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Orders Of The Day

Volume 888: debated on Monday 10 March 1975

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Finance Bill


Order read for resuming adjourned debate on Amendment (No. 92) proposed [6th March] on consideration of the Bill, not amended in the Committee and as amended in the Standing Committee.

Clause 39

Free Loans, Etc

Which amendment was : In page 30, line 35, at the end, to insert the words :

but no period beginning before 6th April 1976 shall be a chargeable period.'—[Dr. Gilbert.]

Question again proposed That the Amendent be made.

4.4 p.m.

The House, or at least some Members, may recall that when we were rather abruptly interrupted at midnight on Thursday we were dealing with Clause 39, the free loans clause. It is a curious piece of drafting, and it has come to be known by hon. Members who have been following these things through as the lost clause in the Bill because, first, the Chief Secretary and the Financial Secretary had some difficulty in interpreting it when it came forward for discussion, and then the Opposition amended it in Committee to the point where in effect it was completely sterilised and removed from effective existence. The Chancellor of the Exchequer then postponed its operation until April of next year and when last seen was forlornly looking for a juridical formula to make the underlying aim of the clause effective again.

Our interest, besides our general interest of wishing never to see such an absurd provision in any Act on the statute book, is to deal with the undertakings given in Standing Committee by the Financial Secretary that if ever such a provision appeared on the statute book certain aspects would be protected from its more lethal effects.

There was the undertaking given in response to an amendment that gross in terest indicated in the clause—that is, the notional interest flowing supposedly and deemed to flow from loans given at no interest or low interest—would be added to the net income of the donor, from which certain consequences follow—for example, whether that income could possibly be liable in any form to capital transfer tax, but that is for the Government to sort out.

Secondly, there was the undertaking that any loans given as part of a partnership, partnership operations or in the financing of close companies where this is customary, as I think Treasury Ministers have learned—although the drafters of the clause did not know beforehand—as part of the whole financing operation of close companies, would be protected, and will be so when a clause comes forward in April 1976 presumably in the Finance Bill of that month and when the Chancellor produces this juridical formula for which he is so desperately searching.

Those are the two undertakings and we should like them on the record so that we may be satisfied that there is no suggestion that this postponement will be long enough for people to forget about these little local difficulties and for the Government to bring back this nonsensical clause unamended, which would be very damaging.

The hon. Member for Guildford (Mr. Howell) has put his finger on a couple of points about which he wants reassurance, and the hon. Member for Blaby (Mr. Lawson) raised many more on Thursday evening, largely in repetition of our Standing Committee proceedings. I shall, of course, during the coming year examine all the points that I undertook in Committee to examine and I am sure that both hon. Gentlemen will accept that the Government have no intention of using the period of recollection in tranquility for resiling from any of the commitments given earlier in our proceedings on the Bill.

I am sure the hon. Gentleman does not want to make it appear to the House that the commitment was merely to examine. In a number of cases the commitment was to table amendments on Report to meet the points that had been made.

The hon. Gentleman is right. The commitment varied according to the context of what we were debating, and I take the hon. Gentleman's point completely. We have met the whole range of difficulties by this Government amendment which ensures that the clause shall not come into effect until April of next year, and I am sure the hon. Gentleman will welcome that.

I could go further now if the hon. Gentleman would like me to do so. On the particular question of loans to close companies and partnerships, I am happy to repeat the categorical undertaking that I gave in Committee that the revised legislation will incorporate an exemption in accordance with the principle of Amendment No. 917 tabled in Committee. It will cover loans to close companies and partnerships where the transferor is a participator in the company or a member of the partnership, and loans to companies will not be confined to the close company situation.

The Opposition were seeking reassurance on one other point, namely, that the gross consideration for the use of a loaned asset should be treated as part of the transferor's net income or, if less than full consideration is charged for the use of the asset, the gross difference between the normal consideration and the consideration actually charged. So that we have the record straight, I will repeat what I said in Committee :
" It is considered that subsection (1)(c) must mean without further words that the amount deemed to be transferred is capable of being treated as both normal expenditure end as income of the transferor ".—[Official Report, Standing Committee A, 12th February 1975 c. 1570.]
None the less, I will again consider whether there is any need for revision of the clause to make this intended result doubly sure. It was one of the many cases in which the Opposition insisted that it all meant something different from what we insisted it meant. On many occasions my right hon. Friend the Chief Secretary and I have been at pains to lean over backwards to try to meet Opposition objections, although we did not think that the passages were ambiguous.

Will the hon. Gentleman deal with the point made on Thursday by my hon. Friend the Member for Hove (Mr. Sainsbury) concerning dividend waivers, which is covered by Amendment No. 438?

The hon. Gentleman is being uncharacteristically impatient. I intend to refer to all the items raised in our debate on Thursday.

Amendment No. 91 would deny the application of Clause 39 to the provision of dwelling houses. It goes further than Committee Amendment No. 451 in the name of the hon. Member for Blaby (Mr. Lawson). That amendment excluded only houses for dependent relatives. Government New Clause 7 exempts transfers of value for the maintenance of dependent relatives, and that exemption is available in respect of any charges under Clause 39. Therefore, there is no need for any special provisions on the lines of this amendment to benefit dependent relatives.

I referred last week to the problem of houses for employees and former employees. I intend to revert to that matter, and I shall be looking at it again during consideration of possible amendments to Clause 39.

Amendment No. 92( a) would defer the operation of Clause 39 until after 6th April 1980. It will come as no surprise to Opposition Members to learn that we regard deferment until April 1976 as going as far as we can justify. I could not recommend my hon. Friends to accept Amendment No. 92( a).

Amendments Nos. 415 and 419, broadly speaking, deny the application of Clause 39 to loans to businesses, whether or not incorporated, by persons who carry on the business or are shareholders, to business partners and to non-profit-making bodies, members of clubs and churches. I have already given an undertaking to revert to the substance of those amendments at a later stage.

Amendments Nos. 416, 418, 445 and 499—of which the only one you called, Mr. Speaker, was Amendment No. 416—all bear on the same point and provide alternative wordings. Clause 39(1)( c) provides that :

" the transfer shall be treated as made out of the transferor's income."

The amendments would embellish those words, which we consider to be sufficient in themselves. We undertook, in column 1571, to consider the point again in Committee. I remain of the view that the

words in subsection (1)( c) mean without further addition that the amount deemed to be transferred is capable of being treated as both capital expenditure and as income of the transferor. For that reason, Amendment No. 416 is not necessary.

The hon. Member for Blaby asked about Amendment No. 438, to which the hon. Member for Hove (Mr. Sainsbury) spoke on Thursday. The amendment is self-explanatory, but it is not in place attached to Clause 39. If he will look at the earlier clauses, particularly Clause 20, he will see that that is the appropriate clause to which to attach the amendment. A dividend waiver cannot be concerned with the use of money or other property without consideration. As we have gone past Clause 20, it might be convenient for me to say to the hon. Gentleman that at first sight a waiver would be caught by Clause 20(7), but there is a let-out in certain circumstances under Clause 20(4), and the chargeability or otherwise of a dividend waiver would depend on the facts of the case as covered by those two subsections.

4.15 p.m.

I should like to get absolutely clear this matter of great practical significance. Suppose a person who feels that he does not need a dividend from a company in which he has a substantial interest decides to execute a waiver under paragraph (c) and no consideration moves the company. He would be conferring a gratuitous benefit on the company because its funds would not be depleted by the amount of the dividend which would be payable to him. Would that person be treated as having made a transfer to the company?

The answer depends upon the facts of the case. In general the intention would be that the transfer should not be chargeable, but there could be circumstances in which the waiver of a substantial dividend accrued to an individual member of the family in a close company situation. The circumstances would determine whether the waiver were chargeable.

I appreciate how difficult it is to probe these delicate matters across the Floor of the House, but I am a little disturbed about the Financial Secretary's answer. He referred to a substantial shareholder—I cannot see why it should matter whether a shareholder is substantial—and seemed to suggest that there might be a transfer not to the company but to the other shareholders who took their dividends. That alarms me a little. Would the Financial Secretary be kind enough to elaborate on that?

This is very much a Committee point, but I will do my best to assist the hon. and learned Gentleman. The essence of the matter is that if the effect of the waiver were to create a considerable benefit for another shareholder, which could happen in a close company situation where there are few shareholders, a chargeable transfer could be deemed to have taken place. I cannot go into the matter in greater detail because it depends on the facts of the case, as I am sure the hon. and learned Gentleman appreciates.

Is the hon. Gentleman referring to a benefit to the shareholder or to the company?

I was referring to a benefit to a shareholder. Where a close company is virtually owned by three or four people, if one shareholder waived a dividend the major part of the benefit would fall to another shareholder, as distinct from the situation which obtains in a public company with many shareholders. This would depend on the circumstances on each case.

Surely that would not be a transfer of capital but a transfer of income. The shareholders who benefited would have a larger income and would therefore be liable to larger income tax. How can the Government claim that the transaction which my hon. and learned Friend has described is a transfer of capital? It is surely a transfer of income. That is why I maintain that this clause should not be in the Bill. It is a clause which taxes income.

The hon. Gentleman is flogging a horse that has been flogged quite a bit. He has already raised this point about whether the clause should be in the Bill and whether it is in order. He has done so many times and it has been found to be in order many times. I do not think it is profitable for me to follow that point yet again. The question is whether there is an intention to convey a gratuitous benefit. If there were such an intention by the exercise of a waiver, there would be a liability to capital transfer tax. It all depends on the facts of any individual case and whether the intention to create a gratuitous transfer was paramount.

In view of the difficulty we are having on this point I wonder whether the Financial Secretary would agree to look at it again and see whether he can find some form of words which would make the situation clearer to shareholders, companies and their financial advisers.

Whenever I say that I will look at something again I am castigated by the Opposition for not understanding the Bill. I understand the Bill very well. I am prepared to look again at the matter. The relevant part of the Bill to which this amendment should attach is Clause 20. I do not think we can advance consideration of the point later. If the hon. Gentleman would like to write to me about any set of circumstances he has in mind I would be happy to look at it.

I promise not to castigate the hon. Gentleman again but may I ask him whether, in the examination which will take place before this is brought forward in April 1976—with the juridical formula—there could be new definitions or explanations underpinning the clause, explaining to the lay and expert public how it is that if Clause 1(c) says that the transfer should be treated as made out of income from the transferor and Schedule 6 says that if it is made out of income it is exempt, chargeable transfers can arise under the clause? This is bound to puzzle anyone who tries to following our proceedings outside.

As I have said in Committee, the Inland Revenue produces a massive and comprehensive set of explanatory notes to the Bill. It intends to produce a revised set of notes to take account of the amendments made in Committee. I am sure that it would be possible to cover the point made by the hon. Gentleman. I think that is all I need to say at this stage except to commend Amendment No. 92.

Amendment agreed to.

Clause 40

Annuity Purchased In Conjunction With Life Policy

Amendments made: No. 93, in page 30, line 38, leave out ' 26th' and insert 27th '.

No. 95, in page 31, line 25, leave out ' 26th ' and inset 27th '.— [ Dr. Gilbert.]

Clause 42

Associated Operations

Amendment made : No. 97, in page 32. line 21, leave out 26th' and insert 27 '.— [ Dr. Gilbert.]

I beg to move Amendment No. 539, in page 32, line 32 at end add—

' (4) Where a transfer is made between spouses, then any two or more operations including that operation shall not be associated operations if they would not have been associated operations but for the transfer between spouses '.

No. 706, in page 32, line 32, at end insert—

' (4) The foregoing provisions shall not apply so as to make any transfer of value a chargeable transfer where that transfer is by one party to a marriage to the other and that other party subsequently or previously has made a transfer of value of an amount equal in value to the first mentioned transfer '.

No. 234, in Schedule 6, page 94, line 43, at end insert—

' (5) An arrangement between two spouses to enable each to contribute £5,000 as a gift within sub-paragraph (2) shall not be treated as an associated operation for the purposes of this Part of this Act '.

I thought that some of the confusion surrounding Clause 42 had arisen as a result of the original Press notice issued by the Inland Revenue, to which the Chief Secretary referred in Committee. The right hon. Gentleman admitted then that it had been a little misleading. Although I did not serve on the Committee I have read the passage in question. The Chief Secretary assured the Committee that transfers involving husband and wife would not be associated operations for the purpose of the Bill.

Until a few moments ago, when I saw a letter written by the Chief Secretary, dated 7th March, to my hon. Friend the Member for Gloucestershire, South (Mr. Cope) we had hoped that this would be a short debate. That letter has raised the whole question yet again and we shall have to start where we began the debate in Committee. During the course of the Bill the Chancellor has constantly made it clear that he has no wish to inhibit transfers between husband and wife. On many occasions he has emphasised the great benefit the Government are giving to the community generally by allowing these transfers in a more generous way than was the case hitherto.

Many delegations have been to see Treasury Ministers. I take one example, the delegation from the CBI which was concerned about small businesses. I can speak only on the basis of hearsay since I was not present. This delegation, like others, has been told by the Chief Secretary or other Ministers that if only the business man arranges his affairs in a sensible way and takes full advantage of the avoidance devices, which Treasury Ministers are prepared to explain to the business man, the full rigours of this tax will be much mitigated.

When Ministers speak from the Treasury Bench they constantly sound off about the evils of avoidance and how they are doing their best, as public-spirited citizens, to stop these loopholes. On the other hand, when delegates see Ministers they are told of the ways in which liability for capital transfer tax can be mitigated. The transfer between husband and wife has been demonstrated on several occasions as being one of those means. I shall not be breaching any confidences if I say that in private meetings my hon. Friends have an expression known as the "Gilbert and Sullivan Shop." I understand this to be a shorthand expression for explaining the kind of transactions which the Government understand might go on to minimise capital transfer tax liability. In spite of what was said in Committee a nagging doubt remains about Clause 42 which is much aggravated by this letter, to which I shall refer.

Treasury Ministers come and go, some rather faster than others, but the Inland Revenue's obsession about tax avoidance goes on for ever. Frequently its obsession about stopping up the tax avoidance loopholes leads to considerable fall out that is contrary to the interests of the ordinary taxpayer. The right hon. Gentleman may be certain of the Government's intentions on Clause 42 but in some mysterious way, as has often happened in the past, we may find the Revenue, in subsequent years when new Treasury Ministers have taken office contesting some transactions between husband and wife. In that situation the Inland Revenue may convince those new Ministers that what they are doing is fully within the terms of the clause.

I turn to the Chief Secretary's letter received today. It is confusing. It says:
" In a blatant case where a transfer by husband to wife was made on condition that the wife should at once use the money in making gifts to others, a charge on a gift by the husband might arise under the clause."
If there is a condition in the transfer, the situation could arise where Clause 42 might override paragraph 1 of Schedule 6. Where there is a condition, we are perhaps moving nearer to the "associated operations" type of case. The letter continues :
"It might even arise apart from the clause because in that case the wife would be a mere conduit pipe for passing the husband's gifts to their intended recipients."
That was obviously drafted by the Inland Revenue. The Chief Secretary has been extremely busy and may not have had as much time to devote to the study of this letter as he would have liked. 4.30 p.m.

There is a definite distinction between what is contained in Clause 42 and what we are being assured by Treasury Ministers. We must sort out that difference in this short debate. The letter continues:
" There would, however, be no question of invoking the concept of the 'associated operation' so as to treat a gift made by a wife as one made by her husband merely because the wife's assets had come from her husband."
That is all right, but a general paragraph is included to ensure that the Revenue can always go for a situation it does not like. The letter continues:
"You will, I am sure, accept that there will, however, be other and more complex situations involving transactions between husbands, wives and others where the Revenue would wish to invoke Clause 42.
I am sure they would, but it is vital to have two assurances from the Chief Secretary. The first is that in no circumstances wil transfers between husband and wife be caught under Clause 42 unless the right hon. Gentleman can give us very specific examples where that general undertaking might have to be broken. Furthermore, I hope that he will be able to show the exact connection between Schedule 6, paragraph 1(1) and Clause 42.

In the Bill this matter is mentioned in the final three lines of Schedule 6, paragraph 1(3). I have read those three lines over and again and find them obscure. We seek an undertaking from the Chief Secretary so that we shall know whether in future years the Inland Revenue could come down on such a transfer.

Despite the limpid, not to say deathless, prose of the Chief Secretary's letter to my hon. Friend the Member for Gloucestershire, South (Mr. Cope), I must admit that I am confused and not a little alarmed. I understand from the letter that if a wife is acting as no more than a conduit pipe—a well-worn phrase but a somewhat unattractive one as applied to the relationship between husband and wife—in other words, when the wife is acting as no more than an agent of her husband, naturally the gift must be a gift by the husband. However, I am a little confused, and I hope that the right hon. Gentleman will be able to assist the House on how far motive creeps into the test.

I have done the best I can in construing Clause 42, and by a sudden flash of recognition I recognised that it derived from Section 478 of the Income and Corporation Taxes Act 1970 and that it had an even longer and more dishonourable history than that. In that section there is an overriding protective subsection letting out such transactions if it can be demonstrated that the person involved had no fiscal motive. I cannot detect that overriding protection in Clause 42. We are told that "associated operations" means
"… operations which affect the same property, or one of which affects some property and the other or others of which affect property which represents, whether directly or indirectly, that property…".
I should like to ask how motive comes into that provision if there is a mere physical connection between properties involved in a series of transactions. It seems to me that if there is an associated operation the consequences to the unwitting taxpayer could be incalculable.

I should like to put two examples to the Chief Secretary. Suppose the right hon. Gentleman were to approach me for a loan and were to say "I wish to set up a settlement in favour of my family. I wish to put funds into it, but it will involve my realising some securities. which, in the depressed state of the present market, I do not wish to do. Will you cover me for three months?" Knowing the good will that exists between the Chief Secretary and myself, after our long exchanges upstairs, I might say "Yes, I shall make a loan to you interest-free" in the knowledge that he would use that as the nucleus of a trust fund for his children. I hope that I would be innocent of any tax avoidance motive in involving myself in that transaction, but in that situation would I be regarded as having made a transfer to the Chief Secretary's children? If so, will he tell me by how much?

It might well be that the Chief Secretary would endorse my cheque to the trustees and say "Here is your trust fund ". It seems to me that one would have two operations affecting the same property On a strict reading of Clause 42, that would seem to involve a transfer between me and the beneficiaries of the Chief Secretary's settlement. Is that what he intends?

Let me put to the right hon. Gentleman an even simpler transaction. Suppose he approaches me and says "I wish to buy a Rolls-Royce Corniche. My official salary will not, however, cover it in the immediate future. Will you make me a loan of £10,000?" I reply "Certainly", and make him out a cheque for that sum, which he endorses over to the motor car dealer. Admittedly, the Chief Secretary does not intend to confer any gratuitous benefit on the motor car dealer, but I wish to confer a gratuitous benefit on the Chief Secretary because I am making him an interest-free loan. Again those two operations affect the same piece of property. Between myself and the Chief Secretary there is a gratuitous transfer, whereas there is no such transfer between the Chief Secretary and the dealer. How-over, as I understand Clause 42, they must be linked together. Because I am not entirely innocent of tax avoidance, and because I wish to benefit the Chief Secretary, does that operation corrupt and taint the second limb of the transaction? Do I find myself in the absurd situation that I have made a capital transfer to the motor car dealer? That is perhaps an extreme case, but we are entitled to have a clearer demonstration of the limits of the clause than we have had so far.

In reply to the remarks of the hon. Member for St. Ives (Mr. Nott), I should like to point out that the only funny thing about the Gilbert and Sullivan shop is that the Opposition have made it fundamentally clear to us that they have no real understanding or conception of small shops and their problems over capital transfer tax. I am sorry the hon. Gentleman is confused because he knows how I hate to see him confused. I certainly hate to see the hon. and learned Member for Dover and Deal (Mr. Rees) confused because it makes his skin pucker and go red. That hurts me terribly.

In Standing Committee we were given a vast array of examples by the hon. and learned Gentleman. It is possible to give innumerable examples relating to CTT or to any other tax to make it sound confusing. I am sorry if in presenting examples the Opposition have so confused themselves that they have made it difficult for themselves to understand the tax.

I shall give only one example to show the purposes of the clause. I come immediately to the serious point that has worried a number of people about associated operations in relation to husband and wife situations. There were some misunderstandings because of what happened over the Inland Revenue Press notice. Therefore, I want to give the necessary assurance.

I assure the hon. Member for St. Ives that I read the letter to his hon. Friend the Member for Gloucestershire, South (Mr. Cope) before signing it—indeed, before it went for typing a second time —so I am well aware of its contents.

I want to explain the reason for the clause. As I said in Committee, it is reasonable for a husband to share capital with his wife when she has no means of her own. If she chooses to make gifts out of the money she has received from her husband, there will be no question of using the associated operation provisions to treat them as gifts made by the husband and taxable as such.

In a blatant case, where a transfer by a husband to a wife was made on condition that the wife should at once use the money to make gifts to others. a charge on a gift by the husband might arise under the clause. The hon. Gentleman fairly recognised that.

I want to give an example of certain circumstances that could mean the clause having to be invoked. There are complex situations involving transactions between husband and wife and others where, for example, a controlling shareholder with a 60 per cent. holding in a company wished to transfer his holding to his son. If he gave half to his son, having first transferred half to his wife, and later his wife transferred her half share to the son, the effect would be to pass a controlling shareholding from father to son. The Revenue would then use the associated operations provisions to ensure that the value of a controlling holding was taxed.

I hope that that is clear to the hon. Gentleman, and that he will recognise that that kind of situation could arise if the clause could not deal with it. That is basically the reason for the clause. The amendent would prevent a tax charge on the value of the controlling holding.

This is the main reason why I cannot recommend my hon. Friends to accept the amendment. I hope that the hon. Gentleman will not press it, because if it were put on the statute book the result would be that a controlling shareholder would not be taxed as such. I do not believe that that is the hon. Gentleman's intention, whatever he thinks about the tax.

Transfers between husband and wife will not be liable to the tax except in certain circumstances of the kind that I have outlined.

The right hon. Gentleman has not done me the courtesy of dealing with the rather simpler examples which I gave, and which I hope exemplify some of the difficulties of the clause. I hope that he will address his mind to them. I am still not entirely clear how far motive comes into the matter in the example the right hon. Gentleman gave in answer to my hon. Friend the Member for St. Ives (Mr. Nott).

If a father gives 50 per cent. of his shareholding to his son and 50 per cent. to his wife, and later the same 50 per cent. is passed on by the wife without intent to avoid tax, is that regarded as blatant because the property can be identified, or is motive the paramount test? The right hon. Gentleman should be a little more helpful than he has been so far.

4.45 p.m.

I do not expect the hon. and learned Gentleman to be fair and reasonable, or to make me any interest-free loans, nor do I expect to make such loans to him. I thought that I had been fair, and that I had clearly explained where a situation could arise in which a transfer of a controlling shareholding would not be taxed as such if the amendment were carried. At present we are not considering motive and whether it is done perfectly innocently. The motive comes up quite separately on the donative intent. That is a separate issue, which does not come under the clause. We are talking about associated operations. If the clause were not there, certain transfers of controlling interests in companies could be made without being taxed as such. I have given an example which clearly shows how that can happen.

Unless hon. Members can explain to me a situation in which that transfer of the controlling shareholding would not be taxed otherwise than as a controlling shareholding under the amendment, I shall not he inclined to accept it. The onus must be on them to prove to my satisfaction and that of the House that the amendment would do other than I have suggested.

This is an important matter. We have no interest in prolonging the proceedings, but what the right hon. Gentleman has just said will be read carefully outside the House, and it is vital that we have it clear.

The right hon. Gentleman spoke about a gift from a mother to her son which gives the son a controlling interest in a firm in which his father had previously had the controlling interest, the father having given him half. The Chief Secretary said that as the mother's gift meant that the controlling interest passed into the son's hands, a chargeable event would have taken place when, some years before, the husband gave half the controlling interest to his wife, having previously given half the control to the son, or even if he gave it afterwards. I ask this not to make debating points, but in order to have the matter clear for the outside world. Are we to deduce that it is by the transfer from mother to son in later years, which is a chargeable event in its own right, that the chargeability of the transfer by husband to wife in previous years will be judged, and that the question whether liability to tax will arise will he determined by that?

Is that exactly what the Chief Secretary is saying?

There will be circumstances in which a husband and wife each transfer a half where there would be no liability under the clause. I can recall companies that started from scratch under the joint ownership of husband and wife, each perfectly legitimately holding 50 per cent. of the shares. In those circumstances, there would be no problem.

But we are talking about an associated operation of the kind of which I gave an example, where the father had a clear intention to avoid paying tax on the transfer of a controlling shareholding.

I hope that that is clear, or that it will be clear to hon. Members when they have an opportunity to read the example I have given of the kind of situation that would be caught by the clause.

There are ordinary, perfectly innocent transfers between husband and wife. For example, where a husband has the money and the wife has no money—or the other way round, which happens from time to time—and the one with the money gives something to the other to enable the spouse to make a gift to a son or a daughter on marriage, that transaction would not be caught by the clause. It would be a reasonable thing to do. I have made that clear in Committee upstairs, and I make it clear again now.

We are talking only of the sort of operation of which I give an example. In general, my assurance stands. I do not go back on the assurance which I gave in Committee and which I have repeated today.

If I may say so, the Chief Secretary has put a very reasonable case. I say that in no patronising manner. I understand exactly what he intends to happen, but the fact is that his intention does not appear in the clause. As Clause 42 stands, a transaction between husband and wife and the wife making gifts to a third party would be, to use the clause literally, an "associated operation ". Therefore, something more than an assurance from the Chief Secretary is required.

I cannot see how the courts could operate this clause in the reasonable manner adopted by the Chief Secretary in explaining its intention. There are occasions when the wife is being used merely as a pipe when there is a transfer from husband to wife and then wife to third party so that some transaction goes on which would otherwise be chargeable. I know that it is difficult to define such an operation. I know that it is difficult to draw the line between the associated operation, which is not to be taxable, and the operation which is to be taxable.

I ask the Chief Secretary if in some way he can put what he has told the House into reasonable language as an extra-statutory concession. There must be something for those who are concerned in these transactions to turn to so that they may know where the line is drawn. If I may say so, the right hon. Gentleman has drawn the line very reasonably today, but that is not in the clause. If a case comes before the courts the literal interpretation of the clause will be that transactions from husband to wife, or wife to husband, and then to a third party will be chargeable. I ask the right hon. Gentleman to consider putting his intention into words. Even if they did not appear on the statute book there would at least be available an extra-statutory concession so that people could understand the position.

Supposing a husband has an 80 per cent, holding in a business and he gives 40 per cent. to his son and 40 per cent. to his wife, and the Revenue classes that as a collective operation and charges him the full rate of tax under the clause. Supposing at a later stage the wife does not give her share to the son but gives it instead to her boy friend. Obviously the first transfer to the wife in those circumstances should not have been charged. Is there provision for repayment of the tax in those circumstances?

There will be occasions in many other aspects of the tax when repayment will be due. Nowhere do I see in the Bill an opportunity for the Revenue to make repayment where tax has been overcharged. I know that this is not an appropriate moment to raise such a matter, but there are few perfect moments when considering a guillotined Bill as badly put together as this one. Would it be right in such circumstances—and there are similar circumstances which I could describe, but I would be out of order in doing so—for repayment to be made where tax had been overcharged on certain assumptions which were not later fulfilled?

