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Capital Gains Tax Indexation

Volume 931: debated on Thursday 12 May 1977

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'(1) For the financial year 1977–78 and subsequent years the sums allowable as a deduction from the consideration for the disposal of an asset pursuant to paragraph 4 of Schedule 6 of the Finance Act 1965 shall be altered in accordance with the formula set out below, and any reference in the enactments relating to capital gains tax to any such sums shall be construed as a reference to such sums as altered in accordance with this section—

A × B / C = D

When "A" is the sum allowable pursuant to the said paragraph 4;

"B" is the RPI for the month in which the disposal takes place;

"C" in the RPI for the month in which the sum allowable pursuant to the said paragraph 4 was expended.

"D" is the sum allowable so adjusted.

(2) This section applies to disposals so adjusted.

(3) In the section "the retail price index" means in relation to periods from 1st January 1962 the general index of retail prices and in relation to earlier periods an index which shall be calculated and published by the Board.'—[ Mr. Pardoe.]

Brought up, and read the First time.

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

This clause concerns the indexation of capital gains. It will be familiar to the hon. Member for Blaby (Mr. Lawson), because it is the very clause that he tabled last year after great discussions with his various advisers. I make no apology for tabling the same clause. After going backwards and forwards with every conceivable piece of advice about how to draft an indexation to capital gains tax clause, we came to the conclusion that this was the only way to do it.

The principle of capital gains tax is good. Where the possessor of capital enjoys a real gain, that gain is in a sense income. Indeed, if we had a sensible income tax structure, there would be much to be said for calling a spade a spade and including capital gains as income for tax purposes. I do not recommend that we should do that. I do not recommend it because our income tax structure is so unreasonable.

The principle that I support is that which involves tax on real capital gains. Gains on a capital asset which, because of inflation, are not capital gains at all merely enable the real value of an asset to be maintained.

10.15 p.m.

Let us suppose that a man bought an asset for £5,000 in 1972 and that that asset has increased in value to £10,000 since then. That man will be taxed at 30 per cent. on the alleged gain of £5,000. His tax will be £1,500. If he sells the asset he will receive £8,500 net after tax. The cost of living, measured by the retail price index, has doubled since that time. The sum of £8,500 will therefore be worth only that which £4,250 was worth in 1972. That man's original investment of £5,000 has become only £4,250 in real terms after five years. That is not a capital gains tax. It is a capital tax. It is a wealth tax.

I am in favour of a wealth tax as a replacement for investment income surcharge, the high rates of income tax and the general reform of our tax laws. I am not in favour of a wealth tax on top of our present tax structure. Let us not have a wealth tax by the back door. Let us do it by the front door. We should not tax a gain which merely compensates for the fall in the value of money.

The Government will say that this is an expensive clause. It may be. If the Government want to tax wealth they should bring forward a comprehensive and sensible wealth tax. They should not seek to tax wealth by this method because it taxes "phoney" gains which do not exist except in the imagination of the Inland Revenue and the Treasury.

On this occasion I am delighted to support the spokesman for the Liberal Party, the hon. Member for Cornwall, North (Mr. Pardoe). This is not a new issue. We have discussed it in successive Finance Bills for many years.

Capital gains tax is the wrong title for that tax. I was interested to notice that an amendment, which was not called suggested that capital gains tax should be called "inflation gains tax". It was a simple amendment. It was delightful in its neatness and simplicity.

As the hon. Member for Cornwall, North said, the amendment had the great attraction of not costing any money.

I shall come later to the cost of the clause.

The name of the tax does not reflect the true nature of what is going on. I recognise some of the parentage or history of the clause. The hon. Member for Cornwall, North did not in any way attempt to conceal it or pretend that it was his own invention. He put it forward bluntly as having been originally proposed by my hon. Friend the Member for Blaby (Mr. Lawson), who is now sitting on the Opposition Front Bench. It simply and readily makes the point which it is intended to make.

I do not doubt at all that if the clause were put into effect it would be necessary for the Revenue and the Treasury to look over it very carefully, and maybe to revise the wording and the way in which it is drafted. For instance, it might be thought desirable by the Treasury Bench and by the Revenue advisers to ensure that very short-term gains, particularly in certain types of securities, were not given this inflation adjustment, and that it should apply only, for example, to items which had been held for more than 12 months, or perhaps, in the case of certain types of assets, for several years.

We all remember that the original short-term gains tax was of this nature, applying to shares which were held for a year. In the case of land, I think the period was three years. Something like that might be a refinement which could be put into the clause and into these provisions if the Government were prepared to accept it. But at least for my part I do not think that is a disadvantage in our present purpose this evening, which is to press the Government on the principle of the matter.

If the Government and the Minister of State—who I assume is to reply—were prepared to say they would agree to the principle of it, I would not fuss about the detail such as I have been expressing, nor for that matter would I fuss if they said they would take it away and come back on Report with a totally different method for doing it. There are other schemes for allowing for inflation in the capital gains tax which could be adapted.

I used to think it would be much easier to have a regular slicing system of percentages similar to the old gifts inter vivos slicing system in regard to estate duty, which went on with the different adjustments for a number of years. The nature of inflation and the amount of inflation occurring over the last few years have eaten away at that argument. With the colossal rates of inflation that we have been experiencing—we get up to 20 per cent. and more per year these days—it is important to have a more accurate adjustment than merely a slicing system which causes capital gains tax to disappear over five years or some such period as that.

I think, therefore, that the fundamental approach involved in the clause of using the retail price index to adjust the capital gain for inflation is the correct approach, rather than a cruder system, but it is, of course, open to a certain amount of criticism. The retail price index is not the index by which property prices are measured. It is not the index by which inflation is measured in those terms. The retail price index, as we all know, is based on family expenditure surveys, taking account of the price of groceries, beer, petrol, and all the things which are day-to-day expenses. It cannot be compared exactly with, and does not move in exactly the same way as, the property price index, nor does it move in the same way as the Financial Times share index or the actuaries' index and indices of that kind. They move differently from the retail price index. That is one possible area of criticism of that method of tackling the problem of the indexation of capital gains tax.

Nevertheless, the arguments are strongly for that method because the money which is involved and which is liable to be paid as capital gains tax is related to the price of everyday goods. I do not know of a better measure of the price of everyday goods than the retail price index, even though the specific assets involved may move at a different speed and in a different way.

