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Orders Of The Day

Volume 887: debated on Thursday 6 March 1975

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Finance Bill


Not amended in the Committee and as amended in the Standing Committee, further considered.

4.8 p.m.

I should like to say something to the House at the beginning of these debates. The Division bells are being slightly temperamental at present. They have been examined by the Post Office engineers this morning and again this afternoon. If there are any occasions when a bell does not ring, perhaps notice could be given at once. There were one or two such occasions yesterday. The Post Office engineers have done their very best to ensure that the system is efficient, but if anything should go wrong again, we should like notice of it as early as possible.

Clause 20

Transfers And Chargeable Transfers

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.

Amendment agreed to.

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.

Amendment agreed to.

Clause 22

Transfer On Death

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.

    Amendment agreed to.

    Amendments made: No. 47, in page 17, line 23, leave out '26th' and insert '27th'.

    No. 49, in page 17, line 26, leave out '26th' and insert '27th'.—[ Mr. Joel Barnett.]

    4.15 p.m.

    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.

    Amendment agreed to.

    Amendment made: No. 52, in page 18, line 21, at end insert:

    (c) subsection (5A) shall have effect with the substitution of a reference to section 7(2)(c) of the Finance Act (Northern Ireland) 1969 for the reference to section 40(2)(c) of the Finance Act 1969'.—[Mr. Joel Barnett.]

    Clause 23

    Meaning Of Estate

    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.

    Amendment agreed to.

    Clause 24

    Excluded Property

    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.

    4.30 p.m.

    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.

    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.

    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—

    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.

    5.0 p.m.

    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.

    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.

    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.

    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

    Division No. 131.]


    [5.14 p.m.

    Adley, RobertGlyn, Dr AlanMills, Peter
    Aitken, JonathanGoodhart, PhilipMiscampbell, Norman
    Alison, MichaelGoodhew, VictorMoate, Roger
    Amery, Rt Hon JulianGoodlad, AlastairMonro, Hector
    Atkins, Rt Hon H. (Spelthorne)Gorst, JohnMontgomery, Fergus
    Awdry, DanielGow, lan (Eastbourne)Moose, John (Croydon C)
    Banks, RobertGriffiths, EldonMore, Jasper (Ludlow)
    Beith, A. J.Grimond, Rt Hon J.Morgan-Giles, Rear-Admiral
    Bell, RonaldGrylls, MichaelMorris, Michael (Northampton S)
    Bennett, Dr Reginald (Fareham)Hall, Sir JohnMorrison, Charles (Devizes)
    Benyon, W.Hall-Davis, A. G. F.Morrison, Hon Peter (Chester)
    Biffen, JohnHamilton, Michael (Salisbury)Mudd, David
    Biggs-Davison, JohnHampson, Dr KeithNeave, Airey
    Blaker, PeterHannam, JohnNelson, Anthony
    Bowden, A. (Brighton, Kemptown)Harrison, Col Sir Harwood (Eye)Neubert, Michael
    Boyson, Dr. Rhodes (Brent)Harvie Anderson, Rt Hon MissNewton, Tony
    Braine, Sir BernardHastings, StephenNormanton, Tom
    Brittan, LeonHawkins, PaulNott, John
    Brotherton, MichaelHayhoe, BarneyOnslow, Cranley
    Brown, Sir Edward (Bath)Hicks, RobertOsborn, John
    Bryan, Sir PaulHiggins, Terence L.Page, John (Harrow West)
    Buchanan-Smith, AlickHolland, PhilipPage, Rt Hon R. Graham (Crosby)
    Buck, AntonyHooson, EmlynPardoe, John
    Bulmer, EsmondHordern, PeterParkinson, Cecil
    Burden, F. A.Howe, Rt Hn Sir GeoffreyPattie, Geoffrey
    Butler, Adam (Bosworth)Howell, David (Guildford)Penhaligon, David
    Carlisle, MarkHowell, Ralph (North Norfolk)Percival, Ian
    Carr, Rt Hon RobertHowells, Geraint (Cardigan)Peyton, Rt Hon John
    Chalker, Mrs LyndaHunt, JohnPrior, Rt Hon James
    Channon, PaulHurd, DouglasRaison, Timothy
    Churchill, W. S.Irving, Charles (Cheltenham)Rees, Peter (Dover & Deal)
    Clark, Alan (Plymouth, Sutton)James, DavidRees-Davies, W. R.
    Clark, William (Croydon S)Jenkin, Rt Hon P. (Wanst'd & W'df'd)Renton, Rt Hon Sir D. (Hunts)
    Clegg, WalterJessel, TobyRenton, Tim (Mid-Sussex)
    Cockcroft, JohnJohnson Smith, G. (E. Grinstead)Ridley, Hon Nicholas
    Cooke, Robert (Bristol W)Jones, Arthur (Daventry)Ridsdale, Julian
    Cope, JohnKellett-Bowman, Mrs ElaineRifkind, Malcolm
    Cormack, PatrickKershaw, AnthonyRoberts, Wyn (Conway)
    Corrie, JohnKimball, MarcusRoss, Stephen (Isle of Wight)
    Costain, A. P.King, Evelyn (South Dorset)Rossi, Hugh (Hornsey)
    Crouch, DavidKing, Tom (Bridgwater)Rost, Peter (SE Derbyshire)
    Crowder, F. P.Kirk, PeterSainsbury, Tim
    Davies, Rt Hon J. (Knutsford)Knight, Mrs JillSt. John-Stevas, Norman
    Dodsworth, GeoffreyLamont, NormanShaw, Giles (Pudsey)
    Douglas-Hamilton, Lord JamesLane, DavidShaw, Michael (Scarborough)
    du Cann, Rt Hon EdwardLatham, Michael (Melton)Shelton, William (Streatham)
    Durant, TonyLawrence, IvanShepherd, Colin
    Dykes, HughLawson, NigelShersby, Michael
    Eden, Rt Hon Sir JohnLe Marchant, SpencerSilvester, Fred
    Edwards, Nicholas (Pembroke)Lester, Jim (Beeston)Sims, Roger
    Elliott, Sir WilliamLloyd, IanSinclair, Sir George
    Emery, PeterLoveridge, JohnSkeet, T. H. H.
    Eyre, ReginaldLuce, RichardSmith, Dudley (Warwick)
    Fairbairn, NicholasMcCrindle, RobertSpeed, Keith
    Farr, JohnMacGregor, JohnSpence, John
    Fell, AnthonyMcNair-Wilson, M. (Newbury)Spicer, Jim (W Dorset)
    Finsberg, GeoffreyMcNair-Wilson, P. (New Forest)Spicer, Michael (S Worcester)
    Fisher, Sir NigelMadel, DavidSproat, Iain
    Fletcher, Alex (Edinburgh N)Marshall, Michael (Arundel)Stainton, Keith
    Fletcher-Cooke, CharlesMarten, NeilStanbrook, Ivor
    Fookes, Miss JanetMates, MichaelStanley, John
    Fox, MarcusMather, CarolSteel, David (Roxburgh)
    Fraser, Rt Hon H. (Stafford & St)Maude, AngusSteen, Anthony (Wavertree)
    Fry, PeterMawby, RayStewart, Ian (Hitchin)
    Gardiner, George (Reigate)Maxwell-Hyslop, RobinStokes, John
    Gardner, Edward (S Fylde)Mayhew, PatrickStradling Thomas, J.
    Gilmour, Rt Hon Ian (Chesham)Meyer, Sir AnthonyTaylor, R. (Croydon NW)
    Gilmour, Sir John (East Fife)Miller, Hal (Bromsgrove)Tebbit, Norman

    ing if they reject the amendment. We believe that it should be pressed, and I advise my right hon. and hon. Friends to do so.

    Question put, That the amendment be made:—

    The House divided: Ayes 222, Noes 272.

    Temple-Morris, PeterWalker, Rt Hon P. (Worcester)Wood, Rt Hon Richard
    Thatcher, Rt Han MargaretWalker-Smith, Rt Hon Sir DerekYoung, Sir G. (Ealing, Acton)
    Townsend, Cyril D.Walters, DennisYounger, Hon George
    Tugendhat, ChristopherWeatherill, Bernard
    van Straubenzee, W. R.Wells, JohnTELLERS FOR THE AYES:
    Vaughan, Dr. GerardWiggin, JerryMr. Anthony Berry and
    Viggers, PeterWinterton, NicholasMr. Russell Fairgrieve.
    Wakeham, John


    Abse, LeoEllis, Tom (Wrexham)MacCormick, Iain
    Allaun, FrankEnglish, MichaelMcGuire, Michael (Ince)
    Anderson, DonaldEnnals, DavidMackintosh, John P.
    Archer, PeterEvans, loan (Aberdare)Maclennan, Robert
    Armstrong, ErnestEvans, John (Newton)McMillan, Tom (Glasgow C)
    Ashley, JackEwing, Harry (Stirling)McNamara, Kevin
    Ashton, JoeFernyhough, Rt Hon E.Madden, Max
    Atkins, Ronald (Preston N)Fitt, Gerard (Belfast W)Magee, Bryan
    Bagier, Gordon A. T.Flannery, MartinMahon, Simon
    Bain, Mrs MargaretFletcher, Ted (Darlington)Marks, Kenneth
    Barnett, Guy (Greenwich)Foot, Rt Hon MichaelMarshall, Dr Edmund (Goole)
    Bates, AlfFord, BenMarshall, Jim (Leicester S)
    Bean, R. E.Forrester, JohnMason, Rt Hon Roy
    Benn, Rt Hon Anthony WedgwoodFowler, Gerald (The Wrekin)Meacher, Michael
    Bennett, Andrew (Stockport N)Fraser, John (Lambeth, N'w'd)Mellish, Rt Hon Robert
    Bidwell, SydneyFreeson, ReginaldMikardo, Ian
    Blenkinsop, ArthurGarrett, John (Norwich S)Miller, Dr M. S. (E Kilbride)
    Boardman, H.Garrett, W. E. (Wallsend)Miller, Mrs Millie (Ilford N)
    Booth, AlbertGilbert, Dr JohnMitchell, R. C. (Soton, Itchen)
    Boothroyd, Miss BettyGinsburg, DavidMoonman, Eric
    Bottomley, Rt Hon ArthurGolding, JohnMorris, Alfred (Wythenshawe)
    Boyden, James (Bish Auck)Gould, BryanMorris, Charles R. (Openshaw)
    Bradley, TomGourlay, HarryMulley, Rt Hon Frederick
    Bray, Dr JeremyGraham, TedMurray, Rt Hon Ronald King
    Brown, Hugh D. (Provan)Grocott, BruceNewens, Stanley
    Brown, Robert C. (Newcastle W)Hamilton, W. W. (Central Fife)Noble, Mike
    Brown, Ronald (Hackney S)Hardy, PeterOakes, Gordon
    Buchan, NormanHarper, JosephOgden, Eric
    Butler, Mrs Joyce (Wood Green)Harrison, Walter (Wakefield)O'Halloran, Michael
    Callaghan, Jim (Middleton & P)Hattersley, Rt Hon RoyO'Malley. Rt Hon Brian
    Campbell, IanHatton, FrankOrbach, Maurice
    Canavan, DennisHayman, Mrs HeleneOvenden, John
    Cant, R. B.Healey, Rt Hon DenisOwen, Dr David
    Carmichael, NeilHeffer, Eric S.Padley, Walter
    Carter, RayHenderson, DouglasPalmer, Arthur
    Carter-Jones, LewisHooley, FrankPark, George
    Castle, Rt Hon BarbaraHoram, JohnParker, John
    Clemitson, IvorHowell, Denis (B'ham, Sm H)Parry, Robert
    Cocks, Michael (Bristol S)Hoyle, Doug (Nelson)Pavitt, Laurie
    Cohen, StanleyHuckfield, LesPeart, Rt Hon Fred
    Colquhoun, Mrs MaureenHughes, Rt Hon C. (Anglesey)Pendry, Tom
    Conlan, BernardHughes, Mark (Durham)Perry, Ernest
    Cook, Robin F. (Edin C)Hughes, Robert (Aberdeen N)Phipps, Dr Colin
    Corbett, RobinHughes, Roy (Newport)Prentice, Rt Hon Reg
    Cox, Thomas (Tooting)Hunter, AdamPrice, William (Rugby)
    Craigen, J. M. (Maryhill)Irving, Rt Hon S. (Dartford)Radice, Giles
    Crawford, DouglasJackson, Colin (Brighouse)Reid, George
    Cronin, JohnJackson, Miss Margaret (Lincoln)
    Crosland, Rt Hon AnthonyJanner, GrevilleRichardson, Miss Jo
    Cryer, BobJay, Rt Hon DouglasRoberts, Albert (Normanton)
    Cunningham, G. (Islington S)Jeger, Mrs LenaRoberts, Gwilym (Cannock)
    Dalyell, TamJenkins, Hugh (Putney)Robertson, John (Paisley)
    Davidson, ArthurJenkins, Rt Hon Roy (Stechford)Roderick, Caerwyn
    Davies, Bryan (Enfield N)Johnson, James (Hull West)Rodgers, George (Chorley)
    Davies, Denzil (Llanelli)Johnson, Walter (Derby S)Rodgers, William (Stockton)
    Davies, Ifor (Gower)Jones, Dan (Burnley)Rooker, J. W.
    Davis, Clinton (Hackney C)Kaufman, GeraldRoper, John
    Deakins, EricKelley, RichardRose, Paul B.
    Dean, Joseph (Leeds West)Kerr, RussellRoss, Rt Hon W. (Kilmarnock)
    de Freitas, Rt Hon Sir GeoffreyKilroy-Silk, RobertRyman, John
    Dell, Rt Hon EdmundKinnock, NeilSandelson, Neville
    Dempsey, JamesLambie, DavidSedgemore, Brian
    Doig, PeterLamborn, HarrySelby, Harry
    Dormand, J. D.Lamond, JamesShaw, Arnold (Ilford South)
    Douglas-Mann, BruceLeadbitter, TedSheldon, Robert (Ashton-u-Lyne)
    Duffy, A. E. P.Lever, Rt Hon HaroldShore, Rt Hon Peter
    Dunn, James A.Lewis, Ron (Carlisle)Short, Rt Hon E. (Newcastle C)
    Dunnett, JackLipton, MarcusShort, Mrs Renée (Wolv NE)
    Dunwoody, Mrs GwynethLoyden, EddieSilkin, Rt Hon John (Deptford)
    Eadie, AlexLuard, EvanSilkin, Rt Hon S. C. (Dulwich)
    Edelman, MauriceLyon, Alexander (York)Sillars, James
    Edge, GeoffLyons, Edward (Bradford W)Silverman, Julius
    Edwards, Robert (Wolv SE)McCartney, HughSkinner, Dennis

    Small, WilliamTierney, SydneyWhitlock, William
    Smith, John (N Lanarkshire)Tinn, JamesWilley, Rt Hon Frederick
    Snape, PeterTomlinson, JohnWilliams, Alan (Swansea W)
    Spearing, NigelTorney, TomWilliams, Alan Lee (Hornch'ch)
    Spriggs, LeslieUrwin, T. W.Williams, Rt Hon Shirley (Hertford)
    Stallard, A. W.Varley, Rt Hon Eric G.Williams, W. T. (Warrington)
    Stewart, Donald (Western Isles)Wainwright, Edwin (Dearne V)Wilson, Alexander (Hamilton)
    Stewart, Rt Hon M. (Fulham)Walden, Brian (B'ham, L'dyw'd)Wilson, Gordon (Dundee E)
    Stoddart, DavidWalker, Harold (Doncaster)Wilson, Rt Hon H. (Huyton)
    Stott, RogerWalker, Terry (Kingswood)Wilson, William (Coventry SE)
    Strang, GavinWard, MichaelWise, Mrs Audrey
    Strauss, Rt Hon G. R.Watkins, DavidWoodall, Alec
    Summerskill, Hon Dr ShirleyWatkinson, JohnWrigglesworth, Ian
    Taylor, Mrs Ann (Bolton W)Watt, HamishYoung, David (Bolton E)
    Thomas, Jeffrey (Abertillery)Weitzman, David
    Thomas, Mike (Newcastle E)Wellbeloved, JamesTELLERS FOR THE NOES:
    Thomas, Ron (Bristol NW)Welsh, AndrewMr. James Hamilton and
    Thompson, GeorgeWhite, Frank R. (Bury)Mr. John Ellis.
    Thorne, Stan (Preston South)White, James (Pollok)

    Question accordingly negatived.

