—(Registered friendly societies carrying on life or endowment business.)
I beg to move Amendment No. 197, in page 27, line 27, to [column 473]leave out from “Act” to the end of line 40.
With this Amendment the Committee can discuss the Amendments No. 198, in page 27, line 41, leave out subsection (2); Amendment No. 199, in page 29, line 1, leave out subsection (5); and Amendment No. 200, in page 30, line 29, leave out subsection (9).
I am sorry that we should come to this rather important Clause so late at night, particularly as Niall MacDermotthe Financial Secretary is looking a bit tired and jaded, but I hope that we shall, nevertheless, give the Clause and the Amendment full consideration.
Friendly societies from part of the group of voluntary benefit and thrift societies which, in the past, have served this country extremely well and have provided much relief from poverty when no other relief was available. Their sphere of activity has decreased to some extent as State provision has increased, because the State provided a large number of the benefits which the Societies formerly provided.
The insurance activities of the friendly societies have continued, but in spite of the tax exemption they enjoy, they have not increased as much as one would have expected. I find, in reading the various annual reports of the Registrar of Friendly Societies, that their number has decreased considerably and their funds have only just kept pace with falling money values. So, in spite of considerable tax exemptions, their business has not increased greatly and I feel that now is the time that they need an injection of fresh money, if they are to perform their important function in modern society. What has given rise to this Clause is the activities of the new societies which have recently been registered, like the M & G and Tyndall Societies, which, at first, extensively advertised single-premium policies.
I turn to the analogy that I shall use to compare with the single-premium policies offered by the friendly societies. The analogy I use is that of National Savings. Every time there is a new issue of National Savings Certificates any person can buy up to £500 worth of the new issue, for himself and for each and every member of his family. The [column 474]attraction of buying the full issue at once is, of course, that tax relief is given as a result of the National Savings Certificate system. If such relief or exemption were not given, I doubt very much whether so many people would invest in National Savings.
I wish to make it clear that a man can buy the full issue immediately for himself and each member of his family. He can do that every time there is a new issue. He can, therefore, have a considerable number of what could be called single-premium policies throughout his life, ensuring that at any rate he gets £500 on maturity, with the extra amount on maturity tax free.
I contrast that with the relief given in respect of friendly societies. A man can have only one policy of £500 from the aggregate of all societies. I regard this as an absolutely crucial point. He cannot, under any circumstances, go from one society to another and take out a fresh policy ensuring a further £500. In fact, a man gets far less tax-free benefit through a friendly society than he can get from National Savings.
I suggest, therefore, that the Chancellor is saying, in effect, “I want savings. I do not mind single-premium policies as long as you get them through National Savings and as long as you do not therefore avail yourself of the benefits of private enterprise and sound investment advice.” When one invests in National Savings one risks a possible fall in the value of money, a greater risk than if one invests through the kind of bond which the new friendly societies were offering. I stress that had it been the law that one could go from society to society taking out £500 in policies here and there, the position would have been somewhat different.
The policies and bonds offered by these friendly societies were widely advertised, in The Times, the Observer, the Daily Mirror, the People—indeed, in newspapers of all kinds. I understand that they got a number of applications from their advertisements in each paper and I have some figures from the M & G. The largest premium that a person could pay at the outset was £338 which would mature over 10 years to a minimum of [column 475]£500. However, the average, in response to the advertisements, was about £240.
An interesting fact is that there was no significant difference, considering that average premium, between those who replied to the advertisements in the Daily Mirror and the People and those who replied to the advertisements in the Sunday Times and the Observer. Some of the money came in by cheque and some by postal draft, but the average seemed to be about the same, regardless of the place where the scheme was advertised.
This seems to indicate that there are many funds available for savings if the appropriate encouragement is given. I should have thought that this could be a logical extension of the work of the friendly societies which could give a new emphasis to the thrift side of their functions and could be a way in which those societies could be modernised.
It should not be thought that it is only large sums which these friendly societies were advertising for. The smallest premium or bond that one could subscribe for under the M & G scheme was 50 bonds at a cost of £23 to mature to £50 over a 20-year period. So small sums could be applied for just as much as the large single-premium policies.
As James Callaghanthe Chancellor of the Exchequer knows, the scheme had tremendous success. Indeed, I think it was its very success which has led to the Clause. Between 28th January and 3rd May, about 42,000 people had subscribed about £10 million for the M & G. This should have pleased the Chancellor, but I am beginning to believe that there is a great difference between the Government and the Opposition——
Sir G. Nabarro
Thank goodness there is, too.
