[column 1342]

Mr. Cope

I beg to move Amendment No. 73, in page 14, line 15, leave out paragraph (a).

The Temporary Chairman

With this we shall also consider the following amendments: No. 74, in page 14, line 19, at end insert:

‘(b) it shall be reduced by the amount of any charges on income computed in accordance with section 248 of the Taxes Act’.

No. 83, in page 14, line 20, at end insert:

‘(b) charges on income as defined in section 248 of the Taxes Act shall be deducted’.

No. 84, in page 14, line 26, at end insert:

‘(d) payment disallowed under the provisions of section 130 of the Taxes Act 1970 in respect of interest, royalties or other sums paid in respect of patents, or any rent, royalty or other payment which, by section 156 or 157 of that Act is declared to be subject to deduction of tax under Part II of that Act as if it were a royalty or other sum paid in respect of the user of a patent, shall be deducted’.

Mr. Cope

The purpose of the amendment is to leave out of the calculation of trading income, for the purpose of applying the 10 per cent. reduction, paragraph (a) which provides for the artificial addition to trading income of capital allowances which would otherwise be received. We had a discussion earlier about the [column 1343]10 per cent. reduction in the relief, but it was not satisfactory. We heard no real reason, other than the one of cost, for the 10 per cent. provision to be included at all. If cost is to be the principal reason for rejection of the amendment, as seems likely, I hope that we shall be told what the cost is. I can see no logical reason why the paragraph should be included in the Bill.

“Trading income” has a meeting to all of us. It means income left after one has finished trading. To say that it equals the income left after one has finished trading, plus depreciation, is to depart considerably from logic. Governments, of course, regularly depart from logic. I do not pretend that the present Government are unique in that respect. The point of Amendment No. 73, the principal amendment, is that the paragraph deserves to be left out of the Bill.

Amendment No. 74, like Amendment No. 83, refers to Section 248 of the Taxes Act. It has the effect of altering another of the adjustments at present in the calculation of 10 per cent. I see no justification for allowing short-term interest as a deduction in computing trading interest but disallowing medium- or long-term interest. Once again, there appears to be no logic in the situation. I hope that the Minister will describe to us the logic which has led the Government to include these matters in the calculation of the relief. I hope that, in particular, he can tell us the cost, if that is the ground on which the Government will reply.

Mr. Hordern

I should like to speak briefly on Amendments Nos. 83 and 84, which deal with further anomalies.

Amendment No. 83 seeks to correct the anomaly of the distinction between bank loans and overdrafts which are allowed for stock appreciation relief and deductions and borrowing on, for example, unsecured notes from which income tax is deducted at source at the time of payment. Interest is not deductible under those rules because relief is being given for corporation tax by the separate device known as a charge on income.

If we have two businesses with identical profits, trading stocks and borrowings, one with a bank overdraft and the other financed by an issue of unsecured loan [column 1344]notes, the business with bank borrowings will have a smaller trading income for the purposes of the clause. Therefore, it will have greater tax relief, whereas the company which has borrowed under unsecured notes will not have a similar relief. The anomaly seems perfectly simple to correct, and I hope that the Financial Secretary will do so. Whether he does it in terms of the amendment does not matter.

Amendment No. 84 deals with the treatment of royalties. A business which manufactures under licence must deduct income tax at source at the time of payment of royalties to the owner of the patents. Such royalty payments are also treated as a charge on income and so are not deductible in arriving at trading income. All taxpayers will be in the same boat. In most cases royalties will be disallowable for this purpose. However, royalties surely should be deductible in arriving at trading income and should not be disallowed for the purposes of Clause 16, which itself is supposed to provide income merely because of the long-standing law which requires any tax to be deducted at source at the time of payment. There is no reason for that old provision to have any influence on the stock appreciation measure.

I hope that these two simple amendments which my hon. Friend the Member for Gloucestershire, South (Mr. Cope) so ably proposed will be accepted readily by the Financial Secretary.

Mr. Dodsworth

I rise briefly to support my hon. Friend the Member for Gloucestershire, South (Mr. Cope) in the deletion of paragraph (a) in Amendment No. 73. It appears that a form of penalty is being exacted at a time when we are seeking to encourage industry actively to invest. We have in the course of that encouragement agreed to give 100 per cent. allowance in respect of investment expenditure. We now have a situation in which 10 per cent. of the allowance is being treated as a deduction from the relief. The effect is a form of penalty, because companies have carried out their investment expenditure and their relief under the provisions of the Bill is now being reduced. That seems illogical and anomalous. In the circumstances it would seem to be sensible that the paragraph should be removed altogether.

[column 1345]

Dr. Gilbert

The effect of Amendment No. 73 is that depreciation allowances should not be disregarded for the purpose of the 10 per cent. reduction. The reason we have included the provisions of paragraph (a) is that it is intended that trading income should normally approximate to commercial profits.

Hon. Members will know that capital allowances, particularly the 100 per cent. allowances, are extremely generous. Whereas it might be urged that the disallowance of the allowances for the purpose of this relief might operate to the detriment of capital intensive industries, equally those industries that are not capital intensive might feel that an arrangement that permitted the relief to be set off against them would prejudice their position.

If the amendment were to be allowed the cost would be so great that my right hon. Friend would probably have to think seriously about the level of 10 per cent. as the offset against the relief. I am sure that that would be a course that would not commend itself to Conservative Members.

The effect of Amendment No. 74 would be to allow basically all interest costs as a charge in arriving at trading income. That would breach the well-known distinction between short-term and long-term interest. My right hon. Friend's relief is addressing itself to the short-term liquidity problem—in other words, to inventory problems. Conservative Members will know that they are traditionally financed by short-term interest, whereas long-term interest is normally of a sort that arises to finance capital expenditure. There is that recognised difference between the two types of interest. If we were to increase the relief that is available by reference to the sort of interest that arises on debenture charges, for example, that would not be in accord with the purposes of the relief being offered by my right hon. Friend. Perhaps I might anticipate an intervention by saying that the perfect solution might be to consider the nature of the loan and to determined whether it was being incorporated to finance stock rather than capital expenditure. I am sure that the hon. Gentleman will recognise that this is rough and ready assistance—we have [column 1346]made on secret of that—my right hon. Friend is able to provide.

Refinements of this sort would again be time consuming from the taxpayers' point of view. There could be a dispute over the judgment as to what the real purpose of the loan was. That would mean that the taxpayer would be even later in getting his money, which would not be a solution which would commend itself to the hon. Gentleman.

Mr. Hordern

I recognise that these are only temporary provisions and that the Government are to bring forward further provisions in the spring Budget. During the consideration of that Budget will the Chancellor bear in mind, and take into account, these anomalies?

Dr. Gilbert

I do not even have to give the hon. Gentleman an assurance that I will bring his representations to the attention of my right hon. Friend because the Chancellor is here to take note of what has been said. I am sure that he will bear those representations in mind.

Amendment No. 84 appears to be somewhat obscurely drafted. It seems to us to be proposing that the measure of trading income for the purpose of the 10 per cent. reduction should be reduced by the amount of those charges which are royalties paid in respect of patents and certain mining rights from which tax is deducted. Again, it is a situation where the analysis of the charges would be extremely time consuming in relation to the relatively minor benefit that would be involved. I must advise the Committee that I cannot accept the amendment.

Mrs. Thatcher

It seems that my hon. Friends have made an excellent case for both amendments. The Government's answer is not that the situation raises an administrative problem, although on occasions it involves a technicality, but that the main difficulty is one of cost. We have not been told how much the amendments would cost. If the cost would be considerable, the fact is that it is being borne by those who have done most investment. That situation would not be welcomed by most of us. We ask J. Gilbertthe Financial Secretary, if he can ascertain the cost, to tell us what it is. If not, will he consider the points that have [column 1347]been made, because we may return to them on Report? We have a great deal of work to do tonight and we are moving on now not because we think we are wrong. We think we are right, as usual.

Dr. Gilbert

The right hon. Lady has invited me to intervene again. I will, of course, always consider points raised by right hon. and hon. Members on the Tory benches. I would be misleading the right hon. Lady if I gave her any indication that Amendment No. 73, which is the crucial one, on which it is not possible to calculate the cost, would be acceptable to the Government on Report.

Mr. Cope

I cannot accept that it is not possible to calculate the cost involved with Amendment No. 73, because it must have been calculated somewhere to arrive at the estimate in the Red Book issued at the time of the Budget. It is an essential part of the calculation which was made in arriving at the figure of £775 million. In the hope that the Financial Secretary will do his best to get in among the figures, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 16 ordered to stand part of the Bill.

Clause17

Capital Transfer Tax

Mr. John Pardoe (Cornwall, North)

I beg to move Amendment No. 43, in page 14, line 37, leave out ‘transferred by a chargeable transfer’ and insert:

‘of a chargeable transfer received by a person ( “the transferee” )’.

I suppose that at the start of every speech on this clause, and on all the clauses which deal with capital transfer tax, by reason of the motion which the House of Commons passed we should all declare an interest. I imagine that most of us have in some degree an interest in wealth, and I declare it immediately.

The language of the amendment may sound somewhat technical, but it is by no means a technical amendment, because in that choice of curious-sounding phrases lies the stuff of political philosophy. If there is a great divide between politicians in the Committee, it is to be found in the amendment. It goes to the [column 1348]root of our attitudes to the ownership of property.

I and my colleagues and many other hon. Members on both sides of the Committee believe in popular ownership. There are on the Government side some who believe only in public ownership, My colleagues and I believe, as Hobhouse once said, that private property is an instrument of personality. and that the ownership of private property is to be encouraged in every possible way by the Government and by legislation. The Government believe that private property, while it may be tolerated in strict moderation, is an altogether lower thing than public property. My colleagues and I believe in the wider ownership of property and we advocate measures which would distribute ownership as widely as possible.

In this context, and in other parts of the Bill, the Government appear to prefer the centralisation of property in the ownership of the State. We cannot deny these basic differences. They exist and we had better recognise them if our debate on the amendment and on whether the clause should stand part of the Bill is to be free of hypocrisy and cant.

The first thing we have to ask in discussing the capital transfer tax—it is raised immediately in the amendment—is what exactly is the purpose of such a tax. Presumably the first purpose of any tax is to raise revenue for the Government to run governmental business. That should be the first requirement of all taxes. It cannot be the primary purpose of this tax, however, because the yield is not very great. It is not a greatly more efficient revenue-raiser than is death duty; it is a midly more efficient revenue raiser, or it may be, depending on how it is administered. In 1973–74 death duty yielded £412 million. In 1974–75 it is estimated to yield £380 million. I do not underestimate the importance of such a sum of money for the Government, but it is not a high proportion of total tax revenue.

In 1860 death duties yielded 5 per cent. of central Government revenue. By 1900 the yield had reached 17 per cent. It fell away in the early 1920s, rising again to about 12 per cent. in 1930. It fell to about 3 per cent. in 1947 and it has tailed away slightly since then. It is true that death duties in the United Kingdom [column 1349]were a more important revenue raiser than they were in most other countries in 1969, as was made clear in the table produced by the Conservative Government in their Green Paper. For instance, in 1969 the revenue amounted to 2.8 per cent. of United Kingdom central Government taxes, 1 per cent. of French central Government taxes, 0.3 per cent. of German central Government taxes and 2.3 per cent. of such taxes in the United States of America.

In this country death duties are also a higher proportion of gross national product. In 1969 the proportion was 0.82 per cent. in the United Kingdom, 0.20 per cent. in France, 0.07 per cent. in Germany, and 0.48 per cent. in the United States. It is significant, however, that nearly all industrial countries, even though the significance of such taxes as revenue-raisers is low in comparison to their need, have some such tax. Admittedly most of them have the tax which accords with the principle I am adumbrating in the amendment rather than the principle which the Government are seeking to advance in their capital transfer tax.

The main criteria of all these taxes cannot be held to be that they raise revenue. Some people have argued in several countries that because the yields from such taxes are so low in proportion to total tax revenue the tax should be scrapped altogether. Yet it has persisted. We must ask why and what are the main reasons for its keeping a place in the tax hierarchy.

The second major reason for taxation is to reduce demand, and certainly that is the major purpose of most taxation today. With most taxes there is a fair correlation between revenue obtained and restriction of demand attained thereby, but with death duties that is not the case. Death duties are a tax on capital and are paid out of capital. They may at some time have been saved for out of income and would have reduced demand. They are not so saved for now. They may reduce income from capital which would otherwise have been spent on consumption.

Death duties may have other modest effects on the beneficiary's ability to consume, but they are not a consumption tax or income tax; they are capital taxes [column 1350]and have little effect in reducing total demand. Therefore, if revenue raising and demand reduction are not the prime purpose of death duties or of capital transfer tax, we must look elsewhere. It is because of their intended effect on the redistribution of wealth that such taxes have found a place, and continue to keep that place, in the canon of taxation in all the industrial countries I have mentioned, including our own.

The importance that we attach to the redistribution of wealth is a valid judgment, a political judgment, but it is one that most of us accept in some degree or other. My colleagues and I are in favour of reducing the inequalities of wealth, which we regard as being far too great. The Chancellor of the Exchequer nailed his colours to the same mast when he introduced the new tax as a measure of redistributing wealth. That is his intention and it is ours. In the past the Conservative Party campaigned—we do not hear much about it now—with the slogan of a property-owning democracy. That implies some shift in the balance of the distribution of wealth. If it does not imply such a shift, it is a mere slogan signifying nothing. Therefore, the wider distribution of wealth is the united objective of all parties in this place.

If that is the case, it might be thought that we should introduce a tax which goes out of its way to maximise the redistribution of wealth. Why, then, do we not introduce a tax in this Bill which specifically encourages that commonly-accepted objective?

Mr. Patrick Cormack (Staffordshire, South-West)

Is it not better to encourage the growth of new wealth than to destroy what we have?

Mr. Pardoe

I am not setting myself up as Robin Hood, and it is true that it is much better to encourage the redistribution and growth of new wealth, but I hold the view, which is probably shared by hon. Members throughout the Committee, that the present distribution of wealth is not what we would desire and that we should go much further with its redistribution. The effectiveness of the new tax in promoting the more even distribution of wealth will be the most important criterion by which we judge it. [column 1351]

There is no need to go in detail into the present distribution of wealth; we shall do so in the Select Committee on the wealth tax. A Royal Commission is currently engaged on just such a task and we shall have its figures, such as they are, before long. The figures we have are notoriously suspect. Taking all possible “ifs” and “buts” into account, it is probably true that 1 per cent. of adults over 25 own about one-third of all personal wealth in this country and that the wealthiest 5 per cent. own more than half. That is a picture of inequality and, so far as one can compare, a picture which is much worse than in the United States of America. Moreover, our best estimates lead to the conclusion that death duty has not done much to reduce the inequalities in inherited wealth.

It may be said that the reason was the gifts loophole—and that was a crucial weakness. However, although there is good reason to believe that the capital transfer tax, incorporating as it does a tax on gifts by both the quick and the dead, may do something to attack the concentrations of private property in Britain, there is no good reason to suppose that it will redistribute it among a wider section of the community.

The amendment, with consequential amendments to later clauses, would usher in something which could more correctly be called an accessions tax than an inheritance tax. The Government may think, as the Conservative Government did in their Green Paper—they certainly said so baldly—that the alternative to estate duty is an inheritance tax. It is not. It is an accessions tax. That is an important distinction.

An inheritance tax or legacy duty is a great improvement on death duty. The Green Paper “Taxation of Capital on Death: A possible Inheritance Tax in place of Estate Duty” , Cmnd. 4930, said on page 15:

“The essential difference between an inheritance tax and an estate duty is that, whereas an estate duty is charged by reference to the value of the property left by the deceased, an inheritance tax is concerned with what the beneficiaries get.”

Improvement on death duty though it certainly is, an inheritance tax still leaves wide open the problem of gifts among the living. An accessions tax on the other [column 1352]hand is not only based on the inheritance principle, which I prefer: it is also a gifts tax and it is cumulative over a life-time. It therefore does everything that the Government's tax would do but it does a whole lot more and it does it a whole lot better. It gives a powerful new incentive to a man to share out his wealth among several beneficiaries.

I make no claim here to support the idea of consanguinity. It does not seem to me that we need get ourselves involved in whether we should distinguish between the tax on a second cousin twice removed or on a widowed aunt. But I think that the capital transfer tax gives no incentive at all to spread wealth around. Indeed, because it now, rightly in our view, includes gifts, it may well encourage hoarding by the older generation when the wealth would be far better and more enterprisingly used by the younger generation.

Mr. A. J. Beith (Berwick-upon-Tweed)

Does not my hon. Friend agree that its effect is likely to be markedly felt in agriculture, where the older generation of farmers would be reluctant to hand over unless they are the subject of concessions in the Bill?

Mr. Pardoe

That is quite likely to be so. No doubt my hon. Friend will deploy the case on agriculture and forestry on some suitable occasion, on which I hope to be present to hear it. But certainly, in general terms, this is an extremely important qualification that we have to make.

What we are trying to do is to redistribute property, as we have all said. We are advocating a tax which will go a very long way to doing that. It is interesting that various people have made comments about the inequity of this sort of tax which we are now proposing. I have said that it may well discourage the handing on of wealth to the enterprising. I suppose it is true—I certainly hold it to be true—that it is in the nature of the young to be enterprising. Again, generally it is true that it is in the nature of the old not to be enterprising. That is a brave generalisation which no doubt we shall accept, or not accept, depending on our ages. The old may answer that what they lack in enterprise they make up in thrift, and thrift [column 1353]is no doubt an excellent virtue—which I am not sure the Chancellor supports wholeheartedly. However, without enterprise it is a very poor thing. Indeed, as Keynes once said:

“It is enterprise which builds and improves the world's possessions. If enterprise is afoot wealth accumulates, whatever may be happening to thrift, and if enterprise is asleep wealth decays whatever thrift may be doing.”

Mr. Tim Renton (Mid-Sussex)

I am afraid that the hon. Gentleman has totally lost me on the subject of his accessions tax. I fully agree with him about encouraging enterprises, but is his accessions tax anything else but a capital gains tax in which the tax is paid by the recipient rather than the donor?