I am grateful to the Chief Secretary for writing to me on this subject in answer to my letter to him. I am grateful to him for setting out his views. They have been helpful to me in trying to understand what is in the Government's mind.

I find the Chief Secretary's assurance to be reasonable and satisfactory, but, like other of my hon. Friends, I do not think that the right hon. Gentleman's assurances can be found in the Bill. The right hon. Gentleman said, if I noted his words correctly, that where there is a gift to the wife and on the marriage of the son or daughter the wife passes it on to the son or daughter, the wife is then being used as a pipe. Certainly there would be an intention—that is the word that he used in another connection —that the gift should be handed on. Therefore, it would be caught by the clause. The right hon. Gentleman is relying on intention. He is also relying on motive. That is the same thing in another context. He assured by hon. and learned Friend the Member for Dover and Deal (Mr. Rees) that he does not wish to rely strictly upon the clause.

It seems that the clause leaves a lot of discretion with the Revenue. I appreciate that it is difficult, as my right hon. Friend the Member for Crosby (Mr. Page) said, to frame in legislation what the House or the Government desire, but I dislike the more discretionary arrangements that crop up in our tax law. I do not pretend that it is a unique feature ; none the less, I dislike the more discretionary arrangements which occur. I would much prefer the Chief Secretary to say that he will consider making an amendment to the tax in a future Finance Bill, preferably the one that we are to have, unfortunately, in a few weeks' time.

Perhaps I may speak again with the leave of the House, Mr. Deputy Speaker. First, I say to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) that I always enjoy his examples. He always gives us some interesting ones. His example of a husband with an 80 per cent. holding is similar to the one that I put forward. In the hon. Gentleman's example, 40 per cent. is given to the wife and 40 per cent. is given to the son. The wife, instead of giving her 40 per cent., as was presumably intended, to the son, leaves her husband and gives it to her boy friend. That is an interesting situation that might or might not arise.

As I understand it, Treasury Ministers generally never like to give an answer to the kind of example that the hon. Gentleman always seeks to bring before us. On the first transfer there would be no problem. The husband transfers 40 per cent. to his son. No problem would arise on that. At a later stage much would depend on the nature of and the intention behind the transfer. I cannot go beyond that. We could go on for ever with extreme examples of all kinds. The hon. Gentleman's example could, I suppose, be described as reasonably extreme. I am not sure whether the wife's boy friend would wish to have a minority interest in the family business. However, that is another matter. On the other hand, I suppose that he might wish to have such an interest. Very interesting thoughts are brought to mind as to what could happen in those circumstances.

Next, I turn to the point made by the hon. Member for Gloucestershire, South (Mr. Cope) and the right hon. Member for Crosby (Mr. Page). It is true that the interpretation of clauses is always a difficult matter. Clauses in a Bill never include examples or the Chief Secretary's speeches. They would be rather long if they did. I know that all too often what we do in the House gives the lawyers a marvellous time in interpreting clauses and sections when relevant cases eventually appear before the courts.

Of course, it is not possible to imagine the enormous range of possibilities that lie behind these matters. Not every one has the imagination of the hon. and learned Member for Dover and Deal (Mr. Rees) or the hon. Member for Cirencester and Tewkesbury. I am obliged to hon. Members for saying that they felt that I had given an appropriate assurance and that I had been reasonable. Like many hon. Members, I am not happy about extra-statutory concessions. However, between now and next year we shall consider the matter and determine whether the interpretation could be other than that which I have given to the House. As I understand it, the interpretation which I have placed before the House is a rational understanding of the clause. If that is not the position, I give an understanding that I shall see whether it is possible to make the position even clearer.

5.0 p.m.

Our problem is that the courts do not have the Chief Secretary's speeches or undertakings before them when they decide upon clauses of this nature. That is why we are so concerned that Clause 42 should not slip through without examination. It is a very good example of a case where the vigilance of this House is crucial in Finance Bill debates.

When I was in a comparatively menial position in the Treasury, I had endless problems with interpretations of what was Section 28 and is now Section 460. I remember what happened when it was the other way round. Undertakings were given by a Minister from the Dispatch Box. The problem was to try to decide what the law was and not what undertakings Treasury Ministers had given.

I listened to my right hon. Friend the Member for Crosby (Mr. Page) with great interest. Rather than suggesting any extra-statutory concessions, would it be possible for the Revenue to issue another notice attempting to clarify this whole matter for the business community and for professional advisers? It seemed as if there would be some distinction made between innocent motive and culpable motive. Apparently it will be innocent motive where a husband transfers property to his wife in order to reduce the capital transfer tax on a subsequent disposition to the children, but it will be culpable motive falling under Section 42 if an attempt is made by a similar transaction to avoid tax on a controlling shareholding.

This places professional advisers and others in an extremely difficult position. I should be grateful if the Chief Secretary could arrange for that.

As we have indicated already, the Revenue will be issuing a statement on all the clauses after we have Third Reading. It will include in that some clarification of this point.

Amendment, by leave, withdrawn.

Clause 43

Persons Treated As Domiciled In The United Kingdom

I beg to move Amendment 100, in page 32, line 41, leave out from Kingdom ' to on ' in line 42.

I think that this amendment needs a little explanation. It proposes to leave out some clauses which define "United Kingdom ".

Does the omission of these words mean that "United Kingdom" includes or does not include the Channel Islands and the Isle of Man?

These amendments ensure that the availability of a dwelling house for a person's use shall be disregarded for the purposes of deciding

New Schedule

Relief For Woodlands

' Nature of relief

51.—(1) Subject to the following provisions of this Schedule, where any part of the value of a person's estate immediately before his death is attributable to the value of land in the United Kingdom on which trees or underwood are growing but which is not agricultural property within the meaning of Schedule 8 to this Act, and the conditions

whether a person was resident in the United Kingdom under the 17 years out of 20 test in Clause 43(1)(b. The first amendment is merely a drafting amendment which paves the way for the main amendment. Amendment No. 104 introduces a new subsection identical in its effect and almost identical in terms to Amendment No. 929 moved in Committee by the right hon. Member for Crosby (Mr. Page), which I said that I accepted in principle. These amendments meet that commitment.

Does this mean that the Revenue will apply purely the 90 day per year test—in other words, if over a period of years a person is in this country for 90 days each year he will be regarded as resident even though he does not have a house available for his occupation?

Amendment agreed to.

Further amendment made : No. 104, in page 33, line 4, at end insert :

'(1A) For the purposes of subsection (1)(b) above the question whether a person was resident in the United Kingdom in any year of assessment shall be determined as for the purposes of income tax, but without regard to any dwelling-house available in the United Kingdom for his use.'—[Mr. Joel Bartlett.]

Clause 44

Deeds Of Family Arrangement, Etc

Amendment made: No. 832, in page 33, line 30, at end insert—

` (5) In relation to a death occurring before the passing of this Act but not before 10th December 1972 subsection (1) above shall have effect as if the reference to a deed of family arrangement or similar instrument made not more than two years after the death were a reference to such a deed or instrument made not more than two years after the passing of this Act '.—[Dr. Gilbert.]

Clause 46

Abolition Of Estate Duty And Transitional Provisions

Amendment made : No. 110, in page 35, line 6, leave out 25th ' and insert 26th '.—[ Dr. Gilbert.]

stated in paragraph 5 below are satisfied, then, if the person liable for the whole or part of the tax so elects—
(a) the value of the trees or underwood shall be left out of account in determining the value transferred on the death; but
10 (b) tax shall be charged in the circumstances mentioned in paragraph 2 below in accordance with paragraph 3 below.
(2) An election under this paragraph must be made by notice in writing to the Board within two years of the death or such longer time as the Board may allow.

Tax chargeable on disposal of trees or underwood

152.—(1) Subject to the following provisions of this paragraph, where, under paragraph 1 above, the value of any trees or underwood has been left out of account in determining the value transferred on the death of any person, and the whole or any part of the trees or underwood is disposed of, whether together with or apart from the land on which they were growing, then, if the disposal occurs before any part of the value transferred on the death of any other person is attributable to the value of that land, tax shall be charged in accordance with paragraph 3 below.
(2) The person liable for the tax chargeable under this paragraph shall be the person who is entitled to the proceeds of the sale or would be so entitled if the disposal were a sale.
25(3) Sub-paragraph (1) above does not apply to a disposal made by any person to his spouse.
(4) Where tax has been charged under this paragraph on the disposal of any trees or underwood tax shall not again be charged in relation to the same death on a further disposal of the same trees or underwood.

Basis and rate of tax chargeable under paragraph 2

303. Where the value of any trees or underwood has been left out of account in determining the value transferred on the death of any person and tax is chargeable under paragraph 2 above on a disposal of the trees or underwood, it shall be charged on the following amount, namely,—
35(a) if the disposal is a sale for full consideration in money or money's worth, on the net proceeds of the sale; and
(b) in any other case, on the net value, at the time of the disposal, of the trees or underwood;
40and at the rate or rates at which it would have been chargeable on that death if that amount, and any amount on which tax was previously chargeable under that paragraph in relation to the death, had been included in the value transferred on death and the amount on which the tax is chargeable had formed the highest part of that value

Credit for tax charged under paragraph 2

454. Where a disposal on which tax is chargeable under paragraph 2 above is a chargeable transfer, the value transferred by it shall be calculated as if the value of the trees or underwood had been reduced by the tax chargeable under that paragraph.

Conditions of relief

505.—(1) The conditions referred to in paragraph 1 above are that the deceased either was beneficially entitled to the land throughout the five years immediately preceding his death or became beneficially entitled to it otherwise than for a consideration in money or money's worth and, subject to sub-paragraph (2) below, that—
(a) if the land is situated in Great Britain, the land is managed in accordance with a plan approved by the Forestry Commissioners under a forestry dedication covenant or forestry dedication agreement within the meaning of the Forestry Act 1967; and
55(b) if the land is situated in Northern Ireland, either a grant with respect to the land has been made under section 2 of the Forestry Act (Northern Ireland) 1953 or the land is managed in accordance with a plan approved under section 3(l)(c) of that Act in connection with the Planting and Maintenance of Woodlands Scheme administered by the Department of Agriculture for Northern Ireland for the purposes of those sections.
60(2) In the case of a person dying before 1st January 1976 paragraphs (a) and (b) of sub-paragraph (1) above do not apply and, in the case of a person dying before 1st January 1981—
65(a) the condition in sub-paragraph (l)(a) shall be deemed to be satisfied if a forestry
dedication covenant or a forestry dedication agreement in respect of the land has been offered to the Forestry Commissioners and the offer has not been refused; and
70(b) the condition in sub-paragraph (l)(b) above shall be taken to be satisfied if a grant has been applied for or a plan for the management of the land has been submitted to the Department of Agriculture for Northern Ireland for approval and the application or approval has not been refused.


6.—(1) In this Schedule—
(a) references to the value transferred on a death are references to the value transferred by the chargeable transfer made on that death;
75(b) references to the net proceeds of sale or the net value of any trees or underwood are references to the proceeds of sale or value after deduction of any expenses allowable under this Schedule so far as those expenses are not allowable for the purposes of income tax; and
80(c) references to the disposal of any trees or underwood include references to the disposal of any interest in the trees or underwood (and references to a disposal of the same trees or underwood shall, where the case so requires, be construed as referring to a disposal of the same interest).
(2) The expenses allowable under this Schedule are, in relation to any trees or underwood the value of which has been left out of account on any death,—
85(a) the expenses incurred in disposing of the trees or underwood; and
(b) the expenses incurred in replanting within three years of a disposal to replace the trees or underwood disposed of; and
(c) the expenses incurred in replanting to replace trees or underwood previously disposed of, so far as not allowable on the previous disposal.—[Mr. Joel Barnett.]

Brought up, and read the First time.

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

I referred to this schedule one night last week and told the House broadly what it was intended to do. Since what I said on that occasion is available to hon. Members in the Official Report, it may be as well for me to leave it at that, to allow hon. Members to move the amendments which they have tabled to the schedule, and to reply to those.

The House will welcome the fact that some relief has been made for forestry, and, although I shall be critical of the exact nature of the relief included in the schedule, any crumb of bread is better than no loaf at all. This is a small step in the right direction.

It is appalling that a totally new tax regime for an important industry like forestry should have been decided as a result of two short debates in the small hours with no consultation with the industry concerned. Instead, we have a schedule slapped down on Report which, under the timetable, it is impossible to probe in depth or to seek to amend in such a way that amendments could be made, because there is no further parliamentary consideration of this schedule after today. I am certain that the Government will have to come back to this House with a new proposal for forestry. I do not know whether the Ministry of Agriculture has been consulted. I am sure that the tree-growing interests have not been. If we are to decide our tax affairs in this way, we court disaster by getting them wrong.

Even at this late stage, I urge upon the Chief Secretary some amendments which he would do well to accept so that some confidence may return to this industry which was hit by a sort of taxation tornado when this wretched Bill was first published.

Let me make it clear first that the Opposition have never sought to find loopholes through forestry. I made that clear on several occasions in Committee, as did others of my hon. Friends. We are seeking a régime in which forestry can operate profitably and successfully and can expand. We do not seek to open up ways of avoiding the tax for those who are not foresters. I wish that the Chief Secretary had not made the accusation which I heard last week in one of the interminable debates which we had. I know of no occasion when anything said from the Opposition benches can be open to that charge, and nothing which I say now is intended to open a loophole for anyone other than genuine foresters.

It was unfortunate that the Government should send a copy of this charming letter from the Minister of State, Department of the Environment to all hon. Members. It reads :
" National Tree Week has the full support of the Government and the Department of the Environment … but depends upon the goodwill of tree-lovers everywhere for its success. The Council has asked Sydney Chapman to act as Director … You may remember that he, when an MP, campaigned successfully for the ' Plant-a-Tree in '73 ' year."
I can continue the ditty : "Plant a tree in '73, plant no more in '74, cut em' alive in '75." That will be the result of this piece of legislation.

I turn now to the amendments which I think should be the substance of this short debate. First, the amendments are not entirely as they were put down. Many of my right hon. and hon. Friends' names have been removed leaving my name against practically all, some of which 1 did not put down. However, I am happy to shoulder the burden for all the amendments which carry my name, although I had asked that some be taken off the paper. I hope that the Chief Secretary will not make any points about the curious collection of amendments under my name. I believe that there has been a printing mistake of some magnitude. I make no complaint. I am merely explaining what I think has happened.

The first group of amendments is perhaps best represented by Amendment (a), which deals with whether the value of the land upon which the forest grows should be exempt. We discussed this point in Committee. The Chief Secretary rather brushed it aside by saying that he did not believe that forestry land was worth anything, so it was not any great hardship to pay capital transfer tax on the value of forestry land. I said at the time, and I repeat, that forestry land can be worth a great deal. I think that in the West of England there are values of between £50 and £200 per acre for forestry land. I have been making some inquiries. In some areas with forests the land could be worth £300, £400 or £500 an acre.

The major problem is what valuation will be put upon forestry land in the case of a death or transfer. A valuer might say that land with a forest upon it is not worth very much, that it is the trees which carry the bulk of the value. Alternatively. if the trees were cut down or the land had never been planted and the land were returned to agriculture, he might say that it would be worth £400, £500 or £600 an acre. We need a definition of the basis upon which forestry land is to be valued. Otherwise it will be left to the capriciousness of the Revenue whether it is inclined to say that the land is worth very little or what would be bid for it. Forestry land which attracted planning permission could have a great value. What happens in a situation like that?

If the land is to be charged to tax, the concession for the trees could often be of little value. In the first 20 years of a wood's life the land is almost bound to be worth more than the trees. If the owner who inherits a forest through transfer has to pay tax on the value of the land, he will probably have to cut down the trees to pay that tax and will no doubt attract capital transfer tax on the felling of the trees. This awful cat's cradle of tax will be enveloping. I strongly urge that the land should be exempt with the trees. If, as the Chief Secretary believes, the land is valueless, his concession is worth very little to the Treasury and virtually costs him nothing. But the concession could be worth a great deal more than nothing in other directions because damage to the industry would be avoided.

The next group of amendments is best represented by Amendments (bb) and (cc), which seek to charge to tax the value of the trees not at the time that tax becomes chargeable but at the time that the transfer was made. I may not have explained that very well. If on transfer through death the trees are worth £20,000 and 10 years later the new owner sells or cuts down the trees, I suggest that he should be charged on the value of the trees at the time of coming into possession of them, which would be £20,000, not on their value when he cuts them down, which might be very much more.

I find it difficult to distinguish between any inflationary factor in the value of an estate and the separate point of the increased value of the trees through growth between death and the subsequent payment of tax. Does the hon. Gentleman agree that it is desirable to distinguish between those two matters in the drafting of the Bill?

5.15 p.m.

The amendments to which I am referring simply relate to the tax being charged on the value at the time of the original transfer. It is possible that 20 or 30 years later both the growth of the timber and of inflation will have contributed to changing that value. The hon. Gentleman underlines my point that is a wild guess what the value would be and what the tax chargeable at that later stage would be. We are dealing with somebody who not only cashes in his forest and goes away to spend his money but cuts it down because it is mature and the time has come to replant. It is material to know how much value should be put upon it because that will determine how much tax is charged at that stage. That matter is strongly urged by the Forestry Committee of Great Britain. Indeed, that point is reinforced by what the Chief Secretary said on 5th March when new Clause 8 was being discussed:

" A third point is that the rate of tax in relation to woodlands will be the rate or rates which would have applied on death."—[Official Report, 5th March 1975 ; Vol. 887, c. 1605–6.]
That seems to give substance to what I am saying. In the new schedule we have a rate of tax which applies upon the sale or the felling of trees, not on death. Perhaps the right hon. Gentleman was not referring to the same point. Those words indicate to me that the right hon. Gentleman thought that the new schedule applied to value on death, not on sale.

The next point that I want to urge on the Chief Secretary relates to the rate of tax. Here we have three amendments which I should mention briefly in passing. Amendment (ii) allows the forestry estate to be separately aggregated from any other property of the donor or transferor. Therefore, when it comes to paying the tax at some later stage, that tax is lessened by virtue of the fact that only the forestry property is included in the estate.

Amendment (jj), which the right hon. Member for Down, South (Mr. Powell) will doubtless develop, proposes the mean or average, not the highest, rate of tax on the person who owns the woodland. That again would ameliorate the level of tax to be paid.

Amendment (kk) is perhaps best mentioned with this group because it explores what other taxes would be payable on the felling of mature timber. It is complicated, but at present Schedule D can be payable, and for companies corporation tax can be payable on the profits made. Presumably, capital gains tax also comes in somewhere here. The Chief Secretary would do the House a favour if he were to give a careful description of what other taxes will apply. If capital transfer tax at its penal rates is to be levied on the profits from growing trees, there is little need to levy other taxes as well. However, it is not clear to me what other taxes will be leviable, and I hope that the right hon. Gentleman will help us by giving an exact account of them.

On the question of the taxation of whatever profit arises, I had hoped to see in the schedule the acceptance by the Government of the flat-rate tax which we come fairly near to agreeing about in Committee. I am not suggesting that the Chief Secretary has gone back on an undertaking. He never gave one. However, he seemed attracted by the idea of a flat-rate tax.

The defects of the present suggestion in the schedule are numerous. It means that the bigger the forest the higher will be the level of tax, thereby causing all forests to become very small after a certain number of generations, because every time they are cut down half of the land and of the timber will go in tax, and, therefore, not so much can be replanted. It is a measure designed to reduce the size of forests, nor for ecological reasons but for taxation reasons. That is anomalous.

As I told the Chief Secretary in Committee, the truth is that foresters do not cut down a whole forest every 100 years and then replant it. Every few years they cut down a bit of a forest and then they replant it. There are thinnings coming down every 20 or 30 years which have value and which can be sold. Every year a balance must be drawn as to the profit made. The profit can be made only from the felling of trees, and from nothing else. Every year capital transfer tax will have to be paid on the year's trading profit on the forest. This is a very odd concept because it is supposed to be a tax on capital to start with. It is standing logic on its head to have to bring in all the reliefs and all the complications of the rest of the Bill which we have discussed over the last few weeks in order to assess the size of the chargeable transfer which was represented by cutting down an acre of woodland.

The Chief Secretary knows very well that this calculation will, in fact, be done every year by every substantial forest owner if he declares a profit at all, because he will have felled trees and cashed in on their value. If the Government really mean this, it would have been better had they applied some form of income tax or corporation tax to the profit rather than capital transfer tax, which is intended not for such circumstances but for gratuitous transfers of wealth from one party to another.

I am sorry to have detained the House for so long on these points, but they are important.

Finally, 100 years of an oak forest or 80 years of a mature softwood forest have represented capital tied up both in the land and in the trees. The interest which should have been payable on those capital investments is automatically, so to speak, ploughed back in, because very often little or nothing comes out of the investment until maturity and felling. So included in the expenses which can set against the profit which is defined in the schedule should be the interest which has been forgone on the capital which has been invested. If we are to deny that, we are to deny the servicing of the capital in forestry as well as to tax that capital to capital transfer tax on maturity. In that context certainly I mention Amendment (eee), which is an attempt to assess the interest forgone, which should not then be treated as capital and taxed under this schedule when the trees reach maturity.

Whilst my hon. Friend is dealing with this important question of an owner's continuing investment in a forest—that is, with his never cashing in the whole value of it—will he also comment on the fact that dedicated woodlands, which are a requirement under the schedule, require that immediately felling takes place replanting should take place? Therefore, the cash is never drawn out of forestry when it is dedicated.

My hon. Friend is quite right. The Government have wisely allowed the cost of replanting to be deducted from the profits. What I am worried about is that the sum will have to be done each year. Each year the cost of any replanting, thinning, maintenance, fencing, and so on, will have to be set against any profit. The calculation will be extremely complicated before it will be possible to arrive at the taxable profit under this schedule.

If on top of that it is necessary to work out what capital transfers have been made by the owner, what his rate of tax is, whether he can pass something on to his wife or to his child on her marriage, the matter will be of endless complication. Incidentally, it will be of great help for one's daughter to get married if one is a forester, because one will be able to make use of the £5,000 allowance to plant a few more trees. These calculations are nothing to do with forestry and they should not be treated in this way.

I urge all these amendments on the Chief Secretary and conclude by saying only this. Welcome though the Government's recantation is—that they do not want to expose forestry to the full rigours of the tax—the schedule is thoroughly ill-thought-out and thoroughly inappropriate to the job it was designed to do. I ask the Chief Secretary to organise discussions with the private forestry industry and with his colleagues in the Ministry of Agriculture, Fisheries and Food and with others who have a part to play in such discussions and to hammer out a new sort of relief for forestry which will meet the bill and do the trick properly.

I ask the Chief Secretary to listen to the Forestry Committee of Great Britain and the Forestry Commission together rather than to his hon. Friend the Member for Luton, West (Mr. Sedgemore) and to others of his hon. Friends who have been urging him not to go even this far.

Great though my respect for those hon. Gentlemen is, the broad woodlands of Luton, West and Bebington do not seem to me to have left on their minds that deep and intimate knowledge of this important industry which it is necessary to have before considering this taxation régime.

Much has been made during these debates on forestry about the big part that timber can play on saving imports. The Chief Secretary will agree that the decisions that we take now will not influence the size of our timber imports and our balance of payments this year or next year, because these are influenced by the number of trees which are growing now. However, those matters will be influenced by the number of trees which are planted over the next 10 or 15 years. Getting the schedule right will ensure that the right amount of trees is planted for the future. The Chief Secretary will agree also that if the home-grown timber industry is to flourish it must have an orderly system of marketing.

One of the real troubles I see arising from the schedule is that if someone inherits an acreage of trees which are 30 or 40 years old, it might well pay him better to cut down those trees and sell them—to the pulp mill at Fort William, if he is in Scotland—rather than to allow them to go on and become of greater value, because it appears that under the schedule growers of timber will be required to pay capital transfer tax on the maximum value if they allow trees to go on to complete maturity.

5.30 p.m.

I should like to take up the question mentioned by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) who referred to a statement by the Chief Secretary, as reported in Hansard at c. 1605–6, that the rate of

tax chargeable is the rate which would have applied on death. It would be helpful to the House if, before any more hon. Members speak in this debate, the Chief Secretary would make clear exactly how he interprets this schedule which we are discussing. The Forestry Committee of Great Britain and many other forestry interests to which I have spoken during the weekend are under the impression that the rate of duty will be charged on the value of the timber at the time that it is cut down. This is not what the Chief Secretary said.

I was referring—and I thought this was clear on rereading it to the rate applicable to the estate of the man who died.

I still do not think the right hon. Gentleman has helped us very much. He said that the rate of tax would be that which applied at death. All the forestry interests which have written to me say that they believe that the rate of duty will be the rate on the value of the trees as and when they are cut down.

The hon. Gentleman is dealing with two points. One is the rate applicable to the estate of the man who died and the other is the question of the value. The value is at the date of sale. There are two separate matters.

The Chief Secretary says that if somebody dies and the trees are cut down the next day, the duty is assessed on their value. But if the trees are transferred to the man's successor and are cut down in 25 years' time, the capital transfer tax is assessed on the value of the trees at the time that they are cut down. The House should recognise that if we do not get over the inflation which we are suffering at the moment, irrespective of the value of the timber, and if the value of money continues to fall, not only is capital transfer tax charged on their increased value at the date of death, but tax is also charged when the trees are cut down in 20 or 25 years' time since the original owner died.

I thought the Chief Secretary said during our debates that capital gains tax did not apply to forestry. But on the basis of the value of timber 20 or 25 years after the death of the owner, I am certain that, unless we completely cure inflation, a measure of capital gains tax is being introduced as a result of the change in the approach to the taxation of forestry compared with our approach in the past.

We are not talking about trees which are growing now. We are concerned with trees which are to be planted in the future. I believe that forestry should play a very big part in the country's economy in the future. We may be fortunate enough to solve our balance of payments problem in the next 15, 20 or 25 years, in that we may not have to import the same amount of oil as we have imported in the past, and, therefore, we shall get a relief in the matter of oil imports. However, unless we adopt the right approach to tree planting now, the balance of payments situation in 20 or 30 years' time will be very much out of balance and will cause us distress and trouble.

Treasury Ministers have got out of balance in their belief that people have planted trees in order to avoid tax. When we debated the original clause on this subject in Committee of the whole House, the Chancellor of the Exchequer said that four-fifths of all private planting was carried out by forestry interests and others who were trying to avoid income tax. I wrote to the Chancellor of the Exchequer on 4th February asking whether he could tell me where this information came from. Today I received a letter from his private secretary, dated 6th March—over a month since he made that statement in the House—saying that he was still unable to answer my question. I am sure that the Chancellor of the Exchequer got this idea because somebody said to him "There is a lot of tax fiddling in forestry and you ought to clobber it ". That is basically untrue. Having written to him in February, I cannot understand how his secretary should have delayed for over a month before saying that he did not know the answer. Did he merely pull this idea out of the air—that it was a good thing to plant trees in order to avoid tax?