    Clause 25

    Liability For Tax

    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.

    5.30 p.m.

    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.

    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.

    5.45 p.m.

    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.

    Amendment, by leave, withdrawn.

    Division No. 132.]


    [6.24 p.m.

    Adley, RobertFletcher, Alex (Edinburgh N)Lester, Jim (Beeston)
    Aitken, JonathanFookes, Miss JanetLloyd, Ian
    Alison, MichaelFowler, Norman (Sutton C'f'd)Loveridge, John
    Amery, Rt Hon JulianFox, MarcusMcCrindle, Robert
    Atkins, Rt Hon H. (Spelthorne)Fraser, Rt Hon H. (Stafford & St)MacGregor, John
    Awdry, DanielFreud, ClementMacmillan, Rt Hon M. (Farnham)
    Baker, KennethFry, PeterMcNair-Wilson, M. (Newbury)
    Banks, RobertGardiner, George (Reigate)McNair-Wilson, P. (New Forest)
    Beith, A. J.Gardner, Edward (S Fylde)Madel, David
    Bennett, Dr Reginald (Fareham)Gilmour, Rt Hon Ian (Chesham)Marshall, Michael (Arundel)
    Benyon, W.Gilmour, Sir John (East Fife)Marten, Neil
    Berry, Hon AnthonyGlyn, Dr AlanMates, Michael
    Biffen, JohnGoodhart, PhilipMather, Carol
    Biggs-Davison, JohnGoodhew, VictorMaude, Angus
    Blaker, PeterGoodlad, AlastairMawby, Ray
    Bowden, A. (Brighton, Kemptown)Gorst, JohnMaxwell-Hyslop, Robin
    Boyson, Dr. Rhodes (Brent)Gow, Ian (Eastbourne)Mayhew, Patrick
    Brittan, LeonGriffiths, EldonMeyer, Sir Anthony
    Brotherton, MichaelGrimond, Rt Hon J.Miller, Hal (Bromsgrove)
    Brown, Sir Edward (Bath)Grylls, MichaelMills, Peter
    Bryan, Sir PaulHall, Sir JohnMiscampbell, Norman
    Buchanan-Smith, AlickHall-Davis, A. G. F.Mitchell, David (Basingstoke)
    Buck, AntonyHamilton, Michael (Salisbury)Monro, Hector
    Bulmer, EsmondHampscn, Dr KeithMontgomery, Fergus
    Burden, F. A.Harrison, Col Sir Harwood (Eye)Moore, John (Croydon C)
    Carlisle, MarkHarvie Anderson, Rt Hon MissMore, Jasper (Ludlow)
    Carr, Rt Hon RobertHastings, StephenMorrison, Charles (Devizes)
    Chalker, Mrs LyndaHawkins, PaulMorrison, Hon Peter (Chester)
    Churchill, W. S.Hayhoe, BarneyMudd, David
    Clark, Alan (Plymouth, Sutton)Hicks, RobertNeave, Airey
    Clark, William (Croydon S)Higgins, Terence L.Nelson, Anthony
    Clarke, Kenneth (Rushcliffe)Holland, PhilipNeubert, Michael
    Clegg, WalterHooson, EmlynNewton, Tony
    Cockcroft, JohnHordern, PeterNormanton, Tom
    Cooke, Robert (Bristol W)Howe, Rt Hn Sir GeoffreyNott, John
    Cope, JohnHowell, David (Guildford)Onslow, Cranley
    Cormack, PatrickHowell, Ralph (North Norfolk)Osborn, John
    Corrie, JohnHowells, Geraint (Cardigan)Page, John (Harrow West)
    Costain, A. P.Hunt, JohnPardoe, John
    Crouch, DavidHurd, DouglasParkinson, Cecil
    Crowder, F. P.Irving, Charles (Cheltenham)Pattie, Geoffrey
    Davies, Rt Hon J. (Knutsford)James, DavidPenhaligon, David
    Dean, Paul (N Somerset)Jenkin, Rt Hon P. (Wanst'd & W'df'd)Percival, Ian
    Dodsworth, GeoffreyJessel, TobyPeyton, Rt Hon John
    Douglas-Hamilton, Lord JamesJohnson Smith, G. (E. Grinstead)Prior, Rt Hon James
    du Cann, Rt Hon EdwardJones, Arthur (Daventry)Raison, Timothy
    Durant, TonyKaberry, Sir DonaldRees, Peter (Dover & Deal)
    Dykes, HughKellett-Bowman, Mrs ElaineRees-Davies, W. R.
    Eden, Rt Hon Sir JohnKershaw, AnthonyRenton, Rt Hon Sir D. (Hunts)
    Edwards, Nicholas (Pembroke)Kimball, MarcusRenton, Tim (Mid-Sussex)
    Elliott, Sir WilliamKing, Tom (Bridgwater)Rhys Williams, Sir Brandon
    Emery, PeterKirk, PeterRidley, Hon Nicholas
    Eyre, ReginaldKnight, Mrs JillRidsdale, Julian
    Fairbairn, NicholasLamont, NormanRifkind, Malcolm
    Fairgrieve, RussellLane, DavidRoberts, Wyn (Conway)
    Farr, JohnLatham, Michael (Melton)Rossi, Hugh (Hornsey)
    Fell, AnthonyLawrence, IvanRost, Peter (SE Derbyshire)
    Finsberg, GeoffreyLawson, NigelShaw, Giles (Pudsey)
    Fisher, Sir NigelLe Merchant, SpencerShaw, Michael (Scarborough)

    Amendment proposed, No. 56 in page 19, 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;'.—[Mr. Lawson.]

    Question put, That the amendment he made:

    The House divided: Ayes 217, Noes 264.

    Shelton, William (Streatham)Steel, David (Roxburgh)Walker, Rt Hon P. (Worcester)
    Shepherd, ColinSteen, Anthony (Wavertree)Walker-Smith, Rt Hon Sir Derek
    Shetsby, MichaelStewart, Ian (Hitchin)Walters, Dennis
    Silvester, FredStokes, JohnWeatherill, Bernard
    Sims, RogerStradling Thomas, J.Wells, John
    Skeel, T. H. H.Taylor, R. (Croydon NW)Wlggin, Jerry
    Smith, Dudley (Warwick)Tebbit, NormanWinterton, Nicholas
    Speed, KeithTemple-Morris, PeterWood, Rt Hon Richard
    Spence, JohnThatcher, Rt Hon MargaretYoung, Sir G. (Ealing, Acton)
    Spicer, Jim (W Dorset)Townsend, Cyril D.Younger, Hon George
    Spicer, Michael (S Worcester)Tugendhat, Christopher
    Sproat, Iainvan Straubenzee, W. R.TELLERS FOR THE AYES:
    Stainton, KeithVaughan, Dr. GerardMr. Adam Butler and
    Stanbrook, IvorViggers, PeterMr. Richard Luce.
    Stanley, JohnWakeham, John


    Abse, LeoDunnett, JackKelley, Richard
    Allaun, FrankDunwoody, Mrs GwynethKerr, Russell
    Anderson, DonaldEadie, AlexKilroy-Silk, Robert
    Archer, PeterEdelman, MauriceKinnock, Neil
    Armstrong, ErnestEdge, GeoffLambie, David
    Ashley, JackEdwards, Robert (Wolv SE)Lamborn, Harry
    Ashton, JoeEllis, John (Brigg & Scun)Lamond, James
    Atkins, Ronald (Preston N)Ellis, Tom (Wrexham)Leadbitter, Ted
    Bagier, Gordon A. T.English, MichaelLever, Rt Hon Harold
    Bain, Mrs MargaretEnnals, DavidLewis, Ron (Carlisle)
    Baker, KennethEvans, Gwynfor (Carmarthen)Litterick, Tom
    Barnett, Guy (Greenwich)Evans, Ioan (Aberdare)Loyden, Eddie
    Barnett, Rt Hon Joel (Heywood)Evans, John (Newton)Luard, Evan
    Bates, AlfEwing, Harry (Stirling)Lyon, Alexander (York)
    Bean, R. E.Fernyhough, Rt Hon E.Lyons, Edward (Bradford W)
    Benn, Rt Hon Anthony WedgwoodFitt, Gerard (Belfast W)McCartney, Hugh
    Bennett, Andrew (Stockport N)Flannery, MartinMacCormick, Iain
    Bidwell, SydneyFletcher, Ted (Darlington)McGuire, Michael (Ince)
    Blenkinsop, ArthurFoot, Rt Hon MichaelMackintosh, John P.
    Boardman, H.Ford, BenMaclennan, Robert
    Booth, AlbertForrester, JohnMcMillan, Tom (Glasgow C)
    Boothroyd, Miss BettyFowler, Gerald (The Wrekin)McNamara, Kevin
    Bottomley, Rt Hon ArthurFraser, John (Lambeth, N'w'd)Madden, Max
    Boyden, James (Bish Auck)Garrett, John (Norwich S)Magee, Bryan
    Bradley, TomGarrett, W. E. (Wallsend)Mahon, Simon
    Bray, Dr JeremyGilbert, Dr JohnMarks, Kenneth
    Brown, Hugh D. (Provan)Ginsburg, DavidMarquand, David
    Brown, Robert C. (Newcastle W)Golding, JohnMarshall, Dr Edmund (Goole)
    Buchan, NormanGould, BryanMarshall, Jim (Leicester S)
    Butler, Mrs Joyce (Wood Green)Gourlay, HarryMason, Rt Hon Roy
    Callaghan, Jim (Middleton & P)Graham, TedMeacher, Michael
    Campbell, IanGrocott, BruceMellish, Rt Hon Robert
    Canavan, Dennis
    Cant, R. B.Hamilton, James (Bothwell)Mikardo, Ian
    Cnrmichael, NeilHamilton, W. W. (Central Fife)Miller, Dr M. S. (E Kilbride)
    Carter, RayHardy, PeterMiller, Mrs Millie (Ilford N)
    Carter-Jones, LewisHarper, JosephMitchell, R. C. (Soton, Itchen)
    Castle, Rt Hon BarbaraHarrison, Walter (Wakefield)Molloy, William
    Clemitson, IvorHattersley, Rt Hon RoyMoonman, Eric
    Cocks, Michael (Bristol S)Hatton, FrankMorris, Alfred (Wythenshawe)
    Cohen, StanleyHayman, Mrs HeleneMulley, Rt Hon Frederick
    Colquhoun, Mrs MaureenHealey, Rt Hon DenisMurray, Rt Hon Ronald King
    Cook, Robin F. (Edin C)Heffer, Eric S.Newens, Stanley
    Corbett, RobinHenderson, DouglasNoble, Mike
    Cox, Thomas (Tooting)Hooley, FrankOakes, Gordon
    Craigen, J. M. (Maryhill)Horam, JohnOgden, Eric
    Crawford, DouglasHowell, Denis (B'ham, Sm H)O'Halloran, Michael
    Crosland, Rt Hon AnthonyHoyle, Doug (Nelson)O'Malley, Rt Hon Brian
    Cryer, BobHuckfield, LesOrbach, Maurice
    Cunningham, G. (Islington S)Hughes, Rt Hon C. (Anglesey)Owen, Dr David
    Dalyell, TamHughes, Mark (Durham)Padley, Walter
    Davidson, ArthurHughes, Robert (Aberdeen N)Palmer, Arthur
    Davies, Bryan (Enfield N)Hughes, Roy (Newport)Park, George
    Davies, Denzil (Llanelli)Hunter, AdamParker, John
    Davies, Ifor (Gower)Irving, Rt Hon S. (Dartford)Parry, Robert
    Davis, Clinton (Hackney C)Jackson, Colin (Brighouse)Perry, Ernest
    Deakins, EricJackson, Miss Margaret (Lincoln)Prentice, Rt Hon Reg
    Dean, Joseph (Leeds West)Janner, GrevillePrice, William (Rugby)
    de Freitas, Rt Hon Sir GeoffreyJay, Rt Hon DouglasRadice, Giles
    Dell, Rt Hon EdmundJeger, Mrs LenaReid, George
    Dsmpsey, JamesJenkins, Hugh (Putney)Richardson, Miss Jo
    Doig, PeterJenkins, Rt Hon Roy (Stechford)Roberts, Albert (Normanton)
    Dormand, J. D.Johnson, James (Hull West)Roberts, Gwilym (Cannock)
    Douglas-Mann, BruceJohnson, Walter (Derby S)Robertson, John (Paisley)
    Duffy, A. E. P.Jones, Dan (Burnley)Roderick, Caerwyn
    Dunn, James A.Kaufman, GeraldRodgers, George (Chorley)

    Rodgers, William (Stockton)Stewart, Donald (Western Isles)Watkinson, John
    Rooker, J. W.Stoddart, DavidWatt, Hamish
    Roper, JohnStott, RogerWeitzman, David
    Rose, Paul B.Strang, GavinWellbeloved, James
    Ross, Rt Hon W. (Kilmarnock)Strauss, Rt Hon G. R.Welsh, Andrew
    Ryman, JohnSummerskill, Hon Dr ShirleyWhite, Frank R. (Bury)
    Sandelson, NevilleTaylor, Mrs Ann (Bolton W)White, James (Pollok)
    Sedgemore, BrianThomas, Dafydd (Merioneth)Whitehead, Phillip
    Selby, HarryThomas, Jeffrey (Abertillery)Whitlock, William
    Shaw, Arnold (Ilford South)Thomas, Mike (Newcastle E)Willey, Rt Hon Frederick
    Sheldon, Robert (Ashlon-u-Lyne)Thomas, Ron (Bristol NW)Williams, Alan Lee (Hornch'ch)
    Shore, Rt Hon PeterThompson, GeorgeWilliams, Rt Hon Shirley (Hertford)
    Short, Rt Hon E. (Newcastle C)Thorne, Stan (Preston South)Williams, W. T. (Warrington)
    Short, Mrs Renée (Wolv NE)Tierney, SydneyWilson, Gordon (Dundee E)
    Silkin, Rt Hon John (Deptford)Tinn, JamesWilson, Rl Hon H. (Huyton)
    Silkin, Rt Hon S. C. (Dulwich)Tomtinson, JohnWilson, William (Coventry SE)
    Sillars, JamesTorney, TomWise, Mrs Audrey
    Silverman, JuliusVarley, Rt Hon Eric G.Woodall, Alec
    Skinner, DennisWainwright, Edwin (Dearne V)Wrigglesworth, Ian
    Small, WilliamWalden, Brian (B'ham, L'dyw'd)Young, David (Bolton E)
    Smith, John (N Lanarkshire)Walker, Harold (Doncaster)
    Snape, PelerWalker, Terry (Kingswood)TELLERS FOR THE NOES:
    Spearing, NigelWard, MichaelMr. Laurie Pavitt and
    Springs, LeslieWatkins, DavidMr. Tom Pendry.
    Stallard, A. W.