Mr. Pardoe

I think it is a capital transfer tax. It is indeed a capital transfer tax that is paid. That is why I said that it does all the things that a capital transfer tax does and that the Government want done, but it does more and it does them rather better. It is perfectly true that one could define this simply as a capital transfer tax, but then we have to define what a capital transfer tax is, and that is not defined in the clause.

Unfortunately, the Government have chosen a form of taxation which can damage enterprise far more than it damages thrift, although it will do some damage to thrift, too.

Estate duty has often been criticised on these grounds over the years. When graduation was introduced, it was criticised on the ground that it was wrong to fix the rate of tax by reference of the wealth of the deceased rather than that of the beneficiary. Sir William Harcout—no less—was roundly denounced in 1894 by Balfour on this very point.

Mr. Cormack

Quite right too.

Mr. Pardoe

To bring things more closely home to the Government, perhaps what they would be more concerned with is not quotations from Balfour, with which I do not altogether go along for obvious historical reasons, but a quotation from their own guru, Nicholas Kaldor, who said:

“Death duty is a periodic levy on property falling on the person or persons who inherit a man's estate. The legal notion that the estate duty is a tax on the deceased is really nonsensical, though it may have had rather [column 1354]more justification in the old days when people saved specially during their lifetime to cover death duty liabilities on their decease.”

He added:

“If the incidence of estate duty is really on the legatee and not the testator, the sensible thing is to recognise this and impose a tax on the recipient.”

That is what our amendment seeks to do.

In terms of equity, there seems no argument about which is the better principle to follow. Death duty deprives heirs of property they would otherwise have had. They might just as well pay the tax and be done with it. A tax on a beneficiary can far more easily be geared to ability to pay. It is far more flexible in its incidence on different categories of beneficiaries. It is much easier to exempt charities or widows from the incidence of such a tax. However, it is in its power to reduce inequalities of wealth that the accession tax principle scores most heavily over the capital transfer tax.

Mr. Emlyn Hooson (Montgomery)

The great problem of death duties, in regard to the proposals put forward both by the Government and by my hon. Friend, is the way in which the tax has become a voluntary tax, however levied, on discretionary trusts and so on. The lawyers have always outwitted the legislature on that point. Regardless of which proposal is carried, how is it proposed to deal with the question of trusts?

Mr. Pardoe

There is, alas, no reason to suppose that an accessions tax would deal with trusts any better than would the capital transfer tax. The Bill contains a large number of clauses which deal with the problem of trusts. We shall be debating those clauses in Committee. I have no doubt that my hon. and learned Friend knows of the activities of his learned friends, who will find loopholes in these clauses just as they have found them in all other tax legislation. The major loophole was that estate duty did not cover gifts. That loophole has now been plugged and will remain plugged whether or not my amendment is passed, and whether or not the Government receive their tax intact.

A tax on the beneficiary, the person who receives the gift or legacy, is much easier for people to understand. It is much more obviously fair and it will be seen to be fair. I do not think we should [column 1355]cast that factor aside lightly when we consider the principles of taxation.

The interesting point is that the Chancellor of the Exchequer and the Labour Party have changed their minds on the principle of this tax. In Labour's “Programme for Britain” in June 1973 we were promised a progressive capital receipts tax levied on beneficiaries with transfers and with lifetime accumulation. Where is that tax now? Why has it been thrown out? In his Budget speech in March the Chancellor of the Exchequer stated his purpose clearly. He said that his aim was to ensure that the new taxes would be effective instruments for redistributing wealth as a means to greater justice and equality in our society.

It can hardly be denied that in principle my amendment would be more likely to have the desirable effect which the right hon. Gentleman wants than would the tax he has proposed. He cannot deny that a tax on the transferor is a much less effective measure for redistributing wealth than a tax on the transferee. A transferor will pay the same tax whether he gives to the poor or to the rich or whether his gift is widespread or concentrated. A tax on a transferor provides an incentive to give.

What has changed the Chancellor's mind? That is what we should like to know. It is possible that a political doctrine is involved or that the concept of centralised State Socialism requires that he should ditch the principle of redistribution and accept in its place the principle of concentrating all the wealth and property in the hands of the State. However, if administration is the reason, all I can say is that the right hon. Gentleman's tax is a complicated kettle of fish.

There are some very complicated calculations that we shall have to try to explain to our constituents, largely as a result of the impact of the accumulation effect on the transferor provision. I shall not go into the details of the calculations now. No doubt the right hon. Gentleman has been through them in detail himself. But, although it may be argued that his form of tax is simpler administratively and less expensive both on the Revenue and on the taxpayer, my view, based on the only comprehensive study of the accessions tax which has been done in this country, in a [column 1356]book published by the Institute for Fiscal Studies by Sandford, Willis and Ironside, is that the additional costs and administrative complexities do not outweigh the basic fairness, the basic equity, the justice and the very considerable impact which my amendment would have on the redistribution of private wealth in Britain.

[Sir Myer Galpern in the Chair]

The Chancellor of the Exchequer (Mr. Denis Healey)

The hon. Member for Cornwall, North (Mr. Pardoe) presented his case fairly, and I shall return to some of his general points when we debate the Question “That the clause stand part of the Bill” .

The hon. Member made it clear that he approved of the idea of a tax on gifts, for two reasons. The first was to close loopholes in the existing estate duty. The second was to reduce some of the gross inequalities of wealth caused by the failure of the estate duty to operate fairly and successfully at present.

The hon. Gentleman's disagreement with the Government is that he thinks that it would be better if the tax were levied on the done rather than on the donor. I have some sympathy with his view. I held it myself when I was in Opposition. I was soaked in Sandford before being clobbered by Kaldor. But there are substantial arguments the other way, and it does not require the fanciful imaginings in which the hon. Gentleman indulged to see what they are.

The essence of a donee-based tax compared with a donor-based tax is that it is liable to encourage a wider distribution of wealth to a larger number of beneficiaries. At the same time, the beneficiaries are likely to be within a very narrow range of people—the immediate or more distant relatives of the man concerned—so that all that we are really doing is redistributing these great aggregations of wealth more widely within the family concerned.

The social advantage of doing that is open to argument. I say no more. There are arguments in favour of it; there are other arguments against it. However, there are a great many practical arguments against it which were decisive when I came to consider the general problem of a tax on gifts. [column 1357]

The first is that it is inevitable that if wealth is more widely distributed among a larger number of people before it is taxed the yield of the tax is certain to be reduced. The aggregate taxable wealth is bound to be smaller if it is distributed and any threshold is fixed below which the tax is not levied. Therefore, it is bound to be a lower yield, and the Government did not wish to see that happen.

Secondly, because a larger number of people are concerned as donees—on the hypothesis which the hon. Gentleman and I both accept, that it would mean distribution among a much wider number of people—it is bound to be much more costly to administer, especially if we accept, as the hon. Gentlemen and I both do, the principle of lifetime accumulation—in other words, that the gifts received by the donee are added together throughout his whole life. On top of the problem of having a very much larger number of persons subject to the tax. there is also the possibility that they will be receiving donations from a very much larger number of people.

Therefore, the administrative problem of collecting such a tax is infinitely greater than the collection of a donor-based tax. That is a second reason for preferring the donor-based tax. In addition, the donee-based tax would impose an enormous burden of record keeping, not only on those who collected the tax but on those who would have to pay it.

But the decisive argument for me was that if we based our gifts tax on the existing estate duty, which would mean that it would have to be a donor-based tax, there need be no delay in collecting it. On the other hand, if we tried to base it on a donee principle while retaining the estate duty, there would be a great delay in collecting the tax. The risk that during this period of delay there would be massive loss of revenue, due to people trying to make gifts to get under the wire, would have been a real one.

Of course, it would also enormously complicate the collection of estate duty itself, because the Inland Revenue would then have to consider what was happening to the estate in the light of its distribution among a larger number of beneficiaries. In other words, if we had separate estate duty on the present basis, and a gifts tax on a donee basis, we would collect less, it [column 1358]would take much longer and it would enormously complicate the problems of the Inland Revenue.

Therefore, we concluded that the only sensible way to collect this tax was by marrying it to the existing estate duty on the basis of taxing the donor rather than the donee, in order to avoid the long, complicated and revenue-losing consequences of having a separate system.

Again, it would have been possible in theory to avoid some of these difficulties if we had accepted the proposals made by the Conservative Government in their Green Paper and changed from estate duty to a donee-based inheritance tax. But that would have been a very time-consuming and complicated process, and would, incidentally, have immensely complicated our own deliberations in this House. Again, during the interval the risk of losing potential revenue, through people attempting to order their affairs in advance of the change would have been very serious. For all these reasons, I ask the hon. Member for Cornwall, North to withdraw his amendment. If he does not, I ask the Committee to resist it.

Mr. J. Grimond (Orkney and Shetland)

I have no desire to delay the Committee unduly on this matter by repeating the arguments so excellently advanced by my hon. Friend the Member for Cornwall, North (Mr. Pardoe). I appreciate the Chancellor of the Exchequer's main argument, which is one of administrative difficulty. But I think that in a matter of such importance we should not be ultimately deterred by such an argument, and in any case suggestions made in the Conservative Government's Green Paper might lead to ameliorating some of the difficulties.

The real difficulty here is that the conventional wisdom about taxation, as I understand it, is that, since we are failing to control the supply of money and credit or cover Government expenditure, we have to use taxation to claw back some of the purchasing power let loose. I have grave doubts about the philosophy. It is not working, because those most heavily taxed are not those who spend. Therefore, this type of tax is not much of contribution to running the economy. But, for better or worse—I think for worse—taxation appears now to be one of the most important instruments for attempting to run the economy. [column 1359]

Unless our proposals are accepted, I fear that people will not so much hoard as spend. Already, a person with a small amount of savings sees them being heavily eroded. People, including many hon. Members, who have been looking forward to their pension schemes are not going to find it as easy to maintain their standard of living as they thought they would be able to do when they retired—for example, with honour, from long parliamentary service. What they will do is spend their capital. This clause will encourage them to do that.

It has been suggested by another of my hon. Friends—my hon. Friend the Member for the Isle of Ely (Mr. Freud)—that anyone who wants to evade the tax will bring up his children as expert gamblers and will then ensure that he loses his money to them every evening. We need not go so far as to set up back-gammon as part of the Welfare State. Nevertheless, I think that this is a very real difficulty.

One of the Chancellor's own advisers——

Mr. Healey

We are always fascinated by the discrepancies in the views expressed among the four or five Members who habitually inhabit the bench from which the right hon. Gentleman speaks. A moment ago his hon. Friend the Member for Cornwall, North (Mr. Pardoe) made the point that his main argument against the tax as we proposed it was that it would encourage hoarding by the aged and not spending.

Mr. Grimond

As the Chancellor well knows, it is not necessary to be absolutely monolithic as a political party. I ask him to look round his own party before making attempts to pluck the mote out of the Liberal Party's eye. It is a small mote.

I agree with my hon. Friend that some people may hoard, but many will spend. The trouble is that, instead of getting redistribution of wealth, we shall add to the general expenditure of the country. I fear that unless the Chancellor accepts this type of amendment he will not get any great redistribution of wealth.

I hope that people will make gifts as widely as possible. I emphasise this point. If this proposal is accepted, exceptions can be made for charities, companies and [column 1360]other donees. I therefore beg the Chancellor to look at the matter again. I fear that if the tax is simply levied on the donor it will go into the Exchequer and it will have very little to do with the redistribution of wealth, which I agree is highly desirable, if, of course, it is not merely taking wealth away from the rich but actually increasing the wealth of the poor. I sincerely believe that my hon. Friend's proposal would go much further in that direction than the Chancellor's present proposal.

As for the expenditure tax, about which I was about to say a few words when the Chancellor interrupted me, one of his own advisers is a very strong protagonist of this tax. It is not unknown in Socialist circles that there should be considerable anxiety about increasing expenditure throughout the country.

The Chancellor said that gifts, even if widely spread, might be confined to outlying members of one's family. I think that that is better than nothing. It is surely better that people should spread their wealth, even if they give it to second cousins. This is better than that they should spend it or hoard it or employ people such as my hon. and learned Friend the Member for Montgomery (Mr. Hooson) to enable them to evade the tax altogether.

Mr. Tim Renton

The Chancellor argues that administrative difficulties are one reason why the donee should not pay the capital transfer tax. Is it not the case that in all Western European countries that have a gifts tax the burden of paying the tax falls on the donee rather than the donor?

Mr. Healey

The answer is “Yes” , but the point is that the European countries concerned have an inheritance-based tax on death. That is why they choose a donee type tax on lifetime gifts. As I have explained, we are in exactly the opposite position.

Mr. Ridley

The justification for the tax, as I understand it, derives from the social contract. Often we hear the Government saying that since they have carried out their side of the social contract the trade unions should carry out theirs.

The trade unions are not carrying out their side of the social contract. The social contract is not worth paper that [column 1361]it is not written on. So it seems to me that we should ask very seriously whether a tax hurriedly put together without due thought and brought in with the considerations in mind which the Chancellor has just unblushingly admitted is something which the House of Commons should give approval to at all. He admitted that the reasons why he preferred the tax to be on the donor rather than on the donee were purely administrative, short-term and of no great principle. The objections put forward by the hon. Member for Cornwall, North (Mr. Pardoe) and the right hon. Member for Orkney and Shetland (Mr. Grimond) seemed to me to be objections of substance which the Government should be prepared to counter.

If I may go through the reasons given by the Chancellor, he said that he was not interested in redistribution of wealth because it would go only to a small circle of people. He was more interested in taking the wealth away rather than in redistributing it among a circle of people who were not really of great interest to him. I suppose they are not “useful” people, in current parlance. He does not realise that society changes, that the more wealth can be spread the more widely it will end up.

These proposals are not proposals for the redistribution of wealth. They are proposals for the confiscation of wealth. If this tax had anything to do with the redistribution of wealth I would find many attractive features in it, but it has not. Therefore, it immediately appears that the tax is one which is designed not to redistribute but to confiscate and destroy enterprise wherever it may be found, whether it be in forestry, agriculture or private companies or other business where personal individual capital is provided. It is impossible under the tax proposed for many of these enterprises to survive.

Secondly and more important, the Chancellor said that it would involve less administrative cost to collect the tax from the donor than from the donee, if we switched to the sort of tax which the Liberal Party has just advocated. Maybe it would. That may be the case. But is tax from now on to be levied on the basis that it is easier to collect and not on the [column 1362]basis that it is fairer? Has every idea of objectivity and fairness been thrown out of the window? Is the Chancellor going to design his taxes on the basis that they are easiest to collect?

We heard earlier from the Financial Secretary that he was not prepared to let small businesses have immediate relief on corporation tax because it was too difficult to arrange. Therefore, on two occasions we have had an argument from the Treasury Bench that the tax has been designed purely for administrative convenience and to hell with the social and economic effects which it may have.

Thirdly, the right hon. Gentleman said that the tax would be slower to collect. If the Chancellor is thinking in terms of economic revenue, if he is thinking of getting in money, he would not have brought in this tax at all. He has already admitted that the revenue yield of this tax is less than he would get if he left matters as they are. The present estate duty will bring in more than the tax which he is proposing in Clause 17. If he is simply interested in getting in money he will be wise not to bring in this tax at all.

Is the Chancellor really suggesting that this is a revenue tax, a tax designed to reduce the deficit upon which the Government are operating—£6,300 million did we hear him say on 12th November? Now, he is releasing £200 million by bringing in this particular tax instead of leaving the estate duty tax alone because he admits that it produces less.

Sir John Hall (Wycombe)

Will my hon. Friend bear in mind that in the long term the yield from this tax will be greater than that from the present estate duty?

Mr. Ridley

Yes, I could not agree more, but the Chancellor has just said that the advantage of levying the tax on the donor is that it is quicker to collect the revenue in that fashion. He cannot plead that this tax will in the long run produce more, because he has admitted that in the short run it will produce less. Therefore, the argument he has put forward is fallacious, and it would be very much better if the Government were to take away the whole tax and work out the effects it will have in terms of redistribution of wealth, its effect on the private [column 1363]sector of the economy and its effect upon the real reason for the tax.

The real reason for it is to meet the demands of many Labour Members that it should be designed for spiteful motives and out of bitterness towards the better off. It is an envy tax, a jealousy tax, a bitterness levy. We should therefore consider to what extent it will meet the wishes of Labour Members. As the right hon. Member for Orkney and Shetland said, the cause of the envy, the bitterness and the jealousy is excessive spending, not excessive accretions of wealth. The effect of the tax will be to increase spending, because a man who knows that he will be leaving half of two-thirds of a vast fortune to the Chancellor when he dies will be encouraged to spend it. A son who knows that the farm, estate or business which he will inherit is to be broken up when he inherits it will think it more advantageous to him to spend rather than to save and invest.

The effect of this tax will be to accelerate and exacerbate the evil which caused it to be brought in. It has been ill thought out, and it would be better for the Chancellor not to be so keen to bring in taxes to placate the social contract, which has long since broken down, but to take the tax away, do his homework and come back with it properly worked out instead of trying to propose such nonsense to the House.

Mr. Pardoe

The Chancellor said that he had previously been soaked in Sandford before he had been clobbered by Kaldor. I wish he had been clobbered by Kaldor on this tax, because I believe that Kaldor got it right. In this instance he is right, and when the two sages that he and I follow are in agreement, it would be much better to accept their agreement. Since the Chancellor reached his present position he has been tricked by the Treasury and wrecked by the Revenue. He said that the tax was liable to encourage a wider distribution of wealth, and that was rather curious phraseology. What a terrible thing to happen! How disastrous that would be! I suppose that it would be counter-revolutionary. He said that it would be to a rather narrow range of beneficiaries, with which my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) has dealt, but, of course, if they are rich it does not [column 1364]matter whether they are closely related for social purposes. If they are rich the tax will bite heavily upon them. If they are poor surely the tax should not bite upon them, and it will not. I admit that they may not all be Labour voters or trade union members but they are citizens of this country, and there seems no reason to suppose that we should not, therefore, encourage the distribution of wealth among them.

The Chancellor said that wealth was bound to be reduced if the tax was more widely spread. Of course, that is true, but that is the case with any tax of which we seek to widen the base. I imagine that the Chancellor is constantly trying to widen the base of his taxes, so I do not suppose that that is an important factor.

The Chancellor said that wealth would be reduced because there are so many taxpayers, but it does not matter because the total revenue from the tax is small by comparison with his total needs. Therefore, he should be able to consider social purposes far more than he is considering the revenue purposes.