I read a very good article in the Scotsman which referred to the late Professor Anderson, professor of forestry at Edinburgh University just after the war. when a good deal of work required to be done in replanting woods which had been devastated during the war. The article says:
"He was among the first to point out that forestry brought capital into the rural economy and an investment once made, could not be returned. Had he been with us today he might have added that if things go wrong with, say, North Sea oil, the entrepreneurs can pull up their rigs and go or if Chrysler see too much red in a factory's balance sheet they can close it. Once the trees are in they are there and Professor Anderson emphasised how essential it was to have grants and fiscal incentives to establish woodlands."
This is a point which the Treasury Bench apparently has not appreciated. According to this article in the Scotsman, 70 per cent. of the Economic Forestry Group Owners in Scotland own 350 acres or less, so the average investment in Scotland yields a comparatively small amount of money. There are from 38,000 to 40,000 acres of forests in Scotland and the average planting held in any one person's hands is not more than 250 to 300 acres. If this is so, the contention put forward by the Treasury Bench that people plant trees in order to avoid tax cannot he true.

The forestry interests have approached the Treasury and said that they agree that it is not right that people should have the facility suddenly to make death bed purchases. The forestry interests themselves put forward the suggested periods of seven or 10 years, and now the Treasury favour a five-year period. All the reasons which the Treasury put forward for discouraging private planting have been entirely discounted. In an age of inflation, to gross up tree values and charge at the top value will bring ruination to forestry, and the Treasury Bench should accept these amendments.

I shall refer to Amendments (t), (ee) and (jj) to the Government's new schedule.

Northern Ireland is a part of the Kingdom very poor in woodland, but the fate of forestry and the maintenance of woodlands there is not for that reason unimportant. On the contrary, it is vital not only that the woodland which exists should be maintained and replaced but that its area should be extended. It is to the far-sightedness of the great developers and landlords of the eighteenth century that a great part of Northern Ireland today owes what might be called its English aspect. But for them, it would be a country entirely without trees, as it was at the beginning of the eighteenth century, and we are now in a period when replanting and renewal and a deliberate forestry and woodland policy are particularly important.

There is, therefore, no less interest in this schedule and the impact of the tax upon forestry in Northern Ireland than there is in other parts of the Kingdom.

The first of our amendments, Amendment (t), is put down to secure an explanation from the Chief Secretary of the words in lines 19 and 20 of paragraph 2 of the new schedule—
"…if the disposal occurs before any part of the value transferred on the death of any other person is attributable to the value of that land …".
It may well be that those words owe their presence there to a beneficent purpose, and sometimes, in endeavouring to understand them, I have fancied that I caught a glimmer of the meaning—that it might be intended somehow to avoid a double impact of the eventual taxation. But I think that the words and their effect are sufficiently obscure to justify an explanation from the Chief Secretary, and I hope that he will give it.

I come now to the point made by both hon. Members who preceded me in the debate, the hon. Members for Cirencester and Tewkesbury (Mr. Ridley) and for Fife, East (Sir J. Gilmour). The principle of the new schedule is the deferment of capital transfer tax upon the value of trees or underwood until the time when disposal occurs. That being so, the double problem arises in handling that deferment : at what time shall the value be struck, and at what point of time shall the rate be struck?

The Government have so far given a different answer to those two questions. They propose that the value should be struck now, as it were, at the time of the disposal, but that the rates shall be as at the time of death. It is to be noted that that means not only rates in the sense in which the Chief Secretary used the term in an intervention just now—namely, the rate resulting from the composition of the value transferred at the disposal—but the rates ruling under the tax law at the time.

We are not looking forward here for a year or two, as I fear we are in much tax legislation, but we are looking forward in this legislation, if it is to make any sense, in terms of decades, and there will be big changes, or one presumes that there may well be big changes, in the rates of capital transfer tax if the tax should survive at all.

The Government have therefore been inconsistent. They have come down on opposite sides of the same fence. I think that they took the right decision when they selected the date of death for the purposes of the rate, and that should also have been the point selected for the purposes of valuation.

It has been said—for example. by the hon. Member for Berwick-upon-Tweed (Mr. Beith)—that inflation enters into this question and that a future Chancellor of the Exchequer might be loth to see tax levied in a future year upon the value at the date of a past death. To that my reply is that, since the prime responsibility for inflation rests upon the Government, or series of Governments, they cannot come back and claim against the citizen that they are entitled to mulct him for the progress of inflation since the relevant date ; namely, the death which resulted in the deferment of the charge which would otherwise have fallen due.

5.45 p.m.

We shall be wiser on this question also when we have heard the Chief Secretary's response to Amendment No. (kk) to the Government's new schedule put down by the hon. Member for Cirencester and Tewkesbury, that is, when we know how far, if at all, capital gains tax may intervene in the ultimate sum due by way of tax upon disposal.

I propose that the relevant dates both for the purposes of valuation and for the purposes of fixing the rate should be the date at which capital transfer tax would but for this schedule have been paid namely, the death in question.

I turn now to the question of the rates. It has been said already that in working out the rate one must assume that the value of the trees or underwood when disposed of will form the top slice ; that is to say, that they will attract the highest part of the rate leviable on the estate. In this matter, I believe, there is no absolute logic to which one may appeal, as one could in my previous proposition. It is possible for the Chief Secretary to say : Here is a piece of the value transferred upon a death the capital transfer tax on which is being deferred, but when it comes eventually to be levied the Revenue will have its pound of flesh and it will put that value back where it would have been, on the top of the total pile of the value transferred at the relevant death.

That is one approach, but, of course, it is the least favourable to the interests of forestry, and it is the approach which exerts to the maximum the claims of the Treasury. Moreover, as the hon. Member for Cirencester and Tewkesbury argued, it is by no means the only reasonable approach.

The alternative is to say that a whole period of time—whatever it may be, perhaps many years—has followed since the relevant death, and now we shall levy the capital transfer tax upon the value realised at the disposal. At least, that is how the schedule stands. We would rather say that it should be levied upon the value which the trees or underwood disposed of had at the time of the death. So let us look at the tax which the value transferred, other than that of the trees and underwood, bore at the time of the death and impose that rate of tax now on this deferred portion. My hon. Friends and I have sought to achieve that result by substituting the word "mean" for "highest ". Others have sought to do it by a more complicated method ; for example, that in Amendment (ii).

We must not simply treat this provision as a means of going back to the circumstances of the death and, as it were, reconstructing them and in so doing make the assumption that the trees or underwood would, in fact, have constituted the top slice.

My plea to the Government, therefore, is that they should not charge upon the trees and Underwood the maximum which any conceivable line of argument would produce but that, in a spirit of reasonableness and, I would even say, deliberate encouragement to forestry and the maintenance of woodlands, they should charge a mean rate upon the value of the transfer when the deferred tax is eventually imposed.

If these two amendments are made, and I think that they will be urged, in different forms, by most of those who contribute to the debate, they will represent a considerable improvement and will remove some of the remaining sense of injustice which is felt by those who have no interest in the matter but the maintenance of forests and woodlands as part of the economy and ecology of the Kingdom.

I acknowledge immediately the debt which we all feel to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) for the work that he has clearly done on the subject and for the way that he moved the amendment.

It is extraordinary that even at this late stage someone of such an astute mind as the right hon. Member for Down, South (Mr. Powell), and a former Treasury Minister to boot, should find it necessary still to be asking the Chief Secretary questions about what parts of the schedule mean. I cannot remember an occasion when such a major new tax provision was put before the House at such a late stage in our consideration and under the guillotine. When last did we have at such a late stage such a major proposal which by its very nature attracted so many amendments that they were labelled with up to three letters of the alphabet?

The Government deserve the severest censure for the way they have handled the whole question of the taxation of forestry. There was considerable alarm among those concerned with forestry when the Bill was first published. I expect that there are few forests in Leeds, Heywood and Royton and the other places represented by Treasury Ministers. I expect that those Ministers were under the impression that the proposals affected only a relatively small number of wealthy landowners, but that is far from the truth. In the last few months they have affected the interests of many who work in forestry, including many of my constituents, and a lot of them are not highly paid. I believe that the Government have totally misunderstood the nature of private forestry in Britain. Their activities in the last few weeks have certainly been most detrimental to a large number of people.

The only thing to be said in the Government's favour is that they have at least introduced the five-year rule for deathbed purchases. That is something which the genuine foresters have been urging on the Government for some time. The idea that the country in general, or even my constituency, is filled with plantations owned by octogenarian gentlement from the Home Counties is a long way from the truth. The loophole is being closed, and its closure we surely welcome. That does not justify the remainder of the Government's proposals, however.

The hon. Member for Fife, East (Sir J. Gilmour) was seeking to make the point that the whole of this proposed tax on forestry is, by definition, retrospective. Unlike any other form of activity I can recall, someone who is already engaged in planting trees is therefore committed, regardless of what changes the Government may make or may wish to make. He cannot unplant his trees, or the next year, as with agriculture, decide to do something else to take advantage of changed economic circumstances. He is stuck with a decision taken in good faith, and in a very real sense the Government are breaking faith with those who have for various reasons undertaken planting.

The right course for the Government, therefore, would have been to withdraw the imposition of the CTT on forestry at least until they had consulted the forestry interests. After that they could bring forward sensible and comprehensive proposals. I remind the Government that they have another Finance Bill, God help us, only a few weeks away. It is not as though they were going to have to wait for another full year before tackling this subject.

I believe there is a need to encourage still further the home production of timber. The Government's activity has resulted in a down-turn of planting of 51 per cent. in the private sector in Scotland in the last season. Over the United Kingdom as a whole the effect of the uncertainty in this last winter has been to negative in planting terms everything that was achieved in Plant a Tree Year. It was laughable that we should have been treated over the weekend to pictures of the Prime Minister planting one tree in the grounds of Chequers, bearing in mind the wreckage which has been caused to forestry by the Government's activtities over the last few weeks.

I hope at this late stage that the Government will repent and accept some of the amendments. We shall support those amendments.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) rather flattered the Members on the Government Front Bench by referring to their actions as being a small step in the right direction. Perhaps what they have done does not go as far in the wrong direction as their previous ideas, but it still leaves a tremendous amount to be desired.

As for the comments by the hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), I must emphasise that much of my party's opposition to the Government's stance on this matter stems from the fact that in a constituency like Argyll, and in many other rural areas like Scotland, forestry is the small man's business. As the hon. Member for Fife, East (Sir J. Gilmour) said, many of the holdings are very small and are not the province of the wealthy landowners. Many of the people who work on these holdings are either workers themselves or what one might consider to be small business men—timber contractors of one kind or another who have been penalised twice. They have been penalised by the blow struck at the forestry industry, and they have been penalised by the other parts of the Bill which strike a blow at small businesses.

The question of the valuation of these afforested areas is vital. It is not only illogical but perhaps wicked to say that when someone dies consideration of the trees on his estate will be held over and that the value will be set at its level 20 or 30 years later and charged to the dead man's estate. We have heard the hon. Member for Roxburgh, Selkirk and Peebles refer to retrospective taxation, but this surely brings in an entirely new principle—the taxation of someone who is dead.

Only a few weeks ago my party spoke of bringing about a "green revolution" which would be of immense value to Scotland and would enable it and other parts of the United Kingdom to enjoy the benefit of being once more a large-scale primary producer in an industry which is clearly coming into its own again. Gone are the days when one could read of learned City-based economists describing the Forestry Commission as a daft idea. Now we are appreciating the foresightedness not only of the Ulster landowners of the eighteenth century who planted trees but of the people in Britain in the twenetieth century who planted forests which in areas like mine are only now reaching maturity. What folly to wait until these trees mature and then to create the situation in which they will be felled, in which the estates on which they grow will be mismanaged, and in which the whole industry will be brought to its knees.

My party calls its forestry policy its "green revolution ". I am sorry to say that my party sees the Government's measures on forestry as the "red revolution ".

6.0 p.m.

I hope that the Chief Secretary will realise that four parties have been taking part in this debate but that they have spoken with but a single voice, and all have urged on the Government a last-minute repentance. Because or their obsession with this deathbed nonsense, the Government have set a mantrap to catch a mouse, and it is quite ridiculous that they should have persisted with their insane endeavours. I hope that they will listen to what has been said and will realise that their schedule does not go anywhere near meeting the valid arguments advanced this afternoon.

We have here probably the best illustration to date of the extreme stupidity of rushing a major tax revolution through Parliament. That is what it is all about. We should like the Chief Secretary to explain exactly how his new schedule meets the new points that have been made and that he says the Government have accepted. I would say to the Chief Secretary in this context that it is no crime not to understand, but it is a crime to pretend to understand. That is what the Government are doing.

I hope that the Chief Secretary has had his attention drawn to the telegram sent to the Chancellor of the Exchequer on Thursday by the Scottish Landowners' Federation saying that it was
" greatly concerned at decision to assess capital transfer tax on sale value of timber instead of on value at date of death. The Government's amendment will have disastrous effects on private forestry and employment in Scotland ".
This was the point made by the hon. Member for Argyll (Mr. MacCormick), and the telegram called on the Government to recognise it.

However, lest it be thought that this is a particular group of landowners in Scotland, let me draw the attention of the Chief Secretary to the representations last week of the Forestry Committee of Great Britain referring to his statement of 5th March that the rate of tax in relation to woodlands would be at the rate or rates that would have applied on death. The committee said:
"This is not so. The effect of the Government's decision to assess the tax on the sale proceeds, not as previously on the value at death, means that the tax will be paid on a value which will frequently be several times higher than at the time of the previous death …".
That, too, was a point graphically made by the hon. Member for Argyll.

This is not just a matter of the interests of the Timber Growers' Association and the Scottish Landowners' Federation. If the Government see those organisations as being beyond the pale because they represent landowners, I draw the attention of the Chief Secretary to the Association of Professional Foresters. Here are many ordinary workers who have certainly made a proper social contract with the community in the dedication with which they have pursued their extremely important industry but who have not been properly recognised.

There is the point made by Mr. Phillips, their secretary, who wrote to Members last week saying:
" Owing to the shortness of time which has been allowed between the publication of the amendments and the Debate of the Report Stage this week, we have been unable to consult Members fully ; neither have the Government made any approaches to organisations such as our own representing those employed in the private sector, who jointly with the British Foresters' Action Group represent some 10,000 people employed in the industry."
It is monstrous—and I use that word determinedly—that the Government should not have had any consultations with these organisations representing ordinary workers. The Government claim time and again that they have the interests of the workers at heart, that they wish them to have a fair deal, but the jobs of these workers are being jeopardised. As another of their leaders, Mr. Yull, reminded us, these workers have been forced by the present Government into having to contemplate emigration because they cannot see a properly secure future for themselves and their industry.

This is a silly situation because, as the hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) rightly said, all the Government need to do is to take away this proposal. We are to have another Finance Bill—Heaven preserve us—in eight or 10 weeks' time. It is a fearful thought, but it nevetheless gives the Government a breathing space. There are those of us on this side of the House who are totally opposed to this tax, but all we are saying this afternoon is that at least the Government should operate it properly. If they have accepted the case for forestry being accorded special treatment, as they say they have, they should bear in mind the force of our arguments, think about it again and come back with a new clause and schedule that will meet the case so admirably made this afternoon by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), the right hon. Member for Down, South (Mr. Powell) and others.

However, if that sort of argument carries no weight with them and cannot dissuade the Government, let them be reminded in purely materialistic terms of the enormous importance of timber to our balance of payments. After oil and food, it is this country's largest import. We import more timber than does any other country apart from Japan. In 1974, timber imports, cost £1,878 million.

If the pleas of ordinary workers and the legitimate and proper requests of the timber growers and the urgings and entreaties of hon. Members of all parties have no effect, let the Government at least think of the financial considerations and of the importance to the environment. My hon. Friend the Member for Cirencester and Tewkesbury quoted the letter of the Minister of Sport urging us all to support Tree Planting Week. I shall support it in my constituency by planting a tree on Friday [HoN. MEMBERS: "Why bother?"] My hon. Friends ask why I should bother. [HoN. MEMBERS: "He's cutting it down."] The Chief Secretary may well be performing that task if we are not careful. All that can be done by Tree Planting Year and Tree Planting Week and by encouraging the appreciation of trees is certainly being undermined by the Government's clumsy handling of this situation. It has already been said that some 30 million trees that would have been planted this winter have not been planted mainly because of the uncertainty created by the Government's tax arrangements.

I do not want to detain the House any longer because there is much more of importance to discuss this afternoon. However, without making invidious distinctions, I suggest that there is no more important debate than this, no more important topic for the country's future. Considered from the standpoint of scenic beauty, the environment, the economy, or the interests of workers, this is a subject of major importance.

Having accepted that forestry deserves special treatment, the Government should at least accept the proposal so powerfully supported by the right hon. Member for Down, South. At best they should accept the suggestion of the hon. Member for Roxburgh, Selkirk and Peebles and defer the implementation of their scheme by another eight or 10 weeks, when they will have had the chance to talk to the workers and to consider the case that we have made and then to do something constructive and sensible.

I must declare an interest as a woodland owner. I am therefore one of the toads under the harrow.

What depressed me about the Chief Secretary's speech was not what he said about the tax but rather that he seemed to think that he had secured the future of forestry in this country. That is not the case. Many effects of the tax have been mentioned—the effect on employment, environment and so on—but I wish to concentrate on the fact that replanting will be largely reduced, if not eliminated, by the tax.

Essentially, forestry is a long-term business. I have been given some interesting studies of two identical businesses, one a forestry business and the other an industrial or commercial business. Each was given the figure of £150,000 on the date of transfer, not an excessive sum in either case. When one comes to work out the tax—that is the tax on the small business on the one hand, and the tax on the forestry business on the other—one finds that the tax payable on the latter is more than double that payable on the former. This seems to me to be quite mad, because it is a tax on growth, pure and simple—growth of the trees—and those figures were worked out on a very modest rate of increase.

Some hon. Members said last week that we should not worry so much about the private sector but should let the public sector take over. I urge the Treasury Bench to have discussions with the Forestry Commission, because it obviously has no desire to take on small forestry enterprises all over the country. It is not geared to do that.

What happens under these arrangements in the case of windblow or fire? What happens to the payment of tax in those two instances? That is not clear.

What about selective forestry? Paragraph 2 of the new schedule contains the words :
"and the whole or any part of the trees or underwood is disposed of ".
Am I right in thinking that if someone practises selective forestry—which is a fairly normal form of forestry in the South of England—it means that after the transfer has taken place he is taxed on a single oak tree which he fells?

What about the question of thinnings, which was mentioned by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley)? If what my hon. Friend said is right, it means that a business which is geared to a set rate of felling will find that if it has to pay tax at a rate of 50 per cent. it will have to fell double the number of trees which it had originally planned to fell, and the whole business will start to run down progressively. There is no getting away from that.

It is not clear what happens on a subsequent death before tax has been paid on the previous transfer. If the figure is completely reassessed, there could be a 100 per cent. tax on certain plantations. What should happen in these cases is that only the incremental value should be charged on the second transfer or death as the case may be.

It is essential that the land in a dedication agreement should not have to pay capital transfer tax, because to charge the tax is a breach of faith. Softwoods mature in 80 years, while hardwoods take 100 years-plus. A dedication agreement is entered into between the owner and the Government over that period, and, therefore, to change the tax base during that period is, in a sense, a breach of faith, and, therefore, the amendment dealing with this is essential.

The point has been made by nearly everyone who has taken part in the debate that the value should be the value at the date of transfer and not at the date of disposal. This is essential, because this is the real killer for a business such as forestry which has a very low rate of return.

I do not wish to detain the House for very much longer. I urge the Chief Secretary to think again, even at this late hour. It is right that he should take action on the five-year rule. This is what so many people have been urging was wrong, and action should have been taken before now to deal with it, but, as a result of these changes, the Chief Secretary is dealing essentially with genuine foresters who are trying to make a successful enterprise of forestry. If no action is taken, replanting in the private sector will disappear, and I cannot believe that that is the result desired by the Government.

6.15 p.m.

I shall not detain the House for more than a few moments. I am sorry to note that again the Minister of Agriculture, Fisheries and Food is not with us. During the progress of the Bill, both in Committee and on Report, it has become abundantly clear that the interests of agriculture and forestry, which should be looked after by the right hon. Gentleman, have not been put internally as they should have been. It is becoming increasingly clear that the Ministry of Agriculture is unable or unwilling to comment on the effects of the tax on either agriculture or forestry.

There seem to be three specific points which are lacking in the new schedule, most of which has been mentioned. First, there is the failure to include woodlands if occupied with other agricultural land. The point about this was made by my hon. Friend the Member for Buckingham (Mr. Benyon) and particularly concerns some of our best hardwood trees. The isolated oak tree is a particular example. The new schedule will give a considerable incentive to farmers to fell these trees, which not only contribute a considerable amount of timber but add beauty to the countryside.

The omission of gifts inter vivos seems to be explained. I have no idea why forestry should not be alleviated on this basis. Perhaps the Chief Secretary will comment on the matter.

My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) made the point about the land on which trees grow. The argument for this is obvious, and it seems illogical not to include it.

Despite repeated requests to him to deal with it, the Chief Secretary has said nothing in answer to the point about tax evasion in forestry. By its special nature, this industry requires special tax treatment. It is a unique industry, and it is understood only by a number of people involved in it. It is clearly not understood by the Treasury.

The Scottish Landowners' Federation and other interests have put it to the Treasury that it should close the tax loophole and leave the genuine foresters alone, but their pleas have been rejected. It is estimated that about 30 million trees have not been planted because of the threat of CTT. I can only say what has been said so many times already. When a major tax of this sort is introduced without proper preparation its effects turn out in the oddest places and can do immense damage if it is not properly considered either by a Select Committee or by some other procedure.

My hon. Friend the Member for Buckingham referred to the low rate of return in the forestry industry, and in an intervention I commented that no sooner has a tree been felled, particularly on dedicated woodland, than replanting has to take place as a requirement of the felling permit. Therefore, if one assesses the actual rate of return for a given period one finds that because of this permanent investment the figure is very low and compares most unfavourably with agriculture.

Was not that borne out by the Treasury memorandum which was produced two or three years ago, which said that trees were hardly worth planting?

We must not get diverted into an argument about the Forestry Commission, but that organisation, which is so deeply involved in tree planting, does not show a very good return on the national investment.

I admit that we are not dealing with totally altruistic people who invest in forestry, because there is a profit, but the return is very low indeed. It seems to me that both agriculture and forestry have been the victims of this tax because of the actions of unknowing and, regrettably, uncaring Ministers. The Chancellor of the Exchequer should look very closely at the points that have been made in this debate and others on these two subjects and try in his forthcoming Budget to put things at least partly right.

The Government's original forestry proposals produced something akin to panic among timber growers, with the result that there has been an estimated loss of close on 30 million trees which would otherwise have been growing for the benefit of future generations. The new schedule does something to put matters right, but, by reason of the dismay which was sown by the Government, it is grossly inadequate. The Government should have taken much more time and, above all, should have consulted many more people before proposing something which will result in the loss of jobs and the loss of valuable raw material, and cause great damage to the environment.

I wish to speak simply as a Welsh Member whose countryside is distinguished largely by the wealth of beautiful trees, often uneconomic to their owners, many of which will be cut down unless the Government can put some heart back into timber growers.

The Emperor Vespasian assured himself of a place in the history of France because he put a tax on public lavatories. Every public lavatory in France is now familiarly referred to as a vespasienne. I should hate to think that the Chief Secretary, a most civilised and urbane man, would earn his memorial because every clump of cut down, black and rotting tree stumps became known henceforth as a Barnett.

I support the amendment. It is getting near the eleventh hour, but I hope that the Chief Secretary will take notice of what has been said about it. Forestry is important for the United Kingdom, but it is even more important for Scotland, particularly in West Aberdeenshire, where it gives a lot of employment.

We are now running an import bill of some £2,500 million for forestry, which is approaching the size of our oil deficit and the cost of our food imports. Yet the Government here are taking action which mitigates against the production of more trees in this country. Although in Britain, and especially in Scotland, there is so much room available for forestry, Britain has a smaller forestry percentage per acre than nearly every other country in Europe. That is a ridiculous state of affairs. We should be giving encouragement to forestry, not discouragement.

Reference has been made to the telegram which has been received from the Scottish Landowners' Federation. The federation has also brought to our notice a list of curtailed or abandoned investment projects brought about by the threat of the tax. I cannot understand why the Government do not realise the difference between forestry and other forms of business, including agriculture. A softwood forest takes up to 75 years to mature and a hardwood forest up to 150 years. Even the people who have been accused of tax evasion do not themselves benefit, neither do the next generation. The beneficiaries are two or three generations ahead—and at least the country got trees.

As we come to the end of our long debates on this Finance Bill and all the nights and early mornings in Committee, as a new Member of the House there is one memory I shall take away. That is the sheer, utter stubbornness of the Labour Government, their unwillingness to listen to reason and their refusal to consider in one package this tax, the wealth tax and capital gains tax. For doctrinal reasons the Government have pushed the tax through, unamended, without thought. At the beginning of the debate, long before we went Upstairs, I said that this hastily-drawn-up Bill was drafted either by fools or knaves, by morons or Marxists. I have come to the conclusion it is the latter. We are dealing with knaves and Marxists, and that is why the Government have pushed the Bill through against all reason. Once again, I ask the Chief Secretary to take back the Bill and reconsider the capital transfer tax proposals.

In rising to intervene briefly in this debate I declare a small personal interest.

The general considerations have been so eloquently deployed by my hon. and right hon. Friends that I shall limit my intervention to a few specific questions with which I hope the Chief Secretary will deal explicitly.

The first is a question which I ventured to address to the Chancellor of the Exchequer in an earlier debate. What consultations, if any, have been held with the Forestry Commission about the basis of capital transfer tax on forestry? If there have been none, why not? If there have been any, what conclusions were reached? What was the advice tendered to the Chancellor of the Exchequer by the Forestry Commissioners?

My other question is of a more technical kind, and it is deployed by Amendment (bbb). It relates to the interaction of income tax and capital transfer tax when the woodlands are cut and sold. Supposing the transferee is to be assessed under Schedule D on the proceeds of cutting, and supposing there is a charge to capital transfer tax carried forward from a past death. A taxpayer might pay more than 100 per cent. when he came to cut. There may be a simple answer, but 1 cannot find it within the recesses of the schedule. If there is a simple answer I hope that the right hon. Gentleman will give it. If not, I hope that he will treat this as another and cogent reason why this ill-thought-out measure should be withdrawn and reintroduced on another occasion.

I hope to draw the attention of the Chief Secretary to a specific question, as other hon. Members have covered the ground so well. I endorse what my hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) said and pay tribute to the amendments in the name of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).

I remind the Chief Secretary that the Chancellor received from my constituents, who are forestry workers—not the landowners—three petitions reiterating how deep is their concern. I hope that he will bear this in mind when he blames the disagreement on the views of the landowners alone.

I want particularly to ask the Chief Secretary about the limitation of the schedule to dedicated woodlands. Dedicated woodlands provide only about 37 per cent. of the hardwoods. A large amount of hardwood plantation of considerable environmental importance is outside the area of dedicated woodlands. The reference to dedicated woodlands is probably included because the Opposition stressed strongly that it would be absurd for one Government body to enter into dedication agreements and another Government body to undermine them by taxing dedicated woodlands at a critical rate. Naturally, we welcome the inclusion, but the limitation means that an enormous amount of planting will be seriously threatened. I am thinking especially of small copses of parkland timber and timber planting which would not naturally be the subject of dedication agreements.