—in their attitude to savings. The Chancellor says that he believes in savings whereas we believe in savings. That is one of the differences. One of the important features of these savings was the large number of children for whom bonds were bought. It provided a method by which many people could readily save over a definite period for their children. [column 476]
Undoubtedly, the success of these schemes led to the Clause, and the Clause has led to our Amendment. Let us have a quick look at what the Clause does and what our Amendment would do to mitigate the full effect of the Clause. The Clause does three things. It stops all single-premium policies on the part of all friendly societies. It then stops all modern policies—that is, all tax-exempt policies now allowed under Schedule 7 for the lately registered societies. It discriminates against the recently registered societies and does not permit them to carry on any tax-exempt business of a kind which they had ready.
As Niall MacDermotthe Financial Secretary knows, after the single-premium policies they were ready with annual premium policies; but it now looks as though, if the Clause goes through unamended, they will not be able to embark upon annual premium policies of the kind permitted by Schedule 7 and allowed for tax exemption.
The third thing the Clause does is to stop the older societies from increasing their tax-exempt business. This is again very indicative of the fact that the Chancellor does not want much competition with National Savings. The only way a person will be able to save tax-free is through National Savings, and that is often not the best bargain which can be obtained. Many people would much prefer to invest where they get the benefit of excellent investment advice and a fairly wide spread of investment, as they would get through this method.
I am very much against stopping single-premium policies, but even if the Chancellor agrees to them we are even more against discriminating against newly-registered friendly societies. These societies could give fresh life to the whole friendly society movement. I believe that they would inject fresh life into the older friendly societies. Indeed, it is note-worthy that the Ancient Order of Foresters, perhaps urged on by the new societies, also had schemes ready. Indeed, it had an advertisement in the early editions of an evening paper the day after the Budget. The advertisement was withdrawn by the time the later editions appeared. The newly registered societies could have acted as a great spur to the older societies and also have increased their business. [column 477]
In addition to the discrimination aspect of the Clause, which we are firmly against, there is another aspect to which I must refer. Subsection (5) gives wider powers to the Registrar of Friendly Societies than I have seen extended to any person with regard to taxation. It gives him powers to withdraw tax exemption from a friendly society if he thinks that it has begun to carry on tax exempt or life endowment business on a large scale.
What the Registrar has to do is to look at some of the older societies, and if they are trying to modernise and get extra savings and increase tax exempt business he has the freedom, although they are allowed to have tax exempt business, to withdraw the tax relief. It is outrageous to give such power under the fiscal system. If it were possible, one would like to express one's views on subsection (5) separately from the rest of the Clause.
For these reasons, we are against what the Chancellor is doing. Bearing in mind that only one £500 can ever be taken, it would be as well if that were used as a method of encouraging savings. If the Chancellor has made up his mind not to allow single-premium policies, we would wish that the new friendly societies were able to carry on business under Schedule 7. We dislike the Registrar's having this very wide power.
I wish to concentrate my remarks on Amendments No. 197 and No. 199. My hon. Friend the Member for Finchley (Mrs. Thatcher) has covered the ground particularly well. There appears to be an extraordinary vendetta against the single-premium policy friendly societies. There are only six of them. It seems odd that what has proved to be a satisfactory form of saving should be undermined by this somewhat dictatorial Clause.
Under Section 22(3) of the Finance Act, 1956, self-employed people were enabled to set up their own pension funds. The percentage of earnings which they were permitted to put into them was restricted to a total of 10 per cent. But because of considerable fluctuations from year to year in their earnings, it was not found possible for them to lay down a conventional insurance policy with a regular fixed annual premium. They were, quite fairly, allowed to take [column 478]account of the fluctuations by effecting single-premium policies. The Act expressly empowered friendly societies to engage in this business. Now, just because it has become fairly successful, the Government have decided to clamp down on it.
It seems to be arbitrary to fix a date like this. It strikes only at six companies. It will facilitate the creation of a further monopolistic practice. The mere fact that there is a restriction of £500 not on one policy, but on an aggregation of all policies individually entered into—which, by their nature and size, benefit the family man—these might have been expected to strike a sympathetic chord in the mind of the Chancellor.
The point which is perhaps in the Chancellor's mind, that this has been the means of avoiding paying substantial revenue to the Exchequer, is not, I think, a valid one, if one looks at the powers he is taking under subsection (5), since the Revenue will not be prejudiced in any way because the matter would be subject to the Chief Registrar's discretionary powers.
If the Clause were to take account of those societies which were registered 100 or even 10 years ago it would not, perhaps, be so bad, but it strikes just at those formed eight years ago, and prevents them from competing on equal terms for further business. No one will dispute the right of the Chancellor, if he feels there has been substantial loss of revenue, to take remedial action, but this Clause is picking and choosing between certain societies, and not right across the board. It does seem to be particularly unfair that those new societies should be placed in a particularly disadvantageous position vis à vis the older societies.
Subsection (5) contains, the Committee can probably say, and I certainly say, the most vicious phrase in the Bill, because here we are dealing with a situation where the Registrar has absolute powers to interfere if the business is progressing and I quote from the Clause
“on an enlarged scale,”
“of a new character.”