It is all very well for the Chancellor to tell us that it is the administrative inconvenience in the tax collection that causes him to opt for his form of tax rather than ours, but if he looks into it he will find that the administrative inconvenience on the part of the taxpayer is all in favour of my argument rather than his. The Chancellor knows perfectly well than when the cumulation principle is applied to the fact that he now wants to make it a tax on donor rather than donee, that will lead to the most unholy complications.

It is easy enough if a constituent leaves £16,000 and sends his son a letter saying “I want to give you a gift of £16,000. The tax on that will be 10 per cent. on the excess over £15,000, which is £100. I have deducted that £100 tax, and am sending you a cheque for £15,900.” There are then no problems. But what happens if that constituent tells his son “I want to give you a gift of £16,000, and I enclose my cheque herewith. You need not worry about the tax. I have looked after it” ? The rational constituent and his son may well conclude that the tax is still £100, but it is nothing of the sort. The whole complexity of the Chancellor's [column 1365]tax begins to bite here. First, the constituent must take account of the extra £100 tax, the 10 per cent. on the £1,000. That means that he has given a gift of £16,100. Then he has to take 10 per cent. of £100, and 10 per cent. of 10 per cent. of £100. In the end, it works out at 11.11 per cent.

Over the figure of £20,000 the tax must be £500 plus fifteen-eighty-fifths, the excess over £19,500, which is 16.75 per cent. I defy the Chancellor or any of his successors to write a Treasury letter that we can send to our constituents explaining that sort of complexity.

That is why, when the right hon. Gentleman talks about administrative simplicity, I say that he should consider the simplicity for the taxpayer and not just for the Revenue. I do not believe that he has made his case on admini[column 1366]strative simplicity. I think that the case he really believes is the one he did not deploy. His is a political case. What has changed his mind since he was in opposition is the power of the trade union vote behind him. It has to do with the social contract. It is appeasement of forces within our society that Governments should not care too much about.

Therefore, I intend to press the amendment to a vote because it is fundamental to the tax. Whatever the Chancellor may have said about his and my agreement on the basic principles of a gifts tax, the tax without the amendment is a rotten tax and my colleagues and I will oppose it as hard as we can.

Question put. That the amendment be made:—

The Committee divided: Ayes 76, Noes 259. [column 1369]

Qestion proposed, That the clause stand part of the Bill.

Mr. Healey

The first and overriding purpose of the capital transfer tax, as I said when we were debating Amendment No. 43, is to make estate duty an effective tax. I doubt whether any hon. Member could really object to making effective a tax which is universally agreed to be fair, which has been on the statue book for 80 years and yet which has been avoided on a colossal and increasing scale, first by lifetime gifts and latterly also by various types of trust.

The estate duty has come to be regarded more or less universally as a voluntary or avoidable tax. The Guardian reported recently that an unnamed person in the City had said that estate duty was paid by no one with a head on his shoulders and an accountant within calling distance. I imagine that we are all well aware that the tax correspondents of the leading British newspapers make a steady annual income by repeating last year's article on how to avoid the estate duty, rather in the same way as gardening correspondents produce their annual article on winter colour in the garden.

We on this side of the Committee believe that the redistribution of wealth is as important as is the redistribution of income, and we believe that it is especially important at a time when equality of sacrifice is an essential precondition of the unity without which the nation cannot surmount its problems.

Estate duty was introduced before the twentieth century began, to prevent vast aggregations of inherited wealth being passed on undiminished from generation to generation, but it has been generally avoided by rich men who put their wealth into trusts or gave it away to their children before they died. The capital transfer tax—as the hon. Member for Cornwall, North (Mr. Pardoe) accepted—has as its main purpose to make the estate duty not a voluntary tax but a compulsory tax, as it was always intended to be.

The Committee is familiar with the details of the tax from reading the Bill and from the short exchange during the Second Reading debate, but I want to remind the Committee of some of the facts which are easily forgotten. First, [column 1370]the tax starts at the same level as does estate duty—that is, £15,000—and only a small minority of the citizens of this country ever have £15,000 to give away either in life or when they die. But the rates at which the new tax will be levied are substantially lower than the rates at which the estate duty was levied.

For the first time, in levying the new tax it is proposed to exempt all transfers between man and wife, which I hope will be welcomed on both sides of the Committee. That will be of immense benefit to widows who suffer substantially from the present estate duty.

Mr. Lawson

The Chancellor might at least get the facts right. It simply is not the case that the rates of the capital transfer tax are less than those of the estate duty. Does not the right hon. Gentleman agree that with the grossing up which has to be done for the tax the level of 100 per cent. is reached at about £70,000, and that the rate on the top slice goes up to 300 per cent. whereas the rate on the top slice for estate duty is 75 per cent?

Mr. Healey

No, Sir, I do not. Because the rates are lower and because we give exemption to transfers between spouses, in the first year or two the yield from the tax will be lower than the yield from estate duty, although we are removing some of the reliefs which are offered on the estate duty.

Very few members of the Committee would dare, at least in public, to oppose in principle a tax on lifetime gifts as a necessary complement to a tax on transfers at death, although many might well wish to oppose it in private, and hundreds have evaded it for decades by making use of the loopholes available in the existing estate duty provisions. Such a tax has operated for many years in all countries of Western Europe and in the main Commonwealth countries.

The objections which have been put are objections of detail. The Government are prepared to consider those objections and, if they are found to be justified, to introduce necessary amendments to the tax in Committee or on Report. We shall debate some of these [column 1371]details at length at later stages in our consideration of the Bill.

I should like to make two general points. First, the major reliefs in the tax—the relief on spouses and the lower rates—are possible only because certain earlier reliefs have been withdrawn—for example, that on the agricultural value of land. Secondly, the general principle behind the tax is that all assets should be equally subject to tax. If we exempt some, we make it unfair to the remainder and we are liable to produce economic distortions. [Hon. Members: “Oh” .] Nothing showed this more clearly than what happened as a result of the exemptions under the existing estate duty.

I do not think the Opposition would deny that a major factor in producing the terrifying escalation of the cost of agricultural land has been the tax relief available to it under the old estate duty. The same is true of forests. We shall be discussing woodlands and forests on many occasions later in our debates, but the fact is that in recent years half of the planting of new trees in this country has been done by the Government. Of the other half, four-fifths has been done through investment companies as a hedge against inflation. There is no question whatever that the relief given to woodlands has been a major reason for the extraordinary distortion in the planting of trees in recent years.

Mr. Beith

Will the Chancellor say which group has been responsible for planting hardwoods? Is it the Forestry Commission, the investment trusts or a third group?

Mr. Healey

The bulk has been done by the Forestry Commission, as I understand the position. [Hon. Members: “No.” ] A lot has been done by the private individual, but the planting through investment trusts has been overwhelmingly in soft woods. I notice that nobody is arguing against that point.

Mr. Maurice Macmillan (Farnham)

Will the right hon. Gentleman say whether I am correct in assuming that the cost of planting trees is roughly the same when undertaken by public expenditure through the Forestry Commission as when [column 1372]it is undertaken by private planters? In other words, is not the cost of reafforestation the same whether undertaken by the private owner or by the Government?

Mr. Healey

It depends on the amount of grants available to the individual—[Interruption.] That is bound to be the case.

Mr. Charles Morrison (Devizes)

The implication of what the Chancellor said about planting, either by private owners or the Forestry Commission, was that he would have preferred it had the trees not been planted. Will he confirm that that is so?

Mr. Healey

Nobody has argued more strongly than Conservative Members that it is a mistake to distort economic decisions by offering special incentives either through tax relief or other means. There is no question whatever that these two examples of decisions taken—[Interruption.] Investment can be moved into any area one wishes if one gives enormous tax advantages to that area. But many other parts of our economy require investment far more than forests but do not get the advantage of the special tax reliefs which have been offered to woodlands—[An Hon. Member: “Give an example.” ] Investment in the engineering industry is a very good example. The hon. Member should know that for the whole of the last two years our exports have been frustrated by lack of investment in the engineering industry due to failure to invest over the previous years.

The right hon. Member for Finchley (Mrs. Thatcher) raised a number of points on Second Reading and it might be convenient if I deal with some now, because she will no doubt wish to return to some of them.

Mr. Ridley

Is the right hon. Gentleman aware that 80 per cent. of the hardwoods planted have been planted by the private sector? Why does he not know this? If he seeks to legislate on forestry taxation, should he not get his facts right before coming to the Committee?

Mr. Healey

I do not accept the figure that the hon. Gentleman has given me.

The right hon. Lady——

Mr. Peter Hardy (Rother Valley)

My right hon. Friend will be aware, as the [column 1373]hon. Member for Cirencester and Tewkesbury (Mr. Ridley) plainly is not, that while 87 per cent. of the hardwoods in this country are owned by the private sector, a large proportion were planted not merely before the hon. Gentleman and I were born but in the time of the Napoleonic wars, and that one can hardly use that fact as an argument at the present time?

Mr. Healey

Exactly. The question that I was asked was about plantings and not about ownership.

Several Hon. Members

rose——

The Deputy Chairman

Order. Hon. Members know that if the hon. Member who has the Floor does not give way, they must resume their seats.

Mr. Healey

Thank you, Sir Myer. If I may now revert to the right hon. Lady, I want to deal with some of the points that she made on Second Reading.

Mrs. Thatcher

May I revert to forestry? I have a brief here from the Forestry Committee of Great Britain which says:

“The private sector (i) provided in 1973 57 per cent of all the timber grown in Great Britain, (ii) embraces 86 per cent. of the country's broad-leaved (hardwood) woodland.”

Mr. Healey

Granted, but when were they planted, may I ask? In prehistoric times, in many cases.

If I may revert once again to the right hon. Lady——

Mr. Cormack

Bearing in mind that it is true that many of these trees were planted 150 years ago, how many more hardwood trees will be planted if they are to be taxed five or six times during their growth?

Mr. Healey

We shall return at length—[Hon. Members: “Ah.” ] We are embarking on a prolonged series of debates on the whole of the capital transfer tax in which we shall be discussing seriatim a series of amendments, many of which are concerned with this matter. If hon. Members want to conduct the whole of the rest of our proceedings on the Committee stage of the Bill tonight, we are of course at their disposal, but if they want a general debate on the capital transfer tax, I suggest that they allow me to deal with the points [column 1374]raised by the right hon. Lady on Second Reading.

Mrs. Winifred Ewing (Moray and Nairn)

Would the right hon. Gentleman give way?

Mr. Healey

With the greatest pleasure.

Mrs. Ewing

Does the right hon. Gentleman agree that in Scotland forestry is a crop? It is not an amenity and it is not a cover for shooting. It is a crop, and it is not hardwood but softwood. It grows two and a half times faster in Scotland than it grows in Scandinavia, and there are millions of acres of uplands which are put to no use in Scotland. The Labour Party, when I was previously a Member of Parliament, prevented the Forestry Commission from acquiring one acre of land from landlords and so on, by compulsory purchase. The proportion of 60–40 or 50–50 between the private and the public sector is not the fault of those who work in the jobs there, whose communities depend on them. It is the fault of successive Westminster Governments who would not allow the Forestry Commission, in the public sector, to acquire the land to plant public trees. The position——

The Deputy Chairman

Order. The hon. Member for Moray and Nairn (Mrs. Ewing) must not use an intervention to make a speech which she could make later.

Mrs. Ewing

I thought that the right hon. Gentleman the Chancellor was giving me the leeway to carry on.

Mr. Healey

In so far as I am able to trace the relevance of the hon. Lady's intervention to the matter at issue, I think I should be right in concluding that she is in favour of encouraging more planting of softwood by the public sector, and in that respect there is nothing between us.

Mrs. Ewing

But the right hon. Gentleman has not done it.

Mr. Healey

If I may revert once again to the right hon. Member for Finchley, the basic point I should like to put to her is this.

Mr. John Gorst (Hendon, North)

Will the Chancellor give way?

Mr. Healey

No. [column 1375]

Under the capital transfer tax, people of small and medium wealth will be a good deal better off than they are now, because spouses will get reliefs which they never had previously and they will benefit from the lower rates. But people with large wealth will be worse off than previously because the means by which they have avoided estate duty for decades will be removed. It is from them that the complaints are coming, and it is they whom right hon. and hon. Members of the Opposition are fundamentally representing.—[Hon. Members: “Cheap.” ] No. The overwhelming majority of the men and women in this country are not affected in any way by either estate duty or the new tax. It affects lifetime accumulations of £15,000. It permits annual gifts of £1,000 on top of these lifetime accumulations of £15,000. It exempts gifts out of income, and it gives very generous relief to wedding gifts.

But in some cases, as the right hon. Lady has said, despite the relief for spouses the amount left on the second death will be greater than it was under estate duty on the first death. But with respect to what the right hon. Lady said the other day when she suggested that the only people who paid less on the second death were people with wealth over £1 million, that is not the case. It depends entirely on the circumstances concerned.

The really important point about the new tax in this regard is that on average—this may be a surprising statistic to hon. Members on both sides of the House—widows outlive their husbands by 18 years. During the whole of that period of 18 years widows will be having the benefit of the relief under the new tax which they were denied under the old tax. I hope that hon. Members on both sides of the House will bear that in mind if they propose to vote against this tax.

Mr. Daniel Awdry (Chippenham)

Would the widow get that relief if she were granted a life interest in the entire estate and not given the estate entirely? Assuming that a husband gives a life interest in the whole of his estate to his wife and the children and then dies, will his widow who has the life interest get the relief to which the right hon. Gentleman refers?

[column 1376]

Mr. Healey

I confess that I am not certain on that point. We shall be dealing with it under trusts—[Interruption.] Thanks to the logistical system and the wonders of modern science, I am now able to answer. Yes.

I make no apology for admitting that hon. Members may ask me a large number of questions on these extremely complicated matters, particularly concerning trusts, which I shall not be able to answer without advice.

Mr. Hugh Dykes (Harrow, East)

The Committee is extremely concerned about this matter. The right hon. Gentleman is finding it difficult to see the wood for the trees in regard to a number of matters. He has already revealed a glaring gap in his knowledge about hardwood plantations. After some debate he pretended to agree, but now he has revealed that he is unable to answer the question put by my hon. Friend. Why does not the Chancellor now reconsider this important tax and come back to the Committee when he has something to propose?

Mr. Healey

I regret to say that that type of intervention does not encourage me to give way to further interventions.

The right hon. Lady complained that on the death of the second spouse, in cases of wealth of under £1 million, the tax would be higher than under the old estate duty. That is not the case. If she wishes me to give details of how circumstances alter cases at lower levels I shall be glad to do so. The relief given to spouses under the new tax will enable the average widow to enjoy the benefit of a higher living standard for 18 years, on average, which was denied under the previous tax. I hope that the right hon. Lady, if she is persuaded by some of her hon. Friends on the back benches to oppose this tax, will bear that in mind. We shall bear that in mind, if that is the position which the Opposition propose to adopt.

The right hon. Lady suggested that no distinction is made under the new tax between children and other persons. With estate duty no distinction was made between children and other persons with regard to the duty levied at death. That has never been the practice since the [column 1377]introduction of estate duty. There is no special reason why it should be the practice. The right hon. Lady also raised the question of whether we should index the levels at which this tax was levied. We propose to adjust thresholds from time to time, as we do with other taxes. The right hon. Lady is a keen student of these matters and knows how far-reaching a decision on indexation may be. I confess I am a little surprised that she should choose the capital transfer tax as the one tax in respect of which we should introduce indexing. A decision to index the tax system, as is the decision to index savings, is a matter of the greatest moment. No Government would propose to introduce indexation into the tax system with regard to capital taxes while leaving direct taxes untouched.—[Hon. Members: “Why not?” ]—Why not? I shall tell the Opposition. If it is ever proposed to introduce indexing, I believe it should be introduced for the benefit of the overwhelming majority of taxpayers and not for the benefit of the tiny minority who will be subject to this tax.

Mr. Gorst

I ask the right hon. Gentleman to reconsider that last statement. Has he no concern for the middle income groups?

Mr. Healey

Yes, Sir, and that is the reason why we have reduced the rates in this tax. If the hon. Member for Hendon, North (Mr. Gorst) were really keen to help the middle classes, he would recognise that this tax will help them much more than the estate duty that it replaces. But, if by “middle classes” , he means the one person out of 10,000 who will pay higher taxes under the tax, it is an odd definition of “middle” , but it is a very common one on the Opposition benches.

Mr. Reginald Eyre (Birmingham, Hall Green)

Has the right hon. Gentleman thought about the devastating effect of his proposals on the small engineering business in the Midlands? Let us suppose that a man has built up such a business in his lifetime, that he has a son intent on following him in the business, and that its value is £70,000 or £80,000. With a rate of duty of 40 per cent., 45 per cent. or 50 per cent., grossed up under the right hon. Gentleman's proposals, and with no chance of replacing the working [column 1378]capital, that will be extremely damaging to the economy and to the people employed in that business. I ask the right hon. Gentleman to bear that in mind.

Mr. Healey

I certainly will bear it in mind, and I shall come to the hon. Gentleman's point later——

Mr. Eyre

Answer now.

Mr. Healey

The hon. Gentleman must not be so insolent—[Hon. Members: “Oh!” ] I shall make my speech in my own way—[Interruption.] I regard it as a matter of order and courtesy to deal with the points raised by the right hon. Member for Finchley (Mrs. Thatcher)——

Mr. Stephen Hastings (Mid-Bedfordshire)

On a point of order, Sir Myer. Is it in order for the Chancellor of the Exchequer to accuse my hon. Friend the Member for Birmingham, Hall Green (Mr. Eyre) of insolence simply because he made a justifiable intervention? Will you now rule upon that?

Mr. Healey

rose——

The Deputy Chairman (Sir Myer Galpern)

Order. I think that the Chancellor of the Exchequer has enough on his plate. He should leave some to the Chair.

I shall rule on the point of order raised by the hon. Member for Mid-Bedfordshire (Mr. Hastings). In my opinion, what the Chancellor of the Exchequer said was not unparliamentary.

Mr. Healey

With respect to the hon. Member for Birmingham, Hall Green (Mr. Eyre), he is a little over-excited. The reason why I used the word that I did is that I was seeking to deal with the matters raised by the right hon. Member for Finchley in the order in which she raised them on Second Reading. I propose to continue making my speech in my own way, and I do not propose to accept instructions on this matter from the hon. Member for Hall Green.