A question was asked whether consultations have taken place with the Forestry Commission. Does the commission see the necessity of redefining dedication agreements? If tax concessions are to be based on dedication agreements, the agreements must be extended to cover a far wider range of timber planting, including smaller plantations and scattered planting of environmental value, trees in parkland, small copses, small shelter belts, and so on. Is the Forestry Commission willing to accept this new approach to dedication schemes? If it is not, such planting will be threatened. Experience to date is that the Forestry Commission, perhaps for good reason, has wanted to confine and limit the operation of dedication agreements to certain kinds of planting. The whole approach to dedication must be revised if it is to be made the sole basis of tax concessions. I shall be grateful for the Chief Secretary's comments on that point, although I hope he will look favourably on a considerable number of amendments.

6.30 p.m.

There are 30 amendments, and I shall do my best to reply to them all in detail. The assumption behind many of the arguments—it is certainly the assumption of the hon. Member for Argyll (Mr. MacCormick), although I do not know whether this is the view held by the Scottish National Party—is that forestry should not be taxed at all. The assumption is that the major reason for planting was that it presented an opportunity for less estate duty to be paid, and without that relief there would be very little new planting.

I have written to the Chancellor asking for the source of his information that four-fifths of planting was carried out for reasons of tax evasion. He has not yet replied. Everything that the right hon. Gentleman says has been proved false.

I have not yet dealt with that point. I shall be happy to deal with it later. So far, I have made a perfectly innocent remark, and I do not know what the hon. Gentleman is getting excited about. I have said that the assumption behind most of the speeches is that without the old estate duty relief, or something like it, we shall not get the number of trees planted that hon. Members wish.

I turn to the details. First, there is the argument of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) about Amendment (a). This adds to the relief for woodlands relief on the value of the land. Hon. Members have failed to understand the purpose of the schedule, which is to help growing crops. We recognise this. In certain cases of hardwood there will be four or five generations-130 or, perhaps, 150 years—before the crops mature. We recognise that it would be unfair to tax them at each successive death.

The question of land is entirely different. We have gone a long way in giving the relief we have given, a relief for one special type of asset. To extend that relief much further would be to go too far. I cannot accept the amendment relating to land. The hon. Member for Cirencester and Tewkesbury is obviously getting a little tired as we come to the end of our proceedings, because his example was not as good as the many he gave us in Committee. He cited the case of a man possibly having to chop down his woodland because planning permission had been granted. If that was so the land was worth a substantial sum, and I can see no reason why it should be exempt from capital transfer tax.

The right hon. Gentleman is obviously getting a little tired, because he has just told us that it could take four or five generations to grow mature oaks. He is right, for once. How are the four or five generations to pay four or five swathes of capital transfer tax on the land under which the trees grow? Trees cannot be grown without land.

I am obliged to the hon. Gentleman. I am always glad to learn. It is useful to know how trees grow. I regret to tell him that I can see no reason why capital transfer tax should not be paid on the land, given that the trees have been cut down and the land used for building. If it is agricultural land, forming part of an estate, it gets the relief applicable to agricultural land. I cannot go along with the hon. Gentleman's suggestions.

A major amendment was moved by the hon. Member for Cirencester and Tewkesbury and referred to by the right hon. Member for Down, South (Mr. Powell). The right hon. Member dealt with two issues. The first one he sought to persuade me to accept on logical grounds. He recognised that the second one might not be wholly logical, and he tried to persuade me in order to encourage the planting of woodlands. I hope to show him that there is no logic in either case.

The right hon. Gentleman said that because we are deferring the point at which capital transfer tax will be charged, it is illogical to tax the woodland at the final point of sale. He said that if a man owns woodlands and dies there will be no capital transfer tax at that point, and therefore it will be taxed at a later date when the woodlands are sold or mature. With respect to the right hon. Gentleman, what he said is somewhat illogical and a little churlish. The assets in question will now go through four or five generations without liability to tax. That is a substantial amount of relief. The right hon. Gentleman suggests that not only should there be no relief at the point of death but that later we should go back to that point and say that it should be taxed at the lowest value. The relief we are giving is quite substantial. It ensures that there will be no need to chop down woodlands because there will be no tax liability through any of these generations to which the hardwoods pass. Only at the point of sale will there be a tax liability. To suggest that we should add to the unfairness against other owners of assets, who have their assets taxed through every generation, by taking the lowest possible value of the woodland and taxing it at that rate is not logical. It is going much too far, and I cannot go along with that amendment.

The next amendment concerns aggregation, a point raised by the right hon. Member for Down, South and the hon. Member for Cirencester and Tewkesbury. Various amendments have been tabled. One tabled by the right hon. Member for Down, South suggested that there should be no aggregation with the estate of the person dying. The amendment tabled by the hon. Member for Antrim, South (Mr. Molyneaux) suggested a mean, or average, rate. The right hon. Gentleman did not seek to persuade me on grounds of logic. He simply sought to persuade me on the ground that his amendment would encourage the planting of trees. We are seeking specifically to do that because we are ensuring that there is no tax liability throughout the whole of the 150 years, if that is what it is, before the trees are chopped. That is quite a substantial relief.

There is no tax liability. [Interruption.]

The hon. and learned Member for Dover and Deal (Mr. Rees) said that he had an interest in these matters. He must recognise that the burden of the case is not to help the small woodland owner who has nothing else—the small woodland owner does not need to have non-aggregation of other assets, since he does not have any. We are talking about the wealthy woodland owner who has other assets as well as his woodland. If they do not have many other assets, there is no problem. This group of amendments is designed essentially to help the wealthy woodland owners. I suggest to the hon. Gentleman that their representations go too far. We have given substantial relief in this schedule and yet they still want more. I am sorry to have to say that they want more not for the small woodlands owner but for the very wealthy.

The hon. Member's comment from a sedentary position is about as relevant as his speech was.

The Chief Secretary is not quite right. Even a small and poor woodlands owner has other assets in the form of the land, as I keep telling him. There is no point in his being made to pay on the land. It does not help the exemption for the trees. This non-aggregation amendment is an alternative to the amendment dealing with allowing the land. If we do not aggregate the land and the trees there will be a lower rate on the trees at the time they are sold.

I am sorry to have to tell the hon. Gentleman that he does not seem to be seeing the wood for the trees —or the wood for the land. I dealt with the amendment on land. I shall be happy to go over it again but I thought that the Opposition wanted to make progress. I dealt with that amendment and said that I did not feel able to accept it for reasons that I gave. For the reasons that I have just given I do not feel able to go along with the argument in favour of non-aggregation.

The hon. Member for Cirencester and Tewkesbury and others dealt with Amendment (kk) concerning income tax, capital gains tax and corporation tax. The hon. Member raised some of these matters in Committee. I said then that he had raised an interesting point, namely, that woodlands should be taxed for income tax and corporation tax. I pointed out that in the main they are not subject to income tax now. Nor are they subject to capital gains tax. I see the hon. and learned Member for Dover and Deal looking at me quizzically. I assure him that no capital gains tax is payable on the sale of woodlands.

I appreciate that. I hope that the right hon. Gentleman is coming to the point I made, namely, that it is not true to say that woodlands are not subject to income tax. They may be under Schedule B, although I agree that that is not usually a heavy impost. Since I have declared an interest I will say that I am assessable, with a great many other people, under Schedule D. I would like the right hon. Gentleman to take that into account in replying.

The hon. and learned Member will appreciate that I cannot deal with his personal tax affairs because I do not know anything about anyone's personal income affairs. I can tell him, and he has recognised this, that in the main there is no income tax. Tory Members have naively failed to recognise that in the main not only is there no liability to income tax but woodlands owners are in a very favourable position as regards income tax. During the years before the trees are matured, maintenance costs can be set off against the owner's other income. This is the owner for whom the hon. Member for Buckingham (Mr. Benyon) asked me to provide relief—the owner who has other assets with other income. That other income would be relieved from tax because of the way the income tax system works and because there are no profits, only expenses, and all those expenses are set off against his other income.

There is, therefore, not only no income tax liability on woodlands ; there is a negative income tax, in that there is a set-off against other income. When the trees come to maturity, as the hon. and learned Member for Dover and Deal recognised, in the main they are subject to tax at a tiny level under Schedule B. Amendment (kk) is therefore unnecessary—[Interruption.] Before the hon. and learned Member has apoplexy, let me assure him that I am coming to his other point.

My hon. Friend the Member for Meriden (Mr. Tomlinson) is acting in an uncharacteristic manner. I am sure he would not want me to do the hon. and learned Gentleman any harm.

The other amendment related to interest on moneys invested. Again, I do not feel able to agree that this should be allowed as a set-off for capital transfer tax. This is, first, because there is already a substantial set-off for income tax purposes and, secondly, because, as has been said, when trees are sold, invariably new trees—saplings, seeds or whatever—are planted—in land, I am assured. There are already grants available for such planting, and I do not feel able to go further and give additional tax relief.

6.45 p.m.

The right lion. Member for Down, South spoke about Amendment (t). He thought there might be a little obscurity here. The relief for woodlands is framed so that when the charge to capital transfer tax is made on the proceeds of a sale the charge is made in respect of only the last previous owner's death. Amendment (t) would alter this, so that the tax would be chargeable in respect of each preceding death on which the relief had been given. I am sure that that is not what the right hon. Member intended.

As I pointed out, the amendment is for the purpose of clarification. If the right hon. Gentleman is now saying that it all reverts to the last relevant death out of a series of perhaps four generations, what has happened to his argument to the effect that if other amendments we have been discussing were accepted we would be moving right back to the original death, 100 or 120 years ago?

I thought that that was the purport of the other amendments. I hope that I have satisfied the right hon. Gentleman that there is no need for this amendment.

The hon. and learned Member for Dover and Deal referred to Amendment (bbb). If the timber is sold off and income tax is borne on the net sale proceedings it would in the main be under Schedule B, as we have both recognised. [Interruption.] I am sorry ; we shall have to leave it that I recognise that. It could be a harsh solution to take those proceedings under the capital tax regime. This is the purport of the hon. and learned Gentleman's case. In practice, substantial sales of timber are hardly likely to come fully within the charge to income tax precisely because the assessment will come under Schedule B. That is why the hon. and learned Gentleman, in his peregrinations through the Revenue courts, may not have come across timber cases too often. They never paid any tax.

I am infinitely obliged to the Chief Secretary for giving way. Will he address himself to the point put to him. It is very likely—or it is at least possible—that the transferee, when he comes to cut will have to pay tax under Schedule D. It would be easy for me to demonstrate that he may have to pay well over 100 per cent. if, if I understand the right hon. Gentleman correctly, such a person will have to pay capital transfer tax on the net proceedings of the sale and income tax under Schedule D. It is not good enough for the Chief Secretary to slide away from this point by saying that we all know that this person will be assessed under Schedule B. This is not so, unless the right hon. Gentleman can give us the assurance that in every case the transferee will be able to opt for Schedule B just before capital transfer tax comes to be paid. Will he give the House that assurance? If not, will he face the fact that he may well be imposing a charge to capital transfer tax and income tax amounting to well over 100 per cent. in some quite simple cases?

I do not accept those extreme examples. In Standing Committee the hon. and learned Gentleman gave us many examples, all of which were misguided or misplaced. He should know, as indeed should the right hon. Member for Cambridgeshire (Mr. Pym), that in most cases they will be taxed under Schedule B—[Interruption.] I doubt whether anybody would opt to pay income tax under a regime higher than that used in Schedule B.

It is an option which an owner can make for his lifetime. It must apply to all his woodlands. I do not know whether the right hon. Gentleman has comprehended the nature of that option. It may not be possible for such a person to avoid that income tax.

It would be strange for a man to opt to pay income tax at a higher level when he can pay tax under Schedule B at a lower level.

The matter of dedication was mentioned. There was no question of misleading anybody. The most modern dedication scheme was introduced only in October 1974. Therefore, it would be well known to anybody using the scheme that there was to be a capital transfer tax. It was mentioned in March 1974 and there was a White Paper on the subject in July. Therefore, there is no question of any bad faith.

I was asked whether we had had consultations with the Forestry Commission about dedication schemes. I am happy to say that we have had such discussions. The commission was consulted particularly about this feature of the relief—that is to say, that trees planted must come within the dedication scheme. The commission is aware of all these points. 'The new dedication scheme—basis three—goes down as far as woodlands of one hectare in size, or about two and a half acres, and will take in small woods. The new dedication scheme modifies the proposed scheme moving from a preoccupation with timber production to a more broadly-based concept of social benefit. It is possible that there may be some isolated copses or uneconomically-planted woodlands which the Forestry Commission would be unwilling to accept into dedication schemes under the present criteria. I accept that, but in the main it is extremely unlikely that that type of small area would be highly valuable for purposes of CTT.

Will the right hon. Gentleman consider the situation in which there is a series of small environmental plantings, all of very much less than two and a half acres?

If there are such small plantings the value is likely to be small, and therefore the CTT is also likely to be small.

Did the right hon. Gentleman's consultations with the Forestry Commission take in matters other than dedication? If so, what advice did he have about those other general matters?

I had consultations with the Chairman of the Forestry Commission and many others. As the right hon. Gentleman will know from the advice which he received when in office, it is not the custom—it is certainly not mine—to tell the House or anybody else what that advice is.

Will the right hon. Gentleman say how many consultations he had with representatives of the forestry workers, and also with the Timber Trade Federation?

I thought that the people who came to see me represented not only their capital but the people who worked for them. That was the impression they gave me.

I think I have dealt with the greater part, if not all, of the amendments which have been brought to my attention. There seems to be a wholly false assumption about the whole question of capital transfer tax in relation to forestry and woodlands generally. There is no reason whatever to assume that CTT has been responsible for any drop in planting [HON. MEMBERS : "Oh."]. If that is the case, it is a most peculiar Opposition argument. They are suggesting that the major reason for planting trees is to be able to escape estate duty.

The Chief Secretary has made a ridiculous statement. The fact that there was so much uncertainty when the Government's scheme was first mooted is obvious, since they did not plant trees to the tune of some 30 million.

That is precisely what I said—namely, that the Opposition appear to be arguing that the reason why owners did not plant trees was that they were no longer able to obtain estate duty relief [An HON. MEMBER : "What about the profit?"] I do not know how that affects their profit. We are talking about estate duty. Nobody is talking about profitability ; we are talking about the tax. The argument has been that only because of the existence of estate duty relief were trees planted—[HON. MEMBERS : "No.") What on earth are the Opposition talking about then? What is the burden of their case? The profitability has not changed. The profitability is the same before and after CTT. The schedule which I have presented to the House gives substantial relief to a specific and important asset—namely woodlands. The amount of relief given passes over a number of generations. It is very generous to a particular asset, as opposed to many other assets which, equally, have a small economic return.

I hope that the Opposition will examine what they are suggesting. They are suggesting that we should give further relief not so much to small woodland owners but to the very wealthy woodland owners who will already be given substantial relief by the provisions of the schedule. I think they are asking me to go very much further now, and I must ask my right hon. and hon. Friends to resist any amendment to the schedule.

Before he sits down, will the right hon. Gentleman deal with two points which many of us have raised on innumerable occasions? [HON. MEMBERS : "He has already sat down."] First, what is the position regarding unemployment in forestry in the future, and, secondly, what is the situation in regard to imports in the years ahead?

I congratulate my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) on a clear, concise and moderate introduction of these amendments, despite the fact that the names of his hon. Friends appear to have been taken off the Amendment Paper inadvertently. The manner in which he opened the debate was evidence of the fact that we can get along perfectly well with just my hon. Friend's name against these important amendments.

Many protests have been made about the rushed nature of these complicated matters. We are not aware of any substantive consultations which have taken place between the Treasury and forestry interests between the end of the Committee stage and Report. It may well be that the right hon. Gentleman the Chief Secretary has had one meeting with outsiders, but we are not aware that consultations have taken place. Since the whole basis on which forestry is to be taxed under the CTT has been changed between Committee and Report stages, it would have been desirable if there had been much fuller consultation.

I have a telegram which was sent by the Vice-Chairman of the Forestry Committee of Great Britain to the Chancellor of the Exchequer, emphasising the regrettable lack of consultation and unnecessary haste. The Government fail to understand that forestry is a long-term industry and deserves long-term and mature consideration. We do not believe the new clause has received that full and proper consideration which it deserves.

We do not expect Treasury Ministers to have a detailed knowledge of every single specific industry and in dealing with woodlands we are embarking upon a technical area of the tax law. I hesitate to intervene between such experts as the Chief Secretary and my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) but in a moment I should like to refer to the option available between Schedule B and Schedule D, because I think it is important.

7.0 p.m.

The debate has fallen into several categories. We must deal first with the amendment which seeks to place the valuation on the same date basis as the rate of tax. The right hon. Member for Down, South (Mr. Powell) referred to the matter at some length. The amendment was mentioned as one of our two major amendments by my hon. Friend the Member for Cirencester and Tewkesbury. The Chief Secretary said that it was illogical for the right hon. Gentleman to say that death should be taken as the point for the rate and valuation because the Government had already given substantial concessions. He went on to say that the request was churlish. This shows a total lack of understanding on the part of the Chief Secretary of the fact that we are dealing with a particular and special industry which, throughout the whole of our estate duty legislation, had been recognised as such.

What may well happen now is that the trees will be felled before maturity. Under the legislation before us it is possible to conceive tax being payable on rates of capital transfer tax which were prevailing 100 years earlier. I do not believe that it is logical to put on the statute book a system which could lead to somebody paying a rate of tax when he sells, say, an oak tree, which had been settled 100 years before the sale.

The Chief Secretary said that the right hon. Gentleman was churlish in suggesting that there was something illogical about this. I see nothing illogical about it at all. Indeed, the illogicality lies in the new proposal which the Chief Secretary is bringing forward.

The Chief Secretary kicked the bottom out of that argument by pointing out that the words in paragraph 2 caused paragraph 3 to refer to the latest and not the earliest of a series of deaths and successions.

The right hon. Gentleman also referred to that, and I shall come back to it later.

The next most important amendment concerns the levying of capital transfer tax on the top slice. There is a feeling among the Chancellor's advisers—I am sure they have not changed their view since I was at the Treasury—that forestry and woodlands are a potent source of avoidance and are therefore to be deplored. I remember very well that when we were in office we had cause to look at the basis upon which woodlands were treated. I can remember very well the recommendations that were put forward to us. It is the task of Treasury Ministers to examine advice with great care. We cannot put a great industry like this in jeopardy because there is a feeling on the part of advisers, and it appears, on the part of the Chancellor of the Exchequer, that this whole area is motivated wholly by tax avoidance. That is simply not the case. To tax on the top slice is harsh and unfair.

My hon. Friend the Member for Cirencester and Tewkesbury talked about the value of the land being exempt from the provisions of the schedeule. The Chief Secretary's reply was "We brought this new schedule forward because we were concerned that this was a case where we were dealing with growing crops ". I think that those were his words. We are not dealing, however, with a field of wheat ; we are dealing with a crop which may take 100 years or more to mature. When my hon. Friend asked that the value of land should be included, he was absolutely right. How can it be sensible for the land upon which the trees are growing to bear four or five bites of capital transfer tax when the trees themselves are to exempted until they are sold? Surely this cannot be logical.

I should like to give a personal example. I must here declare an interest. I have a farm of my own, on which I have been planting shelter belts. Since these are shelter belts for horticulture, I hope that the value of the land is not less than £500 an acre. It may be worth £1,000 an acre. I have planted 5,000 trees, and the planting was finished a few days ago. Although these trees may pass through five generations without capital transfer tax being payable, is it intended, or is it logical or sensible, that the land upon which they are growing, which may well have a value of up to £10,000 an acre, for all I know, in 100 years' time, to have to bear repeated slices of capital transfer tax through the generations, although the trees do not? The Chief Secretary has not answered that point.

I hope that the hon. Gentleman has taken the point that the agricultural value of the land for capital transfer tax purposes will be the multiple of the rental value, which will be considerably lower than the figure he has given.

I am well aware that the valuation of agricultural land is on a multiplier basis rather than a market value basis, but I cannot possibly say what the margin between a multiplier of the agricultural rents and agricultural value will be in a generation's time. It may well be that the concessions which the Government have made may not be valuable at all in a generation's time. I hope that it will be, but it may not be. [Interruption.] I agree that the margin is narrowing all the time.

I turn to the question of the dedication scheme. The Chief Secretary said that he had consulted the Forestry Commission on the widening of the dedication scheme arrangements. The matter is extremely important, because as the schedule stands the scheme does not include a great deal of our woodland.

There was a dispute between my hon. and learned Friend the Member for Dover and Deal and the Chief Secretary about Schedule B and Schedule D. I find it difficult to believe that the majority of people who own small woodlands and who are therefore not in business as major woodland owners, will opt for taxation under Schedule B. I should have thought that the majority of people who own small amounts of woodland will pay tax under Schedule D. The Chief Secretary implied that the whole thing was a racket, because people who might be paying tax under Schedule D could offset their maintenance expenses and other expenses against tax throughout the period. He suggested that they were in some way having a double benefit. How can that be the case? If they are under Schedule D, they are merely offsetting allowable expenses against other income in the way allowed throughout the Schedule D arrangements. There is nothing different here from the normal taxation arrangements.

The point made by my hon. Friend the Member for Cirencester and Tewkesbury about thinnings—known in some quarters as "underwood "—is also valid. When somebody inherits woodland, no capital transfer tax is paid. Is it the case that each year, as the thinnings are sent away to a pulp mill, capital transfer tax will arise when those thinnings are sold?

My hon. Friend was absolutely right. It is nonsense if capital transfer tax, which is meant to be a capital tax, works as a revenue tax. It appears that, at great inconvenience and trouble to the accountants and others concerned, there would be a liability to the tax year by year as the thinnings or the underwood were sold to the pulp mills.

The logic of what the hon. Gentleman is saying is that as thinning goes on throughout the period, year after year, there will never be any capital transfer tax. Is that what the hon. Gentleman is saying?

I am saying that if a person inherited woodlands, and the capital transfer tax was not then payable, as he sold the thinnings year by year a piece of capital transfer tax would be payable each year.

My hon. Friend was making the point that an administrative burden of a revenue tax nature was then placed upon the woodland's owner, when we are dealing here with a capital transfer tax, which is presumably not meant to apply to individuals annually.

I must protest that although we have had this debate attended by my hon. Friends the Members for Aberdeenshire, West (Mr. Fairgrieve), North Angus and Mearns (Mr. Buchanan-Smith), Fife, East (Sir J. Gilmour) and the hon. Members for Roxburgh, Selkirk and Peebles (Mr. Steel) and Argyll (Mr. McCormick), there has been nobody here from the Scottish Office. As far as I am aware, nobody from the Scottish Office was here for the recent debate. The forestry industry is a major industry in Scotland, and Ministers from the Scottish Office should have been here to listen to the debate.

What is more, as far as I am aware no representative from the Ministry of Agriculture has been here. It would have been right and proper for Ministers from that Ministry to be present. The reason for their absence must be that they are embarrassed by the Treasury's measure.

The Chief Secretary suggested that we were claiming that if it were not for avoidance we should have no woodlands. In fact, the estate duty arrangements which have long existed for woodlands were placed on the statute book because our forebears knew that it was a particular industry needing particular measures for its encouragement.

It is monstrous for the Chief Secretary to say that the shortfall in planting this year, which I understand to be about 30 million trees, is not attributable to the tax, when the representatives of the Forestry Commission of Great Britain and all those concerned with the industry say specifically that the plantings have not taken place because of the muddle over the tax and the manner in which the original proposals were brought forward.

Division No. 135]


[7.14 p.m.

Adley, RobertBennett, Sir Frederic (Torbay)Brittan, Leon
Aitken, JonathanBennett, Dr Reginald (Fareham)Brotherton, Michael
Alison, MichaelBenyon, W.Brown, Sir Edward (Bath)
Arnold, TomBerry, Hon AnthonyBuchanan-Smith, Alick
Atkins, nt Hon H. (Spelthorne)Bitten, JohnBuck, Antony
Awdry, DanielBiggs-Davison, JohnBudgen, Nick
Bain, Mrs MargaretBlaker, PeterBulmer, Esmond
Baker, KennethBoscawen, Hon. RobertBurden, F. A.
Banks, RobertBowden, A. (Brighton, Kemptown)Butler, Adam (Bosworth)
Beith, A. J.Boyson, Dr. Rhodes (Brent)Carlisle, Mark
Bell, RonaldBradford, Rev RobertCarson, John

in the Bill. If the right hon. Gentleman says that the total uncertainty that has prevailed is not the cause of the shortfall, he must think not only that my hon. Friends are fools but that all those who plant woodlands and everybody who advises them are fools as well.

We seem to start from a different position from the Government in all these debates. The Opposition want to see our woodlands and rural employment preserved, whereas the Chief Secretary seems obsessed with removing any possibility of what he described as avoidance of capital transfer tax and any kind of special concession for special industries.

In Scotland, one in six of the rural workers is engaged in forestry. More than half the rural workers in the private sector are engaged in the industry. They are greatly concerned about the way in which the whole business has been handled by the Government.

When we saw in today's newspapers a picture of the Prime Minister planting a tree, we were ashamed to think that the Government should introduce this ill-thought-out measure. My hon. Friend said that we did not want any crumbs of comfort. We have had none. I hope that before the next Budget the Chief Secretary will have time to consult the woodland interests, look into the matter in greater depth, obtain a greater knowledge of the great industry, and introduce proper amendments to his original proposals.

Question put and agreed to.

Schedule read a Second time.

Amendment proposed to the proposed schedule : (ii) in line 42, leave out ' highest ' and insert ' mean '.—[ Mr. Powell.]

Question put, That the amendment be made to the proposed schedule:

The House divided : Ayes 255, Noes 272.