    Question accordingly negatived.

    Amendments made: No. 57, in page 19, line 44, at end insert—

    '(3A) Where the chargeable transfer is made within three years of the transferor's death, then, with respect to so much of the tax, as exceeds what it would have been had the transferor died more than three years after the transfer, subsection (2)(a) above shall have effect with the omission of the words "the transferor and" and subsection (3) above with the omission of paragraph (d),'.

    No. 58, in page 21, line 1, leave out second 'a' and insert 'another'.

    No. 59, in page 21, line 2, leave out '26th' and insert '27th'.

    No. 61, in page 21, line 3, leave out 'the transfer' and insert 'both transfers'

    No. 62, in page 21, line 5, at end insert 'other'.—[ Dr. Gilbert.]

    Clause 26

    Exceptions From Liability

    Amendments made: No. 64, in page 21, line 20, leave out section 30(3) or'.

    No. 66, in page 21, line 21, after '32' insert—

    'or subsection (3) or (4) of section (conditional exemption for certain buildings, etc. on death)'.

    No. 67, in page 21, line 21, after 'Act', insert—

    'or in the case of tax payable on the proceeds of a sale in accordance with paragraph 3(a) of Schedule (Relief for woodlands) to this Act, the person liable under paragraph 2(2) of that Schedule'.

    No. 497, in page 21, line 22, at end insert—

    'and no person other than those liable under subsection (3) of section 37 of this Act shall be liable for any tax chargeable under subsection (1) of that section'.

    No. 796, in page 21, line 22, at end insert—

    '(2A) Where a transfer of value is made within one year of the death of the transferor and, by reason of an excess over the amount specified in paragraph 9(1)(b) or 9A(1)(b) of Schedule 6 to this Act, any tax is chargeable on a part of the value transferred which is attributable to property given to a charity or property which becomes the property of a political party, no person other than the charity or, as the case may he, the political party shall be liable for tax on that part'.—[Dr. Gilbert.]

    Clause 27

    Limitation Of Liability

    Amendments made: No. 69, in page 22, line 12, at end insert—

    '(3A) Where the tax exceeds what it would have been had the transferor died more than three years after the transfer, a person shall not be liable for the excess as a person in whom property is vested otherwise than beneficially, except to the extent of so much of the property as is vested in him at the time of the death; and a person shall not be liable for the excess as a trustee in relation to any property, except to the extent of—
  • (a) so much of the property as is vested in him at the time of the death; and
  • (b) so much of the property as, after the death, he has actually received or disposed of or as, after the death, he has become liable to account for to the persons beneficially entitled thereto'.
  • No. 70, in page 22, line 27, at end insert—

    '(6) Subsection (5) above shall not apply in relation to such an excess as is mentioned in subsection (3A) above',—[Dr. Gilbert.]

    Clause 28

    Burden Of Tax

    Amendment made: No. 71, in page 23, line 28, at end insert—

    '(8) References in this section to tax include interest on tax and, in subsections (1) to (5), costs properly incurred in respect of it'.—[Dr. Gilbert.]

    Clause 35

    Rate Of Tax

    Amendment made: No. 76, in page 26, line 44, after 'the', insert 'appropriate'.—[Dr. Gilbert.]

    Dr. Gilbert: I beg to move Amendment No. 77, in page 27, line 6, at end insert—

    '(1A) Except as otherwise provided the First Table set out in subsection (2) below is the appropriate Table for a transfer made on or at any time within three years of the death of the transferor, and the Second Table set out in that subsection is the appropriate Table for any other transfer'.

    With it we shall discuss the following amendments to the amendment: (b), in line 2, leave out 'three years' and insert 'one year'.

    ( c), in line 4, at end add:

    'Provided that only the second table shall apply for a transfer made in respect of shares in an unquoted company, a partnership or the assets of a sole trader'.

    ( d), in line 4, at end add:

    'Provided that only the second table shall apply for a transfer made in respect of shares in a close trading company or assets used in a trade, profession or vocation'.

    ( e) in line, at end insert—

    'Provided that in relation to transfers of shares in a close company or of assets of a

    'Portion of Value

    Rate of Tax

    Lower Limit

    Upper Limit

    Per Cent.


    Clause 30

    Reduced Rates For Taxable Gifts To Charities

    Amendment made: No. 72, in page 23, line 33, leave out Clause 30.—[ Mr. Joel Barnett.]

    trade or profession where the assets transferred do not exceed £250,000 in value and where the transferee has been engaged in full-time employment in the company or partnership for not less than five years and the transferor has been engaged full time or as a director for not less than three years before the transfer and if the transferee continues in full-time employment in the business for the three succeeding years after the transfer then the rate of tax shall be one-half that in the second table, only'.

    We shall also discuss Government Amendments Nos. 78, 79 and 81 and the following Opposition amendments:

    No. 439, in page 27, leave out lines 12 to 30 and insert:

    No. 80, in page 27, leave out lines 13 to 30 and add:

    'Slice of Chargeable transfers—£000

    Rate on slice %


    Amendment No. 77 and the other Government amendments introduce into the clause a reduced scale of rates for lifetime transfers. If I have the opportunity to catch your eye at the end of the debate, Mr. Speaker, it might be for the convenience of the House if I save my remarks until then.

    The pace at which we are moving indicates the constraints under which we are operating. We have now reached the point at which we have an opportunity to consider the quite monstrous and unjustifiable rates at which this ill-designed tax will continue to operate even after the concession contained in Amendment No. 77.

    It is important to bring home to all hon. Members and to people outside this House the grave damage which will be inflicted by the tax on firms and farms, families and thrift. It appears—I say this advisedly—that even now the Government Front Bench has no comprehension of the scale and nature of the damage it is doing through its tax proposals. I return to the question which has baffled me ever since I began studying these proposals in detail: whether it is more serious to conclude that Ministers know and understand what they are doing and are, therefore, guilty of wilful destruction than it is to conclude that they still do not know and do not understand what they are doing and, therefore, should be subject to a verdict of not guilty by virtue of insanity.

    I shall give an example which could apply to many different industries, companies and firms. It affects the building industry. Small firms are dominant as they are in the garage trade, in which there are many small garage businesses. There is also the farming industry, and in that context perhaps I should mention egg farming, many representatives of which are currently in the precincts of the House seeking to speak to hon. Members. Those of us who are taking part in the debate may not be able to see our egg farmers in person as they would wish, but I hope they will feel that we are fighting their battle for them in representing their case against the tax.

    Perhaps I may quote the example of a farm worth, say, £100,000—a business which has been built up to that value over 25 years. That is by no means a high valuation in terms of small businesses or companies engaged in any of the activites to which I have referred.

    It is, therefore, not an unreasonable example. Let me analyse step by step the effects of the Government's proposals on such an undertaking.

    Let us suppose that a firm of that kind is being disposed of either by death or by gift to another member of the family to whom it is to be passed on. If we understand the Government's intention correctly, there will be payable, first, capital gains tax at the rate of 30 per cent. Under the amendment we are now considering, capital transfer tax will also be payable at a rate, now reduced in the case of a lifetime interest, of 50 per cent. on death. Let it be noted that if the tax is to be paid by the transferor or donor, the grossing-up provision applies and it is assessed on £150,000.

    It is indeed scandalous. The scale of the scandal is set out in the answers to which we have referred, which cannot be studied too often and which appear at cols. 573 and 574 et seq. of the Official Report of 21st February, that were given to my hon. Friend the Member for Blaby (Mr. Lawson).

    If one contemplates the position shown there under Table 1, which sets out the capital transfer tax and capital gains tax combined as a proportion of the assets transferred on a £100,000 business, one sees the quite astonishing figure of £106,000, rounded up by a pound or two. On that footing, therefore, the tax payable is in excess of the actual value of the business being transferred. Of course, a substantial element in that sum is represented by capital gains tax, but only by that tax payable on the growth in the cash value of a firm as a result of an assumed rate of inflation of 10 per cent. over 25 years. On that footing one has the absolutely ludicrous situation of tax being exacted in excess of the value of the assets in question. It can only be described as expropriation, as robbery without violence. That is only one of the ways in which one can approach it.

    If one looks at the more generous Table 2 proposals, now the subject of an amendment moved by the Financial Secretary, in the case of somebody transferring as a gift during lifetime one sees that the rate of capital transfer tax is reduced. Even so, for a business of that kind worth £100,000 the cumulative tax payable, as set out in Table 3 of the answers given to my hon. Friend—£52,000—represents more than one-half of the value of the business in question. I have some questions to ask on that later. How far do the thousands of small business men up and down the country, in spite of all the letters we have been receiving from them, even now appreciate what is meant by that?

    To take another example, that of a business worth £250,000, again under Table 3, the cumulative addition of capital gains tax and capital transfer tax, even on the reduced rate for lifetime transfers, makes the combined tax payable, on the assumptions I have indicated, more than £300,000. If one had not studied these things closely one would not believe one's eyes, one's ears or anything else. It is a wholly fantastic situation and I do not understand how any explanation or exposition from the Government can begin to justify such things.

    Let us look again at the way the Chancellor, in the less-than-candid series of answers he gave in the Daily Express, described the situation of which I have just been speaking, which I hope you will remember, Mr. Speaker—a combined rate of more than £300,000 in capital gains tax and capital transfer tax on a business of £250,000. The Chancellor was asked:
    "The Confederation of British Industry has said that the tax will damage small firms and therefore employment. How do you answer this charge?"
    The Chancellor answered:
    "I do not accept that the tax will have this effect, particularly now that we have reduced the rate on small- and medium-sized gifts. … On a gift of £250,000 the lifetime tax will be about two-thirds of the tax on death. We have introduced this relief to help small businesses in particular."
    Some help! It is absolutely lunatic. One thing that has been made clear by the amendment that the Financial Secretary has just moved is that the original lifetime rates proposed in the Bill as introduced in this House were far too high. The amendment which the hon. Gentleman is seeking to move is not just an admission of error, an admission that goes nowhere near far enough. It is a confession of gross folly, and it is a pity that the standard by which we have had to judge it is the standard underlying this whole legislation.

    6.45 p.m.

    The Government still do not go and have not gone anything like far enough. They have not brought their proposals within 1,000 miles of sanity or justice. Be it noted that the schedule now introduced by the Financial Secretary applies only to lifetime gifts, and then only if the transference between donor and donee is made more than three years before death. The point of Amendment (b) is to reduce the period to make it comparable to that provided for charities, a period of 12 months. Even so, the exemption that the Government are seeking on relief provided in Table 2 is a first step.

    Let us hope that we shall not in any subsequent discussion hear that referred to as a loophole. I would not put it beyond the rather ghoulish characters who have been occupying the Government Front Bench throughout these debates to begin suggesting, in a way suggested earlier but rather differently by my hon. Friend, that in face of this burden of taxation life itself should be regarded as a loophole which ought shortly to be stopped up. That argument would not surprise me. It would not surprise me if the more benevolent proposals of the second table were merely paving the way for the hon. Member for Bolsover (Mr. Skinner) when he finally succeeds to the distinguished position of the Financial Secretary, or even, God forbid, something more distinguished, to stop up even these loopholes.

    Seriously, how is a family business expected to cope? I ask that in a genuine spirit of inquiry. On transferring a business worth £100,000, how does one find £106,000 of tax, even if the cost of doing so is at the new lifetime gift rate? How does one find £52,000 to pay the tax? How does one set about it? These are questions that I am being asked in letter after letter from all over the country. What is the intention in imposing this extraordinary and destructive burden on such businesses?

    Amendments (c), (d) and (e), standing in the names of my right hon. Friends and myself, would offer some relief from that burden though probably still nothing like enough; but they are an attempt to improve the horrors that confront us. Of course it is true that similar problems could have arisen when we were facing only estate duty but—let the Financial Secretary hold his peace—they seldom did because of the existence, under provisions carefully worked out by advisers of the calibre of the Chief Secretary, who is not now with us, of trusts and other arrangements.

    By those means businesses and farms were able to pass from one generation of a family to the next and to survive and prosper. By those means businesses and farms grew, prospered and created jobs and wealth for people in the communities in which they lived, creating wealth of all kinds for the community. That desirable effect, apparently, is said to be a loophole. It is the survival kit within the pattern of estate duty that is to be snatched from small farms and businesses and others, since it is identified as a loophole.

    It is uncomprehending rubbish for that to be described as a loophole. The existence of continued capacity to make arrangements of that kind is the result of conscious decisions of successive Chancellors in face of the nature of estate duty to allow successful enterprise of that kind to continue to exist. It is wholly destructive to seek to stop up that so-called loophole.

    Now that that is intended, I ask again not merely how business men, businesses and farmers are intended to cope, but what is the purpose of the change projected by the Government in relation to those businesses? What will be its effect? I can see only one way in which the situation can be met. The effect is bound to be to compel the sale in whole or in part of thousands of successful, thriving enterprises. One asks, sold to whom? They will be sold to giant public corporations if they, in face of the Government's other economic policies, can raise the cash to make the purchase, which is doubtful. They will be sold to the chiefs of satrapies in the Middle East or elsewhere, if they still have the courage to invest in the kind of Britain which will survive the imposition of that tax, or they will be sold, as it was suggested last night, by compulsion to the right hon. Member for Bristol, South-East (Mr. Benn), the ignoble Lord Stansgate. There can be no other consequence.

    I have nowhere seen any attempt to answer the question I ask about what will be the effect. What other way, therefore, is to be seen? In what sense is it any exaggeration to say that enterprises will be destroyed within a generation and that workers in those enterprises and their jobs will be taken over and threatened? As sane men are presumed to intend the consequences of their acts, one can only conclude that the Labour Government mean to achieve just that desolation which lies in prospect. It is unbelievable.

    I wish to give time for my hon. Friends to join in this extremely important debate, but I hope I may be forgiven for recounting to the House a conversation I had a year or two ago with a distinguished representative of the Chinese People's Republic. Finding myself short of immediate material for launching the conversation, I asked him to what extent dogs were in evidence in the Chinese People's Republic. I was told—perhaps not surprisingly—that there were only worker dogs to be found in that happy country. Dogs were found on farms, with jobs to do, but nowhere else. I asked what happened if such a worker dog strayed out of its agricultural compound and into the town. I received the crisp reply "Such a dog would not exist." Will someone please explain to the House why these taxes will not work in just that way? What is to be the future of small business in Britain? Within one generation of the Government's carrying through this legislation such a thing will not exist.