I do not think that there is a real revenue point involved here for the Treasury. I do not think that the Revenue would lose or gain if it used a property price index or a share price index instead of the retail price index. I do not believe that over a given period there is a great deal of revenue to be gained or lost.

There would be one clear advantage over using the asset indices, and that would be the use of one index across the whole field. If different indices were used for different assets, that would introduce a whole new range of calculations which would be difficult to handle. One has only to consider shares in property companies which would be affected by both the property index and the share index to realise the range of complications that would be encountered along that route.

The best approach is, therefore, to stick to the straightforward retail price index with which we are all familiar, admittedly in other contexts, and which is not inappropriate to apply to capital gains.

The question still remains whether the basic principle of going for this kind of indexation for capital gains is right. I agree strongly with the hon. Member for Cornwall, North in what he said in introducing the clause. This tax is in many respects a wealth tax by the back door, but as a wealth tax it is unsatisfactory because of its capricious nature in that it falls unevenly on different people since it is not a true measure of wealth.

I am not sure that I go so far as the hon. Gentleman went in what he said about the wealth tax. There is a theoretical case to be made for a wealth tax in substitution for other existing taxes. A straight front-door tax, to use the hon. Gentleman's phrase, would be more desirable than a back-door wealth tax of this kind with its capricious effect. If it has been estimated, or if it is possible to estimate, I should be interested to know what amount of potential capital gains tax is hanging over the economy in terms of the ownership of assets.

Any asset of any size has capital gains tax hanging over it. In the case of company assets, that would, of course, be corporation tax, but the same situation applies. There is an analogy with stock relief in corporation tax, a device which causes a considerable amount of concern among members of my profession—the accountants—over the way in which it should he treated. No doubt we shall return to that in other parts of the Bill.

It is most undesirable in principle that the balance sheets of companies or individuals should have large amounts of deferred taxation hanging over them. In some cases this makes people potentially insolvent in the case of companies, it means they are trading illegally. This occurs because they have hanging over their assets this sometimes hidden or half-obscure lump of taxation. This is the undesirable feature of using the so-called capital gains tax as a wealth tax.

10.30 p.m.

The other argument in principle which applies to a wealth tax, and applies to capital gains tax in so far as it is used as a wealth tax, is whether it is desirable that people should be savers and investors. It has become familiar to point out that the Government are in favour of saving but are against savers, that they are in favour of investment but are against investors. There is no better example of either proposition than the way in which capital gains tax falls on inflationary gains. It is a clear example of the difficulty and contradiction of thought within the Government and the way in which they are operating the tax system.

The hon. Member for Cornwall, North said rightly that this would be an expensive clause for the Government to accept. If one is prepared to fall into the trap of describing as expensive something that gives back taxation that would otherwise be collected, the only reason why it would be expensive is that the tax itself, and the way it works through inflation, is expensive and highly undesirable.

When the Minister of State winds up perhaps he will say that the Government prefer to do this some other way. I would accept a reduction in the rate of capital gains tax, but if the Minister says that there is another way, this should be considered. What we really want to see is an acknowledgment in principle of the unsatisfactory nature and effects of the operation of capital gains tax on inflationary gains.

For the reasons that I have outlined I was happy to add my name to the amendment and speak in favour of it. On the Notice Paper my name got attached to New Clause 5 instead of New Clause 6. I hope that the Table corrected it this morning.

As my hon. Friend the Member for Gloucestershire, South (Mr. Cope) says, this subject is a hardy perennial whose blooms grow more attractive every year, and whose roots grow deeper. It will not go away. I wish to say a few brief words in favour of the new clause.

I do so with some misgivings because I am not particularly attracted to this method of reforming capital gains tax. I do not say that because the clause was moved by the hon. Member for Cornwall, North (Mr. Pardoe). As my hon. Friend the Member for Blaby (Mr. Lawson) knows, I felt exactly the same about the amendment that was moved last year. My objection to this particular form is that, while it meets head-on the problem of capital gains tax and deals with the issue correctly, it is a complicated formula. It will create complications for accountants, private citizens and the Inland Revenue in dealing with these matters.

I am anxious to see more and more simplicity in our tax system, even if it means some rough justice. I would prefer to find a different way to deal with these matters. My preference, in contrast to that adopted by my hon. Friend the Member for Gloucestershire, South, involves tapering. I repeat that this will mean a certain amount of rough justice. It will mean that some capital gains that are not inflationary gains will sometimes get away tax-free, but it meets the general objective of greater simplicity for the taxpayer and the Revenue alike.

My hon. Friend the Member for Gloucestershire, South said that he had come round to being in favour of this form of tax in a time of high inflation. Although I appreciate that a tapering system would not straight away meet the inflationary element of the gain for somebody who, for example, sold shares within a three-year period, we must fervently hope that inflation will not continue at these levels.

We must examine the swings and roundabouts of the way the system will work. I hope that ultimately we shall even come to accept the principle of making capital gains tax a tax on capital gains. I accept that the Minister will say that the Government are not prepared to accede to this proposal. However, I hope that whatever the system adopted it will involve some form of tapering.

It has already been said that the present capital gains tax is a total fraud. One point that has not come out of the discussion so far is that, although we have been debating this topic for the three years in which I have been in this House, the case for it becomes stronger and stronger each year as inflation goes on apace. Whereas the case was strong in 1974 and 1975, it is now overwhelming. The point that the tax is a fraud need not be elaborated, although it is the strongest possible argument for reform.

My concern is for the private saver. We have talked frequently about the effects on dividend control, investment income surcharge and other aspects of the tax system as well as about inflation itself. We are making the position of the private saver acutely difficult, and it is almost impossible to see how he or she can obtain a real return on savings at a time of high inflation. But this form of capital gains tax also has that effect. Indeed, the consequences are becoming rather serious. The consequences for savers are particularly marked in retirement when people have saved for a long period of time, probably since 1965, and then find a high element of inflation in the capital gain and feel defrauded.

Another consequence is that those who may have looked to the possibility of saving in certain forms of saving which attract capital gains will be put off. This creates distortions in the savings market. There will be a trend for savers to go into areas where investment income surcharge or capital gains tax does not apply so as to cause distortions in the savings pattern.

I want to encourage the young couples who wish to save to buy their own house. There is no capital gains tax on the sale of owner-occupied houses because there are social and other benefits involved. I shall not go into that subject now because I would soon find myself out of order. However, I am less happy about distortions in other forms of savings.