Chalker, Mrs LyndaHowell, David (Guildford)Powell, Rt Hon J. Enoch
Channon, PaulHowells, Geraint (Cardigan)Prior, Rt Hon James
Churchill, W. S.Hurd, DouglasPym, Rt Hon Francis
Clark, Alan (Plymouth, Sutton)Hutchison, Michael ClarkRaison, Timothy
Clark, William (Croydon S)Irving, Charles (Cheltenham)Rathbone, Tim
Clarke, Kenneth (Rushcliffe)James, DavidRawlinson, Rt Hon Sir Peter
Clegg, WalterJenkin,Rt Hon P.(Wanst'd & W'df'd)Rees, Peter (Dover & Deal)
Cockcroft, JohnJessel, TobyRees-Davies, W. R.
Cooke, Robert (Bristol W)Johnson Smith, G. (E. Grinstead)Reid, George
Cope, JohnJones, Arthur (Daventry)Renton, Rt Hon Sir D. (Hunts)
Cormack, PatrickJoseph, Rt Hon Sir KeithRenton, Tim (Mid-Sussex)
Costain, A. P.Kershaw, AnthonyRidley, Hon Nicholas
Craig, Rt Hon W. (Belfast E)Kilfedder, JamesRidsdale, Julian
Crawford, DouglasKimball, MarcusRifkind, Malcolm
Critchley, JulianKing, Evelyn (South Dorset)Roberts, Michael (Cardiff NW)
Davies, Rt Hon J. (Knutsford)King, Tom (Bridgwater)Roberts, Wyn (Conway)
Dean, Paul (N Somerset)Knight, Mrs JillRoss, Stephen (Isle of Wight)
Dodsworth, GeoffreyKnox, DavidRoss, William (Londonderry)
Douglas-Hamilton, Lord JamesLamont, NormanRost, Peter (SE Derbyshire)
du Cann, Rt Hon EdwardLane, DavidSainsbury, Tim
Durant, TonyLangford-Holt, Sir JohnSt. John-Stevas, Norman
Eden, Rt Hon Sir JohnLatham, Michael (Melton)Shaw, Giles (Pudsey)
Edwards, Nicholas (Pembroke)Lawrence, IvanShelton. William (Streatham)
Elliott, Sir WilliamLawson, NigelShepherd, Colin
Emery, PeterLester, Jim (Beeston)Shersby, Michael
Evans, Gwynfor (Carmarthen)Lewis, Kenneth (Rutland)Silvester, Fred
Ewing, Mrs Winifred (Moray)Lloyd, IanSims, Roger
Eyre ReginaldLeveridge. JohnSinclair, Sir George
Fairbairn. NicholasLuce, RichardSkeet, T. H. H.
Fairgrieve, RussellMacCormick, IainSmith, Cyril (Rochdale)
Farr, JohnMcCrindle, RobertSmith, Dudley (Warwick)
Fell. AnthonyMcCusker, H.Speed, Keith
Finsberg, GeoffreyMacfarlane, NeilSpence, John
Fisher, Sir NigelMacGregor, JohnSpicer, Michael (S Worcester)
Fletcher, Alex (Edinburgh N)Macmillan, Rt Hon M. (Farnham)Sproat, Iain
Fletcher-Cooke, CharlesMcNair-Wilson, M. (Newbury)Stainton, Keith
Fookes, Miss JanetMcNair-Wilson, P. (New Forest)Stanbrook. Ivor
Fowler, Norman (Sutton C'f'd)Madel, DavidStanley, John
Fox, MarcusMarshall, Michael (Arundel)Steel, David (Roxburgh)
Fraser,Rt Hon H.(Stafford & St)Marten, NeilSteen, Anthony (Wavertree)
Freud, ClementMates, MichaelStewart, Donald (Western Isles)
Fry, PeterMather, CarolStewart, Ian (Hitchin)
Galbraith Hon. T. G. D.Maude, AngusStokes, John
Gardiner, George (Reigate)Maudling, Rt Hon ReginaldStradling Thomas, J.
Gardner, Edward (S Fylde)Mawby, RayTapsell. Peter
Gilmour, Rt Hon Ian (Chesham)Maxwell-Hyslop, RobinTaylor, Teddy (Cathcart)
Gilmour, Sir John (East Fife)Mayhew, PatrickTebbit, Norman
Glyn, Dr AlanMeyer, Sir AnthonyTemple-Morris, Peter
Goodhart PhilipMiller, Hal (Bromsgrove)Thomas, Dafydd (Merioneth)
Goodhew, VictorMills, PeterThompson, George
Goodlad, AlastairMiscampbell, NormanTownsend, Cyril D.
Gorst, JohnMitchell, David (Basingstoke)Trotter, Neville
Gow, Ian (Eastbourne)Moate, Rogervan Straubenzee, W. R.
Gower, Sir Raymond (Barry)Monro, HectorVaughan, Dr. Gerard
Grant, Anthony (Harrow C)Montgomery, FergusViggers, Peter
Gray, HamishMoore John (Croydon C)Wainwright Richard (Colne V)
Grieve, PercyMore, Jasper (Ludlow)Wakeham John
Griffiths, EldonMorgan-Giles, Rear-AdmiralWalters Dennis
Grimond, Rt Hon J.Morris, Michael (Northampton S)Warren, Kenneth
Grist, IanMorrison, Charles (Devizes)Watt, Hamish
Grylls,. MichaelMorrison, Hon Peter (Chester)Weatherill, Bernard
Hall, Sir JohnNeave, AireyWells, John
Hall-Davis, A. G. F.Nelson, AnthonyWelsh, Andrew
Hampson, Dr KeithNeubert, MichaelWhitelaw, Rt Hon William
Hannam, JohnNewton, TonyWiggin, Jerry
Harrison, Col Sir Harwood (Eye)Nott, JohnWigley, Dafydd
Hastings, StephenOnslow, CranleyWilson, Gordon (Dundee E)
Havers, Sir MichaelOppenheim, Mrs SallyWinterton, Nicholas
Hawkins, PaulPage, John (Harrow West)Wood, Rt Hon Richard
Henderson, DouglasPage, Rt Hon R. Graham (Crosby)Young, Sir G. (Ealing, Acton)
Heseltine, MichaelPardoe, John
Hicks, RobertParkinson, CecilTELLERS FOR THE AYES:
Higgins, Terence L.Penhaligon, David
Holland, PhilipPercival, IanMr. Spencer Le Marchant an
Hordern, PeterPeyton, Rt Hon JohnMr. James Molyneaux.
Howe, Rt Hn Sir GeoffreyPink, R. Bonner


Abse, LeoAshton, JoeBarnett, Rt Hon Joel (Heywood)
Allaun, FrankAtkins, Ronald (Preston N)Bates, Alf
Anderson, DonaldAtkinson, NormanBean, R. E.
Archer, PeterBagier, Gordon A. T.Benn, Rt Hon Anthony Wedgwood
Ashley, JackBarnett, Guy (Greenwich)Bennett, Andrew (Stockport N)

Bidwell, SydneyGourlay, HarryNoble, Mike
Bishop, E. S.Graham, TedOakes, Gordon
Blenkinsop, ArthurGrant, George (Morpeth)Ogden, Eric
Boardman, H.Hamilton, James (Bothwell)O'Halloran, Michael
Booth, AlbertHamilton, W. W. (Central Fife)O'Malley, Rt Hon Brian
Boothroyd, Miss BettyHardy, PeterOrbach, Maurice
Bottomley, Rt Hon ArthurHarper, JosephOvenden, John
Boyden, James (Bish Auck)Harrison, Walter (Wakefield)Padley, Walter
Bradley, TomHattersley, Rt Hon RoyPalmer, Arthur
Bray, Dr JeremyHatton, FrankPark, George
Brown, Hugh D. (Provan)Healey, Rt Hon DenisParker, John
Brown, Robert C. (Newcastle W)Hooley, FrankParry, Robert
Brown, Ronald (Hackney S)Horam, JohnPendry, Tom
Buchan, NormanHowell, Denis (B'ham, Sm H)Perry, Ernest
Buchanan, RichardHoyle, Doug (Nelson)Phipps, Dr Colin
Butler, Mrs Joyce (Wood Green)Huckfield, LesPrentice, Rt Hon Reg
Callaghan, Jim (Middleton & P)Hughes, Rt Hon C. (Anglesey)Prescott, John
Campbell, IanHughes, Mark (Durham)Price, William (Rugby)
Canavan, DennisHughes, Robert (Aberdeen N)Radice, Giles
Cant, R. B.Hughes, Roy (Newport)Richardson, Miss Jo
Carmichael, NeilHunter, AdamRoberts, Albert (Normanton)
Carter, RayIrving, Rt Hon S. (Dartford)Roberts, Gwilym (Cannock)
Carter-Jones, LewisJackson, Colin (Brighouse)Robertson, John (Paisley)
Cartwright, JohnJackson, Miss Margaret (Lincoln)Roderick, Caerwyn
Castle, Rt Hon BarbaraJay, Rt Hon DouglasRodgers, George (Chorley)
Clemitson, IvorJeger, Mrs LenaRooker, J. W.
Cocks, Michael (Bristol S)Jenkins, Hugh (Putney)Roper, John
Cohen, StanleyJohnson, James (Hull West)Rose, Paul B.
Colquhoun, Mrs MaureenJohnson, Walter (Derby S)Ross, Rt Hon W. (Kilmarnock)
Concannon, J. D.Jones, Alec (Rhondda)Rowlands, Ted
Conlan, BernardJones, Barry (East Flint )Ryman, John
Cook, Robin F. (Edin C)Jones, Dan (Burnley)Sandelson, Neville
Corbett, RobinJudd, FrankSedgemore, Brian
Cox, Thomas (Tooting)Kaufman, GeraldSelby, Harry
Craigen, J. M. (Maryhill)Kelley, RichardShaw, Arnold (Ilford South)
Cronin, JohnKerr, RussellSheldon, Robert (Ashton-u-Lyne)
Cryer, BobKilroy-Silk, RobertShore, Rt Hon Peter
Cunningham, G. (Islington S)Kinnock, NeilShort, Rt Hon E. (Newcastle C)
Cunningham, Dr J. (Whiteh)Lamble, DavidShort, Mrs Renée (Wolv NE)
Dalyell, TarnLamborn, HarrySilkin, Rt Hon John (Deptford)
Davidson, ArthurLamond, JamesSilkin, Rt Hon S. C. (Dulwich)
Davies, Bryan (Enfield N)Latham, Arthur (Paddington)Sillars, James
Davies, Denzil (Llanelli)Leadbitter, TedSilverman, Julius
Davies, Ifor (Gower)Lee, JohnSkinner, Dennis
Davis, Clinton (Hackney C)Lewis, Arthur (Newham N)Small, William
Deakins, EricLewis, Ron (Carlisle)Smith, John (N Lanarkshire)
Dean, Joseph (Leeds West)Lipton, MarcusSnape, Peter
de Freitas, Rt Hon Sir GeoffreyLitterick. TomSpearing, Leslie
Delargy, HughLomas, KennethSpriggs, Leslie
Dell, Rt Hon EdmundLoyden, EddieStallard A. W.
Dempsey, JamesLuard, Evan
Doig, PeterLyon, Alexander (York)Stewart, Rt Hon M. (Fulham)
Dormand, J. D.Lyons, Edward (Bradford W)Stoddart, David
Douglas-Mann, BruceMabon, Dr J. DicksonStott, Roger
Duffy, A. E. P.McCartney, HughStrang, Gavin
Dunn, James A.McElhone, FrankStrauss, Rt Hon G. R.
Dunnett, JackMacFarquhar, RoderickSummerskill, Hon Dr. Shirley
Dunwoody, Mrs GwynethMcGuire, Michael (Ince)Taylor, Mrs Ann (Bolton W)
Eadie, AlexMackenzie, GregorThomas, Mike (Newcastle E)
Edelman, MauriceMackintosh, John P.Thomas, Ron (Bristol NW)
Edge, GeoffMaclennan, RobertThorne, Stan (Preston South)
Ellis, John (Briggg & Scun)McMillan, Tom (Glasgow C)Tierney, Sydney
Ellis, Tom (Wrexham)McNamara, KevinTinn, James
English, MichaelMadden, MaxTomlinson, John
Ennals, DavidMahon, SimonTomney, Frank
Evans, John (Newton)Marks, KennethTorney, Tom
Ewing, Harry (Stirling)Marquand, DavidUrwin, T. W.
Faulds, AndrewMarshall, Dr Edmund (Goole)Varley, Rt Hon Eric G.
Fernyhough, Rt Hon E.Marshall, Jim (Leicester S)Wainwright, Edwin (Dearne V)
Flannery, MartinMason,Rt Hon RoyWalden, Brian (B'ham, L'dyw'd)
Fletcher, Raymond (Ilkeston)Meacher, MichaelWalker, Harold (Doncaster)
Fletcher Ted (Darlington)Mellish, Rt Hon RobertWalker, Terry (Kingswood)
Foot, Rt Hon MichaelMillen, BruceWard, Michael
Ford, BenMiller, Dr M. S. (E Kilbride)Watkins, David
Forrester, JohnMiller, Mrs Millie (Ilford N)Watkinson, John
Fowler, Gerald (The Wrekin)Mitchell, R. C. (Soton, Itchen)Weetch, Ken
Fraser, John (Lambeth, N'w'd)Molloy, WilliamWellbeloved, James
Freeson, ReginaldMoonman, EricWhite, Frank R. (Bury)
Garrett, John (Norwich S)Morris, Alfred (Wythenshawe)White, James (Pollok)
Garrett, W. E. (Wallsend)Morris, Charles R. (Openshaw)Whitlock, William
George, BruceMorris, Rt Hon J. (Aberavon)Willey, Rt Hon Frederick
Gilbert, Dr JohnMulley, Rt Hon FrederickWilliams, Alan (Swansea W)
Ginsburg, DavidMurray, Rt Hon Ronald KingWilliams, Alan Lee (Hornch'ch)
Golding, JohnNewens, StanleyWilliams, W. T. (Warrington)

Wilson, Alexander (Hamilton)Woodall, AlecTELLERS FOR THE NOSE
Wilson, William (Coventry SE)Wrigglesworth, Ian
Wise, Mrs AurdeyYoung, David (Bolton E)Mr.Donald Coleman and
Mr.Laurie Pavitt.

Question accordingly negatived.

Schedule added to the Bill.

Schedule 4

Administration And Collection Capital Of Transfer Tax

Amendments made: No. 135, in page 55, line 37, leave out 25th ' and insert 26th '.

No. 137, in page 56, line 44, after 32', insert :

`or (conditional exemption for certain buildings, etc. on death) '.

No. 138, in page 56, line 44, after Act ', insert :

' or under paragraph 2 of Schedule (Relief for woodlands) to this Act '.

No. 494, in page 56, line 46, leave out three ' and insert six'.—[ Mr. Joel Barnett.]

I beg to move Amendment No. 697, in page 57, leave out lines 9 to 27 and insert :

4.—(1) Where a settlement is made after 26th March 1974 by a settlor who was at the time domiciled in the United Kingdom and the trustees of the settlement arc not resident in the United Kingdom the settlor shall within three months of the making of the settlement or, if it was made before the passing of this Act, within three months of the passing of this Act, send a copy of the settlement to the Board and give the Board such particulars thereof as the Board may require for the purposes of this Part of this Act.
(2) Where the trustees of a settlement made by a person domiciled in the United Kingdom at the time the settlement was made become not resident in the United Kingdom the settlor shall make a return to the Board within the time specified in subparagraph (1) above as if references therein to the making of the settlement were to the trustees becoming not resident in the United Kingdom.
(3) If the settlor fails to comply with subparagraphs (1) or (2) above within the times therein stated or such long period as the Board shall allow, the settlement shall be void.
(4) This paragraph shall not apply to the creation of any resulting, implied or constructive trusts or to the creation of any settlement by will.
(5) Paragraph 12(5) of Schedule 5 to this Act applies for the purposes of this paragraph '.

With this it may be convenient to discuss the following amendments : No. 690, in page 57, line 9, after person ' insert other than an individual '.

No. 686, in page 57, line 10, after 'trade',insert:

'Other than the trade of banking'.

No. 434, in page 61, leave out lines 1 to 9.

No. 139, in page 57, leave out lines 9 to 27.

Amendments Nos. 697 and 139 are directed to removing from the Bill or modifying the unnecessary and unjustifiable invasion of the privacy that exists between a taxpayer and his professional advisers. They are directed towards the section of the Bill that is becoming known as the "noopers' charter ". It is an area in which we believe the Government have made grave and unnecessary errors from the point of view of the collection of the tax, and damaging errors as regards the citizen and civil liberties. It is yet another instance where it is necessary to draw attention to the volume of protest outside the House at the way in which this legislation has been handled.

In case the Chief Secretary has not observed it already, I draw his attention to the powerful criticism uttered on Saturday by the President of the Institute of Chartered Accountants whilst speaking in Sheffield. He said that the use of the guillotine on the last stages of this Finance Bill amounted to
" the crassest folly for which the public generally, and the accountancy and legal professions, and the Inland Revenue in particular, will suffer endless hours of unproductive worry and argumentation to no beneficial end and significant waste of valuable human effort."
He concluded with the warning that I echo ; namely :
" the only effect of the present absurdities is to ensure the continued decline in respect for both Parliament and the law."
Nowhere is the Government's determination to reduce respect for the law more evident than in the provisions of Schedule 4, paragraphs 4 and 11, which are the subject of the two amendments with which I am principally concerned at this stage. Paragraph 11, which is the subject of Amendment No. 434, gives the Board of the Inland Revenue wide-ranging powers to inspect any property under very wide circumstances on terms that we regard as unjustifiable. Our amendment is to leave out paragraph 11.

7.30 p.m.

The worst wickedness arises in paragraph 4 and in the disingenuous, misleading way in which in our discussion in Committee the Chief Secretary sought to justify the provisions of the paragraph. It introduces a new principle whereby those concerned with advising a taxpayer are required, without any prior notice, from the Revenue authorities to make returns to the board, unprompted and uninvited, in relation to what their clients have been doing.

The Chief Secretary suggested that precedents were to be found in the Income and Corporation Taxes Act 1970, and he referred to Section 481(3). However, that is not the case. It is true that the Inland Revenue has powers under Sections 443 and 453 of the 1970 Statute to require information from the parties to a settlement on written notice from an inspector. That is a great deal less extensive than the provisions in paragraph 4 of Schedule 4. Paragraph 4 provides for automatic notification not just by transferors but by their representatives and advisers as well.

It is also true that Section 481(3) of the 1970 Act, wrongly cited as a precedent. enables the Commissioners to require by written notice information of a specified kind. But that again is no precedent for what is required here.

The vice here is the provision whereby all advisers other than barristers are required to furnish names and addresses of settlors and trustees not merely in relation to any settlement which takes place under specified circumstances but where they have been concerned with its making—retrospectively, incidentally—and have reason to believe that certain circumstances arise.

I see no reason why barristers should be excluded, unless it be because of a sense of guilt which has pervaded even the Chief Secretary's narrow mind and because he realises that it is unjustifiable in relation to other professional advisers.

This is to impose far too wide a burden for which there can be no justification. It has been criticised bitterly by the pro- fessional institutions—by the Law Society and the Institute of Chartered Accountants—and no significant justification for it has been brought forward.

The author of the leading article in the New Law Journal of 27th February this year described this as "yet another damaging precedent." He set out clearly why it is wrong to allow the Revenue to advance in this respect still further the frontier of intrusiveness in relation to the taxpayer, and he pointed out :
"…it is the nature of a precedent that it diminishes the onus of proving that the course of conduct proposed is justifiable, at least to the extent that that course of conduct has apparent features in common with the course of conduct sanctioned by the precedent itself."
He therefore regards it as a dangerous departure from previous practice.

The case was made even more powerfully in The Times on 10th February, and I adopt these words without qualification :
" This would be a major attack on the professional obligations of secrecy about a client's affairs. It may be argued that, since it will be an offence for someone domiciied in this country to make such a settlement without notifying it to the authorities, these provisions …do no more than place a further obligation on `accessories after the fact' to inform those in authority."
The Times acknowledges :
" There is some force in this argument, but it must be balanced against the damage that would be done to the relations between a professional adviser and his clients."
Let us examine how little force there is in the argument by looking at two previous pieces of legislation, both passed, not surprisingly, under Socialist administrations. The first is the Exchange Control Act 1947, about which Hugh Dalton wrote eulogistically in his autobiography. I recall that it has an unattractive legislative progeny. It was founded on emergency regulations passed under the 1939 emergency legislation. It imposed a tyrannous control on the transfer of funds outside this country, and it is to be regretted that it has been allowed to remain unamended on the statute book. But even that legislation contained in paragraph 1(3) of the Fifth Schedule:
" Nothing in the preceding provisions of this paragraph shall be taken to require any person who has acted as counsel or solicitor for any person to disclose any privileged communication made to him in that capacity."
That is right. The normal rules against disclosure exclude professional advisers from the concept of accessories after or before the fact. If they did not, how could a professional adviser carry out his duties to his client?

More recent, more pervasive and more extensive in its obligations is a statutory instrument passed in 1968 in relation to sanctions on exports to Rhodesia. It is Statutory Instrument No. 1020 of 1968, the Southern Rhodesia (United Nations Sanctions) (No. 2) Order. That imposes very wide prohibitions on the exportation of goods from the United Kingdom to Rhodesia and on their importation. It gives massive and extensive powers of entry, powers of search, very wide liabilities on any people connected with the making of such transactions. But even in that, when we come to Schedule 1 (Evidence and Information), we find the hallowed provision :
" Nothing in the foregoing subparagraph shall be taken to require any person who has acted as counsel or solicitor for any person to disclose any privileged communication made to him in that capacity."
The long tradition of the British legal system has been that whatever the extent of the obligations imposed on citizens, successive Governments have striven to preserve that privilege. It is because of the casual way in which this Government sweep that aside in relation to this tax that I move this amendment.

Will the right hon. and learned Gentleman agree that it is very strange to be a member of the legal profession—in my case, the solicitor branch—and to find that the long-standing tradition of confidentiality will be partly thrown to the wind in certain respects? Is he aware that I support him on this matter?

I am grateful for the hon. Lady's support. I feel almost guilty, however, because of the special exemption made in favour of the Bar. I can see no justification for any discrimination between her and me.

It is easy for Treasury Ministers and those who advise them to be persuaded "Here is a potential loophole and an area where we should take wide ranging powers. Let us stop it up in advance." But they should not take that action in that way to create a precedent which is without justification. It may be that some revenue will pass through the net because of this, but that would be a small price to pay for preserving the principle to which the hon. Member for Moray and Nairn (Mrs. Ewing) has drawn attention.

Amendment No. 697 asserts a respectable, practicable and workable principle that the obligation of notification shall be placed on the settlor, and we suggest it by way of substitution for paragraph 4. If the Chief Secretary asserted that there was some defect in our draftsmanship, I should regard that as a slender and irrelevant excuse. Our intention is clear. and he should accept it. However, we would support as an alternative the Liberal amendment which seeks to delete the offending paragraph altogether.

Balancing the importance of preserving professional privilege in this respect and the importance of not creating a very dangerous new precedent—an obligation upon professional advisers to notify over a wide, ill-defined area without notice and without requirement from the Inland Revenue—against the marginal advantage to the Revenue of including this paragraph, I hope the Chief Secretary will accept the amendment in one form or another.

Again, according to The Times:
" Were the Bill to pass into law with this section unchanged, it would have undesirable consequences.… It is an established principle of British tax law that it is the obligation of the client and not the adviser to make the necessary fiscal declarations. There seems to be insufficient reason to change that by introducing provisions that would be very difficult to enforce."
I suggest that there is not only insufficient reason but no possible justification. I hope that the Chief Secretary has for once at least arrived in the House armed with a white sheet and/or sackcloth and/or ashes and is prepared to accept the amendment with the appropriate sense of shame for what he has been trying to do.

It has been a long-established principle that in order that justice should properly be administered there should be confidentiality between a client and his legal adviser so that they may communicate frankly and unreservedly. For the solicitor or barrister this is part of the larger principle of confidentiality between advisers. This principle is clearly recognised by the courts in that no legal adviser, be he barrister or solicitor, can be obliged to disclose that confidentiality in the court except with the client's consent. Unless the client knows that he has the protection afforded by the unqualified operation of this principle, he will not communicate freely with his legal advisers for fear that something he may say will come into the hands, in this instance, of the Inland Revenue or some other Government authority, and a serious curtailment of the rights of the individual to unfettered legal advice and representation then arises.

Paragraph 4 of Schedule 4 erodes the principle of the privilege of client and legal adviser. It requires
" any person, in the course of a trade or profession "
to disclose certain information. I am at a loss to understand why it includes "trade or profession ". This matter concerns mainly the legal and accountancy professions. We have never quite gathered from the Chief Secretary in previous debates on this subject why "trade" was included. Nevertheless, anyone who
" has been concerned with the making … of a settlement "
has to disclose certain information.

It might be said that he has to disclose only the names and addresses of certain persons. But the very fact that he discloses the names and addresses of, for example, the trustees of a settlement implies that those trustees
" are not or will not be resident in the United Kingdom ".
Otherwise he is under no obligation to give the names and addresses. Therefore, he is disclosing a confidence between himself and his client that the trustees of a settlement will not be resident in the United Kingdom. How on earth does he look into the crystal ball and decide that someone will not be resident in the United Kingdom at some future date? In those circumstances he has to give the names and addresses, and by doing that he is disclosing that he knows certain facts about both the settlor and the trustees.

7.45 p.m.

Indeed, paragraph 4 (3) brings into play another paragraph from Schedule 5. According to that paragraph, if the adviser discloses the names and addresses to the Revenue, he is implicitly giving information about those persons.

When it was thought necessary to erode the principle of privilege between the legal adviser and his client for the purpose of Part XVII, Chapter III, of the Income and Corporation Taxes Act 1970, headed "Transfer of Assets Abroad ", which deals with only a minor part of income and corporation tax law, it was done with some specific provisos. For example, Section 481, having said that certain particulars should be given on receipt of notice from the Inland Revenue, goes on to provide in subsection (3):
" Notwithstanding anything in subsection (2) of this section, a solicitor shall not … in relation to anything done by him on behalf of a client, be compellable under this section, except with the consent of his client, to do more than state that he is or was acting on behalf of a client, and give the name and address of his client ".
It goes on specifically to indicate cases when that name and address should be given—for example, a body corporate, and so on. In Committee the Chief Secretary quoted this section as a precedent for Schedule 4, paragraph 4, but it goes nowhere near being a precedent for that provision.

One major difference is that under Section 481 of the Income and Corporation Taxes Act 1970 the information is required to be given only on notice by the Inland Revenue requesting it. There is a great difference between requiring legal advisers, as it were, to volunteer information about their clients and their doing so on receipt of a specific notice for that information from the Board of Inland Revenue.

The principle that a legal adviser can be obliged, albeit by statute if this paragraph is accepted by the House, to give information about his client's affairs whenever certain matters with which he is dealing for the client are specified in a statute is a serious erosion of the privilege between solicitor and client. Therefore, I suggest that there is no need for the Chief Secretary to press for the inclusion of this paragraph.

Another grave distinction between Schedule 4, paragraph 4, and Section 481 of the 1970 Act is that in the Bill there is no express inclusion of anything which is privileged. Whenever there has been any erosion of this privilege between legal adviser and client on previous occasions, the House has seen fit to put in a specific clause such as that which I have read from Section 481—that a solicitor shall not be, in relation to anything done on behalf of his client, compellable except with the consent of his client—in short, that a solicitor shall not be compelled to breach the privilege of his client.

I say "the privilege of his client" deliberately, because this is not the privilege of the legal adviser. It is the privilege of the client, and, therefore, of the ordinary citizen, that he shall be enabled to consult his legal adviser frankly and freely and receive advice in the same spirit.

The Chief Secretary should accept the amendment readily. Although in principle there is a great distinction between this paragraph and the paragraph which is in the Bill, the amendment would provide the Revenue with more information than would the paragraph in the Bill. Our paragraph would give the information in the proper way. It would oblige the potential taxpayer to provide the Revenue with full information about the settlement and about the residence of the trustees.

In arguing this matter in Committee I proposed to the Chief Secretary that he should replace Schedule 4(4) by a direct duty on the taxpayer. I argued that the Chief Secretary should not seek to get this information by the back door as it were, that he should not seek to get the information by obliging legal advisers to disclose their client's affairs. I argued that clients should not be required to disclose information on notice, but should disclose it in a voluntary way, and then it should be only the name and address.