Mr. Dykes

I hestitate to prolong these exchanges, but a very important matter has been raised. I am sure that my right hon. Friend the Member for Finchley (Mrs. Thatcher) will agree that my hon. Friend the Member for Hall Green has just raised a very important matter about many thousands of businesses which have been built up over many years. The right [column 1379]hon. Gentleman seeks to brush it aside by saying that he may deal with it later. Why not deal with it now, as my hon. Friend asked?

Mr. Healey

I propose to deal with it in my own way. If the hon. Member for Hall Green does not like it, I am afraid that he must lump it.

The next matter raised by the right hon. Member for Finchley was her point 4, after her proposal that we should start indexing in the tax system by concentrating on one of the capital taxes, and it concerned her objection to the quick succession relief. I have considered this carefully, and I would not absolutely rule out that it might be wise to restore that relief. But I ask the right hon. Lady to accept that the concession we have made for spouses is far more important to those she seeks to help than continuation of the relief she asks me to continue.

I turn now to the point made, not only by the right hon. Lady but by others, that some form of double taxation was involved because some persons would be paying both capital gains tax and capital transfer tax relating to the same value of shares, sale or sum of money. Some people will be paying both because they are quite separate taxes. Capital gains tax, as the name implies, is a tax on capital gains. Capital transfer tax is a tax on transfers. It is not more reasonable to demand that, because a person pays CTT, he should not pay CGT, than to say that, because a person has paid income tax, he should not pay excise duty on a point of beer because he is using money which has already been subject to income tax. They are two completely separate taxes, with completely separate purposes.

I know that the Opposition object to our proposal to reintroduce capital gains tax on death, but that is quite a separate matter from the question of whether the same sum of money in different circumstances should be subject to two different types of tax with completely different purposes.

A great deal of concern has been expressed about the effect of the tax on agriculture, and I accept the reality of that concern. That, of course, is why [column 1380]we made a major concession for the full-time working farmer. If land values stay at anything like their present rate, the great majority of small and medium farmers will be better off under the CTT, with the concession we have made and the new way of valuing their farms, than they would have been under the old estate duty with the 45 per cent. relief.

The next point made by the right hon. Lady concerned the effect on woodlands. We have already had a long exchange on that matter. I think we finally reached agreement that, while ownership of hardwoods is mainly in private hands, recent plantings of hardwoods have been more in the public than in the private sector. The right hon. Lady did not seek to dispute that.

I know that there is deep concern about small businesses. We have offered a very substantial relief in terms of an eight-year deferral without payment of interest. We shall be discussing the matter, no doubt, at length in Committee, and if compelling arguments are put we are open to persuasion. But we believe now that the concession we have already made is sufficient to meet the legitimate needs of the situation.

A very serious problem arises with charities. I confess that I raised this matter myself when I was in Opposition on many occasions, when I was always told that nothing could be done because of the problem of avoidance. Hon. Members must know and accept that, in addition to the great majority of totally honest and respectable charities, there are charities which have been formed for the purpose of tax avoidance. The closing of other loopholes in the Bill will make tax avoidance through the creation of phoney charities a much more popular pursuit even than it has been in the past.

Nevertheless, I do not wish to impose an unfair burden on genuine charities because of the problem of dealing with charities formed as a means of avoidance. When we discuss amendments to this part of the Bill, my right hon. Friend the Chief Secretary will, I hope, be able to announce some major changes in our intentions in this regard. I am not in a position to give specific details of these changes now. [column 1381]

10.45 p.m.

Mr. Peter Rees

The Chancellor has made a very serious allegation that a number of charities have been formed for tax avoidance, for non-charitable purposes. Would he not feel it right to name them in the House or alternatively refer them to the Charity Commissioners or to his right hon. and learned Friend the Attorney-General so that these matters can be properly investigated rather than be the subject of ill-founded and baseless allegations?

Mr. Healey

In making those remarks I was following the precedent set by Mr. Tony Barber, as he was—my predecessor. When I pressed him to raise the exemption limit for charities above £50,000 he said that he could not do so because of the avoidance problem. He refused to give details for exactly the same reasons as I refuse to do so, that the avoidance of tax by charities is not a crime in law at the moment. The Revenue has not found a means of defining the purposes of a charity and the way in which a charity is conducted so as to remove this danger of avoidance. This is a problem with which successive Chancellors of the Exchequer of both parties have been faced. The hon. and learned Gentleman must remember the exchanges that we had when I was on the Opposition side of the House and he was on this side. The problem of avoidance was the reason given by my predecessor for not going any further than the £50,000 limit. I propose, because of the real burden which could fall on charities, to go further than that, but the House must be patient and wait for details when we reach that part of the Bill.

The last point which the right hon. Lady the Member for Finchley raised is one which has given me great personal concern, and that is the decision to remove the relief for persons killed in action, which was introduced not so long ago. I find it very difficult to justify this relief at a time when the great majority of public servants now being killed in action are civilians. I see no reason why this special relief should be offered to members of Her Majesty's Armed Forces but denied to policemen and members of the Customs and Excise in Northern Ireland. [column 1382]

I appreciate the feeling that there must be on both sides of the Committee but I must also tell the Committee that I cannot offhand recall a case where this relief has been applied. It applies only to the estates of persons who are rich enough to leave £15,000. But again I will listen very patiently to any arguments which may be advanced when we consider further details of the Bill, and if I find them compelling I will accept them.

Mr. Michael Brotherton (Louth)

Would the right hon. Gentleman not agree that all those killed in the services of the Crown, whether or not they are members of the Armed Forces, should be entitled to this relief?

Mr. Healey

I prefer not to give a judgment on that matter. Such a decision has never been taken by a previous Government. I recognise that this is a matter which causes deep concern on both sides of the Committee. I am prepared to listen to any argument which may be advanced when we come to other matters, and if I find them compelling I will act in the way which the right hon. Lady would wish, but I can give no commitment. I shall wish to hear the case argued very much more carefully.

On this matter of the treatment of members of Her Majesty's Armed Forces I am prepared to listen to reasonable argument. I am prepared to do so on any matters which hon. Members may raise. We have already announced some changes in our plans as a result of discussions earlier in the year. We shall be introducing some amendments and further changes as the Bill proceeds through Committee and Report.

We have no intention of allowing this tax to operate in a way which we consider either unjust or contrary to the social or economic interests of the nation. [Interruption.] I must conclude, as I began, with this central point and, strong as feelings may be on the opposite side of the Committee, I hope that right hon. and hon. Members will treat the point with the seriousness with which I put it.

Estate duty was introduced some 80 years ago, and accepted in all quarters of the Committee as a legitimate means of achieving a legitimate objective. That objective has been frustrated on a great and growing scale, overwhelmingly by [column 1383]the wealthier members of the category to whom it was liable to apply, a category which itself represents only a small minority of the men and women of this country.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

rose——

Mr. Healey

The lower limits we are introducing in the capital transfer tax and the exemption for spouses make this new tax much fairer than the older one and infinitely more efficient.

I hope that hon. and right hon. Gentleman will consider those facts before deciding finally how to vote on this matter.

Several Hon. Members

rose——

The Deputy Chairman

Has the Chancellor given way?

Mr. Healey

No. I have sat down.

[Mr. George Thomas in the Chair]

Mrs. Thatcher

Denis HealeyThe Chancellor has us worried not only that he does not understand estate duty, or the new tax which replaces it but that he does not appreciate the full effects of the capital transfer tax he is proposing on the life of individuals, on the economy of the country, or on the whole of free society.

We started the debate on the capital transfer tax by people alleging that there was great inequality of wealth.

If two people come out of college or school together and start in an identical job, with identical wages or salaries, they will finish their lives with wholly different wealth: one could save and the other spend.

The distribution of wealth between people would be different one from another. That would be totally fair because they would be aware that they had chosen to do it. One had chosen to pass on his wealth to his children. Why not? Why does the Chancellor take such objection to such efforts for one's children? Some think of it as a duty and privilege.

When one comes to the Chancellor's other points about estate duty and this tax, one gets more worried.

Leaving aside forestry, one comes to his remarks about the effect on gifts between husband and wife. He misses the [column 1384]essential point. He said that, for the first time, this Government were making transfers between husband and wife exempt. That is nonsense. They have always been exempt, except when made within seven years of death. Husbands have always been able to pass over their wealth to their wives. Perhaps some Socialist Cabinet Ministers should try it.

When estate duty was in its earlier years, gifts inter vivos were caught only if made within three months. When I came into the business it was three years, and then it became five years, and now it is seven years.

The Chancellor has missed the point completely. Under our regime, gifts between husband and wife have always been exempt. The Chancellor is not making them exempt for the first time.

They came into charge only if they were made within seven years of death. In fact relief from estate duty as between husband and wife was comparatively generous in our day and in our manifesto we expected to take that even further.

The Chancellor queried some of the figures I gave. They appear in full in The Accountant. Let me give an example of a smaller estate. If a husband passed over a property to his wife in order to equalise their estate—and it was often done by putting the house in the name of the wife—so that she had an estate worth, say, £20,000 and he had one worth the same, the situation would have been as follows. On his death £20,000 would pass to his wife. If he left her only a life interest in it then no further duty would accrue on her death. There would be no estate duty on the £20,000 which would pass on his death because of the exemption on the first £15,000 and because the next £5,000 was left to the wife. The only duty payable on her death would be the estate duty payable on her estate. Under our regime on the death of both spouses the full amount of estate duty payable on that comparatively small sum would have been £1,250. Under the Chancellor's new regime, for which he claims so much, the capital transfer tax on the death of the widow would be £4,750, an increase of 280 per cent.

When one of my hon. Friends asked whether widows would still get exemption under the new regime, the answer was [column 1385]that they would. However, upon the wife's death the amount of duty payable would be far greater and it would be the children who would suffer. In addition the £15,000 exemption which applied to gifts by the husband would probably have been lost.

The Chancellor then went on to say something about his generous provision for wedding gifts. But his provision is infinitely less generous than it was under the Conservatives. We allowed an exemption on £5,000 as a wedding gift and the Chancellor has confirmed the sum of £2,500 under his proposals. It is interesting that what he calls generous is half what we call generous.

The Chancellor then dealt with various other points, but he failed to deal with one that was raised from these benches. One of the devastating effects of the tax is the grossing up provisions. The rates on this tax are absolutely penal. For example, if a man builds up a small business and wishes to transfer that business long before death to his four sons, and assuming that it is worth £200,000, he will transfer it in four slices of £50,000. He would then have to find some £211,000 in tax. Very few businesses could do that. The only way out for them would be to sell up and break up the business. The Chancellor seems prepared totally to refuse to face this matter. Small businesses and, even with the relief he has allowed, some of the farms would not be passed on from one generation to the other. The assets are all in the business. The grossing up provisions become in excess of 100 per cent. at the level of £200,000. If a business is passed on, therefore, it will mean paying out as much, if not more, as the business is worth in cash to the Revenue.

The Chancellor seems to take the view that that affects only a comparatively few people. It affects not only the few who have built up the business but all those who work in it. They will naturally be worried that the business cannot carry on under the same ownership. It will soon not be possible to sell the shares to pay duty. The only buyers then will be the bigger companies or the State. That is what the right hon. Gentleman wants. He wants such companies to be taken over by the State, and taken over easily. [column 1386]

Many small businesses are in the regions, which rely extensively on them for employment. More people work for private companies and businesses than for any other type of employer. Private companies and business account for 39 per cent. of civil employment as compared with public companies' 37 per cent. Therefore, the tax will have a drastic effect not only upon those who have built up the business but on those who work for it. It will result in massive takeovers and in those with the ability to work and innovate and build up such businesses going overseas to do it, where they can profit from their own efforts and pass on those efforts to their children. The Chancellor has wholly underestimated the effect upon small businesses.

We have also received representations about the effect on shipping. About 20 per cent. of shipping is in the hands of private companies, which they tell me are responsible for about £120 million a year net invisible earnings. A number of the shares in those companies are already in the hands of discretionary trusts. Those trusts will be charged to tax after 1976, and a number of them, having no other assets, will have to sell the shares. To whom will they sell them? Foreign buyers would love to pick them up. A great deal of the trade is between islands and countries outside this country. The trustees will have to get the best value for the shares, and that will be found from foreign buyers, who would like to get their hands on this valuable trade—as would the Government. Therefore, the tax can have a far-reaching effect on shipping as well.

The Chancellor said that I chose to raise indexation on this tax alone. But where else on the Bill could we have raised it? We started to discuss it on the investment income surcharge, but our job there was not to index it but to retain the reliefs at their present level. The Chancellor and all his back benchers even marched through the Division Lobbies to defeat an attempt to prevent the disabled from being worse off under that tax.

I notice that under the capital transfer tax the right hon. Gentleman has given no special exemption for gifts or settlements made to keep the mentally or physically retarded after their parents have died. His answer will be that if [column 1387]everyone cannot have it no one can. That just about sums up his approach to all taxation matters.

The right hon. Gentleman referred again to charities. We have had many representations about charities. The Chancellor seems to find one or two charities to his distaste. I challenge him to give us a precise quotation of what Tony Barber said about them. The right hon. Gentleman gave only a very general quotation. Many charities are telling us that they will not be able to continue if the tax is at anything like the level at which the Chancellor has put it. He knows full well that most charities are set up with gifts far in excess of the £50,000 to which he has chosen to limit them. In fact, the figures from the National Council of Social Service show that some 268 trusts have been set up in the past 10 years with sums in excess of £50,000.

The Chancellor would prefer to see all beneficence come from the State and not from private charities. He knows full well that most of the capital projects of charities are financed from gifts well in excess of £50,000. That applies especially to homes and places for the aged. It is known that 95 per cent. of such projects are financed by large gifts. The Chancellor would rather penalise those many charities than exempt all charities from tax. His reason is that there are a few charities that he does not like.

Mr. Healey

The right hon. Lady asked me if I would quote Mr. Tony Barber's words. I shall do so now, Mrs. Thomas. He said on 21st March 1972:

“It has repeatedly been put to me that there should be some relief from estate duty on bequests to charities and I agree. Unfortunately, because of the opportunities for manipulation by a few if very large sums were to be exempted there must be a limit.” —[Official Report, 21st March 1972; Vol. 833, c. 1371.]

He then went on to discuss the limit. On Second Reading on 20th April he said that he was going to offer a concession of a £50,000 limit. He said:

“The relief for charitable bequests is designed to encourage the flow of funds to charities. The cost of this concession is modest, and in deciding whether or not there should be a limit and what limit should be I was not constrained primarily by considerations of cost. The reason for the limit is, quite simply, that without it, there would be serious risks of abuse. I came [column 1388]to the conclusion that a limit of £50,000 would be appropriate to deal with this.” —[Official Report, 20th April 1972; Vol. 835, c. 784.]

Mrs. Thatcher

That is quite different from the version that the Chancellor gave. The Chancellor was saying that a number of charities have been set up specifically for avoidance. He has taken something quite different and attempted to make it similar in different circumstances. The circumstances in which Tony Barber was referring to the position of charities was when there was no limit on gifts to charities unless the gifts were made within one year of death. If they were made within one year of death there was a limit upon them of £50,000. The Chancellor has gone from no limit on all gifts to charities unless the excess is aggregated with the rest of the estate. He must get it into his head that death duty was a totally different tax from that which he has introduced and that they cannot be compared.

Mr. Healey

The right hon. Lady is patently wriggling. The quotation that I gave her justified to the hilt my statement that a previous Chancellor believed that tax was avoided by manipulation through the charity system. That is absolutely clear. That is precisely what he said. The right hon. Lady is unable to deny that. She is now riding off on a completely different principle.

Mrs. Thatcher

The right hon. Gentleman cast aspersions on a number of charitable trusts. He refused to name them.

Mr. Healey

So did Tony Barber.

Mrs. Thatcher

There was no quotation which cast aspersions on a number of charitable trusts. The point is quite a different one. If the right hon. Gentleman does not understand the charities do. They understand very well that they cannot carry on—be it the Spastic Society, Help the Aged or any of the many other charities. They cannot continue to carry on giving help where help is needed under the provisions of the Bill. Whether it is the level of the tax, which is far too high, whether it is the effect on small business, whether it is the effect on agriculture—because the reliefs will still in some cases give a sale price on the land of up to about £600 an acre, which [column 1389]is higher in some cases than is being fetched now—whether it is the effect on charities or whether it is the effect on loans—this is the first Chancellor to put a tax on a good turn—the consequences of the Bill will be damaging.

This is something which was not foreshadowed in the White Paper. What the right hon. Gentleman has provided for is that if someone lends money to someone else at a rate of interest below the commercial rate the person lending the money shall be taxed on the interest forgone as if it were a gift. That is the first time we have had a Chancellor putting a tax on a good turn. It was not foreshadowed in the White Paper. It will affect many employees whose employers lend them money to buy a house at no rate of interest or a very low rate. They will be caught under this tax.

What we are discussing is not a tax on gifts or a capital transfer tax. We are discussing this capital transfer tax and its structure. We believe that its structure will be thoroughly bad for Britain, will result in more property being placed in the hands of the State within the next 30 years than in any other previous 30 years, and will completely tip the balance of power in favour of the State against the private citizen. We believe that it will be damaging to the economy, particularly to small businesses, to those who work in them and who have the capacity to build them up in future. It will be damaging to the whole future of farming and forestry. It will be damaging to charities. We shall therefore repeal this tax.

In so far as there are benefits for widows or widowers in excess of those we have given we shall retain them. Our own manifesto, in dealing with widows and dependent relatives, went further than the Government have done in dealing with benefits. It extended relief on the matrimonial home to cover close relatives living in the same house. The capital tax which we introduce will bear in mind first, the weight of other capital and income taxes on the taxpayer, secondly, the beneficial treatment of gifts to the family in other countries which have a gift tax, and thirdly, the need to keep in this country those who can create the new wealth. Let us keep the successful her instead of driving them abroad. We shall oppose this clause.