There is a temptation for savers on higher incomes to go into gilts in order to obtain the benefit of the capital gains tax-free element after one year. There are other examples, the most notable of which are in the area of Government saving, where the Government give particular benefits to their own elements of saving but they do not give those benefits to the private markets in terms of shares, and so on.

Would the hon. Member for Norfolk, South (Mr. MacGregor) agree that a substantial proportion of shares are now held by people who are reluctant to sell or inhibited from selling because of capital gains tax or the notional capital gains tax that would, in fact, be a net loss? Does he agree that if the Government relented to some extent the health of the stock market would be much enhanced and that even a small increase in stamp duty might well make up the loss sustained?

I am a little doubtful about the increase in stamp duty but I agree on the general point. Indeed, it is a point that I shall partly refer to in another context. It is particularly true for retired people, who are now very cautious about moving their savings around—especially if they have been built over a long time in equities—because of the capital gains tax element. I know that there are exemptions for small sales but that does not fully meet the point. The hon. Member for the Isle of Ely (Mr. Freud) is correct.

There is another way in which the tax is having a serious effect, particularly on the equity market. This was referred to in the interesting speech of my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) on the subject of investment income surcharge. He pointed out that private savers are now leaving the equity market in increasing numbers every year. My case is that the total number of shareholdings is reducing at the rate of 5 per cent. a year—nearly all of which are private holdings. Of course, there is a serious problem that must concern the House about the direction in which the equity market is going. There is far too great an emphasis on the institutional holder. I should stray too far if I went into the argument on that: nevertheless, it is a problem to which we must address our minds. The capital gains tax aspect of this is relevant.

Finally, there is a point about the amount of revenue that would be lost through such a clause. If the figure is as large as my hon. Friend the Member for Gloucester, South said, that demonstrates just how high a fraudulent element there now is in the yield from capital gains tax. It demonstrates what a large proportion of the tax is inflationary gain. It also means that money is being taken out of the free savings market on a large scale, and that—if capital gains tax is to achieve its original purpose—should not happen.

There are many arguments for such a clause. I should have preferred a tapering one but it is clear that at current levels of inflation this argument grows stronger every year. At some time, some Government must take that on board.

I have great pleasure in following my hon. Friends the Members for Gloucestershire, South (Mr. Cope) and Norfolk, South (Mr. MacGregor) because they are always of considerable assistance to the House in their observations on monetary and financial matters. Their knowledge is exceptionnal, and I hope that some of the views that they have expressed in supporting the new clause in principle will be taken on board by the Minister.

How right my hon. Friend the Member for Gloucestershire, South was when he said that the Government have, on the one hand, encouraged saving but deterred the saver and, on the other hand, encouraged investment but deterred the investor. Certainly the remarks of my hon. Friend the Member for Norfolk, South relating to the equity market were pertinent to this debate because there is no doubt that successive Governments, particularly the present Government, have swindled these who have invested in the equity market for the simple reason that investors have invested their money but the return to which they were entitled has been restricted by Government action. The actual value of their investment has dropped because of the high rate of inflation, and they have not been allowed to have returned to them the dividend that would reflect the high rate of inflation.

10.45 p.m.

Inevitably, over the years the equity market has got almost entirely into the hands of institutions. Far from redistributing wealth, the Government have concentrated it in a few hands, and that is dangerous for our economic growth and prosperity.

The Minister shook his head when my hon. Friend the Member for Gloucestershire, South said that the Government had deterred savers and investors. I hope that the hon. Gentleman will justify that shaking of his head and will explain what the Government have done to help savers and investors.

Perhaps I should declare an interest. In common with many other hon. Members, I have a few shares on the equity market. The return on them is well below the rate of inflation, and it would have paid me, despite capital gains tax, to sell the shares and squander the money. I have not done that, and I hope that the money is being used to advance the cause of British industry. However, I have no incentive to leave that money in the equity market.

Perhaps the false figure of capital gains tax that I should have to pay if I realised my small assets does deter me to an extent. Certainly the principle behind the clause gets stronger every year. The rate of inflation this year is around 17 per cent., and the Government must get the message and must act.

I hope that the Minister does not trot out the usual Treasury clap-trap about our not being able to afford such a proposal and so on.

Even if we believe what Treasury spokesmen say about the rate of inflation coming down to single figures over the next few years, the points that my hon. Friend is making about the importance of the clause will still be true because of the potential capital gains tax that is hanging over us on assets that have not yet been realised.

I agree. My hon. Friend highlighted that point in his earlier remarks. The Minister of State is a young member of the Government and I hope that he is not clothed in the guise of the old-school Socialists who believe that a proposal such as this could not work and would be too costly.

If the Government are not prepared to accept the principle in the few days or weeks that remain to them, I am sure that a future Conservative Government will make strides in this direction. I do not know what my hon. Friend the Member for Guildford (Mr. Howell) will be saying from the Opposition Front Bench, but I have considerable sympathy with the principle behind the new clause and I commend the hon. Member for Cornwall, North (Mr. Pardoe) for moving it.

I shall not support the clause on either of the two grounds on which it has been urged or supported. The first is that it represents a form of indexation of taxation in a period of inflation. The second is that it at any rate diminishes the impact of capital gains tax upon gains which are purely of an inflationary character.

I believe that indexation is justifiable only on an unfulfillable condition, namely, that we can index everything all the time. Unless that can be fulfilled, the attempt to index creates at least as many distortions as it purports to remove. I would far rather look towards such methods as may eventually remove the phenomenon of inflation, at any rate in its practical effects, than attempt to construct elaborate machinery for counteracting inflation.

I noticed in the course of this short debate that hon. Members who have spoken were interested in the clause—this particularly applies to the hon. Member for Gloucestershire, South (Mr. Cope)—more as a defence in part against the taxation of inflationary capital gains than on the grounds of indexation. Here my objection is more fundamental. It is that I do not accept the validity of taxation on any form of capital gains. We deceive ourselves if we think that we are making much progress when we protect inflationary capital gains against taxation.

There are three, and only three, causes of capital appreciation. The total possibilities of capital appreciation are exhausted when we have added together those three causes. One, of course, is inflationary appreciation; that is to say, appreciation which reflects purely the decline in the value of the money in which capital assets are valued. The second is relative, for all real appreciation of assets is equal and opposite to the depreciation of other assets which is taking place. It is impossible to conceive that some assets appreciate in real terms without that appreciation being at the same time offset by equal depreciation elsewhere. That is the second cause of capital gains whether realised or unrealised. The third is the conversion into capital assets of saved income. That is the third, and the only remaining, cause of the phenomenon of capital appreciation.