The amendment goes about it in the right way, but putting an obligation on the taxpayer to provide the Revenue with details of settlements. I should have thought that the Chief Secretary would jump at this and say that this was a reasonable amendment which breaks no established principles of law but merely requires the taxpayer to give information. There is no doubt but that if this paragraph were written into the Bill legal advisers would say to clients concerned "Here is the law. You must send the Revenue a copy of this settlement ".

I suppose that the Chief Secretary, with that benign smile which he is now putting on, will say "There would be terrible avoidance of tax if this were done ". I wonder whether he can identify avoidance of tax merely because names and addresses have not been given on previous occasions. Does he believe that his paragraph will be effective, or will he accept the amendment as providing a far better means of getting the information?

:Amendment No. 139 covers the same ground and, as I have already indicated, I reserve my position to ask for a separate vote on it. The reason I felt that this amendment, which was tabled in Committee, should be tabled again for the House to consider was that, though I entirely endorse and support Amendment No. 697, which was moved by the right hon. and learned Member for Surrey, East (Sir G. Howe), it occurred to me that the Government might hide from the principle behind some minutiae or trivia of the amendment—in other words, that it might be possible for the Chief Secretary to say "There is much to be said for what the Opposition have said, but the third comma in the fourth line is not quite in the right place. Therefore, I cannot accept the amendment ".

Just in case the Chief Secretary tries to evade the principle—this is very much a debate on principle—we have in reserve Amendment No. 139 which simply strikes out the powers which paragraph 4 gives to the Inland Revenue.

Paragraph 4 contains provisions requiring professional advisers to inform the Revenue of foreign settlements. In our view and in the view of many on both sides of the House—though I doubt whether we shall have much support in the Lobby when it comes to it—this is an objectionable principle.

The provision is objectionable in terms of history and in terms of our whole professional development over a very long time. It is, first, a gross interference in the professional relationship between the professional adviser and his client. Secondly, it is counter-productive, because it will make people furtive about their affairs.

I am tempted to ask what exactly is a professional relationship. I suppose it is one for which one is paid if one is the professional adviser. I can imagine a situation in which certain sorts of professional advisers will put a notice on their desk, facing the client's chair, saying "If you intend to reveal anything which could possibly come within the scope of this provision I must advise you that the moment you utter those words you are not paying me for my advice."

I am wondering what the position of Members of the House is when their constituents tell them about a settlement which they have made.

That is a very interesting point. I am never quite sure whether a Member is in a professional relationship with his constituents if he is not professionally qualified. I imagine that he is not. I can see that the courts will have a field day on this.

It is an objectionable provision, thirdly, because it is unenforceable in the case of foreign advisers. No doubt we shall hear from the Chief Secretary how he intends to enforce it. It is objectionable, fourthly, because it poses a vague and unrealistic question for the British adviser.

I shall amplify those four points for the benefit of the Chief Secretary. In this country—indeed, in many other countries—professional privilege has, over the years, come to be regarded as of vital importance. This is not just one of those things dreamed up by professional people. I am not a professional man. I do not have a professional qualification, other than the votes I obtained to get to the House, if that is one. However, I believe that the confidentiality between the professional adviser and his clients is of the utmost importance, and that we should be extremely foolish if we took it lightly : This provision will prejudice the relationship in precisely those areas where it most needs to be nurtured.

The provision is counter-productive and will make people furtive in their affairs, because those who wish to escape their tax liabilities will have no difficulty in seeking advice anonymously, through foreign agents. It is possible that a flourishing industry will set up on the other side of the Channel, or in Ireland, or elsewhere, composed of British tax advisers, who will then have to establish that they themselves are not resident or domiciled here, quite apart from advising trustees whether they are resident here. Those seeking the advice of such professional people will have to be advised "If you tell me what you propose to do I may have to tell the Revenue." This is contrary to public policy, and it is a pretty pointless exercise.

8.0 p.m.

The provision also purports to apply to a French advocate or notary as well as to a Channel Islands adviser. Indeed, the provision would be grossly unfair if it were to apply only to British advisers. Yet how does the Revenue propose to enforce it? Foreign advisers, like foreign taxpayers, owe no duty to the United Kingdom, and I cannot see that it is, therefore, in the least enforceable. Above all else, the provision involves the professional adviser deciding on two points which in many cases cannot possibly be answered by him. A man's domicile is often wholly uncertain.

I remember a debate shortly after I came into the House—it must have been in the late 1960s—when Lord Hailsham was replying to an amendment of mine which sought to remove the right of South Kensington and Chelsea voters to buy country houses in my constituency and register themselves there to vote in Chelsea or Kensington. I said that it ought to be possible in this House to define where one lived and where one was registered to vote. I remember the noble Lord giving me a long lecture—he was then a shadow Law Officer—on the difficulties of defining that sort of thing in English law. If it is difficult to define it as between South Kensington and Cornwall, it is even more difficult for some professional adviser to define where trustees live, or will live—which is pretty futuristic. It is particularly difficult for him in cases where a foreign settlement is under consideration.

The provision requires an answer to the question, "Where was the settlor domiciled?" Even disregarding the fact that the provision does not explain what is the relevant time at which the question has to be answered, it is one which the professional adviser, in honesty, cannot answer either way. Similarly, the provision requires an answer to the question, "Where will the trustees be resident?" and often he cannot say that for certain, either.

To add to the ludicrous nature of the provision, a professional adviser does not have to make a return if someone else has done it. I think that is a useless provision, since he has no power to find out whether the others involved have made a return. Suppose he asks them, or a client, and takes the client's word that no one has done it. Is that sufficient? No professional adviser owes a duty to anyone other than his client—certainly not to other advisers—so why should one tell another what he has done or not done?

It is not true, as the Chief Secretary said in Committee, that this is the same thing as had been done in previous cases. He quoted the relevant Act. This is an extension of the existing powers of the Inland Revenue. Let us make no mistake about that. At present the Inland Revenue has powers to require information under Section 481 of the Income and Corporation tax Act 1970, but the Revenue has to ask for it first. That is an important difference. Under that Act the adviser is under no duty to supply information except in answer to this question.

It is of some interest to quote the words of Mr. Justice Ackner, in a case which I suppose is really the classic of its sort in this matter—Clinch v. IRC. He said :
" Had such powers been reserved for use in the detection of the most serious offences in the criminal calendar, doubtless there would have been, not acclamation, but a public outcry, judged by the emotion that has been generated by the recent suggestion of a very learned Law Reform Committee that a judge should be allowed to suggest to a jury that silence could, if they thought fit, be considered by them as some evidence of the accused's guilt."
It seems to me, therefore, that we are being asked by the Government to advance into the field of tyrannical interference in the affairs of the individual and, in particular, into the affairs of an individual and his professional adviser.

The Chief Secretary, in Committee, expressed himself as rather surprised at the language used by hon. Members in describing this provision. He said that he was shocked at such words as "monstrous ". In fact, it is not just Members of Parliament who whip up this kind of thing for the benefit of the Committee stage. On 27th February a letter was written to The Times by three very learned Members of the Bar, one of whom, Mr. Leolin Price, QC, said :
" The proposal would have us adopt the practice of totalitarian States ; for it has been their hateful practice—in Nazi Germany and Soviet Russia and elsewhere—to compel citizens to spy on their neighbours … It is easy to find reasons for any new demand that is made on behalf of the State. It is also fatally easy to step on to the slippery path to tyranny …"
The excuses, the reasons which the right hon. Gentleman advanced in Committee, will no doubt be advanced again today—that the Inland Revenue cannot have its hands tied behind it, and must not be disadvantaged in finding the tax avoiders. No hon. Member on either side of the House wants to ease the path of those who break the law. At the same time, we cannot allow a situation to creep into our tax affairs in which the end always justifies the means.

There has been a great deal of controversy recently about the visit to this country of the former head of the KGB. I notice that the Secretary-General of ASTMS, Mr. Clive Jenkins, said in a television interview the other day that the head of the KGB was no different from the head of the British Secret Service. I thought that was a monstrous parallel. If this provision is passed, he would have done far better to say that the correct parallel might well be drawn between the head of the KGB and the President of the Board of Inland Revenue, because the Inland Revenue is becoming an organisation somewhere between the CIA and the KGB.

I support Amendment No. 697. I think it is absolutely true that when taxes go too far—that is to say, when they go beyond people's willingness to pay them—the law is undermined. We have seen the same thing in industrial relations in the last two years. In Holland it was found that a wealth tax between 1½ per cent. and 2 per cent. represented the difference between people's readiness to pay or not. If one remembers that inflation is running in excess of 20 per cent. in this country, capital gains tax at the present time represents a wealth tax more severe than that operating anywhere else in Western Europe.

In this Bill there is capital transfer tax which can inflict upon a family a tax in excess of 100 per cent. of the asset. In this situation I have no doubt that the threshold has been crossed. The Government and the Revenue recognise this in the offending paragraph 4. I believe the effect will be as the hon. Member for Cornwall, North (Mr. Pardoe) has pointed out, that people will go overseas for advice. I do not need to say any more about that.

Secondly, I think that those who perhaps do not think in those terms will tend to revert to do-it-yourself advice. They will go to quarters which are perhaps not reputable and will cause the Revenue a lot more trouble. I believe it is axiomatic that the Revenue can function efficiently only with the help of responsible professionals. To the extent that the Bill in its present form makes this less likely, it is doing a disservice to the Revenue and to the Government.

The Government continue to miss the simple truth that if they try to close every loophole they will inflict grave economic damage on this country. We have seen it in forestry, and I believe that we shall see it in jobs. The Chancellor of the Exchequer has said that it is not possible to calculate how much revenue has been lost by evasion. Neither is it possible to calculate how many jobs will be lost because people will say that they cannot pay the capital transfer tax and will for that reason refrain from investing.

It has been said that Britons are Romans in the course of becoming Italians. There is, I believe, a real danger that, as these taxes ravage and the fires of inflation burn, we shall, indeed, become a nation of fiddlers. That process will not be stopped by forcing the professions to abandon confidentiality. It will be stopped, or, at least, it will be redressed, if the Government tackle inflation firmly, and if they reduce the confiscatory levels of taxation which they propose.

Hon. Members have made a series of telling points, and, to avoid repetition, I shall dwell only on the wider aspect of this matter, though, before I do so, I must say that I agree wholeheartedly with everything said about the seriousness of the proposed breach of the principles of confidentiality which we have all for so long observed.

This is yet another instance of a Government putting administrative con- venience before the rights of the individual. It is an obnoxious and dangerous practice, of which we have seen far too much in the last 10 years. It must stop.

The whole life of this country has for a long time depended to a very large extent upon respect for and observance of the law. One of the reasons for this respect for and observance of the law has been that people have recognised that, although not always successful, the purpose of the law, or one of its main purposes, has been to protect the weak from the strong, to protect the individual from the State.

Now, however, time and again we see the law being changed to give more strength to the already strong—in this instance, to the administration—at a time when most individuals already feel that the balance between the administration and the individual has become wholly wrong, that there is, indeed, no balance or anything approaching the balance that there should be, and that what is needed is more protection for the individual against the administration, not more power to the administration against the individual.

It is a thoroughly bad development when individuals feel, and rightly feel, that the law is constantly being used to give more strength to the already strong and is being used less and less to protect the individual from the strong.

There will be two practical consequences of this process unless we stop it. It will bring the law further into disrepute. It pains me to have to use the words "further into disrepute" since they connote that it has already been brought substantially into disrepute, and that is a terrible thing to have to recognise. But we delude ourselves if we do not recognise that one of the results of our activities as law makers in this House has been to bring the law substantially into disrepute. Our task is to stop it falling further into disrepute.

The second inevitable consequence is that if we allow the law to fall further into disrepute the temptation to ignore it will increase. It will be ironic if we here, who all say—sincerely, I am sure—that the laws of our country should be observed by all, make those laws so badly as to render it inevitable that people pay less and less regard to them.

I understand, of course, that it would be very convenient administratively for the gentlemen in Whitehall and for Ministers to have these powers. It may well be that, without them, somebody would escape the net. But that is an argument to which there is no end. One can go on thinking of more and more things which would make it easier for the administrators to administer.

The further invasion of the rights of individuals entailed in gaining the small advantage of administrative convenience which these provisions represent is too high a price to pay. The giving up of that minimal or marginal administrative convenience, on the other hand, would be but a small price to pay for recognising for once that the rights of individuals are a lot more important in many instances than administrative convenience of the kind we are discussing here.

I hope that, both on such general grounds and for the detailed reasons advanced today, the Government will give way.

8.15 p.m.

I support what was said by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) in moving his amendment. I do so for four principal reasons.

The primary liability to give information to the Revenue ought to lie with the prospective taxpayer and not with his professional advisers. I declare an interests here, in that I am a practising solicitor, and the principle of confidentiality between client and professional adviser is, for me, of the first importance. I hope that the Chief Secretary will tell us what discussions he had with the chartered accountants, the certified accountants, the Law Society, and the Bar Council. Presumably, he had discussions with all those bodies, not least in order to exclude barristers from the provisions of paragraph 4—the part of the schedule which we find so objectionable.

My second objection to paragraph 4 is that it is drafted in an extremely sloppy way. When the Chief Secretary was dealing with this matter in Committee—this was on 18th February—his hon. Friend the Member for Nottingham, East (Mr. Dunnett) raised the question whether a will amounted in law to a settlement. It is well known that after the death of a testator trusts frequently come into operation. I hope that the Chief Secretary will deal with that matter tonight, because it is one of immense practical significance for chartered accountants and solicitors.

It appears that Amendment No. 144 in the name of the Chancellor of the Exchequer is intended to meet that point by dealing separately with any settlement made by will, but my hon. Friend may care to give consideration to the possibility which strikes me, that although intended to meet the point it fails to do so because it separates any settlement made by will and any other settlement, so that the sub-paragraph would read :

  • "(a) any settlement made by will, or
  • (b) any other
  • settlement if such a return in relation to "—
    and so on. It seems probable that it will apply exactly as it did as originally drafted. Perhaps the Chief Secretary, if not my hon. Friend, will give thought to that. I do not think that the right hon. Gentleman can be saved by the printer from the consequences here.

    I am grateful to my right hon. and learned Friend, since what he says emphasises my point. The Bill and the Chief Secretary's amendments are drafted in a sloppy way. Even on Amendment No. 144, what is the date from which the settlement made by a will operates? We all know that a will speaks from death. Does the Chief Secretary's amendment refer to the date of the will or the date of the death?

    I wish to continue with my criticism of the drafting of paragraph 4 of the schedule. What is meant by the words
    "in the course of a trade or profession carried on by him … has been concerned with the making … of a settlement and knows or has reason to believe … that the trustees of the settlement are not or will not be resident in the United Kingdom."?
    How can a professional man—a chartered accountant or solicitor—possibly know who the trustees of a will, the executors of a will or the trustees of a settlement are to be in the future, and whether or not they will be resident in the United Kingdom? This is pure crystal ball gazing. In Standing Committee the Chief Secretary failed to answer the point when it was raised by the hon. Member for Nottingham, East on 18th February.

    Why are barristers to be excluded from the provision? The Opposition can only assume that as a result of a guilty conscience, and as a sop to his conscience, the Chief Secretary has exempted barristers. I urge the Government to accept that a principle of the greatest importance is at stake here. The obligation to make a disclosure should rest with the taxpayer when he completes his tax return each year. It would be a perfectly simple matter for the Chief Secretary to ask, in the tax return form, whether the taxpayer had made a settlement during the previous 12 months. It the Chief Secretary is prepared to listen to arguments he should accept the amendment, which seeks to reinforce the principle that we have followed down the centuries, that of confidentiality between a professional man and his client.

    If the Government persist in their intention the consequence will be that professional men will set up business overseas—perhaps in the Republic of Ireland—and the Chief Secretary will not get his information. It is time the Government stopped setting up this growing network of informers. I hope that the Chief Secretary will accept the amendment.

    May we first get one thing absolutely clear? We are not here discussing the average taxpayer on PAYE. Paragraph 4 deals with settlements and trusts. We can do without the gross exaggeration which has emanated from the Opposition benches. Conservatives have made the most far-fetched speeches imaginable. They have reached the height of absurdity. We are talking here about trusts and settlements which are often sophisticated tax avoidance schemes. We are asking only that the solicitor or other professional adviser should give the name and address of the settlor. That is the extent of this so-called monstrosity. It is nonsense for the Conservatives to talk about its being a snooper's charter. If there were disclosure with consent of the client there would, of course be no breach of privilege, and a solicitor would not be disclosing anything that the client was not himself obliged to disclose—

    The hon. and learned Gentleman must control himself. I have only just begun, and I shall be dealing with all the points he raised. If the client is not prepared to consent to the information being disclosed there is at least the possibility that he is contemplating evasion of tax, and not avoidance. If there were evasion, no privilege would be involved, at least to that extent.

    When I hear hon. Members talking in the way they have been I am astonished. We must be clear what we are talking about. When they say that this is a great infringement of personal liability they seem to forget that many democratic countries have much wider powers than we are endeavouring to take —[An HON. MEMBER : "East Germany? "] The hon. Member should know better than to say that, but perhaps he does not. Other democratic countries take much wider powers to ensure that when there is a tax on the statute book it is paid. That is why they take those powers, and that is why we give powers to the extent we do to the Inland Revenue. Here we are talking about the possibility, which we know exists, of settlements being arranged in a way that the Revenue would never find out about. We discussed this matter in Standing Committee at great length.

    We cannot go to a foreign professional man and obtain information, because we do not have the power. Frequently, however, a professional man in this country will know about a professional man abroad who is setting up a particular trust. It is not asking too much that the Revenue should have the name and address of the settlor and the trustee. That is all that paragraph 4 seeks to ensure.

    I now turn to the amendment moved by the right hon. and learned Member for Surrey, East (Sir G. Howe), not the Liberal amendment, which wants to go the whole hog and remove the paragraph altogether. The right hon. and learned Gentleman's amendment would provide that in place of paragraph 4 there should be a sanction of nullity. I venture into these matters with great trepidation. When I see distinguished Conservative lawyers present I am reluctant to venture into such areas, but I shall deal with some of the fairly straightforward points.

    Where a United Kingdom settlor makes an overseas settlement it would place on the settlor the obligation to supply a copy of the settlement and any other necessary information to the board, and if he failed to do so the settlement would be void. Paragraph 4 broadly requires certain persons concerned with the making of a settlement to inform the Revenue if they know the trustee will not be resident in the United Kingdom.

    The method the amendment chooses to deal with the matter was considered when the Bill was being prepared, but we rejected it as being impractical. The idea of imposing a sanction of nullity is to be found in the income tax legislation of some countries, and it would enable the Revenue to disregard, for tax purposes, transactions entered into for the purpose of avoiding tax. Provisions of this kind have created considerable problems in practice, because when one disregards what has happened in reality it is not always easy to know what should be hypothetically substituted for it. In any event, the function of an "annihilation" provision for capital transfer tax would be quite different from its function for income tax. Despite the practical difficulties it may be a sensible aim, in income tax matters, to say that a man should still be treated as taxable on the income of which he has sought to divest himself.

    On the other hand, it scarcely makes sense, in the context of capital transfer tax, to penalise a man for trying to evade tax when he transfers his property by saying that he is to be treated as still having it, which is what the amendment would do. This would be to wipe out the effect of the charge, which would be a rather strange method of rewarding attempted evasion of the tax.

    I understand that the right hon. and learned Gentleman may support the amendment on the footing that the sanction of nullity would not be effective for capital transfer tax purposes, but would be effective for all other purposes. If that is so, the intention would require to be spelled out rather more explicitly than it is.

    8.30 p.m.

    Apart from the reasons that I have just given, there is another very important one. Besides the fact that the United Kingdom legislature cannot effectively impose a sanction of nullity if a transaction is governed by foreign law—and nine times out of 10, settlements of this kind would be made with overseas trustees—the property transferred when a settlement is made will be held by trustees, who will be under a legal duty, enforceable in the jurisdiction where they live, to give effect to the terms of the settlement. It would be a completely empty gesture for the House of Commons to say that the property still belonged to the settlor, which is what the amendment would do.

    I acknowledge the skill with which the right hon. Gentleman has read the analysis of our amendment. Does he acknowledge, first, that any difficulties of the imperfections of the amendment would be overcome by accepting the Liberal amendment to delete the paragraph altogether? Secondly, does he acknowledge that the fact that he has had to appeal to the traditions of democratic countries unnamed by way of precedent proves that this is an innovation without precedent in the tax law of this country? Thirdly, does he acknowledge that when he says that this is not of general application but applies only to settlors, that does not affect the fact that it is a departure of principle, that it is an innovation just as damaging, if it affects millions of people in the magistrates' courts, as if it affects settlors in one jurisdiction? Does he acknowledge those three things—first, that the Liberal amendment would knock it out ; secondly, that there is no precedent in this country ; thirdly, that it is an important departure of principle?

    I recognise that the Liberal amendment would knock it out, but I am not prepared to recommend my hon. Friends to accept that amendment. It is true that we are extending our present law in these matters—I have never sought to deny it—but if we are putting a tax on the statute book, it is right that the Revenue should be able to enforce it if people seek to evade it, particularly when it is a tax that enormously reduces the extent to which the former estate duty could be avoided. Clearly, opportunities will be taken wherever possible to find whatever loopholes may be available, and what the right hon. and learned Gentleman is seeking to do is to put in another loophole.

    I am still replying to the right hon. and learned Gentleman. I said that it was with some trepidation that I entered upon these legal discussions with right hon. and learned and hon. and learned Gentlemen opposite. I am honoured and flattered that the right hon. and learned Gentleman has recognised that I have taken the point that he was trying to make and that he has appeared to recognise that his own amendment would not deal with the problem. I hope that he will appreciate that all his amendment would do would be simply to cancel out any transaction that was a virtual form of evasion, so that there would be no tax where there should be tax.

    The right hon. Gentleman has now conceded that there is a breach of an established principle. He has sought to justify it on the ground that it will not affect many people. Surely the number of people affected by a breach of principle is irrelevant. The Government must be the champion of all and not just the champion of what they call the big battalions.

    The hon. Gentleman must understand that what is on the statute book now is not necessarily right for all time. If he is saying that, it is a strange philosophy that he is attempting to put to the House. I am saying that if the Revenue is left without these powers, and it has been without these powers for many years, enormous opportunities will be available for a small minority of people to use trusts and settlements to avoid tax liability.

    If we are putting a new tax on the statute book, it is not unreasonable to provide that the Revenue shall have power to enforce it. If that is extending a principle, I accept and support it.

    Is there any limitation on personal liberty that could not be justified on exactly the arguments that the right hon. Gentleman is putting?

    We are not talking about any extension. We are talking about an extension to trusts and settlements set up specifically by a small number of people who are seeking to avoid tax. It would be the height of absurdity to suggest that the Inland Revenue should tie at least one hand behind its back when dealing with this kind of person. That would be nonsense. I am sorry, but I cannot accept it.

    Surely the right hon. Gentleman accepts that almost all the law enforcement authorities, be they the Inland Revenue or any other, have so far managed to govern a free society with one hand tied behind their backs, and that it is a principle that a professional adviser shall not be required, without notice and without the consent of his client, to inform upon his client to the authorities of the State? We have survived through the centuries, upholding that principle and being dependent upon it. Does the Chief Secretary suggest that the new tax is an innovation of such catastrophic importance that that principle should be overthrown? Where do we go from here? Why is it justified?

    The right hon. and learned Gentleman is right in saying that this principle has lasted for a long time, but during that time many people have avoided their fair share of tax whilst the vast majority of ordinary taxpayers have paid theirs. I cannot believe that what the right hon. and learned Gentleman is seeking to do is to ensure that that kind of situation should continue. I am not prepared to recommend my hon. Friends to support the amendment.

    The Chief Secretary has gone too far this time, and I believe he knows it, with his uncharacteristic outburst at the end containing as it did the absurd statement, which he will regret when he reads it in Hansard, about how many people evade their fair share of tax.

    The Chief Secretary did not talk about evading. He was talking all the time about avoiding tax. Why should not people avoid paying tax? Why do they have to be snooped on if they are doing a legal act?

    My right hon. Friend is correct. We are dealing with a Government and a Chief Secretary who believe that the act of life is a loophole to avoid death. Therefore, for those who are not prepared to die and be liable for estate duty the loophole of life must, because of the Chief Secretary's way of looking at things, be made much more difficult.

    The right hon. Gentleman has gone too far. There is no precedent for this. Section 481(3) provides no precedent for the new provisions in paragraph 2 of the schedule. Under Section 481(3) it is the Revenue which calls upon the solicitor or the agent making the return, but that is not the case under this paragraph. This paragraph breaches the principle of privileged communication between a solicitor and his client or whoever in the broad terms of the paragraph is concerned with making the settlement. Secondly—and the Chief Secretary did not mention this when he spoke about what the Revenue was being asked to do—it places the onus or obligation on a solicitor or whoever is concerned with the making of the settlement.

    These are new principles without precedent, and the Chief Secretary has sought to defend them both here and in Committee upstairs by what might be called a housemaid's baby talk. First, he used the argument "Do not worry. It is only just names or addresses. It is a small matter of giving that information ". Secondly, he used the argument "Do not worry. It is only a small amount of privacy that is being surrendered." I should like to take both those thin ends of larger wedges and examine the sharpness of them with my thumb.

    I invite the House to think first about the phrase "only names and addresses "We know that it is a small step from there to "If he is not at that address, where did he go? If he is no longer at that address, when did he leave? What are his or her movements? What were his or her movements after a certain time? Why did he go? Who was he with? What was he seeking? What was he trying to avoid? "We know the cataclysm of questions that can follow from the innocent matter of the name and address. We have heard it happen in other countries, be they the Chief Secretary's democracies to which he irrationally refers, or those where the word "democracy" is not used in a way which we would recognise. We know what a large wedge that is, and we know how much can follow from that simple question "Only your name and address, please ; that is all we want. The only obligation is to provide the name and address."

    We come to the second easy little phrase that pops in almost unobtrusively "just a small amount of privacy ". How the Chief Secretary measures a small amount of privacy I do not know. Privacy is becoming increasingly valued as it diminishes, and it diminishes fast. The more it diminishes, the more crucial it is. When a Minister says that by decree—it is little less than that with the guillotine on the debate—a small further amount of privacy is to be removed, we ask "What will there be in exchange? "What has the Minister given to the community? What has the Minister given in the eyes of the people who govern the affairs of the country to be sacrificed against this further surrender of privacy?

    We are told nothing, except some generalisations from the Chief Secretary about many people not having paid their fair share of tax and having avoided tax by not dying. He seems to think that it is time they did die so that they could pay this ill-chosen tax instead of estate duty. That is a silly argument related to a dangerous and serious principle on which we are being asked to give way.