[column 1390]

Mr. Hardy

I believe that one or two points should be made. My right hon. Friend is expecting a few remarks from this side of the Committee on one subject. The right hon. Member for Finchley (Mrs. Thatcher) has given an interesting commitment to repeal this clause. She has not informed us whether estate duty will be returned. Many of us believe that if we are to have a free society there cannot be a system of voluntary taxation. For that reason, there is a vast difference between the parties and for that reason the capital transfer tax is supported on the Labour side.

My right hon. Friend is aware that there is some anxiety about forestry. It is noticeable that Conservative Members, realising that there is justifiable anxiety about certain aspects of forestry activities, have sought to focus attention on the effect of the Bill upon forestry—on those private sector forests which were little better than examples of tax fiddles over the past 10 to 20 years.

I am concerned with that one-fifth of private sector forestry which cannot be said to be involved in tax evasion. We ought not to fall into the error of damaging forestry in the way the last administration damaged it. We did not see the serried ranks of Conservative Members complaining about the damage to forestry following the Conservative Government's statement issued in July 1972.

After that statement, without many words from the hon. Gentleman who are bleating at my right hon. Friend, there was a sharp and savage reduction in private sector planting programmes, so that in 1974 the private sector, which had been planting acre for acre with the Forestry Commission reduced its planting programme to 30,000 acres. That is one reason why last year the Forestry Commission planted more hardwood than did the private sector.

We must increase planting in both public and private sectors. The cost of imported timber in 1975 is likely to equal half the amount of our oil deficit. Increasingly, timber-producing countries are adopting conservation policies and insisting on exporting to Britain not raw timber but processed timber. That can be a disadvantage to timber processing which we should be defending and [column 1391]developing. The economics of the situation suggest that we should endeavour to be as self-sufficient as possible. We have to accept that demand will increase. If it increases in the western world generally, there is likely to be by the end of the century a world shortage of timber. For that reason planting now is highly desirable.

Many of my hon. and right hon. Friends will probably suggest that the Forestry Commission's rôle should be expanded, and I want it to be expanded. A large proportion of the people who own private woodland own very small acreages, and we cannot expect the Forestry Commission to take over responsibility for every small wood or middle-sized copse. That would be an intolerable burden for the commission to bear. Therefore, we have to ensure that there is encouragement for private forestry to integrate forestry with agriculture in sensible land use. I hope that my right hon. Friend will consider this suggestion with sympathy and discuss it with those who are much more knowledgeable than myself and very much more knowledgeable than a large number of Opposition Members.

The Opposition are seeking to persuade Britain that the Labour movement is interested only in the conurbations, and that rural areas and county towns should look to the Conservatives for support. People in the rural areas who are interested in forestry should look back to July 1972, when the future of forestry was threatened by an insensitive Treasury, and a subdued and servile Conservative Party asked no questions about it. The rural areas have ample grounds to question the political view of the Opposition.

The traditions of radical reform and democratic socialism have as deep roots in the pastures of our shires as they have in the concrete of our industrial towns, and the vision of “Merrie England” which was accepted by the Labour Party at the beginning of the century was not set in an entirely urban scene. We must ensure that forestry is extended in the years ahead, and we must not allow rumours and despair fostered by the Opposition to persuade anyone to cease [column 1392]to spend money on the management of woods. I shall watch with interest the woods in private ownership on which I regularly trespass, to make sure that they are properly managed, because it is vital to maintain an attractive landscape. I am sure that my right hon. Friend in advocating this worthy tax does not seek to bring disadvantage to that cause.

Mr. Robert Cooke (Bristol, West)

I think that what I shall say does not follow too inappropriately on what the hon. Member for Rother Valley (Mr. Hardy) said. Perhaps in a quieter interlude in this debate, I shall attempt to deal with consequences of the capital transfer tax and wealth tax not foreseen, and perhaps not intended, by the Government. I refer to the effect on what has come to be known as the national heritage.

I have no hesitation in declaring a deep interest in the national heritage. In this I am not alone because the British Tourist Authority, the Georgian Group, the Civic Trust, the Victorian Society, the Society for the Protection of Ancient Buildings and both National Trusts are all with me. All these completely disinterested public bodies are unanimous in thinking that the capital transfer tax and wealth tax will in the end, in their present form, prove to be disastrous to our national heritage.

In 1973 there were 47 million visits to historic houses and gardens in the United Kingdom, 15 per cent. of them from overseas. Overseas visitors in that year spent £872 million in hard currency in the United Kingdom. They came here largely to see our history and landscape. Many of these historic places and landscapes are seriously threatened by the new taxes. Of the 47 million visits, 26 million were to independently-owned properties and 11 million to privately-owned properties threatened by the new taxes. It is probable that in this coming summer at least 15 million visits will be made to the threatened properties.

The British Tourist Authority will confirm that it is to the family home and their contents, gardens and parks that the visitors want to come as the number one attraction. National Trust properties attract only about half the total number of visits as do privately-owned properties. [column 1393]The trusts will confirm that their care-takership is no substitute for the life and continuity of family ownership and they could hardly take on more places, even if they wanted to do so. They would need massive endowments from public funds if they tried to do more.

What about the State? The case of Heveningham is a case which provides an awful warning. That house was acquired a few years ago by the State for £300,000, when the family who built it created it, and lived in it were taxed out of it. The State acquired the house, some land and some contents for what large sum. And what happens now? It stands partly furnished and unoccupied and costs £30,000 a year of taxpayers' money to maintain—and all for what purpose?

Let us not be sidetracked into thinking that institutional use or multi-occupation is the answer. Recently, with the aid of some Government money, a few fine houses have been rescued at the eleventh hour and divided up into a number of residences. People have been found who will pay for a share of a restored, sub-divided historic house. But public access to those houses, even if they are restored in part with public money, will hardly be possible. In any case, the spirit of the place is lost when it is run, as it must be, by a changing committee of multi-occupants. The fabric may be saved but the feeling is changed out of all recognition.

It has been suggested by some well-meaning people that individual charitable trusts will save these houses. Some have already done this where massive private endowment has been available, but this will not save many because endowments are not there and are now ruled out by the Chancellor's proposals and the £50,000 limit. And the non-participation rules will prevent the benefactor having and say in what goes on in the house which he has given to the trust.

I am extremely glad to see the right hon. Gentleman the Chancellor of the Exchequer in his place tonight. I am sure he has a good working knowledge of this subject. If he wants to know anything more about it, I shall see that he is fully informed.

On the question of houses and their contents, the historic houses that we seek [column 1394]to save for the future were built as examples of the finest craftsmanship their owner could find and filled with the best works of art, pictures, furniture then obtainable. Succeeding generations have made them, in effect, into galleries and museums long before public museums and galleries ever became a reality. Many of these houses have been open to the public for 300 years. At their best, they are far better settings for works of art than any public gallery.

If our present museums and galleries were doubled in size, they still could not accommodate or display all the things that would be dislodged by capital transfer tax and the wealth tax.

Lest anyone should be side-tracked by the few great showmen owners, with their safari parks, I would add that it is not those we are on about tonight. We are on about the many hundreds of smaller places which are focal points for the arts and all manner of other good works in their neighbourhoods. They should be built upon and not cut off by taxation.

We have regional arts associations struggling for their existence at a time of difficulty. What they are seeking to do could easily be achieved with the historic houses of England, Scotland and Wales as their focal points—music, drama, painting, crafts, exhibitions, events of all kinds. We must reflect that there would be no new Glyndebournes if the Chancellor's taxes were enacted in the form proposed. I am sure that the right hon. Gentleman realises that and is giving it careful thought. There would be no new Edward James Foundation at West Dean Park for the Crafts if the right hon. Gentleman had his way as at present written into the Bill. These are things that we shall lose unless he changes his mind.

There are gardens of immense interest and distinction and variety, famous not only in this country but the world over. A garden is not something to be taken up one day and put down another. We shall not get people devoting their lives over generations to the creation and maintenance of fine gardens if they know that, at the end of their lifetime, that is the end and there is no future for their descendants. The taxes are a positive disincentive in that direction. [column 1395]

Many of my hon. Friends know more about forestry than I do, but I have a feeling that if the CTT and the wealth tax go through unamended, the effect on our oak woodlands will be decimation far worse than that which was required to build the ships which Nelson needed to fight an enemy across the sea. Surely there is no enemy from within this nation that would now so decimate our oak woodlands. But that is what the taxes will do, and if it is done, whatever one does in the way of new planting, there will be a gap of a century or more—and I am sure that the right hon. Gentleman will not want to be remembered for achieving that.

The Government have not intended all this to be the consequence of the taxes. The Chancellor has said that they are not designed to be socially harmful. I know that he is making strenuous efforts behind the scenes to find a workable solution, and in this he has at least my understanding and support.

I offer what I think is the solution because it preserves the principle of the taxes. At the same time, it prevents the destruction of what we all hold so dear. If the CTT and the wealth tax are held in suspense—a sword of Damocles—but firmly held, over historic houses, gardens, woodlands and estates and other supporting resources in fair exchange for “reasonable public access” , the taxpayer and the tax gathered and the private owner can work in happy partnership to preserve the national heritage.

What is reasonable public access? It will differ in each case, but it works very well already for several hundred historic buildings through individual access agreements, policed by the Historic Buildings Councils for England, Scotland and Wales. They at present supervise the listing of the buildings and advise on grants for repairs made by the Secretary of State concerned. They are well qualified to supervise access because they already do so for all the places to which they have given grants or loans. They could easily extend their scope. They have getting on for a quarter of a century of experience. They could deal with works of art in isolation, as well as buildings and lands. They are the Government agencies, appointed by the Government—people with immense skill and of enormous [column 1396]distinction. I blush to mention the fact that there is always a statutory Member of Parliament from each side of the House upon them.

This is not an open-ended drain on the Revenue—this is my last point, but the strongest—because only those places and objects with access agreements proposed by the HBCs and approved by the Secretary of State would qualify. Therefore, there is no open-ended commitment. The Government have it in their own hands to decide what concessions are allowed.

Public access to the national heritage would be assured because owners who did not play the game would be heavily taxed. Owners and their heirs would have their confidence restored, and they would, in effect, by trustees for the future—and there would be a future under what I am proposing. Here the Chancellor must be pleased again, because if they did decide to sell up they would be heavily taxed, so the national heritage would be far less likely to be dispersed—there would be a positive disincentive to disperse it—as certainly will not be the case if we do not amend the Bill.

I must also say to the Chancellor, incidentally, that both taxes depend upon such a mass of valuations that I am informed by the art trade and the auctioneers that they could not possibly do these. It is, in any case, an inexact science. Our capital gains tax on tangible movable property is something of a farce. It occupies a deal of time and produces little in return.

The Government have much on their minds, and we want to debate all the other aspects of these taxes. Other speakers can embroider this whole subject and what I have stated somewhat baldly. Many hon. Members on the Government side of the Committee care about this matter. Save the national heritage from wholesale upheaval, dispersal and permanent loss we must. On this all parties are surely agreed.

Mrs. Helene Hayman (Welywn and Hatfield)

I am very grateful for the opportunity to welcome what my right hon. Friend the Chancellor has said this evening about the Government's intention to mitigate the effects of the Bill as it now stands on charities. There are many of [column 1397]my hon. Friends who welcome the whole principle of the capital transfer tax, and who have very little concern about the upper limit of £5,000 on wedding gifts, but who nevertheless are deeply concerned about the effects of the Bill as it now stands on what the Chancellor has himself admitted are the majority of charities which at present, whether or not we like it, are doing a very necessary and valuable job in this country and which would be adversely affected if the present provisions of the Bill were enacted.

Many charities are totally dependent on large gifts from individual donors. We made a pledge in the White Paper on the capital transfer tax that charities would be no worse off than they are under the present estate duty provisions. This promise is not carried out in the letter or in the spirit by Clause 28 of the Bill and the proposal to aggregate all gifts whether to individuals or to charities made throughout a donor's lifetime.

It is these aspects about which those of us who have worked for charities are most concerned. The Chancellor says that he has not yet made up his mind how in Committee the Bill could best be amended. I hesitate to suggest to him that he might adopt the amendment standing in my name and that of my hon. Friend the Member for Woolwich, West (Mr. Hamling), which is simply to delete the clause, and instead, when he wishes to tackle the abuses which many of us recognise exist in the use of charitable status, that this should be done overall to all the tax concessions which charities enjoy and in a thorough review of the definition of charitable status.

However, we are using in the capital transfer tax a very blunt instrument to knock on the head the majority of very worthwhile charities in order to get at a tax-avoiding minority. I hope that the Chancellor will be very generous in his drawing up of the amendments which the Government will table and will remove from myself and my colleagues on the Committee any unpleasant possibility of having to vote against the Government on this issue.

Mr. Hector Monro (Dumfries)

I am glad to have an opportunity of saying something about this thoroughly [column 1398]objectionable clause tonight. First, however, if the Chancellor will not accept sense on charities from this side of the Committee, perhaps he will accept what his hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman) has just said. I start by declaring my interest as a farmer, although under the clause and Schedule 8 I am not sure that the Chancellor would agree. But he has not perhaps indicated his own interest in farming either.

I remind the right hon. Gentleman that my right hon. Friend the Member for Finchley (Mrs. Thatcher) has brought home very clearly the complexities and the technicalities of capital transfer tax, of which regretfully he does not seem to have a particularly detailed knowledge. I wish to bring home to the Committee the destructive results that the tax will have on forestry and farming. I shall speak mainly about forestry.

I have no doubt that the capital transfer tax will spend the end of private forestry as we know it today. It is a most important industry, and under the present tax relief incentives it has a great future, not only in the interest of the country but in the interest of rural communities and employment. The national interest is only too obvious in a financial sense. Imports of timber and wood-based materials will approach £2,000 million this year, representing, as we have been told, half the oil deficit.

If the Chancellor left taxation at an approximately similar level to what it is today and encouraged forestry, that bill for imports would fall proportionately as the output from our forests increased. Surely this would have a great impact on the balance of payments, which the Chancellor has skipped over tonight. Indeed the planting of 20,000 fewer acres this winter on account of capital transfer tax would at the end of the day, when grossed up, be equivalent to about £240 million on our balance of payments.

My contention is that if capital transfer tax comes in there will be a dramatic change in the whole of forestry policy. I wish to put to the Chancellor some of the results that will flow from this on the countryside. All countries give grant aid to forestry. We choose tax relief and grants to woodland owners. Most of our farms are too small for the planting of significant woodland other than for [column 1399]shelter belts. Indeed, the average woodland size is about 250 acres in England and 350 acres in Scotland. It is important to note this size because it is certainly too small for the Forestry Commission to operate economically.

I hope the Chancellor realises that if we lose half of our home production through the failure of the private sector we shall have to turn to Finland, the Soviet Union, Canada or Brazil to provide the improved imports that will be required. Can he at this stage guarantee into the years ahead that those imports will be available and at reasonable prices? Of course he cannot. He is, therefore, playing fast and loose with forestry.

I should like to illustrate the situation that the Chancellor is bringing upon forestry and the rural areas in relation to my constituency I have received floods of letters from forestry workers. The Chancellor tried to indicate that the Opposition represented the woodland owners. This is far from true. Perhaps he saw the 800 or 1,000 forestry workers who lobbied the House of Commons yesterday. They are not woodland owners. They plant the trees, extract the timber, and work in the sawmills. They will bear the burnt of the effect on forestry if the clause is passed.

In Dumfrieshire there are 117,000 acres of plantations, 68,000 acres of which are private woodlands, and 49,000 of which belong to the Forestry Commission, covering nearly one-fifth of my constituency. There is a comparatively high unemployment rate there. That is why I feel so bitter about this attack tonight on employment in the woodland areas—feelings which I am sure are shared by many hon. Members, although by fewer Government than Opposition Members.

There is an excellent employment potential in the woodland areas. Allowing for increased productivity, in 30 years' time about 2,250 jobs should be available instead of 650 jobs at present, with an output of about £50 million. That potential is being damaged by the Chancellor's proposal. Under the CTT proposal, 50 per cent. of that production will be threatened, and we shall lose the value of long-term management, which is so important as regards woodlands. [column 1400]

Not only will serious damage be done to the economy, but unemployment will rise. Contractors are already paying off their men. Hauliers, who are not ordering vehicle, expect to pay off their men in a few years' time. There is certain to be rural depopulation. In many parts of my constituency forestry workers form the largest proportion of the woodland communities. There is the effect on the shop-keepers to be considered. They are having a hard enough time under the Labour Government. There are the effects on the amenity of the countryside to be considered. I know that the Forestry Commission sets a fine example in that respect, but its efforts are equaled by some of the private landlords.

I point out to the Chancellor, who is somewhat remiss on this issue, that 90 per cent. of the hardwoods of Scotland are owned by private woodland owners. The right hon. Gentleman should realise that hardwood takes of the order of 120 years to mature. If the softwoods are neglected, as they may well be under these proposals, the countryside will become a haven for vermin, causing food production problems to neighbouring farms. He must also bear in mind the effect his proposal may well have on the tourist industry, directly and indirectly, with regard to employment in hotels. In many ways the Chancellor's proposals will be extremely damaging to the country side.

Looking ahead to the time when the great forest mature, the hopes of people in many areas to see the establishment of pulp mills or chipboard factories are fast receding. This will be a particular disappointment in South West Scotland. One Scottish forester said that the Labour Government are about to start something far more serious than the Highland clearances of the early nineteenth century.

Mr. James Sillars (South Ayrshire)

Bonkers.

Mr. Monro

The hon. Member for South Ayshire (Mr. Sillars) says “Bonkers” . He of all people should have an interest in forestry.

I should like to quote what was said by Professor Alan Thompson, a former well-respected Member of Parliament, and now Professor of Economics at Heriot-Watt University. Last week he expressed his opinion that it might cost [column 1401]Scotland 5,000 jobs, and perhaps 1,600 jobs in wood-based industries.

Mr. Crawford

If the hon. Member says that the Labour Government are responsible for as much devastation in Scotland as was caused by the Highlands clearances, who does he say was responsible for the Highlands clearances?

Mr. Monro

Probably the predecessors of the Scottish National Party. I am describing what will happen in the next five years as a result of the Chancellor's proposals.

My hon. Friend the Member for Bristol, West (Mr. Cooke) pointed out that hardwood production is an extremely long-term occupation, and how right he was to remind the Committee that if we had had CTT in the sixteenth, seventeenth and eighteenth centuries, we would not have had the hardwood which went into Nelson's warships in the early nineteenth century.