It has long been my belief, and I have urged this over the years, that the attempt to tax any of these three forms of capital appreciation is fundamentally misguided. The essence of taxation is a diversion, or an application, to public purposes of a part of the current effort of a society. Therefore, all taxation is taxation on income—all taxation is a kind of corvée, a diversion of effort from the purposes to which individuals would otherwise have applied it to the purposes which are laid down by the community and are imposed by the community.

When taxation falls not upon income but upon capital assets we are mistaking and misusing the essential nature of taxation itself and doing it in such a way as to transfer—and probably, in the attempt to transfer, destroy—the creative capacities of the society itself. That this happens when unreal gains, illusory gains, inflationary gains, are taxed goes without further demonstration. It also happens where relative gains, offset by equal and opposite losses, are taxed, because unless at the same time the community is making good the corresponding losses which are occurring, it is engaged on a net form of capital consumption.

In the third case, what is happening is that the State is taxing twice. It is taxing the income and it is also taxing the saving of that part of income which has been, by common consent and deliberately, relieved of taxation, the part which is left after taxation has fallen upon it. If hon. Members will test this proposition by presenting to their minds cases where there is a real increase in value which is neither inflationary nor relative, they will find that it can arise only from the application, from the deposit as it were—the creation—of capital by the saving of current income.

I may try to comment later on what the right hon. Gentleman has said, but may I ask him one question, following on the lines of his thought? He said that, for the reason that he has given, he is opposed to all taxation of capital gains. By the same logic, is he therefore opposed to all taxation of capital, of any kind?

Yes, I am. I believe that capital taxation is either self-destructive or an illusion, that taxation of income serves all the proper community purposes of taxation and that all increase in wealth, in so far as it ought to be brought within the scope of taxation, ought to be brought within the scope of taxation by means of the income which it produces and generates.

The first of the right hon. Gentleman's causes of capital gains is the subject of the clause. On the second clement, in theory at least, if it were working well, a system of allowing for capital losses, which is an inherent part of the mechanism of the tax, should be self-balancing. If I have understood correctly the right hon. Gentleman's concept, if one house increases in value and another goes down in value—this is the relative effect—the owner of one will have the capital loss allowed and the other will be taxed on the capital gain. It does not work perfectly in practice because of the operation of the mechanisms. But suppose that coal or oil were discovered under a piece of land under which of the right hon. Gentleman's headings would the consequent increase in value fall?

On the hon. Member's first point, it would be theoretically possible to construct some sort of tax system—it would be extremely complex—whereby all diminution, realised or unrealised, in capital values which was relative diminution was either remitted or repaid. But in practice this is far indeed from happening. In answer to his second question, unless and until the coal seams which have been discovered under that land are worked and the wealth which is produced has in part been applied to the creation of new capital assets, the relative increase in the value of that land must be counterbalanced by a relative fall in the value of all other capital assets whatsoever.

I am sorry, Mr. Murton, if I have been betrayed into conducting a seminar at this untimely hour. I conclude by saying—perhaps it is a perfectionist's approach, but, if so, it is one proper to adopt by those who occupy the Back Benches rather than the Front Benches—that I do not wish to see us diverted from the real and profound evils and misconceptions of the taxation of capital in general by the attempt to palliate the effects of taxation of the illusory accretion of value in terms of inflation.

11.0 p.m.

We are extremely grateful to the hon. Member for Cornwall, North (Mr. Pardoe) and his hon. Friends for initiating the debate. Not only have they raised an especially important subject; they have produced most interesting comments from the right hon. Member for Down, South (Mr. Powell). What I am about to say is not quite in line with what the right hon. Gentleman said and, therefore, I am in some trepidation in saying it. However, I do not think that there will be quite as many contradictions at the end of my speech as at the beginning.

I agree with the three points that the right hon. Gentleman made about capital gains. As for the element of inflation, I do not think that the majority of us would say that that is a real capital gain. Surely we should avoid taxing it in an ideal system. However, there is the question of real appreciation and real losses. The third form of capital gain is saved income. Saved income is post-tax income and provides the base value for a capital asset. Even under the present system it should not attract capital gains. That is because it is the basic cause of building up a capital asset. If an individual invested £1,000 of his saved income in a capital asset, in no way would he be taxed upon the £1,000 that he put into the capital asset.

My approach to capital gains is to start with the proposition that a profit is a profit and a profit should be taxed. A Royal Commission in Canada—I think it was the Carter Commission—adopted that approach some years ago. I should treat genuine profits of income and genuine profits of capital in entirely the same way but with the introduction of two important factors. First, I should say that it would be wrong to tax the inflation element in a capital gain. That is why I believe that a capital gains tax of 30 per cent. instead of the normal rate of income tax, or surtax in the days that it was brought in, was an attempt to recognise that capital assets cannot be taxed at the same rates as income due to the important element of inflation. Clearly, the differential between income tax rates and capital gains tax is quite inadequate in the modern era given the rates of inflation that we have had.

Secondly, if we are to adopt my approach to capital gains tax, we have to recognise that the capital gain does not accrue at the time of realisation but accrues evenly over the ownership of the asset. In my ideal situation I should have taxation of income over the period of ownership but with the inflation element excluded. Clearly, that sort of system is not very practical. Therefore, whatever system one introduces for capital gains tax is bound to be a compromise.

I consider that the clause is a compromise well worth considering, but there are two factors that I want to bring into consideration. First, most capital gains taxes, which are taxes arising on realisation of assets, basically have a bad economic effect. Taxes such as capital gains tax, capital transfer tax and stamp duty are taxes on change. Because they inhibit economic change, I do not think them to be basically good taxes.

Secondly, there is the very serious problem of the deferred tax The Chancellor said in his Budget speech that he thought that the problem was better understood in the country than previously. He then made some remarks which indicated to me that he did not appreciate the problem, and that, therefore, it was very unlikely that the rest of the country understood it either.

Deferred tax is no problem whilst a business is a going concern. The problem is that when advancing money to companies or institutions bankers look at them not when everything is going right but when everything is going wrong and they realise the security. Deferred tax is no problem if there is no question of insolvency of the individual or liquidation of the company. It can continue as simply a figure on a balance sheet. But when it comes to the crucial question of the creditworthiness of an institution one does not look at it on a going-concern basis. It is only when a company goes broke that deferred tax is a serious problem. Deferred tax is a major inhibiting factor at present in our country's affairs. I do not believe that the Treasury understands the problem.