If he feels it necessary for the protection of the Revenue, then, off his own bat, he can remove the society from the protection it has had. In this Committee we [column 479]take particular exception to the delegation of powers, and specially of those removed from Parliamentary control.
By this Clause the Registrar can act retrospectively, if he so desires, without any control by this Committee, against a society and prevent it from carrying out its business, and simply by an expression of opinion that it is necessary for him to do so to pretect the Revenue. We are not dealing with a strictly legal issue, because the courts are naturally reluctant to interfere with any discretionary exercise of functions. Quite honestly, I regard this provision as tantamount to a return to the Star Chamber.
Mr. Anthony Grant (Harrow, Central)
I make no apology to the Financial Secretary for intervening in the debate, because this is a most important Amendment, more important than it may appear on the surface to be. It is true that the friendly society movement started in a different age and in entirely different circumstances, and it was a rather declining band up to a few years ago until the M & G Tyndall Managers Ltd. schemes arose. The M & G scheme gave to the public for the first time unit trust investment with an assured minimum value on maturing. As my hon. Friend the Member for Finchley (Mrs. Thatcher) has said, in three months 42,000 people subscribed £10 million to this scheme, and on my arithmetic this works out at £230 to £240 per person.
It was such persons whom the Chancellor, in his Budget speech, said were well-to-do investors. Whenever, in the mind of the Chancellor, well-to-do investors—with an average of £230 per person—emerge, then the red lights in the Treasury go on, the anti-avoidance team gets into action, and all the old restrictions and stops come out.
The way in which the right hon. Gentleman has sought to stop this beneficial business is extraordinary. First, he puts a restriction singling out friendly societies doing single-premium business. I cannot see what is wrong with single-premium business. It is a means of saving, a means of long-term saving. People are much less likely to realise their savings, if they are well invested long term, and spend them on consumer durables. [column 480]
Secondly, the Clause singles out for restriction the new, modern and efficient societies looking to the future and trying to bring this old and rather decaying movement up to date, the new as opposed to the old. In other words, it creates a monopoly of the inefficient. It is rather like allowing a bus company to have a licence to run its buses provided that they are horse drawn.
The third thing which the Clause does is the most sinister of all. It gives extraordinarily arbitrary powers to the Registrar of Friendly Societies. Although the old friendly societies can indulge in this wicked single-premium business, the Registrar is given power to withdraw the exemption if it appears to him to be expedient to do so for the protection of the Revenue. Why does the Revenue need protecting? Why should it be the business of the Registrar, who owes no duty to Parliament, to protect the Revenue in this way? If it is the Government's intention to discourage savings, that is a matter of policy and should be dealt with in the Budget.
Finally, the Clause gives an exemption to the new friendly societies when they are engaged solely in industrial life business. Why should this exemption be included? Why should it be that if a society engages in what is the most uneconomic form of insurance business, namely, industrial life business, where the expense ratio is about 35 per cent. compared with 10 per cent. of other business, exemption is then given? Is it because industrial life business is obtained by the man calling at the houses of people who would probably be Labour Party voters and who might make some rude remarks about the Chancellor if there were not this exemption?
I hope that the Financial Secretary will deal with all of those issues. Why should single-premium business be wrong? Why should the Registrar have these powers? Why does the Chancellor discriminate against new friendly societies as opposed to the old? Why should industrial life business be all right, when other business is not?
The proposal in the Clause is wrong on almost every count. It is wrong because it is blatant discrimination. It is wrong because it gives unnecessary and undesirable powers to the Registrar and [column 481]it is wrong because it is a direct disincentive to savings. I hope that my hon. Friends will divide the Committee against it.
Sir G. Nabarro
I declare my interest at once, of course. To avoid taxation in a perfectly legitimate way, I purchased the maximum holding of £500 for myself and a further holding of £500 for my wife in M & G Family Bonds for £338 for the 10-year bond for myself and £338 for the 10-year bond for my wife, a total of £676, maturing 10 years' hence with capital appreciation free of Income Tax, free of Surtax and Capital Gains Tax. [An Hon. Member: “Brave of the hon. Gentleman.” ] Not brave at all. I have the fullest confidence in private enterprise investment and I believe in supporting all forms of tax-free investment available to me. Thus, I buy the maximum for myself and my wife of National Savings Certificates of every issue.
I readily confess all this, because I believe in thrift and in minimising my own liability to taxation. I would be a fool to do otherwise. Only masochistic characters like the Chancellor indulge in the payment of maximum sums of taxation on their own account, so he told us yesterday. I doubt whether he was very accurate in what he said. This Amendment, and I have sat here until ten minutes past one in the morning, waiting for it, relates directly to the Amendment that I moved yesterday on Income Tax.
I said then that if we could not have tax revenues we must have personal saving instead. All of my hon. Friends who have spoken have supported this thesis. Every Chancellor that I can remember, since Sir John Anderson during the war years, has supported precisely the same thesis. By what quick does the Chancellor believe that there should be a monopoly of tax-free appreciation for investment of small savings in the form of National Savings? Why should there not be a private enterprise competitor?
That is what the M & G Family Bonds are. I readily admit to the Chancellor that M & G Family Bonds and Tyndall, and others, have used friendly society legislation, going back to 1896, for the purposes of finding a method of [column 482]offering people a tax-free appreciation derived from successful investment in equities. That is all very desirable. Such methods are securing additional personal savings which the Chancellor of the Exchequer might not get were it not for private enterprise competition with the National Savings Certificate.
Money has depreciated a good deal since 1555, over 400 years ago, when the first friendly society was formed in Scotland to collect very small sums of money on what we would call today a door-to-door basis, based on the very good Scottish habit, lost in antiquity, of encouraging thrift. In all parts of the country there are these friendly societies which have grown up over several hundreds of years. My hon. Friend the Member for Finchley (Mrs. Thatcher) mentioned one, the Foresters. The Royal Antediluvian Order of Buffaloes might also be mentioned as another: as might the Loyal Order of Rechabites, which is organised in local “tents” .
They are all very desirable institutions, which have fostered savings over the years, and I say to the committee that the M & G Family Bond is the contemporary equivalent of the aggregation of very small sums invested over the years in the Loyal Order of Rechabites, through its “tents.” The Chancellor should not grin at me. [Interruption.] One of my hon. Friends says that it is difficult not to do so. Yesterday, the Chancellor giggled at me; today, he is grinning at me. While he may not travel the same road with me in the matter of reducing Income Tax, he must pay a tribute to my enthusiasm for personal savings.
Mr. Archie Manuel (Central Ayrshire)
What about clean air?
Sir G. Nabarro
Clean air, yes, and many more magnificent causes that I have espoused during many years in public and political affairs.
I have a passionate devotion to thrift and savings in all forms, and I find Clause 27 odious because it will suffocate a form of personal savings which the Chancellor of the Exchequer would not otherwise obtain. He will not get this money into National Savings. He will not get the Nabarros of this world [column 483]buying his Defence Bonds. The rates of interest are not good enough.
I am the Chairman—and I declare my interest at once—of the advisory panel of a unit trust. All unit trusts today, properly conducted, offer much more interesting terms for small savings than do Government-sponsored schemes other than National Savings Certificates.
Even National Savings Certificates, with the present rate of inflation, are showing a net loss to the investor. Twenty shillings in a National Savings Certificate today, in the 12th issue, appreciated to 25s. after a period of five years. That is approximately, on a crude calculation, 5 per cent. per annum appreciation, tax-free.
Let us look at the form of saving which the Chancellor seeks to suffocate by Clause 27, the M & G Family Bond. What does that do? It gives an estimated growth rate of 6½ per cent. per annum entirely free of any kind of tax, which is substantially better than the Chancellor can offer. That is why he is so jealous of it. That is why he wants to suffocate it. He does not believe in private enterprise competition with his National Savings Certificates.
I take a very stern view of the Clause. I passionately support the Amendment, and when we come to the Question, “That the Clause stand part of the Bill” , I want my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), the shadow Chancellor, to rise in his wrath.
Sir D. Glover
At this time of night?
Sir G. Nabarro
Yes, even at this time of night. My right hon. Friend the Member for Enfield is a Highlander, and is capable of wrath. It is not simulated wrath, either. There is nothing synthetic about his wrath or about mine.
I condemn the Chancellor root and branch for suffocation of private enterprise saving. [Laughter.] The hon. Member for Rother Valley (Mr. David Griffiths) may guffaw loudly, but he does not know the meaning of thrift and savings.
Mr. David Griffiths (Rother Valley)
And the hon. Gentleman does, does he?
Sir G. Nabarro
I do. I have been saving all my life, since I first earned [column 484]4s. a week as a boy, saving a per centum of my income. Even today, I save a per centum of my income. That is why I pay 18s. 3d. in the £ Income Tax and Surtax combined—[Laughter.]—on that part of my income, repeat, that part of my income, in excess of, repeat, in excess of, £15,000, repeat £15,000, per annum.
The Chancellor cannot say, as he did yesterday, that I am exaggerating the implications. My case yesterday to the Chancellor was that we could reduce the standard rate of Income Tax if only he would take positive and dynamic steps by every possible method of support for public and private contributions to savings, through the wole gamut of National Savings and by magnificent schemes of the kind which Clause 27 will inevitably suffocate.
I want a vote on this Amendment.
Mr. Iain Macleod
There will be one.
Sir G. Nabarro
I am delighted to have my right hon. Friend's support. He says that we shall have one.
I want a vote also on the Question, “That the Clause stand part of the Bill.” But I wish to address a final remark to my right hon. Friend the Member for Enfield, West, who has the same passionate interest in support of personal savings as I have. I want an undertaking from him, when he winds up the debate for this side, on the Clause itself, that immediately a Tory Government is returned to sit on those benches—[An Hon. Member: “Never.” ] Never? I have heard some arrogant cries of that kind before. The Tory Party has stood at the graveside of many political splinters in past centuries and will stand at the graveside of the bunch sitting opposite, or their successors.
What a conceited little man.
Sir G. Nabarro
He is neither little nor conceited. He is both factual and prophetic.
I want something more than two votes. I want my right hon. Friend to say unequivocally on behalf of my party that, when we resume our rightful place on the Government benches, he will repeal Clause 27 of this Bill, if it is finally enacted, for it may have a disastrous effect upon personal thrift and the accumulation of small savings in our country.[column 485]
It might help the Committee, in view of the criticisms which have been launched already, if I were to seek now to answer at least some of them on behalf of the Government and explain the reasons why we are bringing forward the Clause in this form.
The hon. Member for Worcestershire, South (Sir G. Nabarro) began his speech with a frank acknowledgment that the single-premium friendly societies which have mushroomed recently have been making use of a tax exemption which was designed for a rather different type of society. I say at once that I do not suggest that they have done anything improper. I confess to admiration for the ingenuity which they have shown. As has already been said, some of the schemes launched recently, with such publicity, have had tremendous success. But I urge on the Committee that what we have to consider at the moment is whether this is a right use and exploitation of a tax exemption which we ought to allow to continue, producing as it does an imbalance in our whole savings system and our tax treatment of the savings media.
This is not a question of a great battle between the Government and National Savings, on the one hand, and savings in the private enterprise sector, on the other. In the debate on the National Savings movement and national savings generally which we had before Christmas, I made perfectly clear on behalf of the Government that we wished to see both sides of national savings thriving and working and collaborating together. We want to see a prosperous savings movement, both in the National Savings movement and in the private sector. My right hon. Friend the Chancellor is very anxious to welcome any constructive proposals which may be brought forward as to how we can increase the volume of savings in this country.
Turning now to the question before us, namely, what should be the proper scope of the friendly society exemption. I hope to convince the Committee that this recent development is something which no Government could allow to continue. We are not here discussing the tax exemption, for National Savings, which is something to which Parliament has given repeated approval as a special case for exemption in order to attract savings lent to the Government. [column 486]
Turning to friendly societies, as the hon. Lady the Member for Finchley (Mrs. Thatcher) reminded us they have a long and very important history and they have played a very important part in the social history of this country. Their origins were in the local sick and burial clubs rather than directly in the savings movement to which the hon. Member for South Worcestershire referred. Since then they have developed as mutual insurance societies to which poor people subscribed in providence for themselves and for their families particularly for sickness, death, endowment and old-age pensions. It was on the experience of these societies that the original Lloyd George insurance scheme was based and on which was based our National Insurance scheme.
Friendly societies have enjoyed tax exemptions for over a century and the origin of the exemption was that the members of the society at that time were below the tax-paying level. Conditions, as has been pointed out, have changed very greatly since those days, but it still remains true in what I may call genuine friendly societies and old-established societies that there still exists a relationship which enables the society to assist its members in cases of hardship and encourages members to look to it for advice, sympathy and practical help when they are in difficulties. Many of them still have distress funds and benevolent funds for cases of need or for the relief of widows or orphans.
Part of the benevolent work is industrial insurance business which is the collecting from door-to-door. Premiums so collected in 1964, the last year for which figures are available, averaged 8d. a week and the average weekly contribution in societies other than collecting societies, orders or branches was 1s. 7d. a week. The growth of these has been gradual and largely by personal recruitment and none of them were created overnight by means of advertising in national newspapers.
It is clear to the Committee that there is very sharp contrast between the traditional friendly societies and the new commercial type of friendly societies which have mushroomed recently and at which this Clause is aimed. These societies have been created—and they frankly admit it—to get a tax exemption [column 487]on behalf of the ordinary investor who has up to a few hundred pounds that he can put down on a single premium to provide for himself, his wife, or children for up to 10, 15 or 20 years. Because of the tax exemption they are able to offer a gratuity substantially above the insured amount.
Sir G. Nabarro
I am following this argument and I have a great deal of sympathy with the translation of this practice to the contemporary scene. Really, it is a false argument to say that this is on a single investment basis, as the Financial Secretary has suggested, when anybody can go and buy a single-premium life endowment policy and get all his appreciation tax-free in spite of this Clause. In addition, he can secure 3s. 6d. Income Tax relief. Why does Clause 27 not deal with that if he feels so severe about it?
I was coming to the question of life policies. The exemption of which the hon. Member was speaking is another special exemption which is again long established and which has been sanctioned by Parliament over very many years. All I am seeking to do is to point out the contrast which, I suggest, exists between these societies and the type like M & G, which the hon. Member for Worcestershire, South, paying his 18s. 3d. in the £ tax, was suggesting a moment ago as being the modern equivalent of the Antediluvian Order of Buffaloes. He certainly, in friendly society terms, would qualify as an odd-fellows.
I remind the Committee of the kind of appeal that has been put forward in the advertisements offering these bonds. I have several of them. The Tyndall Savings Fund states, in large letters in headlines:
“Entirely free of tax. Choice of fixed or variable certificates. Each member of the family can hold up to £500 sum assured. Fixed certificates give growth rate equivalent to 8½ per cent. gross per annum if you pay tax at the current standard rate.”
The matter following goes on to say:
“Because Tyndall Savings Fund is a friendly society there is the added advantage of freedom from all forms of tax.”
It adds, perhaps with wise precaution.
“under present legislation” .
Ulster Scottish Friendly Society offers
“Seven-year savings policy units at 15s. 2½d. per £1 unit yielding 5 per cent. tax free, equivalent to 8.5 per cent. gross to a holder paying Income Tax at the standard rate. This is also free from Surtax, so that the gross return to a Surtax payer is even greater.”
Another one, the M & G Family Bonds, offered
“An assured maturity value and estimated growth rate of 6½ per cent. entirely free of any kind of tax. How is this possible? M & G, who started the unit trust movement in Britain over 30 years ago, have formed the M & G Friendly Society, which can” ——
again the expression is used—
“under present legislation offer you a combination of benefits unique in the investment world.”
The result was a landslide, application forms ran out, money was stated to be coming in at £100,000 a day, and a great deal of this was not the attraction of new money but the switching of savings from other forms. I suggest that it is a little naïve to describe this legislation as an attack upon small savers. I suggest that this had to be stopped and that no one realised it more than the genuine friendly societies. Indeed, it is a fair assumption that the commercial operators themselves realised it from their references in their advertisements to “under present legislation” . I think that they realised that this was something they might get away with for a short time, no doubt relying, with good justice, upon the Government's dislike of retrospective legislation to ensure the benefits for those who were quick enough off the mark.
Thus far, the matter is fairly clear and straightforward. The difficulty arose in deciding how to stop this exploitation of the tax exemption without unduly restricting the activities of the genuine societies. We have had close discussions with and considerable help from the Friendly Societies Liaison Committee. I do not want to suggest that it agrees with and likes everything that we have done, because it would, in some ways, have liked us to have been less restrictive than we have been, but I think that it certainly wanted us to legislate, because it realised the dangers to its own movement of what was happening.
The first thing to do was to stop the single-premium type of business enjoying the tax exemption, and this has been [column 489]done by Part I of Schedule 7, which provides, broadly, that future life and endowment policies will justify tax exemption only if they are for a 10-year term with the premium spread over the term but at not more than yearly intervals. We did not withdraw the tax exemption from all existing single premiums, because some of the old-established genuine societies had issued small single-premium policies which, we thought, ought to continue. But there were indications that some of the genuine friendly societies were being tempted or compelled by the activities of the commercially-minded societies to climb on the band-wagon. So we excluded all future single premium business in a way that would allow the normal friendly societies' life and endowment business to continue as before.
The question underlying the Amendments which we are now discussing is, why is that not enough; why not stop there and just require friendly societies to comply with Part I of Schedule 7? The answer is that the indications are that the commercially-minded would then have turned their attention to exploiting the 10-year term policy, again for the purpose of exploiting solely this tax exemption in a field for which it was never intended and for which it was not granted. We are determined, if we can, to stop up all the holes in the warren.
The likely development which we fear is that the unit trust companies would sponsor a host of new societies, offering small scale unit trust-cum-life assurance policies out of a tax exempt fund. We think that the older friendly societies would be tempted to follow their example, and the result before long would be that the whole nature of the friendly society movement would be completely transformed in a way which would be bound to call into question and jeopardise their long established tax exemption. That, also, would be a development which would put the life offices at a disadvantage, and they would be bound to follow suit in order to hold their own.
Whatever proposals hon. Members may have—and, I repeat, we welcome proposals that may be made to try and find successful ways of increasing savings—I am sure that, on reflection, they would agree that the kind of [column 490]development which I suggest would result from allowing this to continue is not the kind of way that we would like: they would not wish to see the nature of these institutions artificially distorted by a tax exemption of this kind.
Our approach has been to prevent the commercial type of society from doing any kind of life or endowment business. To achieve that, we have had to deny life and endowment business to any new societies, with certain exceptions which we are satisfied are not open to abuse. Subsection (1, a) provides that any society which was registered since 1957 and before Budget day and which did any single premium business in the three months before Budget day will not be allowed exemption on life, endowment or annuity business. That is in order to stop the recently formed commercial societies switching to other forms of business. The reason for that date is that, so far as our information goes, it was in 1958 that the first of these single premium societies, if I may call them that, was formed.
We also propose to exclude from the exemption for life, endowment or annuity business any new societies formed after Budget day, with the exception of certain defined classes of business in subsection (2). That prohibition extends also to societies which were registered within three months before Budget day and which have not yet done any business. That provision is necessary, otherwise they will escape completely from the provisions of the Clause.
The kind of business which we envisage may continue for new societies is industrial assurance or collecting societies, which is a special type of assurance that is predominantly sickness benefit assurance, but has a minor benefit of a small lump sum payable on death or at a specific age, and thirdly, if one of our Amendments is accepted, a lump sum or annuity payable on death to a widow or an orphan. In addition to those measures, we have had to take steps to provide against new societies being formed and seeking to get round these restrictions by means of an amalgamation with or a takeover of an older society.
I am afraid that this has resulted in some rather complicated provisions because we are also anxious to promote and enable to continue the movement towards amalgamations and more frequent [column 491]amalgamations. The hon. Lady referred to the fact that the number of societies had declined, and, in part, that is due to the fact that, encouraged by the Chief Registrar, there have been many amalgamations of older societies, and that we wish to continue.
Broadly speaking, our intention is that the tax status of the old societies should not be lost when they amalgamate, and that they should be free to amalgamate, including with new societies. This is one of the reasons why we have had to provide in the subsection which has been much criticised for giving the power to the Chief Registrar.
May I seek to reassure the Committee about this. We are anxious throughout not to impose any unreasonable restrictions on the continuation of the friendly society business. It is not possible for us to make a clear-cut distinction by way of legal definition between the class of business which is to be allowed to continue unrestricted and the class of business to which we think the tax exemption should no longer continue. We have had to do this by reference to the date of formation of societies.
Although we cannot lay down a clear-cut definition, it is rather an old problem which I think Sir John Simon referred to in a famous speech at Geneva once when he said that it is not easy to define an elephant but that it is easy to recognise one when you see one. I think that there is one person who is qualified to recognise a genuine friendly society when he sees one, and that is the Chief Registrar. He is in an independent and impartial position, in very close touch with the friendly societies, and he will surely be the person best able to judge whether the expansion and development of friendly societies is something which is a normal expansion, a normal development of the kind we certainly do not want to try to impede or prevent, or whether it is in fact a conversion of the old friendly society into a new commercial type which is simply trying to exploit the tax exemption provisions.
Sir G. Nabarro
But what right of appeal is there against this gentleman's adjudication? Should we not write into the Statute how the discrimination is to be made?[column 492]
If the hon. Gentleman will have patience, I am coming to that point.
We have written it into the Statute in sub-section (9). The position is that the Chief Registrar, if he so thinks fit, will serve a notice upon the society of his view that there have been changes in the nature and character of the business which would lead to the withdrawal of the tax exemption.
The society will then be able to make representations, and if it wishes it will have the right to be heard by the Registrar. The Registrar at that point—and then only—will make his decision. There is a right of appeal to the High Court, I understand, by lodging a notice of motion in the Chancery Division against the decision of the Chief Registrar.
It is not a question of some arbitrary power being put in the hands of this official, with no right of appeal. He will have to exercise his discretion on a proper judicial basis. This is the way in which we feel that we will be able to secure the continued development and expansion of friendly societies, while, at the same time, affording an adequate long-stop protection against any recurrence of the kind of development which the Clause is aimed at restricting.
I hope that what I have said is sufficient to show that we have not been animated by any feeling of spite or animosity against the societies which have taken the steps which have led to the inclusion of this Clause, but merely that we cannot, with a due sense of responsibility, allow this particular narrow field of exploitation of a tax exemption to continue for a class of investor for whom it was never designed or intended.
The hon. Lady said that this is the time when friendly societies need an injection of fresh life. This is a proposition with which we agree, and is something which we have given them in Part II of the Schedule, which raises very substantially the limits of the business which friendly societies may do, on the understanding that the new business will be subject to tax, and that the limits for the tax exemption business remain as before.
Sir D. Glover
I do not know about my right hon. and hon. Friends, but I [column 493]am not satisfied with the Financial Secretary's reply. I think that the whole thinking behind his reply explains why, when the party opposite was last in power, in 1951, savings dropped to £100 million a year, and in the years after that went up to more than £1,000 million.
According to the party opposite, if something is new it must be wrong. It is significant that hon. Gentlemen opposite want to keep the friendly societies as they existed 100 years ago. Any modernisation must be wrong. Any change in their activities must be wrong, and yet this is the party which was returned to power on the claim that it would modernise Britain. The theme of the hon. and learned Gentleman's speech was a vicious attack on the fact that the friendly societies had changed. They were referred to as “so-called modern” , and “so-called friendly” societies, and yet they are doing something which the Chancellor needs from them in the way of help.
Last year was not a record year for savings. The Chancellor must surely be worried about the savings level for last year. Here is a field where ingenuity has produced a vast withdrawal of money from consumption into savings, to the benefit of the Chancellor and the country. The Chancellor asks how I know this. The answer is in the same way that we hope, but do not know, that anybody who buys £500 of the new issue of savings certificates is withdrawing money from consumption. We do not know. He may have sold some of his stock from a friendly society to buy his National Savings Certificates. We do not know what 52 million people do. We can only expect that they will work sensibly, as my hon. Friend the “Chief Druid of the Rechabites” said, for their own personal interest.
People do not save, however much exhortation there might be, because the Chancellor thinks that it would be nice for them to save. People do not save, however much exhortation there might be, because it would be a nice thing for the State for them to save. People save because by saving they may get an income from the interest, and they may get some capital appreciation. This is why people have saved ever since any form of money exchange was developed [column 494]by civilised man. In this case, as the figures show, the money is not coming from a lot of bloated millionaires, despite the repeated explanations by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) of the rate of personal taxation. He is perhaps one of the exceptions. I am not saying that people like my hon. Friend, being frugal and wise, will not take advantage of it.
The Chancellor has a strange picture of our society. The people who invested in these new schemes for a short period were not in the largest income group. They were a good cross-section of people who thought that this was a good way of saving, in which there was some capital gain, some tax-free benefit. That, of course, was why they were saving. With the problems of over-consumption and static production, the Chancellor, one would have thought, would have been delighted with any system which withdrew from circulation the surplus money which he has been trying to withdraw from circulation by increasing taxation by £1,000 million.
This is the fundamental difference between the two parties. We say that the Socialist Party believes in high taxation. The Chancellor thinks that the way to put the country's problems right is to take the money off the people in taxation so that it is gone forever and their power to buy consumer goods is, therefore, reduced. We think that a far better way is to encourage those people to save that money so that it drifts through all those channels and rivulets into increased production and wealth for the nation. Therefore, that money is working for the people. In the old expression, it is left to fructify in the pockets of the people.
That is the belief of the Conservative Party, which is why, when we were in power there was a continuous rise in power there was a continuous rise in savings, and taxation was reduced by £2,000 million. A great deal of the nation's effort was being backed by increased saving. This is a new way of saving. They are good savings which are to the benefit of the nation. Because it is new, because it is modern, the penny-farthing party opposite is against it.
The Financial Secretary talked about continuing the expansion and development of the traditional societies. One or two facts in the 1964 [column 495]Report of the Registrar of Friendly Societies show that the Financial Secretary's understanding of this expansion and development may be slightly awry. The membership of certain classes of sickness benefit societies declined by over 50 per cent. in the last ten years, of death benefit societies by 25 per cent., of accident societies by 22 per cent. In fact, the membership of nearly every kind of traditional society has declined, with the exception of the endowment assurance societies, which is what the new societies were catering for.
It is no wonder that the traditional friendly societies have declined, because the most startling fact in the Registrar's Report for 1964 is that the book value of the quoted investments of these traditional societies was £115 million, whereas, in 1964, it stood at £97 million. These investments were bought sometimes years before, decades before, and now they stand below book value, at £97 million. There can be very few other groups of societies or pension funds of any sort which stand below their book value in such a way.
Only 8 per cent. of the investments of the class of friendly societies to which I am referring are invested in equities, whereas local authority pension funds and practically every other fund in the country which looks after small savings have moved in equities.
Can the hon. Member make clear which is the class he is referring to, because the figures he has given do not begin to tally with the figures I have for the total funds of all friendly societies?[column 496]
There are several classes, as the hon. and learned Gentleman is aware. I believe that the class to which I referred is the principal class referred to in the Report, that of the friendly societies without branches——
—and other than collecting societies?
That is right, and there is a note which says that the book value is £115 million against the current market value which stands at £97 million. For every £1 which goes into these traditional friendly societies, 3s. 2d. goes in management expenses, whereas, in the case of M & G the figure was 1s. 2d.; in other words, about half the expenses of the traditional friendly societies.
There is no question of continuing the expansion and development of the friendly societies—they have been declining year by year. They are hopelessly badly managed and these new societies were bringing new blood into this movement and would have reformed it. The particular class of so-called investors and depositors to whom the Financial Secretary refers, the people with £300 to invest can still put money tax-free into the old traditional friendly societies. They can still get interest tax-free that way. Therefore, it must clearly be discrimination against the new ones, because the tax position has not been changed one iota.
Question put, That the words proposed to be left out, to “below” in line 35, stand part of the Clause:—
The Cómmittee divided: Ayes 154, Noes 106.