    Is it any wonder that there are cars on the roads of this country displaying on the back window a sticker which will be the epitaph of the present administration, if they last that long, and which, if we are not careful, may turn out to be the epitaph of Britain. The legend is simple:
    "Will the last small business man to leave Britain please turn out the lights?"
    That is the prospect before many people in face of the Government's policies. We are determined, as we have been throughout the proceedings on the Bill, to do everything possible to protect people from that damage, and my right hon. Friend the Leader of the Opposition has already told the House of the Conservative Party's attitude towards this tax. It is a bad tax. I renew, on the Conservative Party's behalf, the pledge already given. We shall, therefore, repeal the tax. We shall take account of the fact that capital taxation in one form or another has existed since the latter part of the last century, but that which will replace the tax will bear in mind, as it should, first the weight of other capital and income taxes on the taxpayer, secondly the beneficial treatment of gifts to the family in other countries which have a gift tax, and thirdly the need to keep in this country those who can create the new wealth upon which our future depends.

    I wish to refer Amendments (c), (d) and (e) to the Amendment. Amendment (c) refers to unquoted companies. Amendment (d) may, perhaps, appeal to the Financial Secretary because it includes a reference to trading close companies and may close a conceivable loophole. Amendment (e) puts on a limitation of £250,000 and provides that the recipient shall work for five full years before the transfer, the donor shall have been in the business for three years and the recipient shall continue to work in the business.

    In Amendment (e) we deal specifically with the family business, the sort of business which passes on from generation to generation and is in many parts of the country the backbone of the local economy, particularly in the regions, including Scotland, Wales and Northern Ireland, where family businesses dominate in the economy.

    Amendment No. 77 is in response to the debate in Committee of the whole House. We are grateful that there is to be some help, but regret that it is totally inadequate. The House may recall the definition of "gratitude in politics" made by Lord Boyd-Carpenter, who said that it was "a lively anticipation of further benefits to come". I trust that the Financial Secretary will act in that way tonight.

    In the debate in Committee of the whole House, the Chief Secretary said that he could not accept an amendment which treated one group of assets differently from other assets. His words were that:
    "it would be unfair, all other things being equal, for one taxpayer to pay considerably less than another. That would not be right."—[Official Report, 22nd January 1975; Vol. 884, c. 1662.]
    On that basis he rejected our amendment.

    Having set out that basis the Chief Secretary proceeded to shoot it to pieces in Standing Committee when he gave preferential treatment to certain deserving groups—in agriculture, with the 20-year valuation, and in forestry, where no payment is made till the asset is sold. That is a principle which is incorporated in Amendment (e), which might be favourably received by the Financial Secretary.

    7.0 p.m.

    It works on the same principle. A business is like a tree. It takes years to grow, but can be cut down overnight. One of the major problems which small businesses will face in the next few years is the situation that will follow the Government decision to cut down family businesses, small businesses and growing businesses—concerns which have taken years, sometimes generations, to build but which could be quickly destroyed.

    Last night we had a brief debate, lasting 20 minutes before midnight, on the subject of small businesses. The Financial Secretary revealed the Government's defence. He said, if I may paraphrase his words, "What is the fuss all about? These businesses have survived estate duty, and capital transfer tax is at a lower rate than death duty. Since we are conferring a benefit on those businesses, why are the Opposition getting so worked up?" The Minister knows that most people did not pay estate duty. It was paid by those who were unlucky or ill-advised. Certainly many of those in small and medium-sized businesses did not pay estate duty. Because they were not prepared to see their life's work end up as a donation to the Treasury they sought advice on how to avoid it.

    The Financial Secretary does not need to attack my argument—I am aware that he will try to do so—since he will find that in his speeches and in the remarks of his right hon. Friend the Chancellor in introducing capital transfer tax it was said that it was necessary to take this action to stop up the holes in estate duty. In other words, it was admitted that very large numbers of firms and people did not come within the scope of estate duty and used legitimate means to avoid the tax. Therefore, the whole of the Minister's defence is founded on sand. Since the majority of businesses did not pay duty it is not true to say that the CTT is less onerous than was the estate duty.

    Yesterday at lunchtime I was with a man who was the third generation in a family business. It is not untypical of the sort of business we are dealing with in this debate. It provides jobs for 150 people. It is run by a go-ahead young man who has been trained for the job. Ever since he went to school he knew that one day he would go into the business and would try to build another storey on to the business which had been built up by his father and grandfather. He told me that he had introduced a system of worker participation—indeed, he had a meeting yesterday to consider how to extend that system. He was determined to see that the business forged ahead with the most modern concepts of management and that he would disprove the legend of clogs to clogs in three generations. What situation would now face that business if it had had to pay capital transfer tax when the young man got his hands on the levers of management?

    I agree that he could not have afforded them.

    Assuming that the business is worth £120,000, as a lifetime gift the tax would amount to £19,000, plus capital gains tax. If we ignore capital gains tax—and we cannot ignore it—we must envisage the person concerned paying £2,400 a year over a period of eight years. The salary of the man in question is about £6,000 a year. How can anybody, on such a salary gross, find £2,400 a year net, for eight years with which to pay the tax?

    Let us consider the position of a larger company worth £250,000. In that case the capital gains tax liability could be £37,000 or more. If paid by the recipient on a lifetime gift, if we take the best possible option, the CTT liability would be £76,000. Over eight years the figure would amount to £13,000 a year. To obtain £13,000 a year a man would need a salary, before income tax and higher rate tax, of about £40,000—that is, assuming he has no money to live on. Even the Financial Secretary would admit that a person would have to keep himself, pay his mortgage and so on. Therefore, if he is to have just as much money as a moonlighting plasterer he would need to have £50,000 a year to pay the tax and to be able to live at a modest rate.

    Where is the money to come from? We should repeat that question time and again. The Government seem to assume that a young man in this situation is born with a silver spoon in his mouth and has a small fortune behind him. But that is not the situation. Most of the people concerned are young men coming into business who have not a bean to their name, apart from what they earn from the business. How can one take £50,000 a year out of a business worth £250,000 for eight years to pay the tax? It is just not on the cards, and the Financial Secretary knows it. If he wishes to disprove my figures, I shall be happy to allow him to do so.

    I have an interest in this matter, as do many of my hon. Friends, and countless people have written to me and my colleagues on this topic. The import of those letters is "There is no possible prospect of my business going on for another generation. Why sweat it out? Why work at it? What is it all worth? "John Chown, in a brilliant analysis in the Financial Times at the beginning of the week, showed what a small amount those working to build up a business can ever hope to pass on.

    I am sure the hon. Gentleman will recall that in the course of that article by the distinguished commentator, Mr. Chown, it was made clear that there should be little difficulty for businesses up to a value of £250,000 in paying the tax.

    I hear what the Minister says, and I shall be interested to hear him describe how somebody can take enough money out of a business—bearing in mind that that person must pay income tax on the money he takes out—to pay CTT and to meet the capital gains tax liability. In the most favourable circumstances in respect of a lifetime gift involving a £250,000 business, he will be required to earn about £50,000 a year. If the Minister wishes to dispute that figure I shall be delighted to give way to him. I invite him, and indeed challenge him, to do so in his reply.

    Will he also include recognition of what will happen to a business over a period of eight years with inflation running at 20 per cent. per year? How much money will be needed to keep the business going? Will he also stress the difficulty in borrowing the money, and finding where it is to come from?

    My hon. Friend is right. Inflation means that one needs more money to undertake the same volume of business. We must consider this matter against the background not only of CTT but of other taxes—income tax, corporation tax, advance corporation tax, capital gains tax and the promised wealth tax. If one envisages the impact of only half those taxes one sees how impossible is the situation.

    One has only to consult those in industry to see what is happening. I do not know how greatly the Financial Secretary and the Government have consulted with the Small Businesses Association, the Small Firms Council of the CBI, the National Chamber of Trade, and the like. I have been conducting a careful analysis with those bodies.

    Earlier this week I received a deputation of people involved in running these businesses. They told me what they are doing or planning to do. The Financial Secretary wants a growing and strong economy. The Government have said that that is their aim. However, the Financial Secretary should realise exactly what is happening. I was told: "We have spent our lifetime building up the business and ploughing back. That is the way in which a small business exists. We have put our lives into our business. Now we have to run it down, for otherwise it cannot pass on to the next generation."

    I was also told "We have built up a major export business. We have been encouraged by the Government to do it. We put our backs into it and we have been proud of it. Now we have to seek to turn orders away, to wind our business down to make it small enough to be able to pass on."

    A third person said: "At my board meeting last Friday we solemnly sat down and discussed ways in which to reduce our business, to reduce our turnover and to reduce our investment programme, and, unfortunately, to reduce our work force."

    That is not my invention. There were 40 representatives from different parts of the country at that meeting, every one of whom would confirm the accuracy of what I have said.

    Since this Government came to office, a new phrase has appeared—the terminal business. We have heard of terminal wards in hospitals but now we have a terminal section of the business community, comprising those who know that they cannot pass their business on to the next generation and those who do not see any motivation to go on working to build up a business for the benefit of the Chancellor of the Exchequer.

    Such people see that there is no prospect either for themselves or, desperately unfortunately, for their employees, those who have joined the team, who have helped to build up and run the business. From my personal experience I know of the importance in a business of the team and the team spirit which makes it a success. Those people will say to themselves "How can we tie our careers to a terminal business?" They know that if they start such a job at 25 or 30 and the boss dies they will be out of a job in 10 or 20 years' time. Such people will not put themselves into that position.

    We now have a serious situation about which the Government do not care and—looking at the empty Government benches—Government supporters do not care a damn, either. We shall have a situation in which the Government will terminate many businesses which provide much employment and the Government do not appear to care.

    7.15 p.m.

    The House knows of my own interests as a small business man.

    Any concession is gratefully received by the business community, which is threatened so gravely by the new measures. My advisers tell me that if my wife and I died it might be virtually impossible for the business, in which we have worked so hard for so long, to survive, without reliefs other than those already proffered. It is not nice to hear that. It is dangerous threat to a useful part of the community, and to businesses which are of benefit to the economy.

    There should be upper limits on the total capital taxation which can fall on any business. When a business grows it sometimes acquires substantial property assets. In these new circumstances those assets are a threat to the life of the business. However, there are many businesses with limited turnover that cannot survive without substantial property in which the work is done. Such businesses are at greater risk of destruction than those where there is substantial output in relation to the total property assets. That aspect deserves to be separately looked at and given further consideration.

    How are the burdens of debt to be met? Insurance would cost far too much. The proprietor of any business of substance would not be able to afford the premiums, especially if the life assurance policy were taken out in middle age or later. I know that an opportunity is given to pay over eight years. However, most progressive businesses which are in a continuing phase of expansion require all the capital that they can find for investment. If that investment is taken out of the business and used to pay the debt for such taxation, it will be necessary to borrow money or to sell part of the business. That is nothing but destructive.

    In any case how will that money be readily raised? What bank would advance money on any substantial scale in circumstances where the business must either be run down or at least not expanded? We know from common experience that a business either grows and prospers or shrinks and goes downhill.

    In spite of the natural instinct of business men to make their businesses grow and expand, since the new tax was proposed, I have heard of cases where family firms were planning to reduce the size of their businesses, contrary to the national interest and to natural instincts. They see no other way of being able to pay the tax involved. The Minister has observed that it will be possible for smaller businesses to pay the tax. However, as soon as a business has reached a substantial size it is for the chopper!

    Is that desirable? Why should a private family business suffer if it has assets or, say, £1 million, if the people working in it are happy and are doing a good job, and if the service it provides is excellent? Why wield this extraordinary tax to destroy the spirit of enterprise which has made our nation so great? Why destroy the profits on which the Government must draw if we are to pay for social services, defence and the other facilities needed by the community? What will happen to the staff in these businesses if their sense of security is removed? They may not know whether the business can survive the death of the proprietor. Every time the proprietor goes out for a walk they will wonder whether he will be run over by a bus. The livelihood of the people working in these firms will be placed at risk.

    What will be the consequence? People will seek jobs in larger firms, in the bureaucracy, or, if they are anxious still to work where enterprise and effort are rewarded, they will go abroad. The Government wish to drive the proprietors of these businesses and their staff out of the Kingdom. It is wrong to put this element, of fear behind every person working in a medium-sized family business. I ask the Government to think again, to look at the figures, and to speak to business men running such businesses.

    The Minister laughed. However, this is not funny. This tax is a destructive measure. It is not merely a revolutionary measure to change society. It is a measure designed to kill one part of our society. It is divisive of our community as a whole.

    When we debated the Finance Bill in Committee on the Floor of the House, a number of Government supporters thought that I was exaggerating when I said that the Government seemed bent on creating a mixture of peasant economy and corporate State. I repeat that, because that is exactly what they are creating. There will be no room for the individual business owned and run by a family who care for it and have built it up over generations. There will be no room and no opportunity for the ordinary person of his own initiative to prosper.

    I thought that my hon. Friends the Members for Basingstoke (Mr. Mitchell) and for Upminster (Mr. Loveridge) made extremely powerful speeches based on deep personal experience. I have no interest to declare. I have no small business in my family. I wish that I had. But I admire the talents of those who have developed, from what Napoleon scoffingly called a nation of shopkeepers, what I still believe to be the greatest nation in Europe.

    In this Bill, the Government are discouraging talent and in some cases possibly perverting it. There will be two results from this measure. Many of the people referred to by both my hon. Friends will be discouraged from expanding their businesses for their own good and for the good of the community—enlightened self-interest has always been the best guide to any decent society. Others will be encouraged to use their talents to find ways round these provisions, and no doubt some will be suc cessful. In other words, talents which should be used in a creative and constructive way will be either discouraged or even perverted.

    One of the most moving experiences that I have had in recent weeks occurred when I went to Wolverhampton Town Hall three weeks ago to attend a meeting of the self-employed. There were 1,250 people in Wolverhampton Town Hall that night. They were not fly-by-nighters. They were not people who wanted to cheat. Nor were they people who wanted to fold up and go away. They were ordinary decent men and women—not people born with silver spoons in their mouths. They were people who by their own efforts had created businesses or inherited them and made them prosper for the good of the community as well as for themselves.

    Those people attended that meeting because they realised that this Government were acting in a way which would make life impossible for them. I do not mean just by means of the pernicious tax that we are discussing now. I mean the blow to the self-employed from the increased contributions which they will have to pay from April and the enormous difficulties created by the swingeing increase in rates. Of course, to talk about either of those now would be out of order. But it is appropriate to mention them because they illustrate the triple blow which has been aimed at the self-employed and the small business this year.

    When I spoke to the people in that hall and they felt that I had some message of good cheer for them, in a way I sensed that I was cheating them because I knew that the Government would not be persuaded of what I consider to be an unanswerably good case. I knew that the Government would not give them the opportunity for which they were asking—the opportunity to serve the community, the opportunity to prosper and, yes, the opportunity to make money and to build up the capital of the nation.

    I just hope that the eloquent plea of my hon. Friend the Member for Basingstoke, who knows possibly more about these matters than anyone in the House, will have not fallen on deaf ears. He talked about terminal wards. There is a terminal illness threatening the very existence of businesses in this country. It is the cancer of Socialism.

    If only the Financial Secretary could take a leaf out of the book of some social democrats in other countries in Europe, who talk of their fine ideals, many of which the Opposition share, but do what they can to foster enterprise, to encourage initiative and not to snuff out the very life of our society, which is what this Government are in danger of doing.