For the reasons I have given, I think that the clause has played an important part in our consideration of the Bill, and we should all be grateful to the Liberal Party for having put it before us.

The clause raises two issues—indexation and the whole question whether capital taxation is right in principle. I do not propose to attempt what I suppose is always my difficult duty in politics, which is to follow—not always the lead of, but at least to follow—the right hon. Member for Down, South (Mr. Powell).

As the right hon. Gentleman said, there are two logical positions that we can take up with regard to the principle of indexation. One is to have no indexation and the other is to have total indexation. It is possible for the State to order indexation of those contracts over which it has control. It then creates a distortion of contracts between private individuals, and there are further anomalies, further difficulties, for people who are coping with an increasingly fast rate of inflation.

The more we discuss indexation, the more we must ask ourselves "Do we really want to beat inflation? Do we really want to deal with it at its fundamentals or simply to mask the symptoms?" I wonder why we now have a nearly 20 per cent. rate of inflation. Are there conditions in society which make people tolerate this level of inflation, or is it most people's desire not to halt inflation but so to rig it that it does them no harm and any harm is felt by others?

For instance, why is it that in today's society, when so many people are partly dependent upon welfare benefits, which are themselves indexed, or partly dependent upon old-age pensions, which are also partly indexed, the broad mass of the population allow the politicians to print the money and not raise their taxes? Is it because they feel that they are at least partly indexed?

First, does my hon. Friend believe that Governments have been wrong to raise the threshold of income tax every few years to take account of rising prices? Does he feel, in other words, that the threshold of income tax should now be exactly the same in monetary terms as it was 10, 15 or 20 years ago? Does he believe that that would be of help in the battle against inflation?

Secondly, is my hon. Friend not aware that it is the Government who are printing money and who are also the beneficiaries from non-indexation in many of these things?

Yes, indeed. But the way in which all Governments have persuaded large sections of the community to endure inflation is by saying to them In one activity or another, we will allow you to contract out of inflation." I instance the whole question of house purchasing.

Would my hon. Friend be kind enough to give me an answer to my first question?

Is my hon. Friend saying—this is the logic of it—that it is wholly wrong for Governments to have increased the threshold of income tax—the level at which people come into the net—over the years to take account of inflation? Is he saying that it would have been far better to have kept the threshold where it was, say, 10 years ago, and that this would mightily have contributed to the struggle against inflation?

No. I am saying that, in one area or another, the Government seek to take the pain out of inflation, but unless some pain is felt by those who are suffering under inflation there will be no popular will to break inflation. I was quoting the example of house ownership.

The nominal value of housing goes up and up. The houseowner kids himself that he has a more valuable house. By dispensation of Parliament, he pays no capital gains on his principal private residence. But if, under the 1965 legislation, it had been laid down that he should pay capital gains tax on his principal private residence, I suspect that the wish to defeat inflation would have been a great deal stronger.

When I hear various business men saying that they want to defeat inflation, I ask myself "Do they really?" Many of them have their businesses geared to it. Many of them have accepted a high rate of inflation, and if that high rate of inflation did not continue as they predicted they would be bankrupt. They know, as the Government know, that the only way someone who has borrowed a lot of money can get out of trouble is by a rising crescendo of inflation cancelling the real value of his debts.

I wonder, when we talk about indexation, "Do we really want to defeat inflation, or do we just want to mask it?" The only way in which we can defeat inflation is by demonstrating to people the painful effects of inflation. If we take away the pain, we shall also take away the popular will to defeat it.

11.15 p.m.

We have had a very interesting, almost philosophical, debate on indexation, taxation and capital taxation in general. Perhaps I could return to the new clause and remind the Committee of what we are discussing.

If we are discussing indexation—indeed, we are discussing it in relation to capital gains tax—we are discussing indexation for the benefit of one particular group of savers. We have heard one or two speeches about the virtues of saving. We are discussing indexation for one group of savers. Many of the people who would benefit from the new clause might not be savers or might not be people who have put their savings into capital assets and made a capital gain. Therefore, we are discussing indexing one form of taxation as opposed to others.

Before pursuing that argument, perhaps I should say—although I am sure that the Committee will not be too interested in technical arguments tonight—that indexing capital gains would create enormous technical problems from the point of view of considering the clause. There is the problem of part disposal, of assets being disposed of partly from one year to the next. There is the problem of shares being pooled, of new shares being bought and old shares returned, and then those shares being sold. There are the problems of losses which have to be dealt with. Therefore, there are considerable technical problems, apart from objections in principle, as the hon. Member for Norfolk, South (Mr. MacGregor) recognised.

The hon. Member for Norfolk, South said—I agree with some of it—that if one was wanting to deal with this problem a better way might be to introduce a kind of tapering system, which some other countries have introduced. They have a tapering system which perhaps creates a kind of rough and ready form of justice.

The major objection is that I do not believe—I agree with the right hon. Member for Down, South (Mr. Powell) and the hon. Member for Wolverhampton, South-West (Mr. Budgen)—that indexation is the answer to this problem, or, indeed, that we should go down this road of indexation very far—except that in some cases we have indexed certain payments. This is something of which we have to be very wary, because it does not solve the problem of inflation. It is a cosmetic exercise. It creates a false sense of conquering inflation when we have not done so.

If one indexes some things and not others, one is creating a benefit for one section of the community but not others. On the other hand, if one indexes everything, which seems to me to be fairer, one benefits no one. One is back in the same place again and has not solved any problem at all. Opposition Members want to index some areas but not others. That is unfair for those who are not getting the benefit of the indexation.

Does the Minister agree that the investor who, very often, has made his investment out of earned income is a very deserving person within the community and, therefore, that indexation, which the Minister has admitted has been applied to other groups, might justifiably and rightly be admitted for small investors and savers?

Small investors are very worthy people, but not all investors make capital gains. Many investors buy shares in building societies or put their money into building societies. They suffer from inflation. The value of their deposits, and, indeed, the value of the interest that they receive, is reduced by the effect of inflation. They are investors, but the clause would not help those investors. The hon. Gentleman refers to merely one kind of investor, but not all investors make capital gains.