    There are other difficulties with the Government's proposals and their Amendment No. 144. I know that the Chief Secretary is trying to meet the point made by the hon. Member for Nottingham, East (Mr. Dunnett) in Committee about settlements under will. As the hon. Gentleman rightly said, how is one to know whether from 26th March—remember, the legislation runs from a year ago—one has been concerned in making a will which might have led to a settlement which might become liable under this provision? It is impossible to know. I am doubtful whether Amendment No. 144 meets the need to rule out all settlements under a will. Although it rules them out, it immediately rules them in again by the additional provisions in the rest of the amendment. It would be fair for the House to have a better explanation of that than the one which the Chief Secretary gave.

    Another aspect raised in Committee but not this evening is the chilling one of retrospection. We are almost reduced to shrugging our shoulders at each new retrospective incursion the Government make, regardless of whether they were in power, which Parliament was sitting at the time and whether a previous Parliament overruled them. All these propositions, courtesies and customs have been thrown out.

    Here is another. Because of the retrospective nature of the legislation, confidential discussions which took place between March and November between clients and solicitors, agents or other advisers are not confidentially protected. When it became clear that the Government were going much further, although there had been no indication of that beforehand, those privileged confidential discussions became not confidential at all. By a law which the participants did not know about at the time, which was not threatened and which was not on the statute book, if the Bill reaches the statute book those conversations at that time will become not privileged and not confidential.

    That is a monstrous and lethally sinister move of a kind that makes Government's other retrospective efforts in the Bill look relatively pale and paltry. It stretches into the most intimate and detailed relationships between the professional adviser and his client which we have succeeded in defending over many years and through many crises. When the pressure has been, in war and in peace, to do things which may infringe liberty for the greater good, we have succeeded in defending this precious privilege, amongst others.

    8.45 p.m.

    That is a triumph and a victory for the basis of our liberties. Now it is to go because the Chief Secretary is worried about all those people who were undermining the principles and being unfair in insisting on escaping the death duties which he believes should have applied to all. The right hon. Gentleman has said that all that is being asked is that the Revenue shall have the names and addresses. He added one other category.

    That is just not true. Many hon. Members respect the Chief Secretary and believe that he has had a rough deal at the hands of some of his colleagues. He is no doubt in great difficulty even now, not only on this Bill but on other matters of public expenditure as he tries to keep at bay the maniacs in his Government, who would inflate public expenditure to the point when the pound is hardly worth the paper it is written on. We appreciate the difficulties he is under. Why does he stand up and tell us something that is not true?

    The schedule not only enables the Revenue to have the names and addresses—that is an incursion into privilege about which we have complained—but it places the obligation on the citizen-informer, on the agent of his own volition, to give the names and addresses required. This is not in response to a request by the Revenue, as under Section 481, not in response to a normal provision or request of any kind from the authorities.

    It would not only be names and addresses. This is a shabby piece of work, shabbier than much of the work that the Chief Secretary has had to undertake at the behest of his colleagues in the name of Heaven knows what. Of all the aspects of this lethal tax, this is the nastiest, and my hon. and right hon. Friends should have no hesitation whatever in supporting the amendments. If there are difficulties in the drafting of our amendment, we accept them. I urge my hon. and right hon. Friends to support the Liberal Amendment No. 139 and to wipe this vicious provision out of this vicious Bill.

    Question put, That the amendment be made :—

    The House proceeded to a Division

    Miss MARGARET JACKSON and Mr. JOHN ELLIS were appointed Tellers for the Noes but, no Member being willing to act as Teller for the Ayes, Mr. DEPUTY-SPEAKER declared that the Noes had it.

    Amendment negatived.

    Amendment proposed: No. 139, in page 57, leave out lines 9 to 27.—[ Mr. Pardoe.]

    Question put, That the amendment be made :—

    Division No. 136.]


    [8.48 p.m.

    Adley, RobertGow, Ian (Eastbourne)Morrison, Charles (Devizes)
    Alison, MichaelGower, Sir Raymond (Barry)Morrison, Hon Peter (Chester)
    Arnold, TomGrant, Anthony (Harrow C)Neave, Airey
    Atkins, Rt Hon H. (Spelthorne)Gray, HamishNelson, Anthony
    Awdry, DanielGrieve, PercyNeubert, Michael
    Bain, Mrs MargaretGriffiths, EldonNewton, Tony
    Baker, KennethGrist, IanNott, John
    Banks, RobertGrylls, MichaelOnslow, Cranley
    Bell, RonaldHall, Sir JohnOppenheim, Mrs Sally
    Bennett, Sir Frederic (Torbay)Hall-Davis, A. G. F.Page, John (Harrow West)
    Bennett, Dr Reginald (Fareham)Hampson, Dr KeithPage, Rt Hon R. Graham (Crosby)
    Benyon, W.Hannam, JohnPardoe, John
    Berry, Hon AnthonyHarrison, Col Sir Harwood (Eye)Parkinson, Cecil
    Biffen, JohnHavers, Sir MichaelPenhaligon, David
    Biggs-Davison, JohnHawkins, PaulPercival, Ian
    Blaker, PeterHenderson, DouglasPeyton, Rt Hon John
    Boscawen, Hon. RobertHeseltine, MichaelPink, R. Bonner
    Bowden, A. (Brighton, Kemptown)Hicks, RobertPowell, Rt Hon J. Enoch
    Boyson, Dr. Rhodes (Brent)Holland, PhilipPrior, Rt Hon James
    Brotherton, MichaelHordern, PeterPym, Rt Hon Francis
    Brown, Sir Edward (Bath)Howe, Rt Hn Sir GeoffreyRaison, Timothy
    Buchanan-Smith, AlickHowell, David (Guildford)Rathbone, Tim
    Buck, AntonyHowells, Geraint (Cardigan)Rees, Peter (Dover & Deal)
    Budgen, NickHunt, JohnRees-Davies, W. R.
    Bulmer, EsmondHurd, DouglasRenton, Rt Hon Sir D. (Hunts)
    Burden, F. A.Hutchison, Michael ClarkRenton, Tim (Mid-Sussex)
    Butler, Adam (Bosworth)Irving, Charles (Cheltenham)Ridley, Hon Nicholas
    Carlisle, MarkJames, DavidRidsdale, Julian
    Carson, JohnJenkin, Rt Hon P. (Wanst'd & W'df'd)Rifkind, Malcolm
    Chalker, Mrs LyndaJohnson Smith, G. (E. Grinstead)Roberts, Michael (Cardiff NW)
    Channon, PaulJones, Arthur (Daventry)Roberts, Wyn (Conway)
    Clark, Alan (Plymouth, Sutton)Joseph, Rt Hon Sir KeithRoss, Stephen (Isle of Wight)
    Clark, William (Croydon S)Kershaw, AnthonyRoss, William (Londonderry)
    Clarke, Kenneth (Rushcliffe)Kilfedder, JamesRost, Peter (SE Derbyshire)
    Clegg, WalterKing, Evelyn (South Dorset)Sainsbury, Tim
    Cockcroft, JohnKing, Tom (Bridgwater)St. John-Stevas, Norman
    Cooke, Robert (Bristol W)Knight, Mrs JillShaw, Giles (Pudsey)
    Cope, JohnKnox, DavidShelton, William (Streatham)
    Cormack, PatrickLamont, NormanShepherd, Colin
    Costain, A. P.Lane, DavidShersby, Michael
    Crawford, DouglasLangford-Holt, Sir JohnSilvester, Fred
    Critchley, JulianLatham, Michael (Melton)Sims, Roger
    Davies, Rt Hon J. (Knutsford)Lawrence, IvanSinclair, Sir George
    Dean, Paul (N Somerset)Lawson, NigelSkeet, T. H. H.
    Dodsworth, GeoffreyLe Marchant, SpencerSmith, Dudley (Warwick)
    Douglas-Hamilton, Lord JamesLester, Jim (Beeston)Speed, Keith
    du Cann, Rt Hon EdwardLewis, Kenneth (Rutland)Spence, John
    Durant, TonyLloyd, IanSpicer, Michael (S Worcester)
    Eden, Rt Hon Sir JohnLuce, RichardSproat, Iain
    Edwards, Nicholas (Pembroke)MacCormick, IainStainton, Keith
    Elliott, Sir WilliamMcCrindle, RobertStanbrook, Ivor
    Emery, PeterMacfarlane, NeilStanley, John
    Evans, Gwynfor (Carmarthen)MacGregor, JohnSteel, David (Roxburgh)
    Ewing, Mrs Winifred (Moray)Macmillan, Rt Hon M. (Farnham)Steen, Anthony (Wavertree)
    Eyre ReginaldMcNair-Wilson, M. (Newbury)Stewart, Donald (Western Isles)
    Fairbairn, NicholasMcNair-Wilson, P. (New Forest)Stewart, Ian (Hitchin)
    Fairgrieve, RussellMarshall, Michael (Arundel)Stokes, John
    Farr, JohnMarten, NeilStradling Thomas, J.
    Fell, AnthonyMather, CarolTapsell, Peter
    Finsberg, GeoffreyMaude, AngusTaylor, Teddy (Cathcart)
    Fisher, Sir NigelMaudling, Rt Hon ReginaldTebbit, Norman
    Fletcher, Alex (Edinburgh N)Mawby, RayTemple-Morris, Peter
    Fletcher-Cooke, CharlesMaxwell-Hyslop, RobinThompson, George
    Fookes, Miss JanetMayhew, PatrickTownsend, Cyril D.
    Fowler, Norman (Sutton C'f'd)Meyer, Sir AnthonyTrotter, Neville
    Fox, MarcusMiller, Hal (Bromsgrove)van Straubenzee, W. R.
    Fraser, Rt Hon H. (Stafford & St)Mills, PeterVaughan, Dr. Gerard
    Freud, ClementMiscampbell, NormanViggers, Peter
    Fry, PeterMitchell, David (Basingstoke)Wainwright, Richard (Colne V)
    Galbraith Hon. T. G. D.Moate, RogerWakeham. John
    Gardiner, 'George (Reigate)Molyneaux, JamesWalker, Rt Hon P. (Worcester)
    Gardner, Edward (S Fylde)Monro, HectorWalters, Dennis
    Gilmour, Sir John (East Fife)Montgomery, FergusWatt, Hamish
    Glyn, Dr AlanMoore, John (Croydon C)Weatherill, Bernard
    Goodhart PhilipMore, Jasper (Ludlow)Wells, John
    Goodhew, VictorMorgan, GeraintWelsh, Andrew
    Goodlad, AlastairMorgan-Giles, Rear-AdmiralWhitelaw, Rt Hon William
    Gorst, JohnMorris, Michael (Northampton S)Wiggin, Jerry

    The House divided: Ayes 240, Noes 264.

    Wigley, DafyddWood, Rt Hon RichardTELLERS FOR THE AYES:
    Wilson, Gordon (Dundee E)Young, Sir G. (Ealing, Acton)Mr. A.J. Beith and
    Winterton, NicholasMr. Cyril Smith.


    Abse, LeoFernyhough, Rt Hon E.Marquand, David
    Allaun, FrankFlannery, MartinMarshall, Dr Edmund (Goole)
    Anderson, DonaldFletcher, Raymond (Ilkeston)Marshall, Jim (Leicester S)
    Ashley, PeterFletcher Ted (Darlington)Mason, Rt Hon Roy
    Ashley, JackFoot, Rt Hon MichaelMeacher, Michael
    Ashton, JoeFord, BenMellish, Rt Hon Robert
    Atkins, Ronald (Preston N)Forrester, JohnMillan, Bruce
    Atkinson, NormanFowler, Gerald(The Wrekin)Miller, Dr M.S.(E Kilbride)
    Bagier, Gordon A.TFraser, John (Lambeth, N'w'd)Miller, Mrs Millie (Ilford N)
    Barnett, Guy (Greenwich)Freeson, ReginaldMitchell, R.C (soton, Itchen)
    Barnett, Rt Hon Joel (Heywood)Garrett, John (Norwich S)Molly, William
    Bates, AlfGarrett, W.E.(Wallsend)Moonman, Eric
    Bean, R. E.George, BruceMorris, Alfred (Wythenshawe)
    Benn, Rt Hon Anthony WedgwoodGilbert, Dr JohnMorris, Charles R. (Openshaw)
    Bennett, Andrew (Stockport N)Ginsburg, DavidMullley, Rt Hon Frederick
    Bidwell, SidneyGolding, JohnMulley, Rt Hon Frederick
    Blenkinsop, ArthurGourlay, HarryMurray, RT Hon Ronald King
    Boardman, HGraham,TedNewens, Stanley
    Booth, AlbertGrant, George (Morpeth)Noble, Mike
    Boothroyd, Miss BettyHamilton, James (Bothwell)Oakes, Gordon
    Bottomley, Rt Hon ArthurHamilton, W. W (Central Fife)Ogden Eric
    Boyden, James (Bish Auck)Hardy PeterO'Halloran Michael
    Bradley, TomHarper, JosephOrbach, Maurice
    Bray Dr JeremyHarrison, Walter(Wakefield)Ovenden, John
    Brown, Hugh D. (Provan)Hatton, FrankPadley, Walter
    Brown, Robert C.(Newcastle W)Healey, Rt Hon DenisPalmer, Arthur
    Brown, Ronald (Hackney S)Hooley, FrankPark, George
    Buchan, NormanHooley, JohnParker, John
    Buchanan, RichardHowell, Denis(B'ham, Sm H)Pavitt, Laurie
    Butler, Mrs Joyce(Wood Green)Hoyle, Doug (Nelson)Pendry, Tom
    Callaghan, Jim (Middleton & P)Huckfield, LesPerry, Ernest
    Campbell, IanHughes, Rt Hon C.(Anglesey)Phipps, Dr Collin
    Canavan, DennisHughes, Mark (Durham)Prentice, Rt Hon Reg
    Cant, R. B.Hughes, Robert(Aberdeen N)Prescott, John
    Carmichael, NeilHughes, Roy (Newport)Price, William (Rugby)
    Carter, RayHunter, AdamRadice, Giles
    Carter-Jones, LewisIrving, Rt Hon S (Dartford)Richardson, Miss Jo
    Cartwright, JohnJackson, Colin (Brighouse)Roberts, Albert (Normanton)
    Castle, Rt Hon BarbaraJay, Rt Hon DouglasRoberts, Gwilym (Cannock)
    Clemitson, IvorJeger, Mrs LenaRobertson, John (Paisley)
    Cocks, Michael (Bristol S)Jenkins, Hugh (Putney)Roderick, Caerwyn
    Cohen, StanleyJohnson, James (Hull West)Rodgers, George (Chorley)
    Coleman, DonaldJohnson, Walter (Derby S)Rooker, J.W.
    Colquhoun, Mrs MaureenJones, Alec (Rhondda)Roper John
    Concannon, J. D.Jones, Barry(East Flint)Rose Paul B.
    Conlan, BernardJones, Dan (Burnley)Ross, Rt Hon W.(Kilmarnock)
    Cook, Robin F. (Edin C)Judd, FrankRowland, Ted
    Corbett, RobinKaufman, GeraldRyman, John
    Cox, Thomas (Tooting)Kelley, RichardSandelson, Naville
    Craigen, J. M. (Maryhill)Kerr, RussellSedgemore, Brain
    Cronin, JohnKilroy-Silk, RobertSelby, Harry
    Cryer, BobKinnock, NeilShaw, Arnold(Ilford South)
    Cunningham, G. (Islington S)Lambie, DavidSheldon, Robert(Ashton-u-Lyne)
    Cunningham, Dr J. (Whiteh)Lamborn, HarryShore Rt Hon Peter
    Dalyell, TarnLamond, JamesShort, Rt Hon E.(Newcastle C)
    Davidson, ArthurLatham, Arthur (Paddington)Short, Mrs Renée(Wolv NE)
    Davies, Bryan (Enfield N)Lee, JohnSilkin, Rt Hon John(Deptford)
    Davies, Denzil (Llanelli)Lever, Rt Hon HaroldSilkin, Rt Hon S.C.(Dulwich)
    Davies, Ifor (Gower)Lewis, Arthur (Newham N)Sillars, James
    Davis, Clinton (Hackney C)Lewis, Ron (Carlisle)Silverman, Julius
    Deakins, EricLipton' MarcusSkinner, Dennis
    Dean, Joseph (Leeds West)Litterick, TomSmall, William
    Delargy, HughLomas, KennethSmith, John (N Lanarkshire)
    Dell, Rt Hon EdmundLoyden, EddieSnape, Peter
    Dempsey, JamesLuard, EvanSpearing, Nigel
    Doig, PeterLyon, Alexander(York)Spriggs, Leslie
    Dormand, J. D.Lyons, Edward(Bradford W)Stallard, A.W.
    Douglas-Mann, BruceMabon, Dr J DicksonStewart, Rt Hon M.(Fulham)
    Duffy, A. E. P.McCartney, HughStoddart, David
    Dunn, James A.McElhone, FrankStott, Roger
    Dunnett, JackMcGuire, Michael (Ince)Strang, Gavin
    Eadie, AlexMackenzie, GregorStrauss, Rt Hn G. R.
    Edge, GeoffMackintosh John P.Summerskill, Hon Dr Shirley
    Ellis, Tom (Wrexham)Maclennan, RobertTaylor, Mrs Ann (Bolton W)
    English, MichaelMcMillan Tom (Glasgow C)Thomas, Jeffrey (Abertillery)
    Ennals, DavidMcNamara KevinThomas, Mike (Newcastle E)
    Evans, John (Newton)Madden MaxThomas, Ron (Bristol NW)
    Ewing, Harry (Stirling)Mahon, SimonThorne, Stan (Preston South)
    Faulds, AndrowMarks KennethTierney, Sydney

    Tinn, JamesWard, MichaelWilliams, Alan Lee (Hornch'ch)
    Tomlinson, JohnWatkins, DavidWilliams, W. T. (Warrington)
    Tomney, FrankWatkinson, JohnWilson, Alexander (Hamilton)
    Torney, TomWeetch, KenWilson, William (Coventry SE)
    Urwin, T. W.Wellbeloved, JamesWise, Mrs Audrey
    Varley, Rt Hon Eric G.White, Frank R. (Bury)Woodall, Alec
    Wainwright, Edwin (Dearne V)While, James (Pollok)Young, David (Bolton E)
    Walden, Brian (B'ham, L'dyw'd)Whitlock, WilliamTELLERS FOR THE NOES:
    Walker, Harold (Doncaster)Willey, Rt Hon FrederickMiss Margaret Jackson and
    Walker, Terry (Kingswood)Williams, Alan (Swansea W)Mr. John Ellis,

    Question accordingly negatived.

    9.0 p.m.

    On a point of order, Mr. Deputy Speaker. I have made inquiries in various parts of the House on the question of hot food. I was assured in a number of areas, especially those areas that normally serve the staff with hot beverages, that gas was unavailable. Therefore, not only hon. Members, but members of the staff are denied hot beverages. Upon inquiry I have found that gas supplies to the building have not been cut. All those who are engaged in strike action should at least stand up and be counted and admit that they are on strike, or work properly to enable the staff to be supplied with hot beverages and whatever else is required.

    Let me deal with one point of order at a time. While I do so, perhaps the hon. Gentleman could bring me in a hot cup of tea. I do not know that the Chair can help the hon. Member for Totnes (Mr. Mawby). There are no facilities available. The proper quarter to which he should address his complaints is the Chairman of the Catering Committee. If he does that I shall certainly support him, because I am feeling rather chilly sitting up here.

    Further to that point of order, Mr. Deputy Speaker. I cannot bring you a hot cup of tea, because tea is not available. I am sure you will appreciate that this is because of an industrial dispute which is taking place. Is it in order for members of the Opposition to put forward silly and superfluous points of order which can only worsen an industrial dispute? Is it not characteristic of the sort of situation which brought this country to its knees in February 1974?

    We must not get ourselves involved in points of order in order to generate some heat. The trouble with points of order is that one does not know what any hon. Member will say until he has said it. It may be silly or wise. It is a matter of opinion.

    Amendment made : No. 140, in page 57, line 12, leave out 25th ' and insert 26th '.—[ Mr. Joel Barnett.]

    Amendment proposed : No. 144, in page 57, line 23, leave out ' any ' and insert—

  • '(a) and settlement made by will, or
  • (b) any other '.—[Mr. Joel Barnett.]
  • The amendment was not dealt with when we debated a previous group of amendments, although it was mentioned and a question was asked about it. Perhaps the Chief Secretary would be good enough to answer it now, if I repeat it.

    The amendment seeks to deal with the point about a settlement made by will, but as it is printed on the Notice Paper it seems that the words following those to be omitted apply to both (a) and (b). It may be that printing those words on another line would enable us to see it correctly. Perhaps the Chief Secretary will see that that is done, so that the latter part of paragraph 4(2) does not apply to his new line
    "(a) any settlement made by will ".

    I join in complaining of the lax drafting of the amendment, which is no doubt due to the fact that it was produced so hastily, and that it is a result of second thoughts.

    It is not good drafting that the sense of a statute should depend upon the division of a sentence by the letters "a "and" b ", or upon punctuation. The amendment will make nonsense unless (a) and (b) are treated as introducing a separation of meaning into sub-paragraph 2.

    All that was necessary in order to produce an elegant amendment, with the effect which the Government desired, was to insert, in line 12, after "settlement" the words "other than a settlement made by will ".

    The amendment is an indication of the slovenly work we are bound to get if we attempt to pass a Finance Bill in the way we are doing.

    I am sorry that both the right hon. Member for Crosby (Mr. Page) and the right hon. Member for Down, South (Mr. Powell) find the drafting inelegant and slovenly. It at least does what they both want. It carries out all undertaking I gave in Committee to exclude will settlements from paragraph 4. Not being as well versed in grammar, elegance or slovenly drafting as both right hon. Gentlemen, I took advice on the matter, and I am advised that the amendment meets the objectives which we all have.

    The right hon. Member for Crosby suggested that the words
    " has already been made by another person "
    in sub-paragraph (2) would qualify (a) as well as (b). I am advised that it would he possible to produce that result only by a most perverse lay-out. That is not the case with the amendment, which I hope will be acceptable to the House.

    If we had a proper amount of time to discuss the Bill, we should send the amendment back to the kitchen to be heated up and served again in better form. It is one more example of the unholy muddle over the Bill. We need another stage to discuss the Bill, and it looks more and more as though the next Finance Bill will provide it. In the meantime, we shall have to take it as it is.

    The hon. Gentleman knows that he and his hon. Friends had ample opportunity to debate the Bill, and they refused to take the opportunity.

    Amendment agreed to.

    I beg to move Amendment No. 495, in page 61, line 14, at end add:

    'or, in the case of a transfer made after 5th April and before 1st October in any year otherwise than on death, at the end of April in the next year'

    With this it may be convenient to consider the following amendments to the amendment :

    Amendment ( a), in line 2, leave out '1st October' and insert ' 31st December '.

    Amendment ( b), in line 2, leave out ' April ' and insert September '.

    It may also be convenient to consider Amendment No. 550, in page 61, line 14, at end insert:

    ' or when the tax has been agreed in writing between the person liable to pay and the Board, or has been determined and specified in a notice under paragraph 6 above, whichever is the later '.

    The amendment honours a Government commitment to reconsider the due date for tax on lifetime transfers and the date from which interest on that tax is to run. Together with a number of consequential amendments, it provides that in each case the date is to be the later of either six months from the end of the month in which the transfer occurs, or the 30th April following the end of the tax year in which the transfer is made. The consequential amendments increase from three to six months the time allowed for payment of tax on works of art which cease to be exempt.

    I know that this does not go quite as far as some hon. Members wanted, but it is not an unreasonable way of dealing with the matter.

    As a result of the lengthy debates that we had on Schedule 4, paragraph 12 in Standing Committee we have at least this crumb of comfort. We are grateful for it, but in view of the fairly large plate of goodies that we offered the Chief Secretary we must have expected at least a slice of cake. This is an improvement, but I do not think that it goes far enough. I do not wish to delay the House for too long, but I should mention that in Standing Committee there were two main arguments for trying to get some amendment of the time in which people are to be allowed to pay the tax.

    The first main argument was that of administrative convenience. That was concerned mainly with administrative convenience for the taxpayer and his advisers, and not so much with the convenience of the Revenue. There are two main points to be made about administrative convenience. The first is that despite this change there is still a difference between the time at which the taxpayer has to deliver his accounts on chargeable transfers and the time at which payment of the tax has to be made.

    Despite the Government's amendment, the only month, as I understand it, in which the taxpayer will find that he is having to deliver both his account and his tax at the same time will be April. He is allowed 12 months for the delivery of his account, but in most cases the period ranges from anything between six to 12 months—it is 12 months in the case of April—for the payment of tax. Although we pressed him on this matter in Standing Committee, the Chief Secretary still has it the wrong way round. He is asking most taxpayers to pay their tax first and to give the Revenue the information later as to the basis on which the tax has been assessed.

    The second point to be made on the administrative convenience argument is that relating to normal tax returns. The majority of taxpayers usually make only one return a year. They may now find themselves having to make one return for income and a separate return both for payment of the capital transfer tax and for their accounts for the tax. There is no other tax which involves this very hasty requirement for the payment of the tax shortly after the end of the tax year. For the capital transfer tax, and in the case of every chargeable transfer, the right hon. Gentleman is asking for about three weeks from the end of the tax year for a taxpayer to pay his tax in many cases, when in nearly every other form of tax there is a much longer period.

    Amendments (a) and (b) have been designed to try to help the situation. I realise that they are not totally neat models. I accept that there is a small drafting mistake in Amendment (b), in that it should read "2nd April" and not "1st April ". I call only say that that is due to the haste with which many of us had to draft our amendments to the Government amendment. I am sure that that is a point that applies to many other amendments. Such errors are due entirely to the lack of time that we had to draft our amendments correctly. But by the amendment we were trying to achieve in Standing Committee a situation in which a taxpayer would be given a reasonable period, between three and six months after the end of the tax year, in which to submit his return and pay his tax.

    The second main argument relates to the time that it takes to value many of the assets involved in chargeable transfers. It is to that point that Amendment No. 550 relates. In Standing Committee the Chief Secretary at one point said that we had misunderstood the purpose of the tax in talking of a year of assessment. On the year of assessment the right hon. Gentleman said :
    " There is, of course, no such thing as far as capital transfer tax is concerned. Capital transfer tax is not an annual tax as such, and under the Bill as it stands it is due six months after the lifetime transfer. That is the reason for the misunderstanding about the fact that the due date for payment of tax can sometimes come before the actual return is delivered."— [Official Report, Standing Committee A, 18th February 1975 ; c. 2037.]
    But in some cases in the capital transfer tax there is a year of assessment—for example, in all the exemptions under Schedule 6 to which the £1,000 a year relates—and the Bill itself states what the year is, and also with reference to exemptions out of income.

    9.15 p.m.

    I do not think that that is a strong enough argument. It would be right still to look at the end of the year of assessment as the right date from which to begin to assess the chargeable transfer. In many cases there will be a considerable time lag before, even between the taxpayer and the Revenue, the value the asset has been agreed, and there is nothing in the Bill to allow the taxpayer to pay his tax after the valuation has been agreed. That is quite different from the situation in relation to capital gains tax, which is another capital tax and not an income tax, where the taxpayer is given the alternative of three months after the end of the year of assessment or 30 days after the assessment has been agreed with the Revenue. Some provision of that kind would also be justified in relation to the payment of the capital transfer tax.