    The Government talk as though sums like £250,000 are vast sums of money. The Financial Secretary intervened in the speech of my hon. Friend the Member for Basingstoke to say that Mr. Chown argued that businesses worth less than £250,000 need not worry. Does not the hon. Gentleman understand that in terms of the inflationary society in which we are cursed to live, that is not a vast sum? If the Government propose hitting that type of company and business, they will be hitting at the root of society.

    We are forced to one of two conclusions. The Government are bent on their destructive acts either through naivety, or by malice. It may be that it is a combination of the two. Being a charitable man, I prefer the first view. I hope that it is because of their naivety.

    It may be that the lessons which have been put across by my hon. Friend the Member for Basingstoke, backed by the remarks of my hon. Friend the Member for Upminster, have not fallen on deaf ears. I hope that there is a desire in the Financial Secretary to learn from those who know from experience about this great problem.

    My hon. Friend says that there is no desire. I hope that he is wrong. Up and down the country there are tens of thousands of ordinary decent people who hope that he is wrong.

    Let the Financial Secretary show his good intentions by accepting just one of these amendments, and we shall believe that there is a little hope. If he does not, all that we can do is to encourage those people to hope for the future and to pray for the day when another Government, less envious and less malicious, will occupy the Treasury Bench and sweep away from the statute book this evil scheme.

    My purpose in intervening is to ask my hon. Friend the Financial Secretary for some information about the purpose of the amendment and its relationship to the Bill.

    I want to assure the Opposition, having listened to the muck thrown at my right hon. and hon. Friends earlier, that I have no business connections. I do not have a business. I do not have any stocks or shares. What I do not know about these matters would fill volumes. But I have been asked for some information about the operation of this tax, and I should like some facts and figures confirmed or denied by my hon. Friend the Financial Secretary.

    One Scottish newspaper has been running a campaign designed to discredit the Chancellor of the Exchequer and the Government about the operation of the proposed tax. It has dealt in one article with the principle of the amendment which we are debating. I should like to know from my hon. Friend whether the facts and figures quoted in that article and quoted to me personally are accurate.

    The writer of the article takes a number of examples of businesses of differing values which their proprietors propose to pass on to their sons so that they may take over the running of the firms. The writer claims that the cost of the application of this tax will be too high. He quotes the example of a business worth about £500,000, and he claims that that will attract £224,000 in tax.

    In setting the tax as low as he has, the writer of the article must have ignored the likely effect of capital gains tax. Can the hon. Gentleman say whether capital gains tax is taken into account?

    I had the impression that the writer was quoting the capital transfer tax. He set out to show that the tax was imposing an inordinate burden on the recipient of the transfer. I was interviewed about the matter in my constituency and, frankly, I could not come up with all the answers. I am hoping that my hon. Friend will be able to do so when he winds up the debate.

    7.30 p.m.

    It was put to me that when the man comes to transfer his business to his son, with a view to maintaining the business in Scotland, the proposed tax will amount to £224,000. That would be the taxation that would result from the transfer of the undertaking. Even accepting that the payments could be spread over eight years, that would mean £28,000 a year to meet the cost of the tax. The question is asked, Where is that to come from? "That is the question that I ask my hon. Friend.

    I must give an answer to my constituents. I hope that my hon. Friend will pay attention. The undertaking may be valued at £500,000, but that does not mean that there is liquid capital of £500,000. That value may well include buildings, land, plant, equipment, stores and even credits. My constituents want to know how the payment of tax is to be made. That is the question that I am asking. That is the question that we have all been asking. I hope that my hon. Friend will be able to give me the answer.

    I want to look at this matter from the point of view of practical politics. It is put to me that when a transfer is made to the young member of the family he cannot possibly produce £28,000 out of the hat. Therefore, he is face to face with what has been described as an inevitable implication—namely, the sale of the business to raise the money to pay the tax. Perhaps my hon. Friend will comment on that. Given the example that I have put forward, that would mean that 250 jobs could very well disappear in an area of persistently high unemployment.

    I want to know how it is that the Chancellor expects to deal with the problem that I have outlined. When a father reaches the age when he wishes to hang up his boots and retire he will want to hand over his business to the young, vibrant, energetic and enthusiastic members of the family. He will do so with the intention that the business shall continue and that the younger members of the family will carry on the tradition of the business and the provision of employment in such parts of Scotland as I have in mind. I have been asked for information, but so far I have been unable to obtain it. I am very anxious to give a satisfactory reply to my constituents.

    The newspaper that is running this tirade against the Government is no doubt giving an incomplete report. I am not saying that it is giving an inaccurate report, merely an incomplete report. I am hoping that when my hon. Friend replies I shall be able to pass on the information that is at the moment hanging in the air. We are a democratic assembly and it is our duty to give this information. It is our duty to provide facts. It is our duty to prove that this tax will create no undue hardship. If it will not do so, we should be able to glean the facts which are obviously missing from the newspaper article to which I have referred. The newspaper concerned is a well-known and reputable Scottish newspaper although it has unquestionably a Conservative bias and slant. Nevertheless, it is reputable in the presentation of facts.

    In discussing this amendment I can understand the feelings of Conservative Members. I say that on the basis of the facts as they have been presented and portrayed to me not only by the business community but even by some of my own colleagues. They are anxious to ascertain the true implications of the operation of the tax. It is only fair that we should have the information for which I ask. I am hopeful that when my hon. Friend replies he will be able to disabuse the minds of those who believe the tax to be anomalous, unfair, inequitable and an imposition.

    I happen to believe that in this country there must be two sectors of industry—namely, a public sector and a private sector. If we have a private sector we must be strictly fair about how it should operate. It must be encouraged to operate efficiently. We must ensure that a fair profit is earned not just to provide a decent standard of living for those who own the undertaking but to ensure regular consistent employment and an adequate investment policy so that the industry can be modernised and maintained in a competitive fashion to enable it to be successful in winning orders. I am especially concerned about such undertakings providing and maintaining jobs.

    I have been asked to raise this matter and to get my hon. Friend to confirm that it is the Government's intention to ensure that if this tax is applied and becomes operative it will be implemented without any undue hardship being imposed on any individual or number of individuals.

    I am only seeking to obtain information. I do not belong to this aspect of life. I am a person who has always had to work with his own hands. I have never managed, owned or possessed. I hope that Opposition Members will bear with me. I am not concerned with the management of industry. All I want to do is to ensure that what we are doing is in the best interests of the community. Of course, the community includes industrialists. It also includes management and work people.

    My only concern is to ensure that the operation of this tax is not as vicious as we are led to believe and that it is not as unacceptable as has been claimed. I want to ensure that we have regard to all the factors that I have mentioned before any fiscal policy is determined. After all, the aim of any fiscal policy should be not only the provision of full employment but the provision of a rising standard of life for those who manage and those who work.

    First, I must declare a small interest in a small business of which I am a director.

    I congratulate the hon. Member for Coatbridge and Airdrie (Mr. Dempsey). He has made the best and the most farsighted speech on the Bill that we have heard from the Government side of the House. It was better than some that have been made from this side.

    I should like to help the hon. Member for Coatbridge and Airdrie who slightly exaggerated the tax in the example that he gave. The hon. Gentleman read from the newspaper that the transfer of a business worth £500,000 might involve the payment of £224,000 tax. The actual figure is £223,875. That is capital transfer tax only. It does not include capital gains tax, development gains tax or any other tax which might be payable on the transaction. That is the capital transfer tax payable if the gift is made during the transferor's life. If he is unfortunate enough to die and the business passes to his son, the tax is considerably increased. The first thing that the hon. Gentleman should do if he has a constituent in this position, as we gather he has, is to advise him not to die. Otherwise the tax will be considerably increased. That is the rate of tax that applies if the transferee, the son, pays it.

    We had a debate earlier on the various circumstances in which the father or the son might pay the tax. The figure of £223,875 is the lower rate if the son pays the tax. I do not know what the amount will be if the father pays the tax, but I believe that it will be more than £500,000. Again, the hon. Gentleman's constituent should be careful to take advice before he does anything. If he is well advised, if he is careful and lives long enough, he may get the capital transfer tax alone down to £223,875 in that instance.

    The question which the hon. Gentleman quite properly asked—I hope that the Financial Secretary will do his best to reply to it when he winds up the debate—is, how can people pay? I do not believe that they can pay. I shall be interested to hear what the Financial Secretary has to say in answer to his hon. Friend's question.

    I am delighted that the hon. Member for Coatbridge and Airdrie should have come into the debate and perceived the point which we have been trying to put across and which has been put across to us by small business men in this situation. People faced with these problems are wondering how they will find the money to pay the tax if they die or pass on their businesses during their lifetime.

    The debate tonight is not about the principle whether there should be special cases in the capital transfer tax. My hon. Friend the Member for Basingstoke (Mr. Mitchell), in an excellent speech, made it clear that that was the case. Nor is it about whether small businesses should be a special case in capital transfer tax because they are already to the extent of being allowed to make payments by instalments if the transferees pay. This debate is about how special a case small businesses, however defined, are in this tax or how special they should be.

    I think that there is a difference—the tax is correct to recognise it as far as it does, but I think that it should recognise it further—between the owner of general assets which are relatively easily realisable and useable and the owner of a small business. That difference lies in the ability to value the assets in the first place and to liquidate them in the second place. Primarily the difference lies in the fact that one cannot produce the tax which will be required without selling the business as a whole in almost every case.

    7.45 p.m.

    If people have money outside their businesses which they are able to use to pay the tax, they need not sell their businesses, but most people do not have such assets. I am almost certain that those who own shares in businesses will do their utmost to get and to keep money out of those businesses as much as possible from now on to build up funds of more realisable assets with which to pay the tax when the time comes. That will undoubtedly damage investment in the very sector where we would like to see a good deal of investment in future.

    We know that some hon. Gentleman opposite want to see the last generation of every family business in this country. We also know that the intention of this tax cannot be to redistribute wealth, even in the sense in which Socialists use those words—that is, to take wealth away from the richer members of the community. The purpose behind the tax is simply to lock people into family businesses until the steamroller of the wealth tax can catch up with and squash them into the ground. The purpose of the tax is to prevent farms and other assets passing from one generation to another. If it is not amended, it will undoubtedly succeed in its purpose.

    Frankly, I do not believe that that is the purpose of all hon. Gentlemen opposite. I do not believe that they want that to happen or that they think it is desirable from the country's point of view. Among hon. Gentlemen opposite who do not want this to happen I would include the Minister responsible for small businesses who was good enough to look into our debates last night when we briefly touched on the problems of small businesses. I am sorry that he is not here today. I know that he is an assiduous attender at debates on small businesses, but he has broken his record today. I expect that he had a good reason for doing so.

    I understand that the right hon. Gentleman has a special reason for being away—namely, on small business work for his Department.

    I am grateful to my hon. Friend for pointing that out on behalf of the Minister. I think that the Paymaster-General wants to encourage the small business sector and to see it flourish, not destroyed. I hope that hon. Gentleman opposite who have the same views will continue to hold them. We have had a good example today from the hon. Member for Coatbridge and Airdrie. I hope that we shall have more examples in the weeks between now and the Budget and between the Budget and the next Finance Bill of hon. Gentlemen opposite pressing their Front Bench to look at and consider these difficulties and doing their best to convince the Government that changes must be made in this tax if these businesses are to survive.

    I am not hopeful that we shall get very far with any of these amendments tonight, but we shall do our best by going into the Lobby to carry them. That will not be the end of the matter. These businesses will not go overnight. They will be destroyed over a number of years. Until the last one has gone we shall continue fighting to try to keep them.

    I do not know whether I shall be the small business man to whom my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) referred who will turn out the light, but until the light goes out we shall do our best to keep the light of small businesses burning. One way to do that is to vote for the amendments.

    My hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) made an excellent speech in which he posed a clear and precise example. I have no doubt that my hon. Friend the Financial Secretary will give him the kind of answer that his constituent would like.

    My hon. Friend was not referring to a typical small business when he referred to assets of £500,000. That does not mean that the example was bad for that reason. I suggest that he should tell his constituent that if, sadly, he had fallen under a bus before 25th March 1974 he would have paid at least £223,875 in estate duty, and probably more. I do not know the exact figure because I have not got the estate duty figures. He could have paid slightly less, but the figure would not have been very different under the old estate duty.

    Would the hon Gentleman like to add to the sum which he suggests would have been paid the words "provided he was unlucky, was ill-advised and had failed to take effective action beforehand"?

    The point I am making is that if my hon. Friend's constituent owned all the shares in this company on the day before this tax came into operation, and if the shares were worth £500,000, the sum payable wouid not have been very different. That was the position then, and it is much the same today. I am saying that the bill for estate duty would not have been less than he would have to find today should he give away the shares under the old régime or do so now.

    Is the hon. Gentleman aware that under no circumstances was estate duty more than 100 per cent.? The aggregation of CTT and CGT can exceed 100 per cent. The hon. Gentleman seems to have missed that point.

    The hon. Gentleman seems to have missed quite a lot. The fact is that £223,000 is not 100 per cent. of £500,000. I do not have the figures, but if what I have is incorrect no doubt my hon. Friend will put me right. I do not think there will be much difference between the position under the old estate duty legislation and what it will be now. If that is right, one can go further and say that if my lion. Friend's constituent had given away his shares in one block—which would be unusual—less than seven years before his death—and he could not with the best will in the world predict the exact date of his death—about the same amount of tax would have been paid under estate duty as will be paid under CTT.

    It is not possible to say exactly what amount of estate duty would have been paid, because one cannot say what proportion of the assets would have come under the small business relief under estate duty. If all the assets came under that relief the tax would have been £170,000 if he had died owning all the shares in the business, but if he had been well advised he would not have owned them all.

    Given the most favourable interpretation, with all the reliefs, he would have paid £50,000 less, but, as the figures were put, the fact is that there would not be much difference under estate duty and under CTT with figures of that amount. That is perhaps a not wholly unsatisfactory answer.

    But one is not concerned with a person who holds his assets and dies owning them all. The position will not be very different if someone gives away his assets less than seven years before he dies, though there will be a difference if a longer period elapses.

    The next situation about which my hon. Friend's constituent is complaining is that under the old régime if assets were given away more than seven years before death—and this was done legitimately in many instances—there was no tax bill when the person died, but that has changed because of CTT. To that extent, my hon. Friend's constituent is worse off in the sense that he cannot avail himself of the opportunity of giving away his assets more than seven years before his death. Conservative Members have said that if such a person were well advised he would not have got himself into that position, but he seems to be in just that difficulty, so one must conclude that he was badly advised under the old law.

    I come back to the argument about a small business worth £100,000 on which a person would pay a certain amount of tax. I suggest to Conservative Members that they know very well that a person in that position would not, for many reasons—some of them not fiscal—give away all his shares in his company in one block. There may be an isolated case in which that is done, but a person would not do it if he were well advised. He might give for example his two sons 24 per cent. each, or give away 48 per cent. or 51 per cent. but it is unusual that a person will give away all his shares. In any case, he may not own all the shares. His wife may own some, his son may have some shares and trustees may own some shares in the company.

    We are not challenging the figures, and the Opposition are entitled to put the extreme case. Reference has been made to a company worth £100,000. I am saying that that kind of situation would rarely occur because people would rightly and legitimately be advised to give away their assets over a period of time, and to that extent the burden of the tax would not be considerable.