If the Minister believes in the argument that he was using just before my hon. Friend the Member for Macclesfield (Mr. Winterton) intervened, why did the Government introduce index-linked savings bonds, and is that not an example of discrimination against the institutions and even individuals who are trying to attract savings?

I entirely accept that there is a certain amount of discrimination. But we are not living in a perfect world. There are certain areas in which it is believed that a certain group needs to be protected more than others against the ravages of inflation, which would seem quite different from saying that those who are able to make a capital gain should also get that benefit. However, I accept that there is a slight discrimination.

We should be wary of going along this road, otherwise we shall end up by thinking that we have solved the problem of inflation when, of course, we have not done so.

The clause calls for indexation on the basis of the retail price index. That is an unfair way of dealing with the problem. The hon. Member for Cornwall, North (Mr. Pardoe) looks surprised. I see RPI in several parts of the clause. I am right, am I not?

The hon. Member for Gloucestershire, West (Mr. Cope) gave a good example. He said "If I bought agricultural land at a low price and then found coal or oil under it and made a vast profit, why should I be allowed to index that profit to the retail price index? That gain might have nothing to do with the retail price index." Indeed, one might make a gain on property shares which had nothing to do with the RPI. The Sandilands Committee did not recommend that its form of indexation should be related to the retail price index. We cannot have one RPI for all the different sorts of asset. I suggest that is a major flaw in the clause. [Interruption.] It is suggested that it is a bad point. There are many reasons why a person makes a capital gain. A gain may have nothing to do with the retail price index. Why should someone get the benefit of an increase in the retail price index? I suggest that there must be different indices, to be fair, in deciding what part of a gain should be indexed.

I am sure that the Minister does not want to display himself in public as an intellectual pigmy. He will surely appreciate that a capital gain is measured in terms of money. The retail price index measures the decline in the value of that money. We are talking about determining a true non-inflationary monetary gain. This has nothing to do with the particular price of coal, land or anything else.

The inflationary gain, according to the clause, is computed by reference to the retail price index. I suggest that might be unfair in relation to a particular asset. The RPI takes account of many factors. If the hon. Gentleman studies the Sandilands proposals, he will see no suggestion that the gains, profits or valuation of assets should be related to the retail price index.

It is interesting that the hon. Member for Norfolk, South and others suggested that if we were to go along this road we should have to look again at our capital gains tax system and provide a higher tax for a gain made over a short time, and that we should have to consider bringing back a short term gains tax to take account of speculative gains made over one or two years.

The main objection to the clause is that indexation is not the right way to deal with the problem. We should not index one form of taxation without looking at the whole area of taxation. Indeed, we should look at other areas of financial and commercial transactions.

I do not know whether the hon. Member for Cornwall, North will seek leave to withdraw the motion. If not, I ask the Committee to reject it.

I have been silent up to now. Indeed, I have made no contribution at all during the whole of the Committee stage on this Finance Bill. It has been difficult for me to do that. Indeed, this would have been the first indexation deabte on any Finance Bill, since I have been a Member of Parliament, in which I had not taken part.

I was about to say that it would have been the first indexation debate in which I had not taken part, but the Minister's lamentable reply has prompted me to rise.

The hon. Member for Blaby (Mr. Lawson) said the same thing last year, too.

The Financial Secretary reminds me—I had forgotten—that he made a very bad reply last year, too. As a matter of fact, it was not last year. The hon. Member for Cornwall, North (Mr. Pardoe) had the courtesy to point out that this clause was the clause that I moved last year. To put the record straight, I tabled it originally the year before last. If the hon. Member for Cornwall, North cares to look at New Clause 2 which I moved on 16th July 1975 he will find that that is the Eons et origo of the clause that we are debating tonight.

The clause has been criticised by the right hon. Member for Down, South (Mr. Powell) and the Minister. I shall deal with that in a moment with all the brevity that I can command. [Interruption.] It may not be a great deal because we have had the benefit of what the right hon. Gentleman called a seminar. We should debate the matter seriously and at some length.

One or two of my hon. Friends—the Minister hinted at this—said that they would be better disposed towards a tapering system rather than this explicit indexation. I do not have a copy of the amendments with me, but I believe that there is a new clause to taper capital gains on the Notice Paper for the Standing Committee. I hope that we shall repeat this debate even more fully upstairs. Hon. Members on all sides of the Committee will have the opportunity to discuss the question of tapering and perhaps vote on it.

My hon. Friend the Member for Gloucestershire, South (Mr. Cope)—or was it the hon. Member for Cornwall, North?—said that this might be an expensive clause. It is always important to discuss costs. It is right to bring that up. It was striking that the Minister at no time said what it would cost if the clause were to be accepted. That is strange, because Ministers invariably say what would be the cost of accepting a clause. On this occasion, the Minister said nothing at all. Yet the uncertainties about the cost are exactly the same as the uncertainties about the yield from capital gains tax. It is estimated that the yield for next year will be £330 million. Last year the estimate was £400 million but the yield was £320 million—a 20 per cent. error. It is surprising that the Government can give no estimate of the cost of the clause. It might not be great. Alternatively, it might be so great that it is horrific and they wish to suppress the amount that they are gaining from inflation. Whatever the reason, we should be told. [Interruption.] If the figure was in between, as the Minister suggests, I suspect that the estimate would be given with the alacrity with which such figures are usually provided.

The right hon. Member for Down, South said that he was against this, not because he felt that the inflationary element in a capital gain should be taxed. He did not think that any element of a capital gain should be taxed or that there should be any capital taxation at all.

That is a point of view for which there is a considerable argument. But if the right hon. Gentleman feels that way surely that is sufficient reason for him to go some of the way. I do not think that the whole should be the enemy of the part. I do not think that the best should be the enemy of the good. I should have thought that he would have supported something that goes part, or a large part, of the way towards what he wanted to do.

The right hon. Gentleman said that there were three kinds of capital gains—inflation, a relative gain and the other which is derived from income being transferred into capital through the mechanism of saving, and he said that if that is taxed in the form of capital, it is taxed twice, because it has already been taxed as income. That was what I understood him to be saying.

11.30 p.m.

Let us consider what might happen in a totally non-inflationary economy. Suppose that a painter got together certain pigments and used them to create a masterpiece of art. He would have created a capital asset of considerable value, but there would be no flow of income from it because a painting is not an income-producing asset.

Surely the hon. Gentleman must be aware that painters are subject to income tax just like everyone else. A painter would pay income tax on the profits of the disposal of the asset.