    There is one final matter in relation to the time that it will often take to value the asset. That is the point which the Chief Secretary made in Committee when he said that under estate duty executors were given 12 months from the death to assess the tax payable and to pay it. Again we come back to the point which we have had to make time after time to the Chief Secretary about the capital transfer tax, that the chargeable transfer in life is a totally different form of tax. There will be many cases where taxpayers will not know until the end of the year what chargeable transfer they should return and, therefore, what tax they should be paying.

    I have mentioned the exemptions—the exemption out of income and the £1,000 exemption. Now the situation has been complicated by a Government amendment, which we welcome, to give the small gifts exemption of £100. But it makes it more difficult for the taxpayer to know at what point he moves into the chargeable transfer area. There is also the question of deemed transfers, which again he will not now have to pay until 1976. Even so, there will be a complication for the taxpayer.

    Having listened to the arguments of the Chief Secretary in Committee and having re-read them and reconsidered the matter, it still seems to me that the taxpayer will be put in some difficulty if the Government insist on this early payment of tax and because he has to make his return for tax at a different point from that at which he pays the tax.

    For reasons of progress, I doubt whether the Opposition will press these amendments. But I hope that the Chief Secretary will reconsider for the next Finance Bill the valid argument that it would still be right to bring into line the point at which the taxpayer has to make his return and to pay his tax, and that this should be either three or six months after the end of the tax year in which the chargeable transfers took place, with provision for the later payment where agreement has still not been reached as to the value between the taxpayer and the Revenue, as outlined in Amendment No. 550. If the right hon. Gentleman cannot agree to do that, I hope at least that he will ensure reasonable interpretation by the Inland Revenue, when it comes to enforcing the payment of this tax from people with chargeable transfers, to take account of these arguments.

    I do not think that these provisions are yet right. This is a very suitable candidate for the next stage of this Bill, which we understand is now to be the next Finance Bill itself. I am sure that we all look forward to another attempt to improve this monstrous, outrageous abortion of a tax. I am prepared to debate as many Bills in a row as may be necessary to make some dint in the thick skins of Treasury Ministers.

    I want to ask what happens in the case of a very protracted valuation dispute. I heard the other day of a private company and a dispute about the valuation of shares which went on for eight years.

    What is the taxpayer supposed to do under capital transfer tax? I presume that he is to pay on some mythical value and the matter will be adjusted at a later stage.

    With life-time transfer accumulations there could be some difficulties. If the transferor had agreed to pay the tax and, after a period of years while a dispute was going on, decided not to pay, the Revenue would have recourse to the transferee for the tax. Any other transfers of value made in the meantime would suddenly attract a lower rate of tax because the transferor would go down several slices in the table as he would have made a much smaller gift eight years before. The Revenue would then have to reimburse many people who had paid tax at an inflated value because of the change of mind of the transferor.

    Will the revenue make those repayments? If so, how long will it take to make repayments of capital transfer tax to those who have overpaid? If we are to make the taxpayer hustle to pay the tax, we ought also to make the Revenue hustle to repay in cases where there has been overpayment. It seems that the interaction of the valuation clauses and the long time that it will take to make valuations in some cases, together with the short time to pay, have not been properly thought out. I hope that the Chief Secretary will have another look at this matter.

    I am very hurt by the comments made by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). I think he must be getting tired to describe my hon. Friend and myself in that way. It really is not good enough. Had I been inclined to accept the amendment, I should have been put off a bit by the hon. Gentleman talking to me in that exaggerated way.

    The hon. Member for Norfolk, South (Mr. MacGregor), who usually reads his briefs on these matter very well, said that the tax could be payable within three weeks. Under our amendment, the tax could not be payable in less than six months. It is either not less than six or more than 12 months.

    Perhaps I should clarify the situation. I meant to say, if I did not, three weeks after the end of the tax year. I was trying to make the point that it would be much simpler for taxpayers to deal with their tax relating to the past year at the one time. The taxpayer is being asked to pay this tax and to make his assessment within three weeks of the end of the tax year, whereas in all other cases it is much longer.

    The hon. Gentleman knows that under our amendment he would have rather longer than that. The taxpayer would have a minimum of six months.

    The hon. Member for Cirencester and Tewkesbury gave us an example of a protracted dispute. I hope that the hon. Gentleman is listening. It does not really matter, because he can read it in Hansard. If there is a dispute, the Revenue cannot enforce payment while the first appeal is pending. That is dealt with in Paragraph 21, sub-paragraphs (1) and (2).

    I assure the hon. Member for Norfolk, South that the Inland Revenue will always give a reasonable interpretation of these matters, as it does with all taxes. I hope that the hon. Gentleman will agree that the amendment goes a long way to meet the points made in Committee. I hope, therefore, that it will be acceptable to the House.

    Amendment agreed to.

    Amendments made : No. 797, in page 61, line 19, at end insert :

    ' (2A) So much of the tax chargeable on the value transferred by a chargeable transfer made within three years or, as the case may be, one year of the death of the transferor as—
  • (a) exceeds what it would have been had the transferor died more than three years after the transfer ;
  • (b) is tax for which, by virtue of section 26(2A) of this Act, only a charity or only a political party is liable ;
  • shall be due six months after the end of the month in which the death occurs '.

    No. 148, in page 61, line 20, after '32', insert :

    or (conditional exemption for certain buildings, etc. on death)'.

    No. 149, in page 61, line 20, after Act ', insert :

    or paragraph 2 of Schedule (Relief for woodlands) to this Act '.

    No. 496, in page 61, line 21, leave out three ' and insert six '.

    No. 787, in page 62, line 37, after ' 4 ', insert 6(2), 12 or 14 '.

    No. 801, in page 62, line 46, at end insert :

    '(aa) references to the time six months after the end of the month in which that date falls were references to the time when the tax would be due if it were not payable by instalments ;

    No. 788, in page 62, line 47, at end insert :

    'or, if the transfer is made under paragraph 6, 12 or 14 of Schedule 5 to this Act, to the trustees of the settlement '.

    No. 789, in page 63, line 33, after entitled ', insert in possession '.

    No. 790, in page 63, line 33, at end insert :

    '(except in a case where no individual is so entitled) '.

    No. 791, in page 64, line 27, after 4 ', insert 6(2), 12 or 14 '.

    No. 802, in page 64, line 35, leave out from to ' to end of line 36 and insert :

    ' the time six months after the end of the month in which the death occurred were references to the time when the tax would be due if it were not payable by instalments ; and '.

    No. 154, in page 64, line 49, at end insert :

    ' 14A. Tax chargeable on such a chargeable transfer as is mentioned in paragraph 4 of Schedule (Relief for woodlands) to this Act may, if the person paying the tax by notice in writing to the Board so elects, be paid at his option either by eight equal yearly instalments or by sixteen equal half-yearly instalments, of which the first shall be payable six months after the end of the month in which the transfer is made '.

    No. 155, in page 65, line 3, at beginning insert ( a)'.

    No. 156, in page 65, line 5, after 'business ', insert :

    (b) is payable by instalments under paragraph 14A above '.

    No. 157, in page 65, line 27, leave out (1) ' and insert (1)( a) '.

    No. 792, in page 65, line 34, at end insert:

    '(5A) The reference in sub-paragraph (5) above to the same transferor includes, in relation to chargeable transfers which are made under paragraph 6, 12 or 14 of Schedule 5 to this Act, the assumed transferor referred to in paragraph 6(4) of that Schedule'.

    No 161, in page 66, line 37, after '32(4)', insert:

    ' or subsection (6) of section (conditional exemption for certain buildings, etc. on death)'.

    No. 803, in page 66, line 39, leave out 'any' and insert:

  • '(a) an amount of tax charged on the value transferred by £ chargeable transfer made after 5th April and before 1st October in 1975 or any later year and otherwise than on death remains unpaid after the end of the period ending with April in the next year ; or
  • (b) an'.
  • No. 804, in page 66, line 40, leave out 'a' and insert 'any other'.—[ Mr. Joel Barnett.]

    With the permission of the House, I will put the question on the next batch of amendments together—No. 805, No. 162, No. 806 and No.798.

    I am sorry to interrupt you, Mr. Deputy Speaker, but I must say that this is the most impossible Finance Bill that has ever been presented to the House. Would you be so kind as to ask whether the Government will let us know on which page of the Notice Paper these Government amendments appear so that we can keep pace with what is going on? The Government have tabled hundreds of amendments—[Interruption.] They are on the Notice Paper, but it would greatly convenience the House if the Chief Secretary, when he believes an amendment to be a major one, would let us know on which page of the Notice Paper it appears. When we last debated the Bill the Government had tabled a manuscript amendment only an hour before it was read out and moved by the Government.

    I think that I can help the hon. Gentleman. I will give the page numbers. On page 847—Amendments Nos. 805, 162, 806.

    Amendments made: No. 805, in page 66 line 43, leave out ' if ' and insert ( c)'.

    No. 162, in page 66, line 44, after ' Act ', insert :

    ' or paragraph 2 of Schedule (Relief of woodlands) to this Act '.

    No. 806, in page 66, line 45, leave out ' three ' and insert six '.— [ Mr. Joel Barnett.]

    Amendment proposed, No. 798, in page 67, line 3, at end insert:

    ' (1A) Sub-paragraph (1) above shall apply in relation to tax for which, under section 26(2A) of this Act, only a charity or only a political party is liable, and in relation to such an excess as is mentioned in section 27(3A) of this Act, as if the chargeable transfer had been made on the death of the transferor. '.— (Mr. Joel Barnett.]

    Perhaps the Government would like to explain a little to us about the amendment. I thought I heard the Chief Secretary saying a few moments ago—I say this with the best of humour—that it should be easy enough to follow these matters. We will be patient with the Chief Secretary. We are in very good humour about this. We will wait. We should like to hear what the amendment is about.

    I hope that the hon. Gentleman is satisfied with that explanation. The Question is—

    Perhaps I can help the hon. Gentleman. It is possible that the hon. Gentleman has not read all the others. This amendment is consequential upon the others.

    I have on a previous occassion had to mimic a Treasury Minister answering a debate on an amendment. I should hate to do that again at this more serious and august stage of the Bill. The Chief Secretary, if he is challenged by my hon. Friend the Member for St. Ives (Mr. Nott) to say what the amendment seeks to do, should be able to do this. He has a very large number of folders on the bench. I notice with horror and consternation that they are bright red. Surely amongst all those papers there is just one piece of paper which will tell the right hon. Gentleman what the amendment seeks to do.

    I thought I told the hon. Gentleman. He cannot have been listening. I told him that this amendment was consequential upon Government amendments, which perhaps he had not read, providing reduced rates of tax for lifetime transfers and unlimited exemption for lifetime gifts to charity and to political parties. This is perfectly understandable. If the hon. Gentleman had read the amendment clearly he would have seen that it was consequential upon the others.

    Amendment agreed to.

    Amendment proposed: No. 165, page 72, line 11, leave out 'he' and 'insert' that other person'.—[ Dr. Gilbert.]

    9.30 p.m.

    May I have an explanation of this amendment? In fact, I think I can probably explain it to the Chief Secretary if he has not got the explanation handy. This is a very import amendment. The right hon. Gentleman may have the explanation in his head. He certainly did not have the last one in his head.

    This is a case in which a person is required to inform the Board of Inland Revenue if he happens to know of an error made by any other person. I presume that this is just a matter of drafting. This is one of what we have labeled the snooping provisions. It is most extraordinary. If a piece of paper happens to blow over one's garden wall and one reads it, to discover that someone else has not disclosed something by way of tax, a duty is imposed on the reader of that piece of paper to report the fact to the Board of Inland Revenue, and one suffers a penalty for not doing so.

    This is a provision of the utmost width. The public ought to realize what is being done, which the Chief Secretary has said is necessary, because of this entirely new tax imposed on the public. If the Chief Secretary is prepared to give the reason for amending what he first put in the Bill, the House might allow him to have this amendment.

    I am surprised at the right hon. Gentleman for getting so excited about these points at this time of night.

    This amendment relates to paragraph 30, which deals with the situation where information furnished to the Revenue for capital transfer tax purposes is afterwards discovered to have been incorrect in some material respect. Subparagraph (1) applies where the person who discovers the error is the same person as supplied the information in the first place. The right hon. Gentleman will recall that we had a little discussion about the interpretation of this paragraph in Committee. In fact, it went on at some length.

    Subparagraph (2) deals with the case where the person who discovers the error is a person liable for tax to which the information was relevant but is not himself the one who provided the information in the first place. Those who were present or who have read Hansard will recall that there was some confusion about the interpretation, and I promised to look at it to see whether I could clarify the matter.

    The present amendment deals with what was thought to be an ambiguity in subparagraph (2) which has apparently contributed to a misunderstanding of the scope of the provision. I hope the amendment leaves no further misunderstanding of the sort which gave rise to the stuff that we had in Committee, and which the right hon. Gentleman has given us again, about snoopers. I see that he is smiling. He knows it is a lot of rubbish. I hope the amendment will clarify the matter beyond doubt.

    Amendment agreed to.

    Amendment made: No. 166, in page 75, line 23, at end insert:

    '41 A. Section 44(3) of the Finance Act 1950 and section 3(3) of the Finance Act (Northern Ireland) 1951 (certificate of prospective amount of estate duty) shall, notwithstanding their repeal by this Act, have effect with the necessary modifications in relation to tax for which trustees of a settlement may become liable under section 25(6) of this Act'.—[Dr. Gilbert.]

    Schedule 5

    Settled Property

    Amendments made: No. 168, in page 76, line 45, leave out from beginning to

    ', and' in line 47 and insert:

    ' In the application of this Schedule to Scotland, any reference to an interest in possession in settled property is a reference to an interest of any kind under a settlement actually being enjoyed by the person in right of that interest'.

    No. 169, in page 77, line 20, at end insert:

    ' (2) In determining whether property comprised in a settlement which became so comprised before 10th December 1974 is excluded property section 43 of this Act shall be disregarded.'

    No. 170, in page 77, line 36, at beginning insert :

    'The Treasury may from time to time by order made by statutory instrument prescribe a higher and a lower rate for the purposes of this paragraph ; and '

    No. 171, in page 77, line 42, leave out from amount ' to but ' in line 3 on page 78, and insert:

  • '(a) shall, if tax is chargeable by reference to the value of that part, be taken to be not less than it would be if the property pro. duced income at the higher rate so prescribed ; and
  • (b) shall, if tax is chargeable by reference to the value of the remainder, be taken to be not more than it would be if the property produced income at the lower rate so prescribed ;
  • No. 172, in page 79, line 7, at end insert :

    ' (5A) If the interest comes to an end and on the same occasion the settlor's spouse becomes beneficially entitled to the settled property, then if—
  • (a) the settlor's spouse is then domiciled in the United Kingdom and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which the interest comes to an end ; 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 ;
  • tax shall not be chargeable under this paragraph '.

    No. 173, in page 79, line 16, leave out ' 26th ' and insert 27th '.

    No. 175, in page 79, line 35, at end insert :

    ' unless the transaction is such that, were the trustees beneficially entitled to the settled property, it would not be a transfer of value '.

    No. 179, in page 81, line 6, at end insert :

    ' unless the transaction is such that, were the trustees beneficially entitled to the settled property, it would not be a transfer of value '.

    No. 180, in page 81, line 15, at end insert :

    'and the appropriate Table for the purposes of those paragraphs (including the calculation of any tax that would have been chargeable as mentioned in paragraph 7(2)(a) below) is the Second Table set out in section 35(2) of this Act '.

    No. 181, in page 81, line 16, at beginning insert :

    ' The reference in sub-paragraph 4(a) above to the tax payable on a capital distribution does not include any tax which is payable by a person to whom a distribution payment is made ; and '.

    No. 182, in page 81, line 19, at end insert :

    '(5A) Notwithstanding sub-paragraph (1) above, a distribution payment which is made to the settlor or the settlor's spouse shall not be a capital distribution if the settlor or, as the case may be, the settlor's spouse is domiciled in the United Kingdom at the time the payment is made and resident (within the meaning of the Income Tax Acts) in the United Kingdom in the year of assessment in which it is made '.

    No. 183, in page 81, line 19, at end insert:

    '(6) Sub-paragraph (2) above shall not be taken to apply in the case of a person who, on surviving another person for a specified period, becomes entitled to an interest in possession as from the other person's death '.

    No. 184, page 81, line 19, at end insert :

    ' (7) Where a person entitled to an interest in possession in part of the property comprised in a settlement became so entitled as a member of a class, sub-paragraph (2) above shall not apply on his becoming entitled, as such a member, to an interest in possession in another part of that property, if he becomes so entitled on the death under full age of another member of that class.'

    No. 185, in page 82, line 8, leave out 26th ' and insert 27th '.

    No. 187, in page 82, line 18, leave out 25th ' and insert 26th '.

    No. 189, in page 83, line 13, leave out 25th and insert 26th '.

    No. 191, in page 83, line 40, after for ', insert paragraph 17B(2) below or '

    No. 192, in page 83, line 42, leave out 26th ' and insert 27th '.

    No. 194, in page 83, line 47, after for ' insert paragraph 17B(2) below or '.

    No. 195, in page 84, line 37, at end insert :

    'or, if the following conditions are satisfied, an interest in possession to which a company is beneficially entitled, the conditions being—
  • (a) that the business of the company consists wholly or mainly in the acquisition of interests in settled property ; and
  • (b) that the company has acquired the interest for full consideration in money or money's worth from an individual who was beneficially entitled to the interest '.—[Dr. Gilbert.]
  • I beg to move Amendment No. 196, in page 85, line 43, leave out ' January 1976' and insert ' April 1980 '.

    No. 197, in page 86, line 8, leave out ' twenty ' and insert ' forty '.

    No. 430, in page 86, line 8, leave out ' twenty ' and insert ' fifty '.

    No. 198, page 86, line 15, and the sub-amendments thereto.

    No. 609, in page 87, line 3, at end insert :

    ' (5) For the purposes of this paragraph it shall be assumed that a beneficiary will become entitled to, or to an interest in possession in, settled property on or before attaining the age of 25 years if such is the effect of the trusts of the settlement for the time being in force notwithstanding that those trusts may be altered by the exercise of a power of appointment or otherwise'.

    We have material here for a fairly long debate, and I do not know how long hon. Members wish to take on this group of amendments. However, I ought to report to the House a matter which I have already communicated to the hon. and learned Member for Dover and Deal (Mr. Rees), arising from a question which he raised in Standing Committee. The passage is to be found at cols. 1966–7 of the Official Report of 17th February.

    The hon. and learned Gentleman asked what would need to be the date of the relevant transfer to give rise to a charge to tax some time during the coming year, 1976. It seemed to us at that time that the wording of the question was not precise, but in retrospect I think that it is clear enough from the context that the information which the hon. and learned Gentleman was seeking was in answer to this question: which trusts with nonresident trustees will be unaffected by the postponement of the first relevant anniversary for the periodic charge—and will these have to pay the annual charge in the calendar year 1976—and which will have payment of their first annual charge deferred?

    I hope that I have construed the hon. and learned Gentleman's question correctly. I see that I have, and I am grateful for his acknowledgement.

    The full answer is that the annual charge would be payable in the calendar year 1976 if the relevant transfer arose in the period between 1st April 1970 and 31st December 1975, or at appropriate dates at 10-year intervals before those dates. There would be no annual charge in the calendar year 1976 where the relevant transfer was in the period between 31st December 1965 and 31st March 1970, or, again, at appropriate dates in the previous decades.

    The effect of this is that the postponement of the date of the first relevant anniversary for the periodic charge will defer the date on which the annual charge becomes payable for trusts which would have had an anniversary date of 1st January 1976 to 31st March 1980, but will not give rise to a deferment of the first annual charge for trusts with anniversary dates from 1st April in year zero of the decade to 31st December in year 5 of the decade.

    I apologise if I inadvertently misled the Committee. It is a rather technical point, and I hope that what I have just said will clarify the matter.

    I am sure that I speak for the whole House when I say that we are grateful for the Financial Secretary's pellucid statement, which will, no doubt, give wide satisfaction and clarification both within and outside the House.

    We now approach Schedule 5, which deals with the whole web of fiduciary relationships and interests under settlements. With a great economy of verbiage, we disposed of the whole of Schedule 5 in Standing Committee between four o'clock one afternoon and half-past eight the next morning. I do not think that even the hon. Member for Luton, West (Mr. Sedgemore), whose imagination is sometimes a little feverish—if I may say that in his absence, though I am sure that his hon. Friends the Members for Keighley (Mr. Cryer) and for Bolsover (Mr. Skinner) will defend his reputation, honour and interest should I unwittingly trench upon them—will complain that on that occasion and on those matters the Opposition were filibustering.

    The measure of the complexity of this schedule is evidenced by the fact that on between 20 and 30 points which we drew to the attention of Treasury Ministers the Financial Secretary, with his customary urbanity and insight in these detailed matters, agreed to take the matter away for further thought. Some of those points have come back, but a great number have not.

    Some hon. Members, mainly to be found on the Government benches, would say that in our society in the latter half of the twentieth century there is no place for settlements—that fiduciary relation. ships and interests under trusts are outworn trappings of a feudal age. I hope that I have picked the right phraseology, though it is not phraseology with which I have much sympathy, for the fact is that most settlements were devised long after the end of the feudal era.

    I have no doubt that there are hon. Members on the Labour benches—perhaps even the hon. Member for Keighley (Mr. Cryer), to whom I judge that I am not doing an injustice, having heard his interventions—who would think that this whole question could have been disposed of by a one-clause Bill which merely said that henceforth all property should be vested in the State. There might have to he a complicated schedule dealing with the administrative arrangements, but I have no doubt that the hon. Gentleman and the Financial Secretary would be well capable of exposing and expounding the complexities of such a schedule. I do not believe that such a Bill would commend itself to the country. We are entitled to ask what the Chancellor's long-term objectives might be, and this is an appropriate point at which to ask that question.

    I do not wish to steal my hon. and learned Friend's thunder, for which he has become rightly famous in the last few days. While he is putting that question to the Chancellor, however, will he consider whether the right hon. Gentleman should now or at some time tell us just how far his former membership of the Communist Party influences his thinking in these matters.

    It was perceptive of my hon. Friend to have raised that question, because it is right that the country should know the cast of mind of those who preside over its destiny. I do not think any of us is impugning the loyalty or good faith of the Chancellor, and if I were to seek to do so I am sure that you would call me sharply to order, Mr. Speaker, and I would be the last to want to expose myself to your rebuke. We are, however, entitled to ask about and analyse the thought processes of those who take major decisions on our behalf. This is a point upon which I shall hope to touch further in my brief intervention.

    Like the hon. Member for Epping Forest (Mr. Biggs-Davison)?

    The hon. Member for Bolsover (Mr. Skinner) is quite entitled to probe and lay bare our innermost thoughts, aspirations and ambitions. We must leave the country to judge how far we are doing it justice in what we are seeking to achieve. The hon. Member has made a comment about one of my hon. Friends, and I believe that my hon. Friend can look after himself, but the comment is not particularly germane to the points I wish to raise about the schedule. No doubt if the hon. Member catches your eye, Mr. Speaker, he will be able to explore the question he raises.

    I recall to the House that in his period as Secretary of State for Defence the Chancellor committed us to seven defence reviews, and he is therefore well versed in what are colloquially called "salami tactics ". It may be that we are gradually approaching the situation of the one-clause Bill, where all property is to he vested in the State. We have not quite reached that position in this Bill, but we are entitled to judge the Bill against that background.

    I recall—because, Mr. Speaker, possibly like you, I read my copy of The Times this morning—that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) detected as one of the Chancellor's prime political qualities a "brutal cleverness ". Of course it always takes a candid friend to expose us for what we are to the audience of the country. It may be that a brutal cleverness is what Mr. Shelepin required to carry him to the head of the KGB, but I wonder whether that is the quality which the country requires of its Chancellor of the Exchequer.

    I shall leave the right hon. Member for Sparkbrook to explore that point, because it was he who made it. It is unfortunate that I should have to discuss the Chancellor in his absence, but since he is nominally piloting the Bill through the House, no doubt my remarks will be retailed to him and no doubt, as on Thursday, he will come in very quickly if he feels that his honour and motives have been impugned. That, of course, is far from my intention this evening, as it was on Thursday.

    9.45 p.m.

    It was a Government pronouncement that settled property was not to be treated any more harshly than property held by an individual absolutely and beneficially. That would be a very correct proposition. Indeed, as one ploughs deeper into the Bill—I use the word "ploughs" advisedly, because one has to plough very deeply to get its inwardness at times —one realises what discrimination there has been against those who have an interest in a settlement against property held by trustees. One asks oneself why this should be. It would not be putting it too highly to say that over a generation this tax will kill off settlements.

    I would only remind the House of that poignant line in the Ballad of Reading Gaol :
    " Yet each man kills the thing he loves ".
    There we have it : obviously the Chancellor really loves settlements. He has the heart of a Chancery lawyer ; not the head. His heart is in Lincoln's Inn, but his head, steeped in the subtleties of dialectical materialism, rests in Highgate Cemetery, alongside Karl Marx.

    I hope that I have not taken too much of the time of the House with a few general observations, but it is right that we should view this provision in its broad context and in its setting against the whole background of this odious tax. I now come to one or two technical matters. Technical, I describe them, but their impact is brutal. Knowing the Financial Secretary's warm heart and the sensitive way in which he responded to our overtures in Committee, and his keen interest in the technicalities of the Bill, I should like to put them to him.

    First, he will recall that in Committee I raised what I called, in a kind of legal shorthand the commorientes. This is the case, often encountered in practice, of a person leaving property to, say, his widow if she survives him for a month. It is the kind of case where both are involved in, say, a motor accident and, under the presumptions of the law, the younger is presumed to have survived, if for only a fraction of time, the death of the other. The words often used are: "I leave to my widow, if she should survive me by one month, my property ".

    Under the Bill as originally drawn that would have involved two charges to the capital transfer tax, one on the death of the husband and a second on the death of the wife. The Financial Secretary saw the force of the objections from our side of the Committee to that arrangement, and I notice that in response to our overtures he has put down Amendment No. 183.

    I ask him to have a further look at that amendment, because, although I recognise his warmth of heart, I am not absolutely confident that he has grasped the technical details. I hate to accelerate the pace of the debate, because I should like to give the Financial Secretary time to receive the timely support and sustenance that he always receives from the Official Box in the course of our debates on these technical matters. I pay tribute to the ready and speedy way in which slips of paper come down like confetti on the devoted head of the Financial Secretary. On this occasion more than one piece of paper may have to be passed to him.

    I ask him to look again at Amendment No. 183, because it seems to proceed on the premise that interest given to the survivor at the expiration of the specified period relates to the date of death. That may be so in some cases, but it is not true in all. He has an interest contingent upon his surviving for a specified period, and the interest, even if survivorship takes place, does not relate back to the date of death. Amendment No. 183 will not achieve the purpose which I hope the Financial Secretary intends and which was very much in my mind when I drew his attention to this point during our epic debates on that long night.

    The second point, which is again of a slightly technical nature, relates to class gifts, and this again I raised in Committee, and again I assume, in response to our overtures, the Financial Secretary has put down Amendment No. 184. I am sorry that the point is of such a technical nature that the hon. Member for Bolsover should lose his appetite for our debates.