I hope that the Chancellor of the Exchequer will take on board how seriously his proposals are being fought in the countryside. He cannot have forgotten his words to the CBI last May, when he said:

“Her Majesty's Government has no intention of destroying the private sector or of encouraging its decay. We want a private sector which is vigorous, alert, imaginative and profitable.”

The Government have gone back on that in relation to forestry and farming. The right hon. Gentleman has broken his word. He is hell-bent on destroying private forestry, on creating unemployment in our woodlands and on running the best of our countryside. At the same time, he is making life in rural communities especially hard with his VAT on petrol.

All that I have said about forestry is equally true of farming. Many farmers appreciate now what some of my hon. Friends were saying in October, that in the future it would be virtually impossible to pass on a farm from father to son. The loss of the 45 per cent. relief is catastrophic in terms of the farm structure of the United Kingdom. The right hon. Gentleman's proposal for relief of 20 times the rental is nothing more than a con trick. No one can think the that will help agriculture out of its difficulties.

I need say no more to bring home just what a disaster this proposal is, other than to quote the chairman of the [column 1402]Scottish National Farmers' Union Legal Committee. In summing up this proposal, he said:

“We are not in any way seeking privileged treatment for individuals but are trying honestly to find a means of keeping intact and efficient an industry which is the envy of other countries and on which the well-being of this country must always to a large extent depend.”

Why destroy it? Why create unemployment? I ask the Government to give reasonable thought to these arguments. They should go away and bring back a new clause.

Mr. G. R. Strauss (Vauxhall)

I want briefly to reinforce and support with all the urgency at my command the plea from both sides of the Committee to the Chancellor of the Exchequer to prevent damage to what is called “the national heritage” .

This matter has been studied very carefully by right hon. Members on this side of the Committee, and they want me to plead with the Government to see what can be done to amend the Bill so as to preserve our national heritage. I know no one in the House who is more keen than my right hon. Friend the Chancellor to do so, so that our fine country houses, which have historic and aesthetic interest, together with their surrounding lands should remain permanently available for the enjoyment of our people and of visitors from abroad.

The danger arises from a number of factors. One is the increasing taxation which makes it much more difficult for private people to maintain these houses. Many belong to the National Trust, but many are still in private hands. If it is to be a condition of exemption from the capital transfer tax that they become the property of some body like the National Trust, as the Bill proposes, the situation will be very serious, as the trust requires large sums to be set aside by the donors of such buildings for their preservation and maintenance. Moreover, its present liabilities greatly exceed its necessary outgoings. So the houses and their contents, which usually should not be separated, will not be accepted by the trust, or by local authorities.

Something must be done to ensure that these houses remain available for the enjoyment of the public. They are some of our most precious possessions, a [column 1403]glorious part of our heritage. Their historic and aesthetic interest is tremendous. We are fortunate to have so many of them kept in good condition for decades and even centuries.

I therefore ask my right hon. Friend to consider exempting these buildings and their contents from the tax so long as an undertaking is given, either by a national body or by a private person whose family may have lived in them for a long time, that they will be maintained in good condition and visitors allowed to view their contents. The Historic Buildings Council could supervise the work admirably. Probably this is the most acceptable solution, and the one most likely to be successful. But only by some such amendment to the Bill can many of these buildings be retained for the pleasure of our people and foreign visitors.

Mr. Maurice Macmillan

I, too, oppose the introduction of this tax at this time. This is a wholly objectionable way of introducing a new tax in a field where there is a need for tax reform and where there are possibilities of making real and sensible improvements, without the dangers and damage to our economy, our people and our heritage that we have heard discussed tonight.

There is no urgency. As my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, the effect on the borrowing requirement, if any, will be to increase it immediately. It has no economic purpose in the short run and, in the longer term, the Select Committee on the wealth tax is deliberating a wider field yet of taxation of capital. I should have thought that any sensible measure of tax reform should await the report of that Committee, which anyway, I understand, is to be asked to guide the Chancellor on some aspects of exemptions from the capital transfer tax.

I want to make my objections to the tax on general grounds, but I must first declare a personal interest. As it stands, the tax will make it very difficult, if not impossible, for my family's publishing house to continue as a family business. That may not matter very much. It has been going since 1843, so it has had a good run. But there are other family companies, some big, some small, some growing, some fading out and going bust, [column 1404]alas. There are 300,000 of them in all, compared to the 9,000 or so companies whose shares are quoted on the Stock Exchange. They employ, as my right hon. Friend said, over one-third of the total number of the working population; 51 per cent. of the private sector work for unquoted companies. They are not all small businesses or owned by very few people. Some of the larger have a very wide ownership, too, including their management and work people, in this country and, indeed, overseas.

Altogether, the unquoted companies, partnerships and self-employed, make a very significant contribution to the economy of this country in manufacturing industry, service industry and the professions. They make a quite disproportionate contribution to innovation and invention, partly because they are able to undertake projects which no director of a publicly-owned company with outside shareholders would dare recommend because of the element of risk involved. That is how so much of the invention and innovation has come about, upon which our economy has depended. These companies have a far better record of ploughing back profits and of reinvestment than public companies.

I know that the argument would be advanced by the right hon. Gentleman that they have survived as family businesses only because of the admittedly legal loopholes in estate duty. Of course, there is an element of truth in this. But these arrangements were necessary only because of the level of estate duty on private businesses. Alas, I know many private businesses, both present and past, which did not make those arrangements, which were destroyed and taken over by larger firms and became part of great conglomerates, and it is worrying to me as a Member of Parliament because I fear that when a small business is taken over by a great combine it is a case of “last in, first out” and I worry about unemployment in my constituency.

As my right hon. Friend the Member for Finchley (Mrs. Thatcher) said, some of these arrangements are discretionary trusts which are different in kind from the arrangements which many hon. Members on both sides of the Committee find objectionable. Their purpose is not so much that of getting more to spend for the beneficiaries but to enable a business, [column 1405]an entity, to continue undamaged as a whole, to prevent a change in quality rather than to get an increase in quantity.

My right hon. Friend made a point about grossing up and the impact that that is likely to have. I say to the Chancellor: All right, let us close the loopholes on taxing capital, but if we are going to do so, we should take account of the form in which that capital is held, as well as the total amount: whether it is easily divisible, or whether it is impossible to divide it without destroying a living entity, be it farm or forest, manufacturing industry or service industry. We should take account of the form in which it is held, as well as of the total amount, and should take account, too of the impact of other taxation, including, whatever the Chancellor may say, capital gains tax, because I say to him that there is something a little distasteful about forcing someone to sell property and then taxing him on what he gets to pay the tax on what he passes on. 12 midnight.

My first major objection to the clause is that it is a direct discouragement to individuals to invest, to reinvest, to plough back their profits and to build for the future. By God, what fools we have been made to look by the Chancellor, those of us who have exercised what might be considered Victorian virtues of thrift by looking ahead and building for the future. We would have done better to have sold out and spent it. That is why I say to the Chancellor that what he is doing does nothing to help create new wealth but rather encourages a “get-rich-quick” attitude, a “never-mind-the-future” attitude, a one-generation society where the wheeler-dealer gets the best and the creator for the future is overlooked.

Nor does this clause redistribute wealth. That is my second major objection: the pretence that this is a redistribution of wealth. It is not. It is a concentration of wealth and capital and particularly, perhaps, of productive capital in the hands of the state or of big companies owned largely by institutions rather than by individuals. It is an attack not on private property alone, not on private property alone, not on private enterprise alone, but on those who would seek, by their own efforts to spread wealth more widely. It prevents the [column 1406]redistribution of wealth, prevents saving and thrift and private enterprise carried on by more than one generation.

I used to run an organisation with a lot of support from the Liberal Party, and some from the Labour Party and the unions, in which we tried to spread wealth more widely. It derived from a pamphlet published many years ago called “Everyman a capitalist” . That was our ideal. Now the Chancellor is putting before this Committee the proposition that every man must be an employee.

I am delighted to hear my right hon. Friend undertake to repeal this provision, particularly because there is a strong case for taxing capital as well as income, but in a way which helps the distribution of wealth more widely—the distribution of wealth for wider personal ownership by people for themselves and not by the State acting on their behalf, a system which takes account of whatever form of wealth tax we may consider and which takes account of capital gains tax, of taxation of earned and investment income, and of a cut-off point which other countries have, as the Chancellor quoted, which considers the possibility of an expenditure tax within such a system.

The objective of this reform in the form of taxation of capital and income taken together must be to help earners at every level become owners of real wealth. I do not think it is all that difficult. One could have a much lower earned income tax. We should have stock option schemes and share incentive schemes to encourage savings in industry by employees at every level. It is possible to conceive of a wealth tax and an investment surcharge set at levels at which every earner, including the high earners, would be able to pay any tax on their capital out of their net investment income. It is possible to adjust that package in order to give positive encouragement and help to people to acquire capital up to a given level, with protection from confiscation for those who are already at that level. It is possible to have measures to prevent the effective rate of taxation in a given year rising beyond a given percentage of taxable income. In Sweden, for example, I believe that it is 80 per cent. [column 1407]

I accept that this must seen horrible to the Labour Party. It must be a horrible idea that managers and weekly wage earners should be encouraged to be thrifty, that success and enterprise should be rewarded, that individuals should actually be helped to start up on their own, to invest their own money and to build a trade and plough their own money back into it. It must sound horrible that these people should wish their enterprise to be carried on after their deaths by their families and others.

This desire for continuity has helped to make Britain a great country. It has helped our visible and invisible exports. It is not always possible to realise that desire within the first 20 years of starting a business. The Chancellor is putting at risk all that the past has achieved, and he may well prevent such successes in the future. The Chancellor pretends that he is interested in social justice and the fairer distribution of wealth, but he is in reality seeking to impose uniformity and a levelling down so that the Government and any administration which follow them will be in a position to say with truth “We are the masters now:” The right hon. Gentleman has chosen to do this by a method which must be economically damaging even if it has no great effect in the short term. In the longer term the clause enables the Government to squander the nation's capital. It is forcing people to disinvest so that the Government can spend the capital as if it were income. That is really my third major objection—that the Government are seeking to spend capital as income. It is inflationary to do so, and it inevitably leads to disaster.

I have these major objections to the clause: it discourages investment and the ploughing back of profits, it is damaging many legitimate interests—farming and forestry, manufacturing and service industries; and it is destroying what has been built up over past generations. It may well prevent the creation of future enterprise. It concentrates capital and real wealth in fewer and fewer hands. It strengthens the institutionalised power of bureaucracy both in Government and in great impersonal combines, and it weakens individual enterprise and ownership. It squanders capital as though it [column 1408]were income, adding to inflation and making economic recovery more difficult.

As I have tried to show, we should seek a more equitable system of direct taxation of capital and income. If possible—I believe that it is possible—we should find one that encourages enterprise, spreads ownership and adds to the nation's capital. That is the time to talk about taxation of capital. Meanwhile, I ask the Committee to reject this nasty, mean, complicated and destructive measure.

Mrs. Winifred Ewing

My party came into the Chamber to support the Government, but we expected assurances which we have not had on three of Scotland's vital industries. We are not satisfied with the Chancellor of the Exchequer's statement.

When the right hon. Gentleman mentioned forestry he spoke about hardwoods, which are largely irrelevant to Scotland. When I tackled him on a serious matter, he did not give me a serious answer.

Mr. Healey

rose——

Mrs. Ewing

I should like to develop this point before giving way.

I well remember the two years and seven months I soldiered in the House as a lonely party of one. In fact, I was told that I was not a party, being only one. During that period the only debate on the Highlands and Islands was in the other place. I naturally went to listen to that debate, and I heard the Leader of the other place say that the Forestry Commission had no once used its powers of compulsory purchase in Scotland; he boasted that it had not used them to acquire a single acre. To my astonishment, both sides of the other place erupted with cries of “Hear, hear” . They were delighted about that.

There are only just over 2 million acres of forestry land in Scotland. There are 11 million acres of uplands. With a sensible forestry policy, by the end of the century there could be 5 million acres under forest.

The Committee laughed when I suggested that the softwoods grow two and a half times faster in Scotland than they do in Scandinavia. But that is a fact. [column 1409]When Scandinavia see our unused uplands they say that we are mad to allow them to remain unused. That situation has been connived at by successive Governments, both Labour and Conservative.

I should have been delighted if the Forestry Commission had been allowed to use its powers of compulsory purchase, but, rightly or wrongly, it was not. Dedication schemes were started, supported by the right hon. Gentleman's party. As a result, according to the Forestry Commission's report, the proportion of such schemes in our woodlands is roughly 60 per cent. to 40 per cent. That position, brought about by successive Governments, is now a fact of life, whether the right hon. Gentleman likes it or not.

Communities all over Scotland depend on forestry, whether private or public. But for forestry, certain islands would have no schools. There are certain places in my hill land constituency, a fairly wealthy constituency, where communities would die without forestry and never be replaced. The house, which are tied, would become holiday homes.

We did not receive assurances. The point I was trying to make in my intervention was that Labour was a party to the policy that created this situation. In those circumstances, my party is entitled to receive assurances.

Mr. Healey

What I told the hon. Lady when she intervened was that, whatever other point she has to make, one thing we have in common is that we want more public planting of softwood in Scotland. I gave her that assurance. I am not directly responsible for that, but I will put the matter to my right hon. Friend the Secretary of State for Scotland.

Mrs. Ewing

The right hon. Gentleman has not answered my point. The facts of life are as I have stated. The right hon. Gentleman's party is partly the creator of the situation. Forestry is a potential expansionist industry in Scotland. It could grow from 14,000 jobs to 100,000 if the policies were right. It is the only crop that will be taxed more than once in its lifetime. That is not logical.

There is no revenue from timber until it is felled. What will happen if no [column 1410]assurance is given? A conservative estimate is that 20 million seedlings will be destroyed. We shall have immature woods. In fact, most of our woods are immature because we have not reached the position that obtains in Finland, where there is a regular return on capital. We are still in an expansionist situation. We shall have immature woods felled. We shall have an enormous loss of jobs. That has happened in Perth and Galloway, where already 60 jobs have been lost. There is a fantastic lack of confidence because the industry does not know whether any assurances are to be given.

The remarks that I have made about forestry apply similarly to family farms. They are the backbone of Scotland, Wales and many parts of England. It is true that on paper a farmer can be a terribly wealthy man. My agent has 120 acres. He was one of the last of the young men in Moray and Nairn who were able to buy a farm. He went in just in time. It would be impossible to do so now.

Do the Government want only big farming combines or do they want to retain the family farm? Unless there are assurances given of the sort that my party has been seeking we shall end up by helping not the small man but the big man.

I now turn to fishing. In many parts of Scotland there are families which have been engaged in fishing for generations. There has been a succession from grandfather to father to son. If no assurances are given, the fishing communities will turn to something else. I am in the fortunate position of having two ports that I can compare—Nairn and Lossiemuth. Both were in a similar position 40 years ago. It was then possible to walk across the harbours on the fishing boats. But now Nairn harbour is silted and not one boat is used for fishing. Lossiemouth harbour is already in grave danger. Six boats have been put up for sale in the past two weeks. The system is against the young man who wants to operate a fishing boat.

Those who are now selling their boats have been preservationists. The Scots have not ruined the Scottish fishing waters. We have used the right kind of nets to allow the wee fish to get through Without going into what will happen on 1st January 1984, let us give some credit to an industry that has managed to keep [column 1411]going by itself and provide communities and jobs. It is not only the primary jobs in forestry, fishing and agriculture which have to be considered. We also must consider the secondary jobs. In places like my constituency and many other constituencies in Scotland, England and Wales it is difficult to measure how many secondary jobs depend on forestry, fishing and agriculture.

My party, in all good faith, was prepared to support the Government. We had a meeting because we had received no assurances that satisfied us. Not one of us has been allowed on the Standing Committee, on which 40 Members sit. We represent 30 per cent. of the votes in Scotland. Not one of our amendments has been called. What sort of justice is that for the people of Scotland? Because there have been no assurances we cannot vote with the Government. However, if we are given assurances now—in other words, if the Government mend their ways—we shall be prepared to support the Government.

Mr. Brian Walden (Birmingham, Ladywood)

I have some more bad news for the Chancellor. I am rather inclined, although I shall resist the temptation, to follow the speech of the right hon. Member for Farnham (Mr. Macmillan). It fascinated me, and if I were to go into it I would not be critical of it. It reminded me of the joke of Will Rodgers about redistribution of income, when he said that “sharing of wealth is the scheme whereby you take some money from fat cats, make sure that I get none of it, but give me the pleasure of watching Franklin Roosevelt spend it.” I rather gathered that the right hon. Gentleman was making a somewhat similar point.

I am not wholly out of sympathy with the right hon. Gentleman, because sometimes we use the phrase “redistribution of wealth” to mean something quite different. I have no desire to prevent the Committee from deciding whether Clause 17 should stand part of the Bill. I wish to refer to a narrow but important point relating to charities.

I was glad to hear what the Chancellor said about things which the Chief Secretary will be saying to the Standing Committee. They had better be good, because as the proposals stand not only [column 1412]could I not vote for them, but I would feel compelled to vote against them. I should certainly vote against Clause 28 unless it is either removed entirely, as has been suggested in an amendment from the Labour side of the Committee, or unless it undergoes such a radical transformation that it becomes a horse of a very different colour indeed. Should the Government lose in Standing Committee and try to restore the situation on Report I would have to vote against them.

Perhaps my right hon. Friend will hear me on my reasons. The thinking behind this part of the Bill is wrong. It is wrong not simply in the way it would operate but morally wrong. It is wrong on every county. I say little about avoidance, except that when avoidance reaches its current levels, not in terms of actual practice but in terms of the Revenue and highly-paid accountants playing games with each other about it, what we ought to look at is the total effective incidence of tax. That is the essence of it.

Frankly, to some extent I get bored with the obsession of the Revenue about avoidance. I do not mean by that that I would in the least support evasion, which is criminal, or approve of avoidance, which is to my mind wrong. I mean that frequently more and more things are put into a Finance Bill which cause damage, fairly widespread general damage, to catch a very limited number of cases which have come to the attention of the Revenue because of the operation of slick accountants. I can understand the Chancellor saying that there is nothing he can do about that, and I accept that there must be provisions in a Finance Bill to take account of avoidance. But these provisions are particularly bad.

Although it grieves me to say it, I thought that the right hon. Member for Finchley (Mrs. Thatcher) had the better of the case. When my right hon. Friend refers to the fact that Tony Barber spoke about avoidance in terms of a charity and the £50,000 level, he is absolutely right. Tony Barber did so. As far as I could see from the quotation my right hon. Friend read out, he substantiated his case. On the other hand, I am bound to say that the right hon. Lady substantiated hers in the sense that the situation is now quite different. [column 1413]

Without holding here a debate which should be held in the Standing Committee, let me make one point. My right hon. Friend realises, I am sure, that aggregation has changed this completely. Once we reach the situation where we aggregate a man's charitable gifts against his other gifts we have a completely different ball game. Nor does it have anything whatever to do—as tends to come up in muddled Left-Wing thinking—with the distribution of wealth in society. Whatever convictions there may be on that subject, it cannot but be the case that if a wealthy man chooses literally to give his money away that is the least morally objectionable thing he could possibly do with it, no matter what views one holds about whether he should have had that money in the first place.

I have no interest to declare, but I have looked at a number of charities involved and there is not the slightest doubt that the effect of the Bill will be to wipe them out. I mean that literally. That is not dramatic language used to impress the Committee. To aggregate in this way at these levels will literally wipe them out.

I ask my right hon. Friend, who has said that there will be some fresh thinking on this, to make sure that the fresh thinking is radical, that the concessions are not piffling but substantial and that the concessions will, with whatever additional provisions against avoidance may be felt to be necessary, restore the status quo ante and do what hon. Members and the public want—not tax a man's charitable contributions. It is not so simple as that, but that is the position towards which we wish to move.

I should be unhappy about a concession for domestic charities that did not also operate for money sent overseas. Some of the most valuable and vital work in terms of human life is done by charities which use money sent abroad from this country. I can think of no activity that I wish to stimulate more than our aid to the world, which is not all that splendid. The Chancellor has properly and encouragingly given that assurance, and I hope that it will be a thorough-going job. If the Inland Revenue continues to bring up the word “avoidance” , I hope that the Chancellor will say “Yes, as in many other things in politics, the lesser must give way to [column 1414]the greater, and the greater is the need to preserve charitable activities” .

Mr. Beith

The debate started in an atmosphere of rhetoric but has produced some sound practical comments. I hope that the right hon. Gentleman will forget any of the rhetoric which was not to his liking and realise that both sides of the Committee feel that on many matters from charities to forestry there are areas of practical importance which he should consider.

It is common ground that any tax should be judged by its ability to fulfil the purpose for which it is raised without destroying or damaging productive or beneficial effort in any sphere. It has been questioned whether, if the purpose of the tax is the redistribution of wealth, it will achieve that purpose, but I leave that aside because it has been fully explored by my hon. Friend the Member for Cornwall, North (Mr. Pardoe) and others.

It is clear that the tax as it stands is not free of damaging effects in several spheres, including charities, agriculture and forestry. The measure will complete a transition which began under the Conservative Government from a tax framework in which forestry was stimulated—perhaps over-stimulated—to one in which planting a tree is systematically discouraged. Not must time has elapsed between “Plant a tree in '73” ; now the slogan seems to be “No more after '74” .

Can it be intended that tax should be paid for an unrealised crop five times or more during its period of growth? We do not owe land owners a living. There is no reason why we should seek to assist or “feather bed” those whose good fortune it may have been to inherit land. But we owe ourselves the right to consider seriously the effect of the tax on something that we need.

There are three reasons why forestry is important. We need the timber. We need the employment timber-growing provides. In rural areas that is irreplaceable employment. I have received as many representations from people who are employed in forestry as from those who have an ownership or management interest in it. There is also the amenity aspect to be considered. Many of us are [column 1415]concerned not primarily about the vast virgin upland plantations, but about the smaller woodlands, especially those containing the hardwoods, so vital to the appearance and traditional feeling of the countryside. These small woodlands will tend to be felled to pay the tax. The crucial point is that these will not be replanted. This is one of the most dangerous aspects from the amenity point of view. The risk is that hardwood plantations will be felled to realise money for tax and will not be replanted. Woods and copses will turn to scrub.

There are a number of ways in which this problem could be dealt with. It can be done by deferred payment, when the crop is realised, by allowances for replanting and in other ways. These matters no doubt can be dealt with upstairs in Committee. However, it is worrying many of us that there should be so little indication from the Government of any willingness to recognise that the tax, as it stands, cannot go through without substantial damage being done to forestry. It is surprising that we should be asked to agree to this clause without having been given the assurances which have been sought by hon. Members who are concerned about aspects of out national stock of timber and also about rural employment. The Chancellor of the Exchequer should at least tell the Committee that he realises that there is a problem in this respect.

There would be a great deal to be said for a capital transfer tax—or a capital receipts tax—as an alternative to death duties, governed as they are by health, luck and the ingenuity of accountants. However, there is no case for a capital transfer tax if its consequences are to be as disastrous as these. We hope that the Chancellor will give some indication that he realises the problem in this respect.

Mr. Frank Hooley (Sheffield, Heeley)

I am entirely in favour of the capital transfer tax, but I hope that my right hon. Friend the Chancellor of the Exchequer and his colleagues will look again at the question of forestry. I am not particularly impressed by the pressures of commercial organisations which want to avoid taxation or to claim that their activities will be affected by the tax. I am a lot more impressed by the fact [column 1416]that several hundred professional forestry workers are prepared to stand in the rain outside the House to make a case to their parliamentary representatives that their livelihood may be seriously damaged by the no doubt unintended effect of the tax.

We must also take into account the question of the general ecology of the countryside. I hesitate to speak following the distinguished speech of one of my hon. Friends who has a fine record of concern for our nation's flora and fauna, but it is clear that woodland and forest are part of the general ecology of the countryside. If, by accident, Parliament were to introduce tax proposals that led to the widespread destruction of woodland, it would not only affect the landscape and its appearance but would upset the habitat of the countryside. That is a matter which we must bear in mind.

It would be most ironic if two years after the Stockholm conference on the environment, and at a time when men and women everywhere are becoming more and more concerned about the effect of man's activities on his environment, we should, by accident or design, introduce fiscal methods which have a damaging effect on our countryside, particularly on woodlands and forests.

I wish to say no more at this stage, but I hope that my right hon. Friend the Chancellor and his colleagues will listen carefully to the representations made to them by at least four parliamentary parties. I fully support the tax and believe that it is long overdue, but I hope that the matters raised in this debate will be carefully examined.

Mr. Wigley

I regret that I cannot echo the assurances given by the right hon. Lady the Member for Finchley (Mrs. Thatcher) from the Conservative Front Bench that when my party forms the next Government we shall repeal this legislation. However, although we are in general sympathy with the aims of redistribution of wealth—and it is something we particularly need in Wales in terms of United Kingdom tax since Welsh people on average have 71 per cent. of the per capita wealth of the United Kingdom—we have grave misgivings about this clause and some of the schedules. So much is our doubt about [column 1417]some of them that we have tabled amendments. If I dwell to a greater extent than I would otherwise on those amendments, although they have not been selected, it is because we do not have an opportunity in Committee upstairs to put our points forward.

Two aspects particularly worry us—agriculture and forestry. Although our amendment to Clause 17 was not selected, I hope that the Chancellor will give its principle serious consideration. We also put down an amendment to Clause 28 and agree wholeheartedly with the comments made on that provision.

In Wales as a whole, and in my part in particular, agriculture is an essential part of the economy, and it is based on a family farm pattern. In Wales the average man days in agriculture are less than 600. They are family farms. In these circumstances, the answer for Wales is clear—no one else could or would follow on because the whole social and economic fabric would militate against it. Again, the pattern is to a large extent one of owner-occupation, and that is an important factor. More than half the farms in Wales are wholly owner-occupied and less than 25 per cent. are wholly rented. The question of owner-occupation is central in this context.

Farms in Wales also tend to be relatively small in the United Kingdom context. Over 90 per cent. are under 300 acres. As a result, there should be provision in the Bill to ensure that the impact of the capital transfer tax on agriculture is minimised for those who would be most hit by it.

The farmers in the categories I have described will be hit because the value of agricultural land has escalated. Their return on their notional investment is very low—as low as 1 or 2 per cent. Whereas a farmer has an asset on paper and if it is realised he has a lot of money, while his money is tied up in it he is getting a very low return. The realising of the asset should be looked after by capital gains tax and not by capital transfer tax.

The consequence of the capital transfer tax in its present form would be the fragmentation of farming in Wales, and the units are already so small that the pattern could not stand it. The effect would be the transfer of these units from [column 1418]family ownership to institutional investors. That is a real danger in the Welsh countryside.

There is provision in Schedule 8 to give certain reliefs to agriculture, but it does not go half far enough. The formula in paragraph 3 raises many questions of interpretation. In the present situation of an artificial relationship between land values and rental values—low in many cases—the formula may give some meaningful relief, but when capital values or rental values adjust, it will not prove so effective. We ask for a guarantee of cut-off to give some relief if we cannot get the relief proposed by our amendment to Clause 17. This has been done in Northern Ireland, I understand, where there is a 37 per cent. relief for land. Perhaps in Wales and Scotland—it is not for me to tell England what to do—there can be a provision designed to deal with this situation.

The figure of 1,000 acres has been referred to, but there is land and land. There is a great difference between 1,000 acres of land on the lowland plain and 1,000 acres on the mountainside. We suggest in one of our amendments that it is necessary to deal with land according to grade, perhaps taking the 1,000 acres as the starting point but building up from grade 1 to grade 5. It may be claimed that the £250,000 alternative looks after that aspect, but, with the escalation of money values, how do we know that next year £250,000 will be a meaningful figure? The Chancellor said earlier that he would adjust threshholds from time to time. If this figure of £250,000 is the safeguard, it may be necessary to build in some inflation factor.

For this reason we are asking for an exemption for those categories—not for the rich farmers or the big estates but for those with under 300 acres of grade 1 land, or correspondingly increased acreages of poorer land. We are asking for exemption to make sure that what the Chancellor is trying to do in his relief clause is carried out in practice. This is an absolute prerequisite to ensure a future for agriculture in Wales.

Turning to forestry, as a party Plaind Cymru is not normally sympathetic towards large forestry developments. Indeed, many parts of rural Wales have been swallowed up by forestry on land [column 1419]which should have been used for agriculture. But it is not through a Finance Bill that control of these things should be undertaken. We need planning sanctions and a land use strategy. It is not through a Finance Bill that we get control of these things.

Reference has been made to the small family forests which exist in Wales, as they do in Scotland. Many people who have invested money and worked very hard as individuals and developed smallscale forestry will be absolutely ruined by the provisions of the Bill if enacted. For a crop which may not have a significant value for 50 or 60 years to be moved from hand to hand several times will put an economic strain on its owners that will make it totally unviable. The result will be that there will be no further forestry except in the State sector and a rundown of existing woodlands, which will be to the benefit of no one. Therefore, we have tabled an amendment on this subject, intending not to exempt such owners from taxation but rather to defer taxation on family concerns below a certain threshold size, corresponding to the grade 5 land for agricultural purposes, and to ensure that the tax, when it is payable, is paid at the time when the crop is harvested, thus making it practical economics for those who have to face it.

It is for those reasons that we have tabled our amendments. We hope that the Chancellor, in considering them, either in Committee or on Report, can incorporate the principles, if not the detail. If so, we should be reasonably happy with the general philosophy behind the Bill. But if those assurances cannot be given, we shall be very worried indeed and will consider these matters when they come to a vote.

Mr. David Price (Eastleigh)

I have great sympathy with the complaint of the hon. Member for Caernarvon (Mr. Wigley) that he will not be in a position to move his amendments. I have the same sympathy with the hon. Member for Moray and Nairn (Mrs. Ewing), and the hon. Member for Eastleigh—myself.

I say to the Government and to whoever arranges our business that in this debate on Clause 17 we are discussing a brand new tax which occupies 17 clauses and eight schedules. We are [column 1420]having one debate on the Question “That the clause stand part of the Bill” and we shall have one debate subsequently on Clause 33, which is setting up the rates of this tax.

We agreed some years ago to split consideration of the Finance Bill—part to be taken in Committee upstairs and part dealt with in Committee on the Floor of the House. In the spirit of that agreement we are entitled to have a whole new tax like this taken on the Floor of the House. That would be fair to hon. Members.

I realise perfectly well that the Chancellor wishes to get a move on. I understand that he has a deadline for getting the Bill on the statute book. I am sure that the House is generally sympathetic about the Chancellor's difficulties in this matter. But there are many of us who would be prepared, in the interests of better and more just legislation, to sit late on many nights, as we used to do in the old days—and were none the worse for it. I do not know whether this place has become so soft that we are not prepared to examine important new legislation in detail. There has not been a speech so far this evening which has not contained suggestions, from hon. Members on either side of the Committee, that ought to have been followed up by amendments, but that is not open to them because part of the Bill is not being taken in Committee of the whole House but upstairs. If no one else does it, I at least wish to make my protest strongly enough to the authorities which arrange our business. I understand that what I might call the minority parties feel strongly about this. They have my complete sympathy.

We have this further difficulty in examining the fairly modest words that appear in Clause 17. Those modest words mean nothing without examining the subsequent clauses and the schedules. A number of points need to be made by hon. Members on all sides arising out of those schedules because, as so often happens in legislation like this, that is where the crunch comes.

I follow my right hon. Friend the Member for Farnham (Mr. Macmillan) in saying that I have no quarrel with the idea of abolishing estate duty and [column 1421]replacing it with some form of capital transfer tax. I agree with practically everything my right hon. Friend said. I am sure that most of us who have seriously considered reform of our taxation system are very much aware of the imperfections in the existing estate duty, and I do not stand up here to defend it. Therefore, I am not unsympathetic to the general purpose of changing this form of capital tax.

Like my right hon. Friend the Member for Finchley (Mrs. Thatcher), however, as I examine in detail what is in the subsequent clauses and schedules—which make the structure not of a capital transfer tax but of the Chancellor's particular and unique capital transfer tax, which is the one we are debating and on which we shall take the vote—I fear that my broad political sympathy, my potential sympathy, is turned into active hostility.

I should like to put to the Committee some points which have not yet been deployed about why, structurally, this is a bad tax as conceived by the Chancellor. I repeat my support for the hon. Member for Cornwall, North (Mr. Pardoe) in his original amendment by saying that the liability for this tax should be placed on the recipient of a capital transfer and not on the donor. I reinforce all that was said in that earlier debate because it is relevant to the debate on whether Clause 17 should stand part of the Bill. If we really want to see a wider distribution of wealth, the donor should not carry the taxable liability. It should be on the recipient.

I have for a long time been a supporter of moving from estate duty to legacy duty, and I believe that some form of capital transfer tax and some form of legacy duty can be wrapped up into a new form of tax. That is where my sympathies go. Those who are about a wider distribution of wealth would all agree on that. Indeed, on Second Reading the Chief Secretary used these words:

“towards a fairer distribution of income and wealth.” —[Official Report, 17th December 1974; Vol. 883, c. 1369.]

As my right hon. Friend the Member for Farnham pointed out, however, as presently conceived this adds up to a further concentration of wealth in the hands of the State. [column 1422]

I do not think that any of us who oppose this tax in its present form wish to see any more aggregation of wealth to the State. The standard intellectual error of so many Socialists is in assuming that the State and society are the same thing. I was interested in one or two of the comments of the hon. Member for Caernarvon which support my view that society and the State are not the same thing. If there is too much concentration of power in the State, it is positively to the danger and the detriment of society. That being so, I believe that the amendment moved by the hon. Member for Cornwall, North was absolutely on the right lines.

Secondly, I believe that this tax is not designed to encourage the earlier rather than the later distribution of capital. If it is the Government's object to encourage a wider distribution of wealth, I suggest that they should design it with a lower rate of taxation for gifts inter vivos and a higher rate of taxation for testamentary transfers—in other words, when one is dead.

If one of the reasons for this tax is therefore to encourage the wider distribution, and if that redistribution be a good thing, presumably the sooner the distribution takes place the better. The right hon. Gentleman is encouraging the later rather than the earlier redistribution. However, we are used to the Government being a little confused in these matters.

My third objection is that this tax does not support the family. Indeed it has the very reverse effect. I hold old-fashioned views in this matter. I believe in the family. The family is the basic unit in society, upon which everything is built. Such are the pressures of modern life that we legislators must do everything we can to support the family and not to reduce it. That is a view which is widely held by many people who vote for the Labour Party in elections.

Most European countries have always had a bias in their taxation systems in favour of the family. I hope I misheard the Chancellor. I felt that when he referred to this point he threw a little scorn on it. The point clearly did not find favour with him.

Mr. Healey

No.

[column 1423]

Mr. Price

I am delighted to hear that. It relieves me greatly.

I believe that this case, which is a genuine one, is already recognised by the Chancellor. He is proud of having relieved the spouse of the estate duty liability. I shall not go into the details of the argument between him and my right hon. Friend. Let us assume that the right hon. Gentleman holds that view. I ask him why he does not extend this principle to children. I do not suggest that the children should go tax-free. However, the imposition of a lower rate should result in wider distribution. In his treatment of income the Chancellor has already aggregated dependent children with their parents. He has already conceded the family as one by saying that the dependent children's income should be aggregated with that of the parents. Therefore, I suggest that if he accepts the principle in regard to income tax he cannot deny the same principle when it comes to the CTT. He must be logical. Either he must revert to the former dispensation with regard to the treatment of dependent children's income, and not aggregate it, or, if he stands by his views on aggregation, he must apply the same principle by granting at least a lower rate of capital transfer tax than he is now proposing down to the next generation.

Let me encourage the right hon. Gentleman. If he follows my suggestion he is not selling out his principles. Let me comfort him by reading the words of one of the father figures of the European Socialist movement, Pierre Joseph Proudhon, who said:

“The aim of the legislator is not to abolish, but to realise for everyone three things which are intertwined: marriage, family and property. Moreover, in the interests of the family there must be inheritance, for without inheritance there can be neither husbands nor wives, neither ancestors nor descendants. There must be inheritance because the family ought never to perish.”

I give the Chancellor that little encouragement, which is in the Socialist tradition.

My fourth objection is that the suggested rates of tax are far to high when we take into account the withdrawal of the 45 per cent. relief for agriculture and business assets and the liability to capital gains tax.

We must also consider the effect of the high rates of income tax, capital gains [column 1424]tax and capital transfer tax and the eventual wealth tax. I support the views expressed by the hon. Member for Birmingham, Ladywood (Mr. Walden) and by my right hon. Friend the Member for Farnham that it would be better for the Select Committee to look at the whole world of wealth and capital gains tax and determine on that, and construct around it an appropriate transfer tax. That would be the logical sequence. It would resolve the question of what wealth is owned in this country and where it is distributed. There is a great deal of doubt on the validity of the figures presented to us.

The next objection to the present tax is that it does not encourage saving. Even the most trusted of the Marxists amongst us would agree that we must now maintain as high a level of savings as we can. I have never regarded the concept of conspicuous consumption as being synonymous with the good society. As my right hon. Friend the Member for Farnham pointed out, the new tax proposed in Part III of the Bill, and spelt out in Clause 17, will encourage spending rather than saving.

I oppose the withdrawal of relief from agriculture and business assets. Agriculture and forestry have been touched upon already, but only my right hon. Friend the Member for Finchley has talked about the business side.

I declare a non-interest. I own no family businesses and, as far as I know, I have no expectations. Personally, I am neutral. But, professionally, I am an industrial consultant, and in my working life I have come across all sizes and shapes of companies. State-owned and privately-owned. As long as we run our mixed economy, it is important economically to maintain a reasonable number of small, independent family businesses. Socially, they are a great deal more important. The large, management-run international corporations are supine compared with the spirit found in small family companies. But small family companies are disliked by the Government. They stand up to the Governments, and sometimes they tell them to go to hell. Increasingly, one comes to the conclusions that many Governments ought to go.

There is also the point made by my right hon. Friend and by one or two [column 1425]others of my hon. Friends. When we talk of handing over a firm, a family business or a trading concern to the next generation, it is not handed over to be spent. It is handed over as a trust. I believe that most property is morally a leasehold for the tenancy of one's life-time. I am old-fashioned enough to believe that everyone should hand on to the next generation more than he has received. It is not to be dissipated. It is not for high consumption.

The Chancellor of the Exchequer would improve his tax greatly if he began to distinguish between the nature of assets. I should be happy if he taxed the transfer of money more severely, but I think of farms, woodlands and businesses as going concerns.

I cannot support any capital tax which is not indexed. There is a big difference between capital taxes here. Under Governments of both major parties, I have consistently endeavoured to move amendments to Finance Bills to get chargeable gains under the capital gains tax indexed. Increasingly, with the present rate of inflation that we have, the capital gains tax is purely a tax on inflation. I am in favour of a capital gains tax on real gains. I apply the same analogy to indexation when it comes to the exemption limits and the various scales which the Chancellor of the Exchequer is introducing.

I also raise a question about the treatment proposed for discretionary and accumulated settlements. In my view it is quite wrong, because there is a great element of retrospection in it. Reading through the provisions of Clause 9 and Schedules 5, it is difficult to escape the conclusion that the Government regard such settlements as being anti-social or that they do not know how such settlements work.

When they were made, all existing settlements would have been executed in accordance with the laws existing at the time, and a sizeable number will have been made in the last century. Now the Government propose to upset those settlements by means of retrospective legislation. The period charge every 10 years at 30 per cent. would be a vicious penalty on settlements made many years ago.

Incidentally, I believe that the Government's proposals for this tax go hard [column 1426]against the spirit of the Perpetuities and Accumulations Act of 1964, and I draw attention especially to Section 13. This is a point which I would develop in more detail if I were a member of the Standing Committee. However, I leave it there. This pillaging of the dead is a distasteful act in what will be a distasteful tax.

I object strongly to the necessity that returns should be made of all gifts, including exempt gifts. Unless the Government introduce some de minimis rule in respect of returns and an exclusion rule for exempt gifts, the subsequent administration and the monitoring of this tax will be a great burden to the Revenue and a permanent irritant to most taxpayers, who will be below the tax threshold. As a result, relations between the taxpayer and the tax gatherer will be unnecessarily embittered for no real gain to the public purse.

I have tried to outline some of my objections to the new tax. I will not wary the Committee by enumerating more. There are many more, but the eight that I have mentioned should suffice to show the Committee that the Government have missed a great opportunity of introducing a socially just and economically sensible capital transfer tax. In fact, the tax meets the demands neither of social justice nor of economic sense, and does not even fulfil the criteria of the Marxist Valhalla that certain hon. Members below the Gangway would like to see. It is a tax suitable only for the rat race society and not for the good society.

Mr. Sillars

I shall not take a great deal of time because I do not want to stop the Conservative Party continuing in their defence of their basic interests.

After having sat here for some time, I am convinced that we are not discussing a marginal matter. We are talking about the Labour Party fulfilling its manifesto pledge——

Mr. Gorst

rose——

The Chairman

Order. We can have only one hon. Member on his feet at a time.

Mr. Sillars

The middle class will have to listen to the working class for at least a few minutes more. [column 1427]

We are talking about the Labour Party's commitment to fulfil its manifesto pledge to shift the balance of wealth and power in society towards the working people and their families. This tax will do it effectively, and that is why so many Conservative Members are still here at this late hour.

I say to the right hon. Member for Finchley (Mrs. Thatcher) that very few miners, dustmen, postmen or dockers—the people who produce and distribute the products which give us the wealth in this society—will shed tears when one of the consequences of the tax is that a father will have to hesitate before giving his daughter a gift of £5,000 on her wedding day. That remark shows how out of touch she is with modern society and the needs of the majority of the people.

I went a long way with some of the comments of the hon. Member for Moray and Nairn (Mrs. Ewing) about the rôle of the Forestry Commission. I, too, regret that it has not purchased compulsorily an acre of land in Scotland. Another example is the Highlands and Islands Development Board, which was given such powers many years ago and has not used them. She made a fair point when she said that many people in the industry are employed by the industry because of events over which they had no control.

I served on the last Select Committee on Scottish affairs, about two years ago, when we considered land use. One of the objections to private forestry interests is that they can buy up any land and plant it because there is no planning provision to prevent it. We asked the representatives of the Economic Forestry Group whether private forestry would continue if we removed the tax provisions which took them into the field in the first place. They said “It could not be done; it is not on.”

Because of the lack of action by Governments of both political complexions over a number of years, we have State and private forestry. If we change the taxation process—and make no mistake, I want to change it—we produce a serious problem for the people who are employed in the industry. They are working people. They are not like [column 1428]the two hypothetical graduates whom the right hon. Lady the Member for Finchley mentioned earlier, one of whom, on leaving university, saves and the other spends, one becoming rich while the other goes through life spending. Forestry workers do not get enough money to accumulate enough wealth to see them through difficult times.

The Labour Government, therefore, have to accept that we have an obligation to the working people in forestry to ensure that while we are sorting out the tax fiddles of the rich, the working people in forestry do not pay far too heavy a price.

The hon. Member for Dumfries (Mr. Monro) earlier repeated the nonsense that there could be another clearance in Scotland. It comes ill from Conservative hon. Members to refer to the Highlands clearance or any other clearance. The Highlands clearance is a highly emotive subject in the minds of people in Scotland, but, as many hon. Members know, we have had many other clearances from Scotland. Not so long ago it ran at the rate of 40,000 a year from our industrial areas, and the people principally responsible were the hon. Member for Dumfries and his hon. Friends in the Conservative Party. I am not taken in by that scaremongering talk about clearances.

We have a problem in the rural areas concerning pockets of 10, 12 or 20 men in constituencies such as mine. I will give an example of some of my constituents in a place called Dalmellington, which has roots in the mining community. They were arguing for their right to work, not for the right of a rich man to dodge his tax responsibilities. They pointed out that they are engaged in planting, not in felling, and that if the planting ceases because of the changes in the taxation system they are faced with an employment problem.

I accept that there is some way to go before this Bill becomes an Act and the consequences which will flow, but it is incumbent upon the Government to look after the work people. There are not many of them left in my part of the country but one working person is entitled to as much respect and concern from a Labour Government as are a thousand rich people.

[column 1429]

Mr. Healey

I wonder whether it would be convenient to the Committee if I were to intervene at this stage—[Hon. Members: “No.” ]—simply to deal with four issues which have been raised in many of the speeches——

Mr. Cormack

On a point of order, Mr. Thomas. This is the only opportunity that the whole Committee has to debate this crucial new tax. While we obviously wish to hear what the Chancellor has to say, it would not be fair for him to say it until more of us have had an opportunity to speak.

The Chairman

The Committee has been discussing this question for exactly three hours. [An Hon. Members: “Not long enough.” ] It may well not be long enough. I am not bringing the debate to an end. I am only calling on the Chancellor to speak, and I have called him.

Mr. Gorst

Further to that point of order, Mr. Thomas, could you give us some guidance on whether it will be possible for you to call the Chancellor of the Exchequer for a third time in this debate, because there will be many other points which will arise on which we would like his guidance?

The Chairman

I am much obliged for the advice, and it will be borne in mind.

Mr. Healey

Thank You, Mr. Thomas. It was my intention to ask leave to speak again later in the debate, but it would be useful if I could intervene at this time to deal with four specific matters which have been raised many times on both sides of the Committee, because it might be helpful to hon. Members who wish to follow me. Those matters are woodlands, agriculture, charities and historic houses.

I greatly welcome the moderate and temperate tone in which contributions have been made on these four matters. On some other matters, tempers have run perhaps a little higher, but on these I have listened with the greatest care to what has been said. I should like at this stage to tell the Committee the conclusions I have come to after listening to the speeches from both sides.

The issue of woodlands is clearly—and I confess to a little surprise here—more deeply felt than perhaps any other single [column 1430]issue which has so far been discussed, because representatives of six parties in this House have asked me to look again at this problem. I shall take their representations very seriously and will see what can be done. They will not expect me to announce new decisions tonight, but I hope to come to this later in the Committee stage.

On the treatment of small farmers and agriculture, there has been a genuine misunderstanding of the effect of the proposed measures, with the changes I have already agreed on the small family farm. The hon. Members for Moray and Nairn (Mrs. Ewing) and Caernarvon (Mr. Wigley) both raised this issue.

We shall be able to show later in Committee in detail that in the case of legacy and death the small farm will be better treated with the new calculation of value than by the 45 per cent. relief, but I recognise that the value of the new calculation of value will be reduced if land prices, as most of us I am sure hope, fall, and I can give an assurance that if that is the case, we shall readjust the basis for valuing those farms so that they still enjoy the advantage they enjoy with land prices at their present level under the provisions we have made.

There is deep feeling on charities——

Mr. Evelyn King (Dorset, South)

We have heard gratefully what the Chancellor has said about the small farmer, but will he say a word about the land owner, because in agriculture the greatest difficulty is with the tenant farmer and there can be no tenant farmer unless there are land owners willing to let land to him? If the land owner has his estate smashed, the tenant farmer will suffer because the owner will have nothing to offer him.

Mr. Healey

This has not been referred to in detail, although it was referred to in passing. We shall discuss in Committee the liability of an owner to provide capital for tenants, and I prefer to make no further comment at this stage. However, I know that there is strong feeling in all parts of the Committee on the position of the working farmer and the small family farm, which is a strong feature of agriculture in Scotland and many other parts of the country. I have given an assurance which we shall seek to carry further later in the Committee stage. [column 1431]

On charities, only two hon. Members have spoken, both from my side of the Committee, and they are an exceedingly formidable combination—my hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman) and my hon. Friend the Member for Birmingham, Ladywood (Mr. Walden). I listen carefully to what they say and I am very attracted by their advice, but there is a problem which previous Chancellors have found intractable, the genuine problem of finding a way to define a charity for tax purposes to avoid opening loopholes unnecessarily. However, I take the point raised by my hon. Friends, that we must not make comparatively small matters the enemy of justice in comparatively large ones. I had it in mind that my right hon. Friend the Chief Secretary should be able to announce very important concessions at a later stage, but I cannot go further at this stage. However, I take the point raised by my hon. Friends.

The final point on which I do not think we need to have a party battle, because there is concern on both sides of the Committee about it, was raised by my right hon. Friend the Member for Vauxhall (Mr. Strauss) and the hon. Member for Bristol, West (Mr. Cooke). This was the question of historic houses. I share the objectives which they put forward, and I am interested in and will study their suggestion that it should be possible to make use of this tax in order to make the artistic and cultural heritage of the country in these houses more widely available to the public. The last thing I want is for the tax to operate in such a way that this vital national heritage is dispersed rather than made available.

If we were to move in the direction they suggest we should require not only an assurance of reasonable public access but guarantees against disposal of the contents of the houses, because the value of the house consists quite as much in the ability to see the contents in situ in their historic position as in the architecture itself. I shall look at the sort of proposals which have been put forward in this regard, and I hope that I or my right hon. Friend will be able to announce some decision on the matter later in Committee.

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Sir David Renton (Huntingdonshire)

Does the Chancellor accept the view of one of his predecessors, Sir Stafford Cripps, that the value of these houses as part of the national heritage and as places to be visited by the public is greatly enhanced when they are able to be lived in, and will he bear that in mind in considering the incidence of the tax?

Mr. Healey

I accept that, but the question is always who lives in the houses and who visits them. I have some experience of this matter because I have a deep personal human interest in these problems, and I have seen how the matter has been dealt with in a number of other countries. However, I share the objectives expressed by my right hon. Friend and the hon. Member, and I hope that we can find a means of reconciling those objectives with the main purposes of the tax.

Mr. Robert Cooke

If the Chancellor has time to read my speech in the Official Report he will see that I dealt with the question of the contents of these houses, and I made the point that all the amenity societies that I cited wanted to preserve the continuity of private ownership and the sharing with the viewing public. This will be possible only if the right hon. Gentleman follows some of the suggestions I made in my speech.

Mr. Healey

I hope that it will be possible to reach a decision on this matter and to announce later in Committee a solution which will be satisfactory to all.

Mr. John Peyton (Yeovil)

I beg to move,

That the Chairman do report Progress and ask leave to sit again.

I am encouraged in asking you to accept this motion, Mr. Thomas, by the very reasonable and restrained nature of the Chancellor's last remarks to the Committee. I understand that it is difficult for a Chancellor faced with his third Finance Bill in a year always to preserve the calm that the right hon. Gentleman has preserved. But such important issues should not be buried “darkly at dead of night.”

I will not continue with that quotation, because it would obviously be difficult for all of us. [column 1433]

The right hon. Gentleman has referred briefly to four important points. One is woodlands, which are crucial, and about which many people feel deeply. This issue has not been explored sufficiently. The others are agriculture—where there will be a considerable effect on family farms—historic houses and charities. The right hon. Gentleman did not refer at all to the smallish companies, which are crucial in an economy which must develop.

New taxes are often conceived in unreality, if in nothing worse. The parentage of new taxes is often more ghastly than mere unreality, but I am, as always, disposed to charity, and so I am prepared to concede that the tax we are discussing was conceived largely in unreality and that the more odious parents were excluded.

This is the third Finance Bill in a year, as I have reminded the Committee——

Mr. Healey

Wrongly.

Mr. Peyton

Within the 12 months. [Interruption.] Well, the Second Finance Bill, but—I am not particularly concerned with the nomenclature of these horrible measures—the third time the Chancellor and his colleagues have had to put to Parliament measures of which we cannot wholly approve.

On behalf of the Opposition side of the Committee, I wish to offer to the Chief Secretary to the Treasury the maximum of compliment possible. We admire his persistence rather more than his receptiveness of our arguments. Without, I hope, unduly embarrassing him, I warmly endorse the remarks of the hon. Member for Birmingham, Ladywood (Mr. Walden), who is distinguished for his courage in a House which frequently lacks that quality.

I hope that the Chancellor will respond in the manner in which I have moved the motion, and accept it as a reasonable proposition at this hour of the night.

Mr. Healey

I thank the right hon. Gentleman for recognising that it might be a mistake to bury the clause “darkly at dead of night” , and, as I understand it, for congratulating me on not turning any sods with my bayonet, at any rate in the intervention I have just made. [column 1434]

I recognise that the clause means perhaps the most important single change in tax policy since the war. The attendance on the Opposition benches bears out the remarks of one of my hon. Friends about some of the aspects of its importance.

I should like to accept the motion, but I hope that if I do so the right hon. Gentleman can give an undertaking, and that his hon. Friends will support it, that the Opposition will seek a fairly early end to this discussion tomorrow afternoon, and that we can conclude the whole of the business put down for the third day in Committee of the whole House during tomorrow's sitting. I think that that is a reasonable request to make. Otherwise I am afraid that I shall have to insist that we continue our discussion.

Mr. Peyton

The right hon. Gentleman has responded in a reasonable fashion. I think that we can certainly agree that we can settle this matter during the course of tomorrow's business. But when we come to decide what is “reasonably early” I believe that the Committee must settle that for itself. Many of my hon. Friends have strong views on the clause, and they cannot be expected to be confined to a set period. But I am sure that my hon. Friends are reasonable. If I cast my mind back to the years when the right hon. Gentleman and his hon. Friends were in Opposition, I am ready to concede that my hon. Friends will be ready to be confined within the boundaries of what they then considered reasonable.

Mr. Healey

I find some difficulty in chasing every divagation in the right hon. Gentleman's last sentence. I shall attempt to put the matter as I understand it. This is a critical point. I recognise that, because of the importance of the clause, it would be unfair to deny Members who feel strongly about it the opportunity to express their views. However, I hope that they will seek to do so at reasonable length. I am not insisting on five-minute speeches or anything like that. The essential assurance that I wish to receive is that however long the clause takes—I hope it will not take overlong although I recognise that it is not easy to agree on a definition of that adjective—we can at least finish the business which was agreed through the usual channels in the course of tomorrow's resumption. That is the central point.

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Mr. Peyton

From this side of the Committee I could not possibly resile upon an undertaking to finish the business in tomorrow's sitting. However, I would not wish to stipulate a time at which the discussion on the clause should end.

Mr. Healey

I understand that there is strong feeling on this side of the Committee, and I also have strong feelings. In many respects I should like to continue now. However, in the light of the assurance which the right hon. Gentleman has given I accept his motion. Question put and agreed to. Committee report Progress; to sit again this day.