    Does the hon. Gentleman appreciate that on his slim figure of £100,000 this infant prodigy would have to start at birth, live to be 100, and give away £1,000 a year in order not to pay tax?

    If he had a 100 per cent. interest in a family company, his son would pay £14,000 spread over eight years, which is £1,750 a year. I am not saying it is a minimal sum. Nobody likes paying tax, but that money would have to be found on a business worth £100,000 if all the shares were given away, and that amounts to £1,750 a year for eight years. It is a burden, but not an unreasonable or unfair one in all the circumstances.

    We then have to consider the fact that a man might give away minority interests. The value of those minority interests would not be proportionally less than the total interest, but they would be less all the same. That is what happened in the past, and it will happen in the future. I do not think we should exaggerate the position. There is a problem, but the Opposition have marred their case by exaggerating it, especially in Committee, where they did so night after night, with the result that the case was not put as well as it should have been.

    I am prepared to accept that CTT heaped on CGT makes life more difficult. In Committee, my right hon. Friend the Chief Secretary did not say very much, but he did say that he was going to look again at CGT and I hope he will do so. I do not see that it makes sense to heap one tax upon another. I do not know how it is possible to do it, but one has to be fair between taxpayers. I think that something should be done, and I hope that my right hon. Friend will pursue his investigations into the matter.

    I now come to the question of reliefs for CGT. If a person gives away assets on his retirement, there are certain reliefs. It does not follow that the total value of the shares will be subject to CGT, because that may not be the total value of the gain. Nevertheless, there is a problem with capital gains tax and I hope that my right hon. Friend will look at it.

    8.0 p.m.

    We are concerned not only with business assets but with other assets. In Committee we considered what I would call a small farm, which in the Welsh context would be one of less than 200 acres. I was satisfied on that basis, especially by the new lifetime rates that there was not a problem. Let us consider the larger farm. I read with interest the speech of the right hon. Member for Cambridgeshire (Mr. Pym) yesterday, who seemed to forecast the demise of British agriculture. He said that we would be turned into a peasant community as a result of this tax. That, again, is an example of exaggeration which does not do Conservative Members any good.

    Let us consider a farm of 500 acres which is a large farm, even by English standards. Assume a rental value of £10 an acre. Hon. Gentlemen may say that that is not high enough. I do not know. It is not too wide of the mark. If we take the valuation in this legislation it produces a farm worth £100,000 for capital transfer tax purposes. A gift of the whole of the farm to a son would be a gift of £100,000. Under capital transfer tax that would represent £14,000 spread over eight years—£1,750 for each year. In their quieter and calmer moments I believe that Conservative Members will agree that that could not be described as the destruction of British agriculture. People do not like paying taxes but I do not think that that is an unreasonable burden.

    I believe that the hon. Gentleman will, on reflection, agree that his example is a little misleading. First of all this is because very few 500 acre farms, apart from the part of the world from which the hon. Gentleman comes, would be sold for £100,000. Beyond that the hon. Gentleman is overlooking machinery, stock, buildings and all those other items. I hope that on reflection he will prefer to tailor his example to the facts.

    I never said that a farm of that size would be sold for £100,000. What I said was that using the valuation in the Bill that would be the value for capital transfer tax purposes.

    I do not know about stock. I accept that the value of stock would be in addition and so the taxation figure would be a little higher.

    Many farms of that kind would be owned by companies and the shares would not be given away immediately in one block. I understand that there is an amendment to enable a £1,000 exemption to be accumulated and passed on from year to year if it is not used. That affords a certain amount of relief if the assets have been held for a long time.

    I do not believe some of the exaggerated statements made by Tory Members. They cannot be justified. I accept that there are some problems about capital gains tax when it is heaped on to capital transfer tax. Conservative Members have said that they do not like this tax and want to repeal it. But they have not said what they will put in its place. It is their duty to do so. Do they want the old form of estate duty? Presumably not, because many people in all parties saw the old system as being capricious, unfair and depending entirely on whether a person gave property away more than seven years before his death.

    If this tax is not to be replaced with estate duty, what will be put in its stead? Will it be the inheritance tax system produced by Lord Barber in his Green Paper? There are advantages, in that assets can be moved around in the family at lower rates. But if the Conservatives wish to maintain the same yield as that which obtained under estate duty and the yield which hopefully, in a few years, will accrue under this tax, the rate of the inheritance tax would have to be high. I predict that hon. Gentlemen would scream in the same way as they are screaming now.

    There is also the accessions tax. That is extremely complicated. I predict that in Committee hon. Gentlemen would be complaining and raising anomalies about it. They should explain to us what kind of tax they want, or else they should be honest and say that they do not want a tax on capital transfers. Alternatively, they should say that they will reduce the rate significantly, in which case the yield would be reduced. They must then tell us how they would make up the difference. There are problems, but these have been exaggerated by Conservative Members who consequently have not done justice to their case.

    This is a tax that has changed its nature. Once upon a time taxation was something that redistributed part of the wealth of an individual or business, but did not destroy the capacity of that individual or business to continue generating wealth. With this tax we cross the frontier between taxation, as it has always been considered, and confiscation—the destruction of the wealth-producing assets grouped together in a business.

    In the South-West the representative employer is a small employer, not a large firm. This is generally true in the private sector throughout the South-West. Indeed, this applies to a large proportion of employment in Britain.

    The point that has been missed is that once we bring about a situation where capital assets are transferred, the point at which they are transferred—whether by death or a capital transfer more than seven years before death—is the point at which the business is no longer viable. In a taxation system where that happens, such businesses are no longer creditworthy. The banks and financial institutions will not gamble on supplying the working capital needed by a business knowing that it will suddenly become nonviable at a point in time which it is impossible to predict. That point is when death forces the dispersal of those assets or when their transfer in advance of death generates a situation in which the business either completely runs out of working capital—because working capital is the only liquid capital. Alternatively, when the assets are transferred the person or persons to whom they are transferred become so encumbered by debt to meet the tax liability that the annual interest payments to service those debts makes the business or the person, or both, uncreditworthy. That is the situation we have now reached.

    I might say en passant that inflation has completely destroyed the distinction between a capital gains tax and a capital levy. The distinction is real only when there is a zero rate of inflation or a controlled rate. At the moment, because of inflation, what started as a capital gains tax has become a capital levy, although the arguments for the two and the effects of the two are totally different.

    When anyone says that it was the Conservatives who brought in capital gains tax that is perfectly true, but it has to be remembered that it was brought in as a tax on capital gains at a time when inflation was about 3 per cent. per annum—a totally different situation from today. One of the factors that the late fain Macleod had closely in mind in his thoughts about the alterations that were necessary in taxation was that, so as not to blur the distinction between a capital levy and a capital gains tax when assessing liability for the latter, there should be subtracted from the accountable gain that which was the reciprocal of the changing value of money, which is something entirely different.

    What should be taxed as a capital gain is a real increase in capital, irrespective of the change in the value of money. Our present inflation of over 20 per cent. means that what started as a capital gains tax has achieved the characteristic of a capital levy. When this is superimposed on a capital transfer tax which is itself grossed up, we have completely confiscatory legislation.

    It is clear that some Labour Members have grasped this point. However, since at this crucial moment for every British business only four Labour Members are present on the back benches, clearly the point does not worry many of them.

    We have not seen much of the hon. Member over the last two or three days.

    If the hon. Gentleman thinks that, he could not have been here last night.

    The effects of the Bill on small businesses are crucial. Part of this matter was discussed for a trivial time, less than half an hour, last night before the guillotine fell. We are having the rest of it today. It will be too late for Labour Members to say that they had not realised the consequences, when business after business in their constituencies collapses and unemployment caused entirely by this tax stalks their constituencies.

    Too late then will Labour Members say that they did not know the consequences. They have been warned. It is not too late for them to heed that warning in the Division Lobby. But it will be too late if they merely trust to their Front Bench to have another think at some unspecified time, arriving at some unknown conclusion when it is too late for it to be effective anyway.

    Even without paying a penny of this tax, businesses large and small are running out of working capital every day. Three weeks ago in my constituency, 40 men were laid off by one firm which collapsed. Twenty-five were laid off last week by another company running out of capital and 50 were laid off a few weeks before that at the other end of the constituency.

    It is the creditworthiness of every firm that is at risk, even before this tax begins to bite. Merely knowing that these firms will be brought to their knees, no sane bank manager could regard them as creditworthy. The damage will be done the moment the Bill become law. Then they will have to go to the marginal financial institutions, some of which have already tottered—even hon. Members who should have known better have taken part in activities of that kind—to be charged a punitive rate of interest. The normal commercial banks recognise a bad risk when they see one, which the marginal firms do not.

    Therefore the costs of these firms will increase further and further as they have to finance their increasing needs for working capital in a period of chronic inflation by going to the fringe so-called banks to pay usurious rates of interest for the working capital without which they cannot continue in busines at sufficient throughput to cover their overheads. Banks at the moment have claims on their available resources to lend far more than they can lend and, incidentally, far more than the Government want them to lend. The Treasury keeps a tight control on these matters at the moment.

    8.15 p.m.

    Where is the working capital to come from? That is the question that the Government have not answered, although their own Members have been asking them. The only available liquid funds will come from the businesses concerned and at an excessive rate because of grossing-up. Who will buy these little businesses which can be sold only as going enterprises? The alternative is simply to break them up and sell them for redevelopment, in which case the employees will lose their jobs, as we have seen so often.

    That will happen throughout the country. Too late, the Labour Party and its supporters will suddenly discover how much employment depends on the small businesses as one after another collapses. The cascade effect will be set off remorselessly, and it will then be beyond the Government's power to arrest or reverse that process. We have seen the cascade effect of depression before, in the 'thirties. This cascade effect will have been deliberately generated by a Government who know what they are doing. If they did not know before, they should know now because they have been adequately warned.

    We are still hearing a repetition of generalisations about the capital transfer tax. The hon. Member for Tiverton (Mr. Maxwell-Hyslop) talked about the effect on small businesses. He should concede that, following the Committee debates, the Government recognised that the effect of the tax as it originally stood on small businesses might have been more serious than anyone could reasonably justify. They have substantially lowered the rates on lifetime gifts and have introduced new lower levels to apply right across the range—not only to agriculture and small businesses—in order to avoid distortions.

    For most small businesses, particularly shopkeepers, who have not been able to afford sophisticated advice to enable them to avoid tax, capital transfer tax will be a big improvement on the present situation. Widows will be able to inherit businesses without the tax applying and children will pay far lower rates than under estate duty. There have been accusations of discrimination and bias against small enterprises, yet most of the areas in which complaint has been made the lower rates of capital transfer tax will lead to substantial improvement.

    I will extend to the hon. Gentleman the same courtesy that he extended to me by refusing to give way when I tried to intervene in earlier parts of the debate—

    The debate has been going on not just today but yesterday and the day before. If he thinks back, the hon. Gentleman will remember the occasions to which I refer.

    Perhaps in considering this matter the hon. Gentleman will talk about the effect of the capital gains tax, which, as he knows, did not apply with estate duty.

    I am making my own speech. I am sure that if the hon. Gentleman wants to talk about the effect of capital gains tax and catches the eye of the Chair, the House will be only too interested to hear what he has to say.

    On the particular problem of small businesses, we are comparing the effects of capital transfer tax with the effect of estate duty where in both circumstances capital gains tax applied. In many of the issues about which we are concerned the small business is preferentially treated now under the new proposals as compared with the situation which would have existed under estate duty.

    I have not that degree of charity. Many hon. Members of the Opposition wish to speak in the debate. We want to make progress and to have as much discussion as possible.

    I come, therefore, to one particular point of concern in the general tenor of the debate in the last couple of days, which has been re-emphasised this evening. Many people are suggesting that the rate of tax ought to be cut even further. Even after all the concessions in so many of the Government's amendments on Report, hon. Members are asking for more and more. The loss of revenue that is proposed with equanimity is reaching very serious proportions.

    We ought now to contrast the enthusiasm of Opposition Members for cutting the revenue with the kind of hysteria they demonstrate so regularly about the level of the public borrowing requirement. This is hypocrisy of the first order. To complain about the level of public borrowing requirement and then to come before us with such monotonous regularity pressing further and further diminutions of the revenue from capital transfer tax is something that the House cannot accept.

    I echo the words of my hon. Friend the Member for Llanelli (Mr. Davies). If Opposition Members have serious doubts about capital transfer tax—which they clearly have—it is obligatory that when they are criticising that tax and opposing it, as the hon. Member for Tiverton did, they should say clearly with what they would replace it. We have had totally destructive criticism and, so far, no adequate alternative.

    Does not the hon. Gentleman recognise that we believe that the loss of revenue is likely to be far greater due to the forced sale of businesses which will arise under these taxes?

    No doubt the hon. Gentleman genuinely believes that. I certainly do not recognise it.

    The hon. Gentleman will, however, recognise that in the first year, when the country is facing perhaps its most dire problems, this tax will bring in less than would estate duty.

    That point has already been dealt with in the debate. I do not recognise the interpretation that the hon. Gentleman puts upon it.

    I want to emphasise the point that it is far too easy to come before the House, after all the concessions have been made and when the Government are proposing losses of revenue by their own concessions, and to propose far greater losses of revenue and, at the same time, to have this concern about the public borrowing requirement. I am concerned about the level of the borrowing requirement. During the Budget debate I criticised my right hon. Friend the Chancellor. I said that we must be seriously concerned about that matter and that our concern should manifest itself in trying to find better ways of raising revenue. I believe that capital transfer tax makes a substantial contribution to that process. That is why I hope that we shall leave the tax as it stands and not be receptive to the destructive ideas of Opposition Members.

    The hon. Member for Meriden (Mr. Tomlinson) mentioned the word "hypocrisy" in relation to my hon. Friends on the Opposition side of the House. I say this to him. During the debate today I wish that he had spoken in the same way as he spoke between 2 o'clock and 3 o'clock this morning, putting forward economic arguments and expressing human sympathy about the Meriden co-operative. That, I presume, is a small business. But those particular arguments have been slightly lost during the intervening hours.

    That gives rise to a very interesting concept of the small business. That business is valued at £4·95 million.

    Perhaps I may leave the lush industrial Midlands of England and go a little further north to Scotland and, for example, to my constituency of West Aberdeenshire. Small businesses there form a far higher proportion than they do elsewhere in the country. When dealing with questions of small businesses and their taxation, we are not dealing with questions of rich men or people who can pay taxes out of money held. We are dealing with people who do not have liquid capital. We are dealing with small firms, farms, garages, small shops and small traders.

    In Scotland, one in four persons is employed in a small business. That leads on to the fact that nearly half of those in productive industry are employed in small businesses. It is not for me to display the economic and technical arguments which have been so well put by some of my hon. Friends, not only at this stage but in Standing Committee. I want merely to point out the inevitable truth that we all know—that such businesses will have to sell.

    Labour Members do not seem to realise that these businesses and the men who run them have no cash. They have stock, property and machinery, and probably an overdraft. Therefore, if they have to sell they can sell only their businesses. They are not directors of large companies. They are not in nationalised industries or getting large salaries and owning shares in other companies which they can sell. They have committed everything they have to their own enterprises.

    Leaving aside the economic arguments, what also happens when such businesses are driven into the ground? If they are sold, we know perfectly well that they can be sold only to the State or to large corporations. The first thing that happens is that the local link goes. Some businesses support local charities. That will all stop. It gets covenanted from headquarters because they do not understand the necessity of supporting local charities. Where small businesses have contributed people to the local council, all this goes. A directive comes from head office indicating that there is no time to allow people to take part in local community activities.

    That has been the result all over the country when small businesses have been taken over by large businesses. The community in which the small business exists suffers economically, socially, and in every other way.

    The next thing we hear when small businesses are taken over is the word "rationalisation". That is the polite name for inefficiency. When a local or small business becomes less efficient, an excuse is made and it is closed. From the small business sector come the future entrepreneurs and the people on whom the nationalised industries and the large public corporations will rely to keep going. That is the sector we are damaging.

    All the household names have come from small businesses, in textiles, the retail trade and the motor industry. They were all people who were prepared to risk their own money and to work any number of hours. We are killing the most efficient and least costly sector of British enterprise. When a small business gets into trouble it goes out of business, but when a large or nationalised industry gets into trouble the State steps in with money. We are doing something criminal affecting the whole of Britain. We are killing those upon whom we must rely in the future to lead the country into prosperity for all its peole.

    8.30 p.m.

    The hon. Member for Meriden (Mr. Tomlinson) and the hon. Member for Llanelli (Mr. Davies) said that the Opposition should come forward with their alternatives to the tax. They cannot accuse me of having no alternative, because even the Chief Secretary will recognise that I have advocated an accessions tax. I believe that that is the tax the Government should have introduced. I agree with the hon. Member for Llanelli that if I were introducing an accessions tax the Tory Party would be baying like the Society for the Preservation of the Rich that it is. I have no doubt that Conservative Members would squeal just as hard as they are doing today. An accessions tax would be a vast improvement on what we have now.

    The hon. Member for Coatbridge and Airdrie (Mr. Dempsey) spoke forcefully about the possible effect of the tax on a firm in his constituency. We have had replies from Labour Members which indicate that they do not take these remarks too seriously.

    I do not intend to debate small businesses tonight, because I want to turn my attention to another amendment. However, it is at least likely on the basis of the facts we have had—although we do not have too many—that the firm about which the hon. Member for Coat-bridge and Airdrie spoke was an industrial hereditament and that therefore, under estate duty, it would have had the 45 per cent. concession. Therefore the situation with estate duty, whether or not the owner of the firm had walked under a bus and had made no provision, would probably have been much better than may well be the position in this case.

    The debate on the Government's amendment and on Amendment No. 80 in the name of my right hon. and hon. Friends and myself, to which I wish to turn my attention, is not primarily about small businesses. It is about the fundamental nature of the tax. As I am sure the Chief Secretary will recognise, I am not endeavouring to plead a special case in Amendment No. 80 but am trying to save the Chancellor and the Government from making an appalling error in the very character and essentials of the tax which they have introduced.

    I understand that there were two things the Chancellor wanted to do when he introduced the capital transfer tax. He originally intended that it should be an anti-avoidance measure. I want to save him from the mistake he is making. He made it quite clear yesterday when he said that the central fact was
    "that the Government are now replacing a tax which was ineffective and unfair—ineffective because it was avoided on a colossal scale and unfair because it was avoided by only a minority of those affected and observed by the rest—by a tax that we believe to be fair and effective".—[Official Report, 5th March 1975; Vol. 887, c. 1492.]
    The right hon. Gentleman spent a considerable portion of that speech on the whole question of avoidance, primarily the avoidance through the lifetime loophole. I do not split hairs about this. I think it was a loophole, but that does not mean that it was illegal. Of course it was not. We all know that there was avoidance on a scale which the Chancellor thought was much larger than I supposed it to be, but it was obviously substantial and interfered with the basic concept of estate duty. To that extent I entirely agree with the Chancellor's motives for introducing the capital transfer tax.

    When the Government have introduced a tax to get rid of the lifetime loophole, what on earth is the point of introducing an amendment which brings it right back again? The purpose of estate duty was presumably—we do not have to go back to Sir William Harcourt to find it—to reduce inequality of wealth caused by inheritance. Sir William was a Liberal, and I am a Liberal. I do not believe that the span of years distinguishes between us. That purpose is certainly something I wholeheartedly accept in principle, though how far inheritance causes inequality may be a matter of debate.

    The only research that has been done on how far inheritance causes inequality in the distribution of wealth has been done by Professor Harbury. In yesterday's Press we were informed that he had renewed his dedication to the task by undertaking a study into where rich women get their riches. You will notice, Mr. Deputy Speaker, that he does not call it a study—

    Order. I hope that the hon. Member will not read out a list of these women. There are insufficient numbers of hon. Members in the House already, and the place could become deserted if the hon. Member gave a list.

    Indeed not, Mr. Deputy Speaker. I was going to point out that this gentleman was conducting a study not into how rich women get their riches but where they get them. If he had adopted the former course he would have had a best seller.

    Inheritance is not the only cause of inequality. Estate duty may have stopped inequality getting worse but it did not do much to reduce it, and that was not only because of the lifetime loophole. Owners of great wealth usually get a higher return on their wealth. Certainly they get a much larger capital gain on their wealth than do owners of small wealth. Large wealth owners are also far better able to take advantage of the lifetime loophole because they are far better advised. They are able to pay for the advice. Now the Government are reintroducing the lifetime loophole. If it had not been for the fracas earlier over the remarks of the hon. and learned Member for Dover and Deal (Mr. Rees), I might almost have been inclined to think that it would be in the interests of the Chief Secretary, when in some future incarnation he goes back to his practice after having deserted the Front Bench to reintroduce the loophole. To do so would create a bed of roses for accountants. Our amendment, therefore, urges the Government not to go back to the lifetime loophole.

    Let us take a step further the logic of what the Government are proposing concerning the rates. Without a gifts tax the avoidance of estate duty was far too easy, and because this reduced the power of estate duty to cut down the inequalities caused by inheritance the Government introduced the capital gains tax. The case of avoidance was lessened by the seven-year inter vivos provision for gifts. We know very little about the giving of gifts in Britain but we know a great deal about the giving of gifts in the United States. There the gifts tax is at a different rate from estate duty. The two taxes are not fully integrated. There is, therefore, considerable incentive to give gifts inter vivos. It is not as great an incentive as has hitherto existed here because in this country, provided that the donor survived the seven years, the gift was free of tax altogether.

    The evidence in America suggests two things. First, among the less wealthy the giving option was not fully exercised. It also suggests—this is the point I want the Government to deal with—that the wealthiest people in America indulge in inter vivos gifts almost as a way of life. That will be the case here if the amendment is made in its present form. The wealthiest will find it easier to give their money away. After all, they are giving away only some of their wealth, not all of it. If a person has £1 million, it is not too irksome for him to give £300,000 of it and get the benefit of reduced tax rates. Under the American experience, however, someone who is less wealthy finds it very much more difficult to do that because he then loses his independence.

    The Government's lower rates on gifts tax cover only cumulative gifts of £300,000, and this will still help the very wealthiest. The figure of £300,000 does not represent poverty by any manner of means. At lifetime rates £300,000 has a net value of £196,000, which is what remains after the tax has been paid. At the full rate £300,000 has a net value of £155,000, so that there is a saving of £40,000 on a total amount of £300,000, which is not to be sneezed at.

    I wonder whether the Government in introducing this quite appalling principle of the lifetime loophole have looked at the American evidence and, if they have, whether they reckon that that experience will be repeated over here. I do not need to prove to the Government's satisfaction the exact extent of avoidance by the lifetime loophole. The Government have already stated that that is a major method of avoidance. They introduced the tax to remove the incentive to avoid estate duty. They have now reintroduced it, and I want to know why. They have never begun to tell us. I hope we may be told in the course of this debate.

    Since this sum is so often represented by a business, if £10,000 represents one job we cannot go on arguing in this way without coming back to employment. Will the hon. Gentleman tell us how the Liberal Party would deal with that?

    If the hon. Gentleman had looked at Amendment No. 80 he would have realised what we are doing. For every gift on death, what the Conservatives' amendment is seeking to do affects a very limited number of legacies on death; and I marvel at their moderation. They have been unnecesarily timid in limiting their amendment. But I do not actually believe that Opposition Members make their case much stronger by pretending that employment and small businesses will collapse and that the whole British economy will collapse and slide into the North Sea as a result of this tax. It may well be that the whole British economy will slide into the North Sea, but it will not be because of this tax. I can think of many other things which are much more likely to get us there.

    Distinguishing between the rates of tax on gifts and on legacies produces great unfairness. Again, I do not quite understand what the Government are at. Not all people are as well able as others to make gifts. Some property or parts of property are easy to give while other property is not. Therefore some people will be able to avoid the full rate, not because they are generous or good people. There may be some who have patriotic objections to this method of avoidance. There will not be many of them today I suspect, but there may still be some left.

    It is also a negative tax on gambling. It is gambling on death, and the price is a reduced rate of tax under the Government's amendments. The Government are saying "You may take a gamble on your death. If you win, we will reduce your tax. If you are dead, it does not matter to you anyway. But we will tax you more heavily as a penalty for dying too soon." That was what estate duty did.

    I cannot think why the Government have introduced capital transfer tax at all. We might have gone on with estate duty at slightly lower rates. The greatest argument as between lifetime and death rates is the effect on inequality. The Chancellor and I both wish to reduce the inequalities of weath but I would make a better job of it than he has done. That is the essential difference between us. Here the right hon. Gentleman has introduced the wrong tax for that purpose and has changed it to produce an even worse effect on equality. He has decided that the rate to be introduced was too high for lifetime gifts. Therefore, he should accept the logic of the argument and reduce both rates. If he does not want to reduce his revenue because he is worried about his borrowing requirement—and I do not wonder at that—I would far rather he had introduced an amendment providing a compromise rate, somewhere between the two, so that at least it was the same for both types of gifts and ensured that his revenue would be maintained.

    I hope that the Government will accept the argument I have adduced on the single rate of tax which is contained in our Amendment No. 80. I hope they will recognise that it is a totally logical argument and would produce a very much better tax than that originally introduced, and certainly very much better than the one we are to be stuck with this if the Government amendment goes through. We have taken the table which the Government introduced for the lower-level gift and have sought to apply it right across the board to all types of gift. That seems to be by far the most sensible thing that the Government could do.

    8.45 p.m.

    I should like to bring into the debate the Scottish dimension which was introduced by the hon. Members for Coatbridge and Airdrie (Mr. Dempsey) and Aberdeenshire, West (Mr. Fairgrieve). They might perhaps be more helpful to their constituents if they supported Amendment No. 439 on page 667, which seeks to give greater relief from the tax to small companies and goes further in the tax slice than do the Government for companies which are moving towards public quotation.

    Large companies are well able to look after their growth and financial affairs, whereas small companies are not. When a company is worth £1 million or £2 million, I suggest that the time has come for an even more significant redistribution than that proposed by the Government. Small companies are different. They do not just happen. They are created by men and women of vision and imagination. I hope that the Minister will accept that my arguments are not made from a hyperbolic and doctrinal standpoint, as were the arguments put forward by the Conservatives, but from a practical point of view.

    I am not talking about thousands of pounds being made in a few minutes on the Stock Exchange. I am not talking about companies like Wm. Lowdon & Son which has donated generously to the Scottish Labour Party. I am talking about what causes a seed to flower or an acorn to grow, or what causes one job to become two.

    The hon. Member for Basingstoke (Mr. Mitchell) referred to Scotland and Wales. In Scotland there are proportionally more small businesses than there are in England, and the proportion will grow because of what the Scottish National Party calls Scottish oil. That development is spawning small companies in Aberdeenshire, in the North-East of Scotland and throughout the whole country, and similar developments are taking place in electronics.

    The Under-Secretary of State for Industry recently said that almost 90 per cent. of all manufacturing establishments in Scotland employ fewer than 250 people. He went on to say that these smaller firms were specially important in a number of industries of key importance to the Scottish economy. I hope that the Under-Secretary of State and the Treasury will speak with one voice when they seek to promote small industries in Scotland.

    The growth of locally-owned industries of high technology in Central Scotland is vital if we are to break away from our dependence on heavy industry. I am sure that the Minister wishes to see more—not fewer—indigenous jobs in Scotland. The severity of the level of the tax will lead to the break-up of Scottish-owned companies and asset strippers will be the first to benefit. It will also lead to the takeover of Scottish companies by London-based institutions, against which the Scottish Council, the STUC and the Scottish Council of the CBI have consistently and continually inveighed.

    Let us take as an example a small Scottish company with an annual turnover of £300,000 or £400,000 and a net asset value of £100,000, £120,000 or £130,000. Let us assume that it has been going for 10 years and employs 100 people, and that it was started by a man aged 35 who is now 45. If that man dies, his wife and offspring must find £40,000, or even £50,000, and that effectively will lead to the end of the company. Therefore, the takeover of that company no doubt will soon follow by a London-based institution, thus once again bringing about centralisation.

    We in the SNP do not wish this to happen. For the sake of the creation of more indigenous companies in Scotland and to prevent their takeover by institutions in London, we ask the Government to think again about Amendment No. 439. It seeks to give more relief at the lower end of the tax scale and is even more penal than is the Government's own provision at the top end of the scale.

    I am grateful for this few moments in which to bring a somewhat different view to bear on capital transfer tax. We have heard a chorus of complaint from the Opposition, or certainly from the principal Opposition, about the effect of the tax. It was a wholly spurious argument.

    Does not my hon. Friend agree that at present because of the interest in this debate the official Opposition is a combination of the Scottish National Party and the Liberal Party?

    Order. I suggest that we do not have this usual cross-talk between the two hon. Members. Let us get on. There are a substantial number of amendments still remaining for discussion.

    I know, Mr. Deputy Speaker, that you were using the word "usual" in a limited sense.

    The capital transfer tax seeks to put into effect Labour Party policy. Whether the Opposition like it or not, the fact is that the Labour Party manifesto in two elections committed us to an irreversible shift in the possession of wealth.

    Is the Labour Party committed to the destruction of private business?

    It is absurd to say that the tax will destroy family businesses. It will not. I am concerned not about the fact that the tax is too hard but about the fact that it is too soft. The Labour Government made a number of concessions in Committee. For example, a joint business involving a man and wife will have to reach a value of £30,000 before it even contemplates paying any tax. Over a period of time, with the allowance of £1,000, the couple could manage to move a considerable amount of wealth from one person to another without the possibility of paying tax. That alarms me.

    The Government Front Bench has been generous and has taken account of some Opposition representations. When the Opposition speak of the destruction of family businesses, it is all part of a united campaign to frighten people outside the House into believing that it is a penal tax. What is certain is that the tax will be difficult to avoid. That is the basis of the Opposition's fear. The CTT will not be like the old estate duty. It will be a tax that will be applied. If the Opposition are so keen on tax loopholes, why do they not say to the PAYE man, who has no alternative but to pay tax, "Look for loopholes and we shall provide you with accountancy services free." In the past the payment of tax has depended, not on eligibility but on the degree of the accountant's ingenuity. Ordinary working men and women do not employ an accountant to scrutinise their wages.

    Does the hon. Member for Keighley (Mr. Cryer) appreciate that the PAYE man can take four weeks off and reclaim his tax, even if he is not sick? That is a loophole, too.

    I am appalled at the hon. Gentleman's intervention. Is he saying that a doctor would conspire to provide an employee with a certificate to enable him to take several weeks' sick leave in a spurious circumstance? That is characteristic. If a small business man is ill, that is an onerous circumstance. However, if an employee is involved, that is a dodge. That is characteristic of the attitude of the Opposition towards this tax.

    I shall quote evidence to support my point. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said:
    "This is not a tax which, in the words of the Opposition, is voluntary and avoidable. This is a tax which will have to be paid because all the loopholes have been stopped up. As I explained earlier, the only reason I always believed estate duty to be tolerable was that there were loopholes. Not that there are no loopholes in this tax, it is not tolerable."—[Official Report Standing Committee A; 4th February 1975, c. 658.]
    It is not a question of equity, of redistribution of wealth, of a fairer society, of people making a contribution to society. Nor is it a question of the benefit of mankind or of the community. The question is what people can get out of it for themselves and what they can grab and put into their own pockets. That is the basis of the Opposition's attitude towards this tax. What do they say when they must pay it? They say, "It is a dreadful tax and we are embarking on a Marxist society. Family life will break down." That is the extraordinary overemphasis which the Opposition have produced. Yet the Government have given tax concessions to the do-it-yourself builder, who is the creator, more than anybody else, of the family home. The Labour Government did that—not the Conservatives when they were in power.

    The Government are accused because greedy people have decided that this tax cannot be avoided and that they will have to pay it. Those greedy people are alarmed. When the Opposition say that the £30,000 allowance is not very much they will hear hollow laughter from the millions of working men and women for whom £1,000 is almost unattainable.

    Does the hon. Member for Keighley (Mr. Cryer) claim that the average fisherman who has perhaps a fifth share of a family boat, the value of which is £60,000, is not a working man?

    The hon. Member for Banff (Mr. Watt) and I share a good deal of concern for people with small businesses. The hon. Gentleman is critical of people owning big businesses such as Mr. Cummings, and obtained valuable publicity from a critical letter which he wrote to a Sunday paper. I do not think that there is much to divide us.

    We must set the record straight. This tax is not onerous, nor is it heavy. I am concerned that Ministers have given away too many concessions. I hope that the Minister will give us an assurance that when this tax has been in operation and the position has been reviewed, it will be made to work even more equally than it does now, and that some of the concessions already granted, albeit in a generous, co-operative spirit, will be reviewed upwards rather than downwards.

    The message must go out from the House of Commons that the Labour Party is embarking on a taxation system in which tax avoidance and loopholes are being stopped and that the man on the shop floor who pays his tax before he receives his money is not in a position to manipulate anything, since he cannot afford to employ an accountant to see what loopholes there are, and must face a greater burden of everyday life than some of the small business men who have been described by the Opposition.

    I do not dispute that some business men make a useful contribution to the community. Those who do will be prepared to pay this tax because they are not the kind of people who pursue tax avoidance. Any person playing a part in the community will see that tax revenue provides the services and needs which the whole community shares. But those who say that the Labour Government are producing a tax which will burden the rich are people who for many years have been avoiding tax.

    Outside this House people will say that that is precisely why they elected a Labour Government. They did not elect a Labour Government to provide those who have all the wealth with loopholes. The Labour Government represent the vast majority of working people who earn their livelihood either by brain or by hand. They have put us here to make sure that our policy of redistributing the nation's wealth is carried out so that those who have the wealth see it transferred to those who have not.

    That is our policy. That is what this tax is about. We welcome this tax, and we shall go out from this Parliament proud of our Front Bench and proud of the Treasury. That is not a view which is universally maintained, but certainly on this issue they have done a good job. We shall remember the snide innuendoes from the Opposition, made in a discreditable and disgraceful attempt to disgrace the Treasury Bench. We shall remember how that attempt was put down firmly by the united action of back benchers and the Treasury Bench.

    We are here to see that Labour policy is put into action, and the Treasury Bench need be in no doubt that when Labour Party policy is put into action, Government supporters feel proud of them and will go out in the country to spread the message that the Labour Government are working to redistribute wealth. That is why we are here.

    I for one am glad to know why the hon. Member for Keighley (Mr. Cryer) is here, though his statement that the capital transfer tax was a splendid tax because it had appeared in two Labour manifestos was not a reason which I think would be shared universally. But it is the case that throughout the years Labour Governments have produced new taxes, additional taxes and even taxes which have not appeared in Labour party manifestos. One example was the selective employment tax. But I do not think anyone can claim rationally that the capital transfer tax is a good tax.

    The hon. Member for Coatbridge and Airdrie (Mr. Dempsey) made a most striking intervention and raised a number of matters which his right hon. and hon. Friends on the Treasury Bench have been quite unable to deal with during the course of our debates in Committee and on the Floor of the House. Although the hon. Member for Llanelli (Mr. Davies) attempted in part to answer the hon. Gentleman's questions, his colleagues on the Treasury Bench failed to point out that the difference between the capital transfer tax and the estate duty is that, when the capital transfer tax is payable, the capital gains tax is by definition payable as well, whereas with the estate duty there is no capital gains tax to pay. For that reason, it is impossible to say what the rate of effective tax will be in any given disposition. It depends on the value of the asset at the time and on the appreciation in that value at the time.

    What is certain is that the capital transfer tax will be a very considerable burden on businesses both large and small, but especially on small businesses. Again, the Government have failed to deal with inflation. Here, this will be a most difficult matter if inflation continues at anything like its present rate of some 20 per cent. a year. If it goes on like this—I do not believe it can without a collapse—it means that the table in the Bill for the capital transfer tax will bite very hard indeed. Of course, the capital gains tax will also come into play. That will make life for small businesses almost impossible.

    I give a practical example of what could occur from what the Chief Secretary has said. The right hon. Gentleman gave us an example of a business worth £250,000 which is given by the owner to his son. The capital transfer tax payable would be about £76,000. That could be paid over eight years. What the Government have failed to point out is that most businesses of that kind are incorporated. How are the assets to be produced to pay the tax? That can be done only by selling assets within the business. It is very difficult to understand how the business can continue if the plant and machinery is sold. I suppose that the money could be provided, if the cash were in the business, by paying higher dividends, but dividends are taxed at a very high rate. Similarly, if a loan were made by the company to the son to pay the tax, that would be accounted for as if it were a dividend payment. The fact that most small businesses are incorporated makes the position extraordinarily difficult. That is a practical point which neither the Government nor their supporters have taken on board.

    The Chief Secretary and other Treasury Ministers have talked a great deal in comparing the capital transfer tax with estate duty. They say that there is now an opportunity of blocking loopholes and putting right the situation which has existed for far too long. Estate duty has persisted in its present form for so long because previous Chancellors, both Labour and Conservative, have recognised what would happen if a capital transfer tax or a gifts tax were to be imposed. I do not know whether Sir Stafford Cripps or Mr. Snowden were Chancellors who were unwilling to raise taxation. I would not recognise them in that rôle. I am sure that in the past Socialist Chancellors have considered many ways in which taxation could be increased. The reason that they have not reverted to a capital transfer tax is probably that they recognise that the business of this country has been formed because of the existence of small businesses. What is likely to happen now is that the structure of industry and business will be affected by the capital transfer tax. It is difficult to know where the assets and resources are to be found to pay the tax. What is certain is that great difficulty will arise.

    Perhaps my hon. Friend would like to deal with the position of a company which is assessed for capital transfer tax and capital gains tax combined. A company could be assessed for a figure in excess of the total value of its assets. How are those called upon to pay the tax to find the money.

    My hon. Friend is absolutely right. That is one of the great drawbacks of the tax with which the Government have persistently refused to deal. We cannot consider the capital transfer tax in isolation. It is a tax that must be considered in conjunction with the capital gains tax. That is something that the Government have persistently refused to consider. It is clear that small businesses will be greatly affected. The Government have given great attention to the position of those who own the businesses and we have paid a great deal of attention to the employers who will be placed in the difficulty of finding the tax. But what will happen to the employees in small businesses? There are no fewer than 6 million people employed in small businesses. That is a matter to which the Government have not addressed themselves.

    There can be only one solution to the problem. In many cases the tax will not be able to be found out of the resources of the businesses concerned. The only alternative will be to sell the business. Everyone knows what the position will be if the business is sold. It will be sold to a larger concern. The larger concerns will have much wider selection than before in picking out the small companies that they wish to buy and the price will in all probability be lower in consequence. It will not be a good bargain.

    What will be the position of employees in these myriad businesses all over the country? The outlook is that the company will be taken over by a large concern. We all know from experience in our constituencies what happens when that kind of event takes place. The company loses its identify and direct contact with management, and employees lose the interest that they may have had in that company's direct success because they do not feel tied to the success of the larger organisation. They feel remote from the control. However successful that organisation may be in a general sense, the transfer of ownership and management to a remote centre will do great harm to the efficient running of a small business. This is a matter of grave concern.

    The trend towards larger concerns has been going on over the last 10 years. Though it was popular at that time, I think that it is probably a mistaken trend. The trend towards large takeovers for the good reasons that have often been provided, such as economies of scale and so forth, have in retrospect largely been mistaken, and I believe that industrial organisations are finding that to be the case.

    For example, one wonders whether Leyland Motors would have been greatly more successful had the merger not gone through. Leyland Motors in its old way was successful making buses, lorries, and some cars. In my view, that concern would have operated more successfully had it continued to act independently.

    The result of large mergers and reorganisations in many companies has led to loss of identity which in turn has created great problems with the loss of management skill in being able to get through to the workers and, even more important, in the employees' ability to get through to management and the people who can take decisions. The capital transfer tax will exacerbate this tendency. We shall find many small companies getting into the net of large companies. We should do our best to reverse that unfortunate trend.

    In this morning's Financial Times I read an interesting article by Sam Brittan who was contrasting the position in this country with that in other countries of the trend of working people going towards non-productive jobs. He suggested that 29 per cent. of the population are now employed in either the Civil Service or local authorities and services. That is a higher figure than in any comparable country. That is another bad trend. It is a trend both towards large organisations and out of production into non-productive and Civil Service organisations of one kind or another.

    The capital transfer tax will have unfortunate social implications as well. It would be wrong to leave this point without recognising the effect of capital transfer tax and the wealth tax, whenever the provisions are made known, combined with the capital gains tax.

    9.15 p.m.

    The future for small businesses is very bleak. I am certain that hon. Members on both sides of the House will have had letters from constituents, small businessmen, who now see the future in very bleak terms. I wish to quote from one such letter:
    "After years of study and then experience in the electrical industry I qualified for membership of the Association of Supervisory Electrical Engineers, now the Association of Supervisory and Executive Engineers. Now I am self-employed, having my own small business, and there are two factors worrying me.
    Firstly, the measures designed with either malice or sheer ignorance to tax small businesses out of existence mean that I have now a powerful incentive to do what our enemies always accuse businessmen of doing—fiddling every penny possible. This I have never done in the past, having some respect for a system that seemed—if not quite fair—at least a reasonable compromise.
    Colleagues who operate in Sweden tell me that the introduction there of extreme socialist measures similar to those now going through Parliament have resulted in the widespread growth of bribery and corruption. I can well understand this and unless there is some drastic moderation of the capital transfer measures and of the obvious bias against small free enterprises which cannot easily be nationalised I shall consider I am justified … in doing everything I can to hang on to every penny I earn … I have been approached by Canadian, Australian and South African organisations which are actively encouraging entrepreneurs to quit the United Kingdom for a more invigorating atmosphere in their countries, and may yet follow their advice."
    I am certain that many small businesses throughout the country have had a similar experience. This trend towards larger concerns will bring about massive unemployment, and the situation is already extremely serious.

    The letter which the hon. Gentleman just read is important, but it is equally important to hear how he replied to it. It is imperative that people who write that kind of letter should receive a lecture on law and order as it relates to tax evasion in the way that one hears one delivered in respect of so many other areas of policy.

    That intervention demonstrates the hon. Gentleman's attitude to this whole matter. The writer of the letter was not talking about evading taxation. There was no question of evading taxation under estate duty. Small businesses were properly able to make their own arrangements.

    Unless CTT is modified, and unless the wealth tax is far less onerous than we apprehend, the future for small businesses will be extremely serious. Productive enterprises in this country will suffer greatly as the result of this tax. That feeling is shared by many people and many small firms throughout the country. This provision will be carried through at great risk of further unemployment, which is already serious, and at the risk of damaging the economy of the country.

    My hon. Friend the Member for Meriden (Mr. Tomlinson) seems to have developed a habit this week—I do not know whether he acquired it in Committee upstairs—of prolonging the speeches of Conservative Members by intervening 30 seconds before they decide to sit down. I assure my hon. Friend that I may need his help on occasions, but I am certain that Tory Members do not need any additional inducement to take up the valuable time allotted to the House for this debate.

    I propose to take up two points made by the hon. Member for Horsham and Crawley (Mr. Hordern). He referred to non-productive jobs in local government. I do not know to which jobs he was referring but, having spent many years as an elected local government member, I view that as a slur upon the hardworking individuals who are employed by local authorities. They are men of integrity and they work extremely hard, and the hon. Gentleman's language does nothing but denigrate them. I deplore slanderous language of that kind.

    The hon. Gentleman also referred to small businesses, and I propose to say something about them. I am the Member for Leicester, South. As hon. Members probably know, Leicester is famed as a relatively prosperous city. That prosperity has been built up by small private firms.

    Last Tuesday a delegation of Leicester hosiery manufacturers came to see their Members of Parliament about the capital transfer tax. I said that I would report their views to the Chancellor. I have not yet conveyed that information to the Chancellor. Leicester is fortunate in having three Labour Members of Parliament, for which my right hon. and hon. Friends are in debt to the wisdom of the electorate of that city. I may have referred to Leeds on one or two occasions. I am not a Member for Leeds although I spent some of my formative years there, and if I refer to Leeds it is due to my enthusiasm for that city.

    I shall mention a few of the points which the hosiery manufacturers made to me. The Minister has to reply to the points made by other hon. Members and I hope that he will be able to spend a little time on the points I wish to put to him so that the potential fears of the hosiery manufacturers and their employees can be allayed. I shall mention five points. The first is that companies will sell out to larger companies, if possible, who will then rationalise and thus reduce employment. Secondly, companies will decide to reduce their scale of operations to reduce the amount of tax they have to pay. Thirdly, many companies will refuse to spend money on a dead duck; they will not invest in new machinery and there will be a loss of employment. Fourthly, owners will refuse to face the difficulties facing them and will go out of business. Fifthly, many companies will not have sufficient finance and will simply fade away.

    The Chief Secretary and the Financial Secretary have answered these points in Committee. I shall be grateful if they will indicate to the employers and employees of Leicester that it is the Government's intention not to reduce the level of employment in Leicester but to ensure that the present low level of unemployment will be reduced even further by their wise and commendable economic policies.

    Having done my duty to my constituents I turn to Labour Party policy, because it is that policy which we are implementing in the Bill. I said on Tuesday that I fought two elections last year on this policy. It is our intention to redistribute not only income but wealth. This legislation is designed to bring that about. My hon. Friends do not intend to achieve that at the expense of employment, which lion. Friends opposite assert that the Bill will do—