That does not answer the point. A capital asset like a factory is valued by the multiple of its earnings and by the income that it produces. That is not so with a painting. I am surprised that Ministers should dispute that, because the whole of their case for recommending the introduction of a wealth tax is that there are assets which produce no income and that it is important somehow to tax them.

The economists have a term for that. They say that a painting creates psychic income, but there is no taxation of that. Unless the right hon. Member for Down, South, can weave that into his model, I cannot see that there are only three exclusive categories of capital gain.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) also made a contribution—[Interruption.] Judging from the cheers from the Government Front Bench, it seems that Ministers agree with what my hon. Friend says. No doubt they will continue to take that view when he speaks in Standing Committee. My hon. Friend seemed to be advancing a strange theory on how to cure inflation. He must surely understand that the clause has nothing to do with curing inflation, however. The hon. Member for Cornwall, North did not advocate it as such, and I know of no one who does.

My hon. Friend said that inflation will be cured only by the infliction of pain. I should have thought that we had had enough of pain. Evidently he thinks that the answer to inflation is to have more and more of it, however. It seems that the cure also lies in the mechanism of the popular will. It is evidently not Governments that have a responsibility for the cure. It is the population, and until the populace is punished sufficiently the popular will will not provide a cure for inflation. I confess that I was not convinced by that thesis. Therefore, I was not convinced by my hon. Friend's opposition to the clause. I believe that the rest of my hon. Friends were in favour of the clause. I found their arguments more convincing.

The Minister, who could have done with some tuition from my hon. Friend the Member for Macclesfield (Mr. Winterton), made a lamentable speech. He seemed to think that the clause was being proposed as a cure for inflation. It was not proposed as a cure for inflation; therefore, to say that it was not a cure for inflation was no argument against it.

The Minister also said that the clause created a benefit for some people and not others. I have news for him; any tax change in any Finance Act creates a benefit for some—if it is a reduction in taxation—and not for others. That is no argument. The question is whether these people have been unfairly treated hitherto.

It has been pointed out cogently by the hon. Member for Cornwall, North and my hon. Friends that that is indeed the case. The Minister's speech was a marked retreat from the speeches of previous Ministers. This is rather worrying. Even the Chancellor of the Exchequer, when introducing the 1975 Budget, said, on the very question of capital gains tax
"There is, however, evidence that this tax is bearing unduly heavily on those who hold assets for long periods and is too lenient on those who hold for very short periods, and over the coming year I propose to review the incidence of capital gains tax."—[Official Report, 15th April 1975; Vol. 890, c. 311.]
He admitted that there was a need for a review of the incidence of capital gains tax in the light of inflation, but nothing has happened since then. What is the result of that review? We have not been told. We should have been told what that review threw up, even if it led the Chancellor to believe that no action should be taken.

A previous Treasury Minister, in a previous Finance Bill Committee stage debate—this is the Minister whom we love so much and who changes from Department to Department so often that I forget which one he is in now; the hon. Member for Dudley, East (Dr. Gilbert)—said, about another hon. Member of the Committee, on the subject of capital gains tax:
"He sees this as a form of wealth tax and I accept that. It is an arbitrary form of wealth tax, however, because it falls on those who have to realise their assets in certain circumstances…the way in which we tax capital gains at the moment is unfair."—[Official Report, Standing Committee H, 23rd May 1973; c. 615.]
That was one of the Minister's predecessors. Yet we now have the Minister backsliding, with no admission of unfairness.

The Chief Secretary has also said that the capital gains tax was unfair. He said that we have to find
"a more progressive or different way of dealing with capital gains tax."—[Official Report, Standing Committee A, 11th February 1975; c. 1176]
The Government have had two years now. What more progressive or different way of treating capital gains tax are they presenting to us? The Chief Secretary has been ready to admit that the interaction of capital gains tax in its present form—capital transfer tax—causes a heavy, severe, punishing and wholly unfair and unacceptable form of taxation in many circumstances. He has convinced us. If he wishes me to quote his exact words I shall do so. They come from last year's debate. In 1975 he said:
"Let me turn now to capital gains tax. The arguments about capital gains tax indicate a need for an examination of that tax. That I do not dispute."
He pointed out the problems of interaction, and then went on:
"The answer there lies more with a reform of the capital gains tax, whether it be by way of indexation which the hon. Gentleman is so fond of, or another way which others may prefer, a more progressive or different way of dealing with capital gains tax."—[Official Report, Standing Committee A, 11th February 1975; c. 1175–6.]
Yet now we have no admission at all from the Government, no news of a review or a more progressive or fairer means of levying capital gains tax.

There is one point that is worrying some of my hon. Friends and also seems to give some concern to the Minister. The right hon. Member for Down, South and some others have said that if one part of the system is indexed the lot must be indexed. This is manifest nonsense. The right hon. Member adduced no argument to suggest that this should be so.

Many parts of our system are already indexed. We have index-linked bonds, stock appreciation relief, inflation-proof pensions, and indexation in many other forms. Is the right hon. Member really saying that there should be no regular increase in pensions along with the cost of living because this is indexation? Is he saying that the threshold of taxation should not go up in line with inflation? This is a nonsensical proposition. But in any event capital gains tax is clearly a special case. The reason why capital gains tax is special is that other taxes, which relate to specified monetary sums, can be changed each year. In the words of the Financial Secretary—and I am glad to see him in his place—they can be revalorised. They are reviewed each year, and every so often the thresholds are put up and allowances raised. But capital gains tax, by its very nature, cannot be adjusted each year because it is not a tax relating to the events of one particular year, nor to any specified monetary sums. It relates to a period going back over a long time. There is no way in which capital gains tax can be annually reviewed. It can only be reconstructed—by indexation or by tapering, which is a rough and ready means.

The Government review every tax every year—even capital taxes such as capital transfer tax, where the limit of £15,000 could be put up next year by 10 per cent. or 15 per cent.—except capital gains tax. Because it is concerned with money at different times it cannot be revalorised or reviewed in this way. It is, therefore, uniquely necessary to reconstruct capital gains tax.

I urge the Minister to go back to those who provide his brief and ask them to provide him with a better brief so that when we come to discuss the new clause on tapering in Committee upstairs there will at least be arguments with a veneer of respectability about them.

The Minister of State gave us some indication of the severity of this tax, as did the hon. Member for Cornwall, North. For the period this Government have been in office the rise in prices has been about 75 per cent. This means that if an asset maintained its real value and was worth £100 when the Government came to office it is now worth £175. That is a notional gain of 75 per cent. A figure of 30 per cent. capital gain (on that sum of £175 means a tax of £22.50, which is a tax of about 13 per cent. I hope that the Minister is with me so far. That is a wealth tax of 13 per cent. Admittedly, it is spread over a three-year period because this Government have been in office for three years. That represents a wealth tax of 4 per cent. a year. Yet the highest annual wealth tax in Europe is that imposed by the Swedish Government amounting to 2½ per cent. Our wealth tax of 4 per cent. a year is, therefore, a severe tax. This aspect of capital gains tax is no mere technicality. It is pre-eminently a wealth tax and a wealth tax of the utmost severity.

I hope that the Minister will try to reply more fully to these arguments when he deals with these matters upstairs. I hope that he will pay more attention than he is paying now while chatting to the Financial Secretary.

The figures are right; do not worry about that. I hope that the Minister of State will remember the Chancellor's promise to review this matter and will come forward with something better upstairs or later on Report.

11.45 p.m.

My hon. Friend the Member for Blaby (Mr. Lawson) is to be congratulated on the brevity of his speech, into which he was forced spontaneously and unwillingly by the provocative remarks of the Minister of State in summing up the earlier part of the debate.

There should be no apologies in respect of the right hon. Member for Down, South (Mr. Powell) for treating us to a seminar. As usual, his remarks provoked thought, and he was right to remind us of the nature and accumulation of capital and of the fact that capital itself is a simpler and more elusive concept than might be inferred from hearing the word "capital" as it drops from the lips of tax reformers or economists or as it is thrown about in debates in Parliament.

But when the right hon. Gentleman takes us on to his proposition that it is better that we do nothing in addressing ourselves to capital—because in principle he is against all taxation on capital—I do not think it follows that because we cannot do everything we can do nothing. I think that we should proceed on that path. There is progress to be made, and we should not let "ambition mock" our "useful toil" in this area.

There is progress to be made in this sphere. Two years ago we thought that the Government would make some progress, but the review has been lost in the spiral of reviews, there have been further delays and nothing much will happen on the Treasury Bench.

There are two aspects of the clause which have been discussed. There is the indexation aspect, and our position on indexation—obviously the word is elastic and can be stretched to mean many things—is that it should become the custom in this House that each year Chancellors of the Exchequer and Chief Secretaries should acknowledge the effect of inflation and rises in prices on the real impact of taxation. Money values should be appropriately adjusted and set before Parliament, and the Chancellor should explain clearly why he wishes to raise taxation if he does not want to make the full adjustment. That is what we mean by the principle of truth in taxation.

It is a principle which Labour Members should embrace with more vigour than happened in the run-up to this Budget when an absurd degree of pretence was mounted from December onwards that the Government would do wonderful things, that this would be the last Budget before the Chancellor went to the Foreign Office, and that there would he all sorts of tax concessions. By the time we reached it, the public had rumbled and had realised that what were being trumpeted as tax concessions were not tax concessions at all but temporary checks in the ever-rising level of real taxation. That is the indexation side.

As for indexation on capital gains, I confess that I share the view of the Minister of State. It creates a formidable bureaucratic machine. The indexation of capital gains would mean setting up an enormous machinery for assessment. Therefore, at a time when, heaven knows, we are trying to redress the balance between the public and the private sector, to reduce the growing army of administration and to persuade more people into wealth creation, this is not the right way to deal with the matter.

The Minister of State mentioned a much more profitable way, and I do not know whether we should draw hope from that, but he was on the right lines in talking about tapering. That would be our preference—tapering capital gains tax over five years. So I shall draw encouragement from what the Minister said, especially now that the Government will get on with the review, spurred on by the eloquence of my hon. Friend the Member for Blaby and other hon. Members. That is the way to go. The review should come forward with proposals for the tapering of capital gains tax. That is the way to meet the needs of the situation more effectively, partially in relation to the needs of capital taxation reform. It could be done more effectively than through this clause, which, I fear, would create a massive bureaucratic army for dealing—probably not effectively—with a specific aspect of taxation caused by high inflation, which, in turn, means unemployment.

Those are the views that I add to an excellent, useful and informative debate on a subject about which something must be done soon—if not by this Government, then by the one following it, and that is not far away.

I must make it clear that I do not regard the Minister of State as an intellectual pigmy, but I am a little worried about the intellectual size of the mind that wrote the piece about the retail price index for the hon. Gentleman's speech. If there are people in the Treasury who do not know that the RPI measures the value of money, I do not know what they do know. The whole point was bad because the point about indexation is that one must start by measuring the fall in the value of money and then apply that to whatever one is trying to tax or measure.

I wish to refer to the right hon. Member for Wolverhampton, South-West past and the hon. Member for Wolverhampton, South-West present (Mr. Budgen), if I may put it that way. The right hon. Member for Down, South (Mr. Powell) and I enjoy an extraordinary relationship with the Institute of Economic Affairs. It is a rather unsatisfactory eternal triangle, although I am not sure who is on the hypotenuse. We have a Box and Cox relationship. Every time that I find something that the Institute has advocated which I support, the right hon. Gentleman opposes it. Every time that he supports something advocated by the Institute, I do not do so.

The definitive work on indexation is "Monetary Correction" by Professor Milton Friedman. It is the one part of his theory that I entirely support. My answer to the Minister of State on the point about indexation making it easy to live with inflation is that it does not—but it makes it easier to live with the cure. That has been argued by Friedman, Keynes and Marshall. The monetary cure for inflation—as the right hon. Member for Down, South has told us in innumerable debates while we have listened to him attentively on this subject—is bound to create pain. It may be that public opinion will decide that the pain is not worth taking and that, therefore, we want not to beat inflation but to live with it—not to cure it. The best course is to take some of the pain out of the cure, and that is what indexation does.

If we continue indexing certain parts of the income base of the economy, including public service pensions, old-age pensions and supplementary and unemployment benefits and do not at the same time index capital, we shall erode the whole capital base of the economy. That is probably what Lenin was on about when he said that inflation would destroy capitalism.

We need a clause that brings in wholesale indexations over the whole economy, but, on the more limited point, I hope that the review announced by the Chancellor of the Exchequer in 1975 will bring positive results.

Question put and negatived