Speeches, etc.

Margaret Thatcher

HC Standing Committee [Finance Bill]

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC Standing Committee A [761-779, 782-791, 802-871, 877-878]
Editorial comments: 1600-1640, 1650-1725, 1815-1914, 2049-2325, 2345-2350. Four extracts from the Sixth Sitting. Where MT spoke to an amendment, the debate on that amendment is reproduced in full. She spoke at cc.773, 777, 787, 790, 846, 860, 869, and 877.
Importance ranking: Minor
Word count: 35065
First extract

FINANCE BILL

(Except Clauses 5, 14, 16, 17, 33 and 49)

STANDING COMMITTEE A Wednesday 5th February 1975

[Part I]

[Sir Stephen McAdden in the Chair]

Clause 27

Exempt transfers and miscellaneous exemptions and reliefs

4.0 p.m.

Sir John Hall

I beg to move Amendment No. 56, in page 22, line 28, at end add:

“and Schedule (Relief for small businesses) to this Act with respect to the reliefs mentioned therein” .

The Chairman

With this we are to take the following amendments:

No. 837, in Schedule 6, page 83, line 7, at end insert:

Private Companies

2–(1) A transfer of value is an exempt transfer to the extent that it is shown that it was made to a child or grand-child of the transferor and that it is attributable to the ownership of shares in a close company in which immediately before the transfer the transferor held a controlling interest.

(2) In this paragraph ‘close company’ shall have the meaning assigned to it in Chapter III of the Income and Corporation Taxes Act, 1970” .

No. 185, in Clause 43, page 31, line 42, at end insert:

“(6) Part II of Schedule 10 to this Act shall have effect for making, in relation to deaths occurring after 12th November 1974, provisions with respect to estate duty similar to those made with respect to capital transfer tax by Part I of that Schedule” .

No. 189, the new Schedule—Relief for Small Businesses—

Part I

Capital Transfer Tax

1.—(1) Where the value transferred by a chargeable transfer is determined by reference to the value of assets used in a trade, profession or vocation carried on in the United Kingdom or in respect of shares in or debentures of a company carrying on a trade in the United Kingdom, and the conditions stated in paragraph 3 below are satisfied, then, if—

(a) the value transferred would be reduced if computed in accordance with paragraph 2 below; and [column 762]

(b) a person liable to pay the whole or part of the tax on the value transferred makes a claim in that behalf to the Board within two years of the transfer or such longer time as the Board may allow;

the value transferred shall be so computed and tax shall be chargeable accordingly.

(2) For the purpose of ascertaining the value of the assets used in the trade, profession or vocation:

(a) assets shall include goodwill and know-how;

(b) the value shall be taken to be the value determined in accordance with section 34(1) of this Act, less a like allowance for the liabilities of the trade, profession or vocation;

(c) where the assets are used partly for purposes other than for the purpose of the trade, profession or vocation, the proportion in respect of which relief can be obtained under this Schedule, is the same proportion as is allowed for income tax;

(d) a partner's share of the assets where the trade, profession or vocation is carried on through a partnership shall be the average of his share of the profits for income tax purposes for the seven years of assessment immediately prior to the transfer (or if the same persons in partnership at the date of the transfer have not been assessed as partners for that period, on an average based on the number of years they have been so assessed);

2. So far as the value transferred is determined by reference to the value of shares in or debentures of a company, it shall be taken to be determined by reference to the assets used wholly or mainly for the purposes of the company's trade, valued in accordance with section 34(1) to this Act less a like allowance for liabilities provided that:

(i) such valuation shall be made by reference to the Balance Sheet of the company at the end of the last period of account immediately preceding the transfer of value;

(ii) the aggregate value of all the shares and debentures of the company issued and outstanding at the end of the same period of account shall be taken to be the same as the value of the assets less liabilities at that date;

(iii) in a case in which there are both shares in and debentures of the company issued and outstanding at such date, or different classes of either, the value of the assets less liabilities shall be apportioned between them with due regard to the rights attaching thereto respectively;

(iv) the value of any share or of any debenture or of a share or debenture of any class shall be a rateable proportion of the value of the assets less liabilities as determined in subparagraphs (v) and (vi) of this paragraph;

(v) where the value of the shares or debentures is to be determined by reference to paragraph 5 of [column 763]Schedule 9 to this Act, the rateable proportion shall be the proportion determined under the provisions of that paragraph;

(vi) in any case where the provisions of sub-paragraph (v) of this paragraph do not apply to the valuation of the shares the rateable proportion shall be the fraction of which——

(a) the numerator is the unreduced value of the shares or debentures determined in accordance with section 34(1) of this Act; and

(b) the denominator is the value of the entire issued share capital determined in accordance with sub-paragraph (ii) of this paragraph.

3.—(1) The conditions referred to in paragraph 1(1) above are:

(a) that the transferor was, in not less than five of the seven years ending with 5th April immediately preceding the transfer, wholly or mainly engaged in the United Kingdom in any of the capacities mentioned in sub-paragraph (2) below (or partly in one of them and partly in another or others); and

(b) subject to paragraph 4 below that the assets used in the trade, profession or vocation were at the time of the transfer used or occupied by him for the purposes of the trade, profession or vocation and either was so used or occupied by him throughout the two years immediately preceding the transfer or replaced assets which were so used or occupied by him for not less than two years in the five years immediately preceding the transfer.

(2) The capacities referred to in sub-paragraph (1) above are those of—

(a) a person who carries on a business (other than farming) either alone or in partnership; or

(b) a person employed in business (other than farming) carried on by another person;

or

(c) a director of a company carrying on a trade (other than farming) in the United Kingdom as its main activity.

(3) Where not less than 75 per cent. of the transferor's relevant income was immediately derived by him from his engagement in a trade, profession or vocation carried on in the United Kingdom, the condition in sub-paragraph (1)(a) above shall be taken to be satisfied; and for this purpose—

(a) ‘relevant income’ is the aggregate of income in any five of the last seven years of assessment immediately preceding the transfer which is earned income for the purposes of income tax other than income from a pension, superannuation or other allowance, deferred pay or compensation for loss of office; and

(b) the question what was the transferors income shall be determined without regard to section 37 of the Taxes Act (aggregation of wife's income).

(4) Where the condition in sub-paragraph (1)(b) above is satisfied but the assets which were used or occupied by the transferor at the time of the transfer were not so used or [column 764]occupied by him for the purposes of the trade, profession or vocation throughout the two years immediately preceding the transfer, then if the assets which they replaced had at the time when they cease to be so used or occupied, a lower value than the first-mentioned assets had at the time when they were first so used or occupied, the part eligible for relief shall be ascertained as if the value of the first-mentioned assets were reduced by applying to it the fraction of which—

(a) the numerator is that lower value; and

(b) the denominator is the value which the first-mentioned property then had.

(5) For the purposes of sub-paragraph (1) above, where the transferor became entitled to the assets on the death of another person—

(a) his use or occupation of the assets shall be deemed to have begun on the death of that person; and

(b) if that other person was the transferor's spouse and the condition stated in subparagraph

(1)(a) above was at the time of the death satisfied with respect to the spouse, it shall be treated as having then been satisfied with respect to the transferor.

4. So far as the value transferred is determined by reference to the value of shares in or debentures of a company it shall be taken for the purposes of this Schedule to be determined by reference to the value of assets wholly or mainly for the purposes of the company's trade, if and only if—

(a) the assets form part of the company's assets and part of the value of the shares or debentures can be attributed to the value of the assets; and

(b) the shares or debentures gave the transferor control of the company immediately before the transfer (the question whether they did so being determined as for the purposes of paragraph 13 of Schedule 4 to this Act except that a person shall be deemed for the purposes of this sub-paragraph only to have power to direct the votes attaching to any shaers held by a connected person); and

(c) the main activity of the company is, and has been throughout the two years immediately preceding the transfer, the carrying on of a trade in the United Kingdom; and

(d) the assets were at the time of the transfer used or occupied by the company for the purposes of the business and either were so used or occupied by it throughout the two years immediately preceding the transfer or replaced assets which were so used or occupied by it for not less than two years in the five years immediately preceding the transfer or where the company acquired the trade within the two years immediately preceding the transfer were so used or occupied for the purposes of the trade carried on prior to that acquisition by the transferor throughout that part of the two-year period in question immediately preceding the acquisition;

and the condition stated in paragraph (d) above shall replace that stated in paragraph 3(1)(b) above, and the references to that paragraph and to the transferor in paragraph 3(4) above shall be construed accordingly. [column 765]

5. For the purposes of this Schedule references to assets to be included in the part eligible for relief shall be taken to include shares in or debentures of a subsidiary of the company insofar as their value is attributable—

(i) to the value of assets used in and occupied for the purposes of the trade of that or any other subsidiary of the company, or

(ii) to the value of any interest a subsidiary of the company has as lessor in property let to the company by the subsidiary, or

(iii) to any interest the company has as lessor in any property let by the company to a subsidiary of it.

6. Where the value of property is attributed to shares in or debentures of a company passing on a death, any interest of the deceased as lessor in property used in and occupied for the purposes of the company's business or in machinery or plant so used shall, if chargeable with tax on his death, be charged in accordance with paragraph 1 of this Schedule but save as aforesaid the said paragraph 1 shall apply only to the interest of the person carrying on the business in question.

7. Nothing in this Schedule shall apply:

(a) to a business for the sale of which a binding contract has been entered into, other than a sale to a company formed for the purpose of carrying it on made in consideration wholly or mainly of shares in that company, or

(b) to the business of a company with respect to which a winding-up order has been made, or which has passed a resolution for voluntary winding-up (unless only with a view to a reconstruction or amalgamation), or which is otherwise in process of liquidation (unless only with that view);

nor to assets used in any such business, or shares in or debentures of any such company.

Part II

Estate Duty; Nature of Relief

8. Where the estate chargeable with estate duty on the death of a person dying after 12th November 1974 comprises assets used in a trade, profession or vocation or shares or debentures in a company by reason of an interest which came to an end or a gift which was made before 13th November 1974, then, if the conditions stated in paragraph 3 above, as modified by paragraph 9 below) are satisfied and

(a) the principal value of the property attributable to assets used in the business would have been reduced if section 55 of the Finance Act 1940 had applied to assets used in a trade, profession or vocation carried on by an individual alone or in partnership or to shares or debentures in any trading company the conditions stated in sub-paragraphs (a), (b) and (d) of paragraph 4 above are satisfied with respect to the company; and

(b) the person accountable for estate duty in respect of the property concerned makes a claim in that behalf to the Board within six months of the passing of this Act or such longer time as the Board may allow; [column 766]

the principal value of that property shall be so computed and estate duty charged accordingly.

Supplementary

9. For the purpose of relief under this Part of this Schedule paragraphs 3 and 4 above shall apply as if for references to the transferor and the transfer there were substituted references to the deceased and his death.

10. For the purposes of relief under Parts I and II of this Schedule, a ‘trading company’ has the same meaning as in paragraph 11, Schedule 16, Finance Act 1972 and shall be deemed to include a company which would be treated as a member of a trading group within the meaning of the said paragraph 11.”

Sir John Hall

I shall be as brief as possible because we are at the start of what promises again to be a long and arduous day and night's work, and I shall not detain the Committee more than is absolutely necessary in order to deploy my case. Having a bad cold, I do not want any imperfections of delivery in any way to mar the strength of the case that the amendment enshrines.

The purpose of the amendment is to provide relief to businesses, including sole traders, not dissimilar to that given to working farmers. Under the old estate duty rules, relief was given to business assets, as the Chief Secretary will remember, akin to the old agricultural relief. Under those provisions the value of various assets used in businesses was considerably reduced—about 45 per cent., I think.

The important provisions of the amendment are contained in the new Schedule, which is based largely on sections of the Finance Act of 1954, which gave estate duty relief to business assets. Therefore, all we are doing in this amendment is to reintroduce a form of legislation that has stood the test of time and has long been accepted.

There is little doubt that under capital transfer tax similar treatment should be given to the smaller businesses as is given to the working farmer. We all agree that farmers as a whole are of great importance to the economy. So are the overwhelming majority of small businesses—and I do not refer to the large public corporations.

If he has a transfer value on which tax is to be assessed, a farmer has great difficulty in finding the cash with which to pay it. Some recognition has been given to that fact. The businessman, whether in a medium-size business or a small trader, has similar cash liquidity problems. If he is called upon to meet [column 767]a considerable tax upon a transfer of value, he finds difficulty in raising the cash necessary to meet that obligation.

The Bill as drafted, on the transfer of a business, even allowing for the fact that the payment of tax may be spread over eight years, will impose a burden that will either force the closure of a business, or drive many businesses into the ever-ready embrace of the large corporations that will absorb them. I shall give an example of how that can happen later.

In the debate on Clause 17 in the House, the Chancellor said:

“I know that there is a 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” ——

he was quite right there—

“and if compelling arguments are put we are open to persuasion.” —[OFFICIAL REPORT, 21st January 1975; Vol. 884, c. 1380.]

I do not know how compelling the arguments are likely to be this afternoon, but they will probably be very compelling.

My right hon. Friend the Member for Finchley (Mrs. Thatcher) put some extremely compelling arguments before the Chancellor to show why there should be a change in the proposed legislation. I am sure that she will not mind my quoting some of her speech, for all her speeches are well worth quoting. [Interruption.] The Chief Secretary has made a remark that is not worthy of him. At my age it is not necessary to suck up to anybody.

My right hon. Friend had this to say:

“More people work for private companies and businesses than for any other type of employer.”

She went on:

“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.” —— [OFFICIAL REPORT, 21st January 1975, Vol. 884, c. 1386.]

My right hon. Friend then went on to talk about the effect on shipping interests and drew the attention of the [column 768]House to the fact that some 20 per cent. of the shipping activity in the country was in private shipping firms, and that they were responsible for about £120 million of revenue each year.

Many hon. Members on both sides of the Committee will probably have read with great interest an article written by Patrick Hutber in the Sunday Telegraph some time ago. He gave some examples which I am sure most Members of the Committee must have looked at with some interest and probably checked for themselves, for I am certain that most of them, when they first saw these figures, could not believe them to be true. I shall mention one or two of the many quoted.

Patrick Hutber gave an example of a man who during his lifetime built up a businesses worth £250,000. That is a modest sized business these days—one could not even call it a medium-sized business—but a genuine, even a modest achievement, and one might think a reasonable reward for giving employment and creating work. The article said:

“If he seeks to pass this on to his son he will incur a tax charge of £119,750” —out of a total value of the business of £250,000—

“Where is the money to be found without the destruction of the business?”

That is a question we should like to hear answered by the Chief Secretary. He went on:

“If £250,000 seems a high figure what about the man who builds up a business worth £100,000? There, if he wanted to pass it on intact to his son, he has to find a tax of £61,875. If one goes on to consider the effect of capital gains tax as well, it is frightening.”

Mr. Hutber quoted a case where a business had been built up from £100,000 to a value of £1 million. It is not unusual for an enterprising businessman starting, comparatively modestly, to build up a business of that size and, indeed, to a much greater worth. There are several examples that any one of us can recall of that type of growth over a man's lifetime.

In the instance of a man who had built up a business of £100,000 to £1 million over 20 years, if the business were to be handed over intact, a tax of £2,429,000 would have to be met. If neither the father nor the son had other assets and the tax had to come [column 769]from the business itself, out of that £1 million it would bear £270,000 capital gains tax and £589,750 capital transfer tax, a total of £859,750, leaving a balance of £140,250, which means the destruction of that business. The only alternative left open to that son is, of course, to sell the business, to let it be taken over by some other major corporation.

I give the Chief Secretary an example from my experience. Some years ago a private business with which part of my family is concerned—I have no personal interest in it and so I have no personal interest to declare—found itself in great difficulties because its founder had taken no precautions to provide for possible liability to estate duty under the old estate duty rules. He had not, as was always possible under the old estate duty rules, made it over to any member of his family, or disposed of it in any other way during his lifetime so that after seven years it was free of tax.

It was only those provisions that made it possible for the great majority of family businesses to exist at all. If that loophole had not been available, we should have found out years ago how penal were the existing estate duty rates. However, he did not do that.

The result was that when he died suddenly, the estate became liable to the full rate of estate duty. Consequently, his family had no alternative but to sell out to a much bigger corporation, as they could not raise the money in any other way. We all know how difficult it would be now to raise money for the large tax sums I have mentioned.

When the firm was taken over, all the usual assurances were given by the taking-over company about employment being reserved and keeping the business going in the way to which customers and others had been accustomed over many years, that there would be little or no change. But in a few years there is rationalisation. The big corporation finds that it has to draw in its horns for one reason or another. It has to start closing down and streamlining the organisation, with the result that one of the first companies closed down is the one last taken over. This results in unemployment for a large number of people in that area.

If this legislation goes through unchanged, another kind of result could follow. Instead of the founder of a business being prepared in his lifetime to hand over [column 770]to members of his family, perhaps lively, energetic young men who have been specially trained to do the job, who would be valuable assets to the business if they had full control, the founder will hang on until death eventually overtakes him. He will never relinquish the reins of management and control, because the provisions of the capital transfer tax will discourage him from so doing.

I am certain that the Chief Secretary, with his long experience before he became involved in this difficult, complex and sometimes unpleasant business of politics, will know many cases in which small and medium sized companies that had not taken the proper precautions under the old estate duty rules, found themselves in the kind of difficulties I have talked about. How disastrous and damaging the situation was to them the right hon. Gentleman knows, and if that were to apply to many businesses how damaging that would be to our economy.

I am sure that neither he nor the Chancellor wants to damage the economy in that way. I am sure that the provision has been introduced without sufficient thought being given to its full implications. Once the right hon. Gentleman has had the facts brought to his notice forcefully during the afternoon by the many speeches to be made, I hope, by hon. Members on both sides of the Committee—I believe that the subject concerns both sides—I am certain that the Chief Secretary will be prepared to meet us in some way to ensure that the Bill is changed in such a way as not to damage the prospects of businesses of the king to which I have drawn his attention.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

Let me say at the outset that I hope that the hon. Gentleman's cold will soon be better. If he prefers to go to bed for a couple of weeks to recover, I have no objection. If he cares to take some of his hon. Friends with him. I should have even less objection—I do not mean in the same bed.

The issue is the serious matter of business. I think that my credentials in the matter of small businesses are known to the Committee. I have spoken on behalf of successful small businesses ever since the first corporation tax change in 1965.

The central issue is the value to the economy of the small business. I hope that the hon. Gentleman will not mind my saying to him that the problem is that [column 771]rarely, if ever, have we had a truly critical examination—and I include the Bolton Report—of the value of small businesses. Of course I agree with him about the value of successful small companies, indeed, I have acted for successful small companies in the past. I do not dispute anything said by the hon. Gentleman about that.

The mistake made by the hon. Gentleman and many hon. Members on the Government side, too, perhaps is in thinking that all small companies are good. The fact is that there are more small companies—mainly because there are more of them—that are badly run and managed than there are bad large companies. Let us be under no illusions about that. Let us not pretend in a critical examination of the whole subject of small companies. It is the purpose of Committee work that we can examine matters seriously.

Mr. Russell Fairgrieve

rose——

Mr. Barnett

If the hon. Member does not mind, I should like not to give way yet. I am coming to some serious remarks that I hope will go to meet what the hon. Member for Wycombe (Sir J. Hall) was suggesting.

We must not leave anybody with the impression that all small companies are good by the very nature of being small. That certainly is not true, has not been true in my experience and I am sure not in the experience of many hon. Gentleman opposite.

Sir John Hall

Rose—— 4.15 p.m.

Mr. Barnett

I should like to pursue the argument a little further. I shall be happy to give way later. The hon. Gentleman knows that I always give way very generously in these matters.

The hon. Gentleman said that I would be aware of instances when perhaps the son of the owner would be a lively, energetic man, able to continue the business, possibly even more successfully than the father. That is absolutely right, but I know also many sons of very successful original entrepreneurs who were totally incapable of carrying on that very successful business. We had better be under no illusions when talking about a general relief for all small companies as if that, by the very nature of things, is what we should do because it is right to help all small companies, full stop.

Sir John Hall

Rose——

[column 772]

Mr. Barnett

I think that the hon. Member will be happy with my ending even if he is not too happy with my beginning. At least, he may not be happy, but perhaps he will feel that I have gone a little way to meet him.

I have often been surprised by the lack of objectivity in the totally uncritical way in which many observers, in the Press and elsewhere, take the view that small companies are all good, and that is it. That goes some way to the heart of the argument, although not wholly. I intend to come to the main point that the hon. Member was seeking to make.

In these debates on the capital transfer tax we have often heard the accusation that this tax distorts the economics of business both small and large. It is at least arguable that the former estate duty situation equally distorted the whole of our economy by allowing—indeed, almost insisting for the benefit of saving estate duty—successful companies to go to children who were totally incapable of running them. That has certainly been the case in my experience on a number of occasions: I had better add “in the past” , because none of the present former clients of my old practice would have been in that situation.

The important issue here is how we help, not only the successful small company, but those small companies that find themselves in the sort of position to which the hon. Gentleman alluded. I refer, for example, to the situation where it may be necessary to break up the company because it cannot be sold, or is too small to be quoted on the Stock Exchange. Another instance, not mentioned by the hon. Gentleman, occurs when, because of the difficulties, the owner seeks to run down the business and not reinvest in it so as to provide enough resources for the son to be able to take over the company. Those are the two types of case that I want to meet.

There are a number of ways in which it might be possible to help. The hon. Gentleman has referred to one method. Unfortunately, Amendment No. 189, to which he spoke and where the basic relief is, is not altogether clear, because paragraph 2, which I assume should be in it, is not.

Sir John Hall

Perhaps I should have drawn attention to that, Sir Stephen. It is a matter of misnumbering and paragraph (3) should have been paragraph (2).

[column 773]

Mr. Barnett

I am obliged to the hon. Gentleman.

Mrs. Margaret Thatcher

It reads all right.

Mr. Barnett

I am coming to the main point, so the right hon. Lady must not get too excited about it.

I was dealing with the various methods by which one could give relief for all these types of companies. The new schedule and many of the arguments advanced in the House and in Committee propose reverting to the form of relief previously available, namely, the abatement of, say, 45 per cent. for business assets.

Assuming that to be the right thing to do in terms of helping the company, it would be the wrong thing to do in terms of fiscal privilege between two different taxpayers. If one taxpayer has £250,000 in ICI and another taxpayer has £250,000 in a small company, I cannot see why, in terms of equity, one should pay less tax than the other.

I shall come to my reasons for wanting to give some form of help in a moment. But, in terms of fiscal privilege and equity between taxpayers, I submit that that would not be the fairest way of going about it. For example, particularly under the terms of amendments, I cannot see how it can be fair to give relief to one man who happens to own betting shops, or a small manufacturing company, but not another who has shares in an equally good but quoted company.

Mr. Nigel Lawson

Could the Chief Secretary say how many representations he has had from ICI against unfair advantages given to betting shops?

Mr. Barnett

I was making a serious point and I am surprised at the hon. Gentleman. I should have thought that whether the shares be in ICI or any other company, or even money in the bank, the case on equity grounds is absolutely the same. It does not matter where the funds were. The case that has to be made for the abatement form of relief has to be made out despite the injustice and the inequity. That is the point I am making. I see that the hon. Member for Guildford (Mr. Howell) does not agree with me, but I am glad to see that I carry at least one of his hon. Friends.

It is important that we should understand, when we are subjected to the [column 774]criticisms that the capital transfer tax is unfair, that those who make that criticism do so in a wholly uncritical sense in relation to the unjust way in which estate duty worked in respect of two different taxpayers. It has also to be recognised in understanding why we have moved from estate duty to capital transfer tax. For those reasons, that would perpetuate that kind of injustice.

The other form of relief that might be considered was mooted on the Floor of the House when we debated Clause 33—that there should be a substantial reduction in the rates of tax. I submit that even if one were prepared to give up that amount of yield right across the board, it would be wrong for a different reason. It would not meet the objective of the hon. Gentleman and many others who have sought to help successful small companies because it would not do anything about the subject of many of the arguments that hon. Gentleman have deployed over the past few days—the disincentive to transfer assets during life. Therefore, I cannot agree with that method of providing relief.

I turn now to the method that I believe to be the best way of helping the type of companies to which I have referred. First, we have to consider what we mean by “small” . Some people think that £1 million is small, and it is if one has £10 million. Indeed, there are a number of unquoted companies worth well in excess of that sum.

There is bound to be line drawing somewhere. But, for the purposes of my argument, I propose to use the figure of £250,000 used by the hon. Member for Wycombe on the assumption that, although one cannot get a quote today for a private company above £250,000 until one gets to the region of £1 million—and in current circumstances it would be difficult to do it at that, but we are talking about normal circumstances—at least it would be easier to dispose of that business than of a very small company. I know that it can be disputed, but it is at least a reasonable argument.

Therefore, I now want to turn to ways in which one could help the type of company to which the hon. Gentleman referred at this level and below. I apologise that we have not put down an amendment, but I hope that hon. Gentlemen will appreciate that we have been having consultations with all kinds of people about the best way to deal with this matter. We have come to a conclusion, and I promise hon. Gentlemen [column 775]that I shall ensure that what we are proposing will be put down in good time before Report so that hon. Gentlemen opposite can put down amendment to it, or any of their own proposals, on Report.

I am proposing a separate lifetime scale on a steeply progressive basis in order to help specifically small businesses and small farms. Incidentally, if we do this—if it is acceptable to the Committee and the House—we should need to have a period such as now exists for estate duty, but not necessarily seven years: a period considerably shorter would be needed.

I suggest that this steeply progressive scale would work by starting at, say, 50 per cent. of the death rate, at the lowest level rising to, say, 70 per cent. at £250,000, and thereafter steeply rising. The result of that would be a substantial reduction at the lowest level and a reduction down to about two-thirds at £250,000.

The hon. Member for Wycombe spoke of a capital transfer tax of £119,000 at the level of £250,000, and mentioned some elaborate ways in which the tax could be enormously greater. I propose to take for my example—and I hope that it is not unreasonable—a business left to a son, so that the tax, payable over eight years without interest, would be payable by the donee.

I would not consider that to be an unreasonable action for a donor, particularly if he had no other assets and was just giving the business away. Even if he had other assets, as an elderly or middle-aged man he might prefer to hold on to those other assets if he were giving his business away. It is not unreasonable to take the view that, particularly as it is spread, the tax should be payable by the donee.

Under my proposals, the tax then payable would be between £75,000 and £80,000. I should have thought that that would not be too difficult to pay while keeping the business as a whole, especially if one combines it with the £1,000 a year relief—£2,000 for a couple—over, say, 10 or more years, plus any gifts out of income and plus eight years interest-free in which to pay it.

I suggest to the Committee that this would be the fairer way to deal with the matter as between taxpayers. I repeat my apology to the Committee for having put this suggestion before hon. Members without being able to put down an amendment, but we have come to this conclusion about [column 776]the way in which to move only at the very last moment.

I hope that the Committee will feel that the way in which we are proposing to deal with this matter will help those companies of the kind I described which cannot sell, or get a quotation and, which might otherwise have sought to run the company down and not invest. At the same time, it will be a better and more equitable way of helping than is suggested by these amendments, or the other suggestions that have been advanced.

Mr. Peter Hordern

Will the Chief Secretary be kind enough to give us the figures again—that is, the relative tax that would have been paid under the present rate proposed on an estate of £250,000—and the new figures that he has just suggested?

Mr. Barnett

On £250,000. I took the hon. Gentleman's calculation to make it worse in my example at £119,000. My estimate is in the region of £115,000. Under my proposal it would be £75,000 to £80,000, depending on the graph, on the way the scale goes. Those are, broadly, the figures.

Mr. Hordern

Over eight years? 4.30 p.m.

Mr. Joel Barnett

That would be payable over eight years.

I hope that the Opposition will feel that I have gone some way to meet the serious case on successful small companies that cannot sell or get a quotation, while at the same time being fair between different taxpayers. I hope that that is acceptable to the Committee.

Mr. Jerry Wiggin

What the Chief Secretary said is of immense importance. We shall need to learn a great deal more, and, in the absence of an amendment, a difficult situation is created for the Opposition. I hope I am right in assuming that this will apply in the same way that estate duty concessions apply to agricultural property and forestry. Am I right? For the smaller farmer, therefore, this will offer a concession.

I suggest that, having been caught off balance by the right hon. Gentleman's proposal, the Committee should be suspended for a short time. This matter is of such importance that the Opposition should have an opportunity to consult and decide how we wish to treat our further amendments.

[column 777]

Mr. Joel Barnett

I perfectly understand the hon. Gentleman's view. That is why I hope that we shall now have a serious discussion on whether it is the best way of dealing with this serious problem. The Opposition may wish to suggest alternative ways of helping. I promise that I shall seriously consider anything they suggest for amendments on Report, at which time we shall have a further opportunity of considering the matter. I hope that that will be considered reasonable.

Mr. Wiggin

I rather doubt the Chief Secretary's scheme, and whether it will go far enough. The principle he is now applying to the imposition of this tax is that the smaller the financial amount the less the rate will be. But it does not get away from the principle my hon. Friend the Member for Wycombe (Sir. J. Hall) raised in proposing the amendment, which still seems to remain valid in relation to agricultural estates, forestry land and small businesses, which he put so succinctly. Whether one can split up a small business, or any business that is privately held, is not just a question of the amount concerned but a question of the practical implications.

This is not a new principle. I believe it has been established in all estate duty legislation since its introduction—certainly since 1910. It has been consistently accepted by all Governments despite arguments against it. There are amendments and new clauses to come on which we shall argue the question of the old 45 per cent. being applied again to this tax for agricultural land.

All concessions are welcome, but—I hope that he will not interpret my comments as a rejection of his proposal—the Chief Secretary does not seem to have accepted the principle. He has merely said that he would ameliorate the tax in the lower range but the principle of breaking up privately held capital still persists. We reject that as a principle.

At the same time, we should be wrong totally to throw back the concession that the Chief Secretary has made because in financial terms it could mean a great deal to the owners of small private businesses.

Mrs. Margaret Thatcher

We are all in some difficulty in deciding how this relief will work in relation to the various matters affected by it. Is it possible procedurally [column 778]to adjourn the debate on this amendment until, say, next Tuesday, by which time we can have taken advice from those affected? Could we proceed to the next subject now, that is, Schedule 6? We should then be better equipped and would have the advantage of Hansard. It would be a tremendous advantage to us also if the Chief Secretary could make a fuller statement of exactly what he has in mind. If that is possible, I should like to move whatever motion makes it possible.

Mr. Joel Barnett

I entirely support the right hon. Lady. It is a perfectly sensible suggestion. I had no wish to spring these matters on the Committee, but I can only speak to them at the point of the amendment. In that sense, I had no choice in the matter. If the right hon. Lady's suggestion is possible, I should be happy to go along with it.

Mr. John Cope

Sir Stephen, would it be possible for us to have at least a few minutes in which to put a few questions? Some questions occur to me on which the Chief Secretary might be able to guide us.

The Chairman

We must make up our minds what we want to do. The position is this. If the right hon. Lady would like a postponement, that can be arranged. But for that to be arranged the mover of the amendment must first withdraw his motion for the time being.

Mrs. Thatcher

May I respectfully suggest that my hon. Sir John HallFriend permits my other hon. Friends 15 minutes for cross-examination, and then seeks leave to withdraw the amendment?

The Chairman

That would be perfectly in order. There is not the slightest reason why the hon. Gentleman should not proceed to put his questions. But before we can proceed to a postponement of this discussion until a later stage, the hon. Member for Wycombe (Sir J. Hall) must withdraw his amendment.

Sir J. Hall

May I be clear in my mind about this? Withdrawing the amendment does not mean that it falls. It means, presumably, that it can come back again for discussion when we resume. Is that right, Sir Stephen?

The Chairman

Exactly.

Mr. Hordern

Will the Chief Secretary be good enough to issue at the same time [column 779]as an amendment an accompanying Treasury statement of a rather fuller character which will give us the information that we require?

Mr. Barnett

I should be happy to do that.

Sir J. Hall

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Consideration of clause postponed.—[Mr. Joel Barnett.]

[column 782] Second Extract

Mr. William Ross

I beg to move Amendment No. 60, in page 83, line 7, at end insert:

Compensation for acts of terrorism

2. Where tax falls to be charged under section 20 of this Act, transfers of value are exempt to the extent that the values transferred are shown to the satisfaction of the Treasury to be attributable to that part of any sum paid to the transferor by virtue of the Criminal Injuries to Persons (Compensation) Act (Northern Ireland), 1968, which was assessed as [column 783]representing any loss or damage sustained by the transferee” .

The Chairman

With this amendment we shall take Amendment No. 94, in Schedule 7, page 90, line 18, at end insert:

“2. Section 20 of this Act shall not apply in relation to the death before the end of 1979 of a person in whose case the Treasury is satisfied that he died from injuries inflicted in the United Kingdom in the course of acts of terrorism connected with Northern Irish affairs, not being acts to which he was a party.”

Mr. Ross

The amendment concerns compensation given to a child or help needed for that child when the father is killed or injured, possibly in a terrorist attack. We ask that that part of the compensation transferred to a parent or guardian which is specifically related to the child shall be exempt. We believe that in the tragic circumstances existing in such cases that is a reasonable request. The right hon. Gentleman is aware that many times courts make provision for children or other dependants in such cases. We ask that those moneys be protected.

Amendment No. 94 is an attempt to extend relief to civilians who die as a result of terrorist attack, on exactly the same basis as that extended to members of the police force in Northern Ireland and members of the Armed Forces who are killed. It is a follow-up on the situation that prevailed in respect of civilians during enemy action in the Second World War.

Mr. Joel Barnett

I shall take Amendment No. 60 first. I have a feeling that there might be either a typographical error or something that the hon. Member for Londonderry (Mr. Ross) did not intend in the last word of the amendment. I refer to the word “transferee” . I am not sure whether that should not have been “transferor” .

However, I shall deal with the hon. Gentleman's comment about the type of incident, for which all of us have the utmost sympathy, as he will be aware. He referred to payments made under the Bill [line missing] killed in Northern Ireland, and he directed specific attention to the case of payment to a child. The difficulty here is that there is no tax at the time the child receives the compensation, and then, at the time [column 784]when the child either dies or wishes to transfer on the amount, it would not be possible to identify the particular sum in relation to other funds then held. It would be extremely difficult to identify the funds to give the relief.

Second, the recipient of the compensation in this case, by the nature of the hon. Gentleman's argument, would not be the person who had been injured and had died. By the time the person who received the compensation reached maturity or died many years later, it would again be difficult to identify the sum. I am not sure whether it would be fair to treat that person's funds at that time differently from the funds of anyone else, in terms of either estate duty or capital transfer tax.

I suggest that this is not the way to deal with the matter. The child in question would not be suffering under capital transfer tax. It would have received the compensation, and provided it did not transfer on the amount in its lifetime, there would be no question of capital transfer tax. At death, that person would be in a position similar to that of any other person. The hon. Gentleman nods, and I take it that he understands the position.

I turn now to amendment No. 94. Again, this is a matter on which we have the utmost sympathy. The amendment would provide complete exemption from capital transfer tax on the death, before the end of 1979, of a person who died from injuries:

“inflicted in the United Kingdom in the course of acts of terrorism connected with Northern Irish affairs, not being acts to which he was a party.”

There are several reasons why I have to disappoint the hon. Gentleman, and I hope that he will understand why it is not possible to meet him in the matter. It would be difficult to operate satisfactorily the provision suggested. In many cases, it would be difficult to identify with certainty a particular terrorist outrage as being caused by someone from Northern Ireland. There is never absolute certainty about those matters. Tragically, there are too many people in the world who are perpetrating the sort of outrages of which we are talking.

There is also the problem in some circumstances, particularly when the incident occurs in Northern Ireland, to [column 785]establish that the victim was not connected with the outrage, although the hon. Gentleman says in the amendment

“not being acts to which he was a party.”

That, again, is a difficult distinction to draw.

There is another reason. The Armed Forces relief, which we are extending in the Bill, is nothing like as important here as it was under estate duty. The simple reason for that is that under the Bill the estate of the person killed would go without capital transfer tax anyway to the wife.

Because we recognise that there is a case here, we have extended the provision to apply to capital transfer tax as well. But to take it further would, I suggest, be invidious as others who could be affected by acts of terrorism other than those described in the amendment.

For those reasons, I have to disappoint the hon. Gentleman. I hope that he will agree that we have been fair in the Bill and that it would be extremely difficult to draw the distinctions he describes.

Sir John Hall

As the Chief Secretary has said, we must all, on both sides of the Committee, feel a great deal of sympathy with the purpose behind these two amendments. I direct my attention to the first, No. 60, to ask the Chief Secretary whether he does not think that a case of hardship will arise if compensation is paid to someone who suffers as a result of an act of terrorism, not because of death and the compensation being paid to dependants, but because the individual himself was seriously injured?

If compensation were paid to such a person and within a very short time that person died, his estate could become liable to capital transfer tax and that would diminish the amount that otherwise his dependants might have enjoyed. If he had no wife, for example, and compensation were passed on to children, they might have expected to have enjoyed the sum benefit of that during the course of the parent's lifetime.

In these circumstances, it seems that there is a hardship. It is certainly not the intention in giving compensation that, as soon as the individual concerned dies, the Government should claw back a large part of it in capital transfer tax. I hope that the Chief Secretary will be prepared to give that matter some consideration.

[column 786]

Mr. Nicholas Ridley

I, too, am slightly troubled. The hon. Member for Londonderry (Mr. Ross) has acted quite rightly in bringing these two amendments forward and I am sure that we should all like to be certain that the treatment of those who suffer in Northern Ireland, or anywhere else, through terrorism is impeccable.

Having said that, I do not believe that those who in the past have been afflicted, or whose parents have been killed, through acts of terrorism should have a continuing right to evade the tax. What we must concentrate on is making sure that nobody for whom compensation has been provided could conceivably be deprived of that compensation while still alive.

That seems to be the right test. Obviously, the children of one who receives compensation have no greater claim to be free from this tax than any other children. However, so long as the parent who receives the compensation lives, that compensation should be available to support that person who may be deprived of the means of earning his or her living.

I can think of two circumstances and I will put them to the Chief Secretary so that he can knock them down, because I want to be quite sure about this. First, somebody may be killed by a terrorist bomb. He may have one or more children and the sum in compensation may be put into trust for them. The trust might have to pay the 10-year levy—I know that we are not coming to trusts yet. It would clearly be quite wrong that it should, because that money would have to support the children, pay for their education and set them up in life. Thus, it should obviously not be taxable until such times as the children die.

The second circumstance that occurs to me concerns a man who is killed, perhaps leaving two children, when money is provided in compensation. It might go to the eldest child who would be old enough to look after younger children. If he in turn were killed, the compensation payment would be taxed on his death and it would not be available to support his younger brothers and sisters. Those are two possible circumstances. Other hon. Members may be able to think of others, but I think we want to probe this problem a little to make sure that the hon. Gentleman's fears could never be realised. [column 787]5.15 p.m.

Mrs. Thatcher

I should like to question the Joel BarnettChief Secretary on one point about Amendment No. 60. He assumed that the word “transferee” , the last word in the amendment, should have been “transferor” . I do not read it that way at all. I read it as if the word “transferee” were correct, the transferee being the child in the case where a sum was assessed taking into account the fact that the man had a number of children, the need to support that number of children having made the compensation payable that much greater.

The children are the transferee, and to the extent that their existence and the need to support them led to larger compensation, that amount of compensation should be free of capital transfer tax. I think the amendment is absolutely correct. When the Chief Secretary says he thinks that it should read “transferor” , he makes me a little alarmed that his advisers might have misinterpreted it, too.

Mr. William Ross

Hon. and right hon. Members on this side of the Committee have been interpreting the amendment correctly. But one or two things may not be known to the Committee. First, when a member of the Armed Forces, the police force, police reserve or the Ulster Defence Regiment is killed, the largest part of the compensation is not paid as a lump sum at all. It is paid through the pension, which is given to the widow and the children of the person concerned. I see that hon. Members understand this, but it is not clearly understood by the public either here or in Northern Ireland. Because of that we sometimes have trouble when widows claim that their interests have not been protected, for that is not the case.

The language of the amendment is correct. Quite often the father is not killed outright, but he may become a human vegetable and live for a few years. At that time, although the money may be vested either in him or in trustees, money vested for the benefit of the children should be transferred for their benefit. That is what we are asking.

Mr. Barnett

It is not a matter of misinterpretation. Depending on whether the word is “transferor” or “transferee” the amendment would have a wholly different interpretation. We thought [column 788] “transferor” might have been in the hon. Gentleman's mind. But from what he said on introducing the amendment it was clear that what he had in mind was the type of incident where the person injured in an act of terrorism either died immediately, or received such injuries that he died shortly afterwards. The point I made was that payments in those circumstances may be made to the beneficiary, to the dependant, and the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) took the point.

The hon. Member for Wycombe (Sir J. Hall) said that there surely could not have been any intention to claw-back the compensation. Of course that is true. Equally, it cannot be the intention that, having given compensation to a beneficiary, thereafter it should be indefinitely on a different basis for every other taxpayer. That is not what the hon. Gentleman is asking, and I note that.

I shall deal later with the other point—where funds may be put in trust for a child—but in general, not only in the case of this type of child, and I hope then to be able to satisfy the Committee.

But where compensation is given to a person who has suffered, for example, not only personal injury, but the loss of a business and he is compensated for that business, when he passes that compensation to his beneficiaries there is no reason why they should be any better placed than any other beneficiaries of a small business.

As I have said, I noted that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) made exactly that point in saying that he was not suggesting that the beneficiaries had a continuing right in this matter, but where they had a right, it was an absolute right. I entirely agree with all hon. Gentlemen who have spoken, that beneficiaries should be well taken care of in the compensation, and that is done in the Compensation Act. We are not saