider that at any time when there is a death after a lifetime transfer, a death within a three-year period following a lifetime transfer, the person who is liable to pay the tax can elect to pay the tax either on the value at the time of the transfer, or on the value at the time of the death? That election is not possible under the Bill at present—if we know how the Bill is at present, which, of course, we do not, but perhaps there are some who do. But it does not seem to be possible, and it is very unfair and onerous that it should be so.

It is the sort of point which the Government should deal with on the next Finance Bill. We have not long to wait for that—next month, I think—and we shall be looking for about 100 new clauses to tidy up this tax. Could one of them be that the taxpayer has the right to elect for payment if he is made responsible for paying the tax either at the value pertaining at the time of the transfer or for payment at the time of the death which caused him to go into the death rate rather than the lifetime gift rate?

This potential tax liability, now that the lifetime concession has been made, is the most obnoxious feature of the tax. I suppose it was inevitable in a tax which was originally drafted on the basis of a flat rate of tax whether one died or gave property during one's lifetime. The switch to a lifetime concession, welcome though it is, has raised a whole series of complicated problems at the margin, which is another reason why it would have been better if the Government had taken away the tax and put it to a Select Committee for proper consideration.

As the Government are obstinate and stubborn and will not do that, will they address themselves to the point that it is necessary to allow an election as I have described? Otherwise there could be cases of real unfairness and hardship Being given something by somebody could result in a person being bankrupted by having to pay taxes on a totally unrealistic valuation when the money is no longer there simply because somebody else dies. That, surely, cannot be the intention of the Government.

I agree with the hon. Members for Blaby (Mr. Lawson) and Cirencester and Tewkesbury (Mr. Ridley) that the atmosphere has calmed considerably, though it has happened for reasons quite different from those put forward by the hon. Gentlemen.

The hon. Member for Blaby addressed himself to Amendments Nos. 56 and 153. The debate has centred around those two amendments, and in the interests of despatch, which I think is what the Opposition want, I shall confine myself to dealing with them.

Amendment No. 56 would give the transferor and the transferee the right between them to decide which of them should be primarily liable to the Revenue for the tax on a lifetime gift. Clause 25(2), to which Amendment No. 56 attaches, imposes a liability on both the transferor and the transferee. As between the transferor and the transferee the clause lays down no rules as to priority. Each of them is liable for the whole tax, except in so far as the position is modified by Clause 27(5) which postpones the transferee's liability until it becomes overdue. This is normally a period of six months, but there is a Government amendment to extend that period in certain cases.

Clause 25, to which Amendment No. 56 attaches, is concerned with identifying the persons from whom the Revenue can collect the tax. It is not concerned with who bears the tax at the end of the day. That is a matter which the transferor and the transferee are already free to decide between them, and the effect of their arrangements must, of course, affect the quantum of the gift and, consequently, the amount of tax that will be chargeable.

Since the transferor and the transferee are free to decide who will bear the tax and thus, in effect, to decide whether the grossing up provision should come into effect, and whether we are talking about a gross or net gift, there is no good reason for giving them the further right by agreement in effect to limit the powers of the Revenue to collect the tax. Let me explain how that consequence would come about.

The transferee might be overseas, and the Revenue might within a period of a couple of years allowed by the amendment have already embarked upon proceedings to collect the tax from the transferor. At some subsequent time just before the end of two years the transferor and the transferee may say that it is not the transferor but the transferee who should pay the tax. That would put the Revenue back to precisely where it started, and might make its claim unenforceable.

That problem could be met by the fact that election of who is to be liable has to be made at the time of the transfer. There is no problem of something happening later. The problem that is worrying us is that, in the Bill as drafted, if the transferee decides that it will be paid by him in eight yearly instalments and in the first year he pays one-eighth, but the Revenue decides that it wants the other seven-eighths that year and that the transferor is liable, the charge will go to him. Therefore, the privilege of spreading the payment over eight years which the Chancellor showed in his Daily Express article, was intended, will have been removed.

The hon. Member for Blaby is under a misapprehension. If the right exists for the tax to be paid by eight annual instalments, that right remains. There will be no question whatever of the Revenue suddenly saying in the middle of that process, "We want it all at once". The hon. Gentleman is putting up an Aunt Sally that does not exist. If that is his concern, I can put his mind at rest.

The purpose of Amendment No. 153 is to exempt gifts made for the purpose of enabling the donee to pay tax by instalments. The basic principle of the tax is that a gift includes the tax upon it in so far as the grossing up provisions are concerned. There is no difference between an instalment of tax and the whole tax in this respect.

In logic, if we were to concede the principle that an instalment of tax should be free of the grossing-up provisions we should have to extend the principle to the whole tax. This would mean that the principle that the gift includes the tax upon it could be entirely sidestepped, if the donor made his gift on terms that the donee should bear the tax and then gave him money with which to pay the tax and that was not taxable.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) made a good point when he referred to the case of a death after a lifetime transfer of the assets which subsequently had a different value. There could be difficulties there and I certainly give him the undertaking he sought, that I will see whether any relief can be found to meet his anxieties.

I am grateful to the Financial Secretary. Could he tell hon. Members what he will do about the article in the Daily Express when the point of the amendment, which he denied, was put forward as policy by the Chancellor under his own name? If he does not have a copy of that article I am sure he can be provided with one.

I wish to address myself briefly to Amendment No. 56, which might appear to be technical in form and content but which raises a point of considerable importance. Since the Financial Secretary says that he has not had time to deal with the point made by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) I hope he will do the House the courtesy of listening to other interventions on this point.

The hon. Gentleman has singularly failed to appreciate the genuine concern of Conservative Members about this matter. The quantum of tax is different depending on whether it is paid by the transferor or the transferee. This is the first time that this provision has been implemented under the British fiscal system. The Revenue will be tempted to look first to the transferor. Indeed, the primary liability, as we were told in Committee, rests with the transferor. There should be some "let out"—I am sure that will be expanded to mean a loophole by the Government benches—for the taxpayer. The taxpayer should be given the right to elect who should pay the tax. The Financial Secretary has said that who bears the tax is a matter for decision between the transferor and the transferee but according to the Bill that is not so.

The Revenue could decide to proceed against the transferor because it will get a larger measure of tax on a lifetime gift and it is possible that it will pursue that through the courts. It would be idle for the transferee to say "But we have agreed between ourselves that the transferee should bear the tax", it being a lesser amount, because the Financial Secretary's minions would then say "Ah, but the prime responsibility rests with the transferor and we are entitled to enforce this charge against the transferor."

Amendment No. 56 is directed to guard against this situation. Nothing that I have heard from the Financial Secretary reassures me on this point. What prejudice would there be to the Revenue if Amendment No. 56 were adopted? If it were adopted there would be a right of election as between transferor and transferee. The transferee could elect to pay the tax. If the Revenue is unable to collect from him it could go to the transferor. It is a novel principle in English tax law that the quantum of tax from the same transaction differs depending on whether it is collected from the transferor or the transferee. Therefore, it is of crucial importance that those who are likely to be affected should be entitled to opt for the conclusion that will benefit them most.

The Financial Secretary sought to reassure us in Committee that the Revenue would not endeavour to collect the greater amount of tax from the transferor. However, there will always be that temptation, especially if the transferee is not immediately available. This amendment is to make sure that the fire of the Revenue will be directed, in the first instance, at the transferee. The Revenue's position is protected should it not be able to reach that target. It can then go against the transferor.

If the Financial Secretary cannot reassure hon. Members on this point we shall be left with the unworthy suspicion that there will be many cases where a larger amount of tax will be collected from the transferor because it suits the Revenue's book and that the interests of the taxpayer will once again go by default.

I should like to speak on this interesting point of principle. There is something quite extraordinary in the grossing-up provision. If there is no grossing-up in a transfer tax of this kind there will be a net tax which will be constant, independent of whether it is paid by the transferor or the transferee. Therefore, the joint wealth of both parties would be reduced exactly by the amount of the tax. However, the moment the grossing-up principle enters into the process of taxation we get, between the net tax on the joint wealth of both parties, a distinction which is different in one circumstance from what it would be in the other. This is the most extraordinary philosophical basis of taxation the House has ever been asked to consider.

By what extraordinary criterion has this grossing-up provision been introduced into the Government's thinking? By what strange set of criteria do the Government decide that in one case the net wealth of the two parties should be reduced by an amount £X and in another case that it should be reduced by an amount £Y? I am sure that this has been explored in some detail in Committee. However, I, the House and the country would like a little more elaboration from the Chief Secretary of what lies behind the Government's thinking in developing this fiendishly ingenious and fiendishly destructive tax.

I refer to Clause 25(2), which is a complicated subsection. The Opposition may well have understood it correctly, but I believe there is a slight misunderstanding among some Conservative Members when they say that the primary liability falls on the transferor. Clause 25(2) deals with the liability for payment of tax. Subsection (2)(a) says that the persons liable are:

"the transferor and the transferee".

They are put together. That means that there is joint and separate liability on the transferor and transferee. That is legal language.

Leaving aside grossing-up and the complications following from that it means that the transferor and transferee can get together and pay the whole amount of tax or the transferor can pay the tax. If the transferor pays the tax he discharges the full, several or separate liabilities. If the transferee pays the tax he discharges the full liability.

6.0 p.m.

So it is not a case, I should have thought, of the Revenue being able first of all to go against the transferor, because if the transferee discharges the full liability, the separate or several liability has been discharged and the whole of the tax has been paid. If the tax has been paid by the transferee the gross income does not apply. If, on the other hand, it is paid by the transferor—again, discharging the whole liability by himself—then the grossing-up provisions do apply.

I am glad that my hon. Friend mentioned instalments. Where there is some difficulty is where the transferee decides to pay the tax, but over eight years. In the first year only one-eighth of that joint and several liability has been discharged, and grossing-up does not apply to that one-eighth. But what about the second, third and fourth years? Presumably, if the transferee pays the tax in the second year, again grossing-up does not apply. The transferor cannot discharge the tax in the second year, presumably, because he is not allowed to pay by instalments.

I understand the principle of the joint and several liability, but if my hon. Friend says that the Revenue would not go back against a transferor in the case of a payment by instalment I should have thought that sufficient to satisfy the Opposition. There is some difficulty here. Because the transferor is not entitled to pay by instalments and because there is a spreading over eight years, one can see some difficulty in theory.

I am happy to abide by the assurances that we have had, and I hope that the Opposition will do the same, but it is not a question of a primary liability on the transferor: it is a joint and several liability which either party could fulfil completely.

My hon. Friends and the hon. Member for Llanelli (Mr. Davies), who made a notable contribution in Committee on this point and in many other parts of our debates, have put their finger precisely on the difficulty and the apparent conflict in the Bill. It has been said many times—I have here a particular example when the Financial Secretary said it, but the Chancellor has, too—that this is a donor- or transferor-based tax and that the primary liability is laid on the donor. In case there is any doubt, the Financial Secretary said in Committee that

"the primary liability … is laid upon the donor".—[Official Report, Standing Committee A; 12th February 1974, c. 1347.]

This is clear.

Treasury Ministers have made some play with the importance of the principle that the donor is liable to pay the tax. I do not see how there can be any ambiguity about what the Financial Secretary and the Chief Secretary believe to be the central principle of the Bill. If the Bill becomes an Act, no doubt that is the principle upon which those who seek to collect and levy the tax will base all their calculations. To be fair, without any amendment or clarification of this point, they would be right to do so.

That is the present position. In case not every hon. Member has been able to follow all the appalling ins and outs of the tax, let us make it clear what an important principle this is. If the donor pays, we know that the grossing-up takes place and the tax itself, as well as the amount, is a chargeable transfer. We know that he will be paying anyway in relation to any previous gifts that he has made, so the accumulating principle will come into play. We know that, when the donor pays, he will not be allowed—so both Ministers have told us—to pay by instalments, nor will he have any of the other rights regarding interest and so on. It will literally be the difference between the gift, particularly if it is a family firm or a farm, being smashed up or sold to another firm, or remaining intact. That is a crucial difference, affecting the jobs and interests not just of the transferor, the proprietor or farmer, but of all the workpeople who derive their livelihood from that concern. It matters intensely that we get this matter right, and we cannot let it rest until we do.

It should be made clear in the Bill that there is a right of election. Both the Chief Secretary and the Financial Secretary have got a little confused—who can blame them, with all the complexities of this matter?—and the donor liability point which they have made several times is not entirely right. What they mean is that an election is necessary. We have that on high authority. The Chancellor said explicitly in the Daily Express that that was the situation.

I make no apology for quoting the Chancellor's words yet again, because they are explicit and they reinforce precisely the point that there is an election, there is freedom to choose, whether the donor or the donee shall pay. If that is so, we say that that situation should be reinforced in the Bill. The Chancellor said:

"The tax cannot be spread in this way if you are paying it, but provided your son undertakes the responsibility of paying the tax you can in practice get the benefit of the instalment arrangement by making a gift to him of the amount of each tax instalment as it becomes due, which he can then pass on to the Revenue."

That is an absolutely explicit and clear statement which the Chancellor is entitled to make.

I know that there may be some small print or things unsaid which may be brought into play to suggest that perhaps that example is rather special, but the ordinary reader—indeed, the reader who is familiar with the ins and outs of the tax, like my right hon. and hon. Friends who have studied the matter closely—can draw only one general and crystal-clear conclusion. It is that there is a freedom to choose between the donor and the donee paying.

The reason that it matters so crucially is precisely that, as the hon. Member for Llanelli has so clearly said and as my hon. Friend the Member for Blaby (Mr. Lawson) has said, ambiguity is bound to arise, if, after a year, an instalment is paid by the donee and the Revenue, taking their lead from the Financial Secretary and the Chief Secretary, and reading that, apparently, the Bill unamended—or the Financial Secretary's interpretation of it—still insists that the primary liability is on the donor, will proceed, rightly, in its professional capacity to collect the revenue due from the donor. When it does so, of course, it will be getting much more revenue much sooner than it would if the instalments were paid ungrossed-up by the donee.

It is important that we know. It is clear that there is a right of election and that that election is made in precisely the sort of transaction about which the Chancellor was talking—the garage with a turnover of £50,000, or the shop or farm with a turnover of £100,000, or any small business employing 20 or 30 people.

My hon. Friend should not mention a garage. A garage might not be exempt to permit payment by instalments under the schedule. It is only land and private company shares on which the tax can be paid in instalments, and a garage or shop is a very bad example because it might not fall into either category.

That may be so, but my hon. Friend will see from the following paragraph that there are further definitions. I would join him in being confused, as paragraph after paragraph makes qualifications about what is exempt and what is not, but it may be that businesses, of which a garage can be described as one, are included. I sympathise with him in being unclear about what is and what is not excluded.

The basic issue is, either the Chancellor or the Bill is misleading us. There is no middle way. Either there is a right of election and the Chancellor is right when he says that it is possible for the transferor to hand over the instalments—no mention of additional grossing-up, and Amendment No. 153 would reinforce the points implied so clearly by the Chancellor that no additional tax is attracted—or the Bill, the Financial Secretary and the Chief Secretary are right.

From the point of view of future management of the tax, I hope that the Chancellor is right, but having watched the other two Ministers struggle over the weeks with their briefs trying to understand the Bill, I hope that they do not have to renege on their oft-repeated undertaking that the primary liability is laid upon the donor. One or other must be the position.

I would ask whether it were possible for the Financial Secretary to catch your eye, Mr. Deputy Speaker, to try to explain, with the leave of the House, this matter to us once more to clarify it. This is important. The hon. Member for Llanelli has emphasised, with his great experience and skill in these matters, what confusion exists. If it were possible for the Financial Secretary to intervene again in the debate, with the leave of the House, that would help matters.

I was hoping to catch your eye, Mr. Deputy Speaker. With the leave of the House, may I say that I am grateful to the hon. Member for Guildford (Mr. Howell) for his invitation. I shall see what I can do to clear up the difficulties.

First, perhaps I may address myself to one or two of the general points made by the hon. and learned Member for Dover and Deal (Mr. Rees). He suggests that this tax involves a novel principle and that the quantum of tax will vary according to who pays the tax on the same transaction. But they are quite different transactions, depending on who pays the tax. I am glad to see the assent of the right hon. Member for Down, South (Mr. Powell). That is the whole principle of grossing-up.

The hon. Member for Havant and Waterloo (Mr. Lloyd) was not, unfortunately, with us in Standing Committee. We missed his good nature there. Quite understandably, he did not have the advantage—if I may so put it—of our discussions there. He talked about the distinction between the tax on the joint wealth of both parties. The whole purpose of the tax is to distinguish between the wealth of the parties separately. This is a tax on a transfer from one individual to another.

I rather gathered that the hon. Gentleman thought that the whole principle of grossing-up was a totally novel concept in English tax law. I am sure he will be the first to recognise and acknowledge that the principle of grossing-up is provided in relation to estate duty. If someone were to be given something entirely free of estate duty, different consequences would apply if the beneficiary were to be paying the tax. I am grateful for the hon. Gentleman's acknowledgement of that.

I turn to some of the technical difficulties involved here Not for the first time, my hon. Friend the Member for Llanelli (Mr. Davies) has it absolutely right, as I understood him, and he put it much more lucidly than I ever could. But I think that I could go a little beyond what he said. He rightly points out that under Clause 25(2) the transferor and the transferee are the persons liable. If, however, one looks forward to Clause 27(5), on page 22, one sees that

"Where a person is liable for any tax … under subsection (2) of section 25 of this Act otherwise than as transferor"

—in other words, if it is the transferee—

"he shall be liable only if the tax remains unpaid after it ought to have been paid."

In other words, I had in mind when the tax is overdue—and, as I said earlier, this will normally be six months after the due date or, I should says, six months after the end of the months in which the transfer is made.

I say to the hon. Member for Guildford that when I said that the transferor is primarily liable, I meant that for the first six months until the tax becomes overdue it is the transferor who is liable and then subsequently, after the option of Clause 27(5) comes into effect, they are jointly liable.

The hon. Gentleman does not meet the point. What subsection (5) is concerned about is to protect the transferee from having to pay the tax in certain circumstances. It obviously does not protect the transferor. What we are concerned about is the point that the hon. Member for Llanelli (Mr. Davies) made and the point that I have made in moving the amendment. It is the one point at issue here. How can we be sure in the Bill as it is drafted—I do not believe that we can be sure—that if, after one yearly instalment of the eight is paid by the transferee, there is not immediate recourse by the Revenue to the transferor for the whole of the remainder?

I think that the hon. Gentleman is on to a different point. I shall try to come to that shortly. We ought to get this absolutely clear. As far as the first six months are concerned, the liability is on the settlor as the result of the operation of Clause 27(5). Subsequently there is the joint liability on the transferor and the transferee under Clause 25(2).

Nothing in the operation of Clause 27(5) excludes, as I understand it, an arrangement whereby the transferee should pay the tax. It would, therefore be a net gift rather than a grossed-up gift within the first six months. The option is always there as between the transferor and the transferee. As I said in my original remarks, they are already free to decide who is to bear the tax. Clause 25(2) lays down no order of priority. Each of them is liable to the whole tax, but the amount of the tax will depend on who pays it.

6.15 p.m.

I come now to the point raised about instalments. As I understand the situation, if the transferee takes advantage of the instalment provisions under Schedule 4, paragraph 13(5)(a), and pays the first instalment properly and then subsequently, shall we say, it is impossible for the Revenue to collect from him, for whatever reasons, the right to pay by instalment is not affected by that, even though the Revenue's rights revert back to the transferor. But in those circumstances a higher rate of tax would be involved because if the tax was no longer being paid by the transferee the grossing-up effects would apply to that proportion of the tax which was unpaid.

We had a detailed discussion in Committee about how one calculated the grossing-up provisions with regard to the unpaid portion of the tax when the transferee had started paying and then, after a period, it had become impossible for him to pay any longer and the transferor would take up the payments.

I see the point that the hon. Gentleman is trying to make, but it appears to contradict flatly what the Chancellor said in his prepared reply in the Daily Express. He makes no mention of an additional tax being allowable if the transferee starts paying instalments. There is no mention of that. How can it be that both the Chancellor and the Financial Secretary are right? It does not make sense.

By the leave of the House, I am trying to assist the House. I think I have given an accurate exposition of the matter. The hon. Gentleman has me at a disadvantage. I do not have that newspaper article in front of me. I do not think it is helpful to bandy newspaper articles about at present. I have gone carefully through the effects of Clauses 25 ad 22 and Schedule 4 and I think that I have made matters clear.

The hon. Gentleman says that if the transferee pays one instalment and then the Revenue cannot collect any more from the transferee because the transferee refuses to pay, the Revenue can go to the transferor. What we are concerned about is the Revenue going to the transferor simply because there is a liability all the time with the transferor even though the transferee may be well content to pay the second instalment in the second year, the third instalment in the third year and so on. There is nothing in the Bill to ensure that the Revenue does not seek the tax from the transferor, because they are both liable.

Again, there is a possible misunderstanding here. I shall look at the matter again. As I am advised, the situation is quite clear. Quite obviously, in situations of this sort different people may come to different interpretations of any statute, and these things are eventually determined by the courts. However, we should prefer to get the matter clear between us across the Floor of the House this afternoon if possible. My explanation does not, apparently, satisfy hon. Members of the Opposition.

The right to the instalments is enshrined in Schedule 4. That right is available only to the transferee in the first place. Therefore, once it is agreed that the transferee is to be liable and he has begun his payments under Schedule 4, clearly the Revenue will not proceed Against him unless for any reason he is unable to make payments.

May I ask the Financial Secretary to take this as an illustration of the many unresolved difficulties still existing in this legislation? Listening to this matter for the first time, as it were—although I have attempted to understand the argument before coming to the debate—it is clear that there is here real scope for misunderstanding.

The hon. Member for Llanelli (Mr. Davies) draws attention to the importance of the point. There are many comparable points littered throughout this legislation. It is not sufficient to say, if it is humanly avoidable, "Well, let that be resolved in the courts by litigation in due course." I am sure that the Financial Secretary appreciates this.

May I have the hon. Gentleman's assurance that in preparing the next Finance Bill, which must now be cooking, he will ensure that attention is given to this and many comparable points? With legislation on a new tax we have no opportunity of putting it right in another place, but we have the opportunity to do so in the next Finance Bill, as the right hon. Member for Down, South (Mr. Powell) pointed out.

I give notice that we intend to deliver to the Chancellor of the Exchequer a well-intentioned and reasonable schedule of all the remaining outstanding points of importance. I hope to receive the Minister's assurance that serious attention will be given to all those points, otherwise many difficulties will arise for the taxpayers.

I am obliged to the right hon. and learned Gentleman for his constructive intervention. I accept that there are difficulties. I acknowledge straight away that he has come on to the Opposition Front Bench with his present responsibilities in the middle of a Finance Bill. It must be difficult for him. As one who arrived on the Opposition Front Bench in a junior capacity in the middle of a Budget debate three years ago, I know the sort of difficulties that confront him.

I accept that difficulties are present in what is an extremely complex piece of legislation, as all legislation introducing a fundamentally new tax must be. I undertake to consider seriously the memorandum that the right hon. and learned Gentleman proposes to put before my right hon. Friend. I give him that assurance without any reservation.

With the leave of the House, may I say that if there were another stage to the Bill we would accept the Financial Secretary's undertaking to look at the matter again, which is roughly what he is saying. But there is no such further stage. All this confirms that we shall approach the next Finance Bill constructively. The present exchange also confirms our belief—if it needed confirming—that the Bill is an unholy muddle. Another of the central principles appears to be riddled with ambiguity and shrouded in doubt. I must urge my right hon. and hon. Friends to press Amendment No. 56 in an attempt to get some clarity back into the Bill and to underpin the undertakings of the Chancellor, which appear to need increasing underpinning these days.

If it is possible to have a vote on Amendment No. 56, I beg to ask leave to withdraw the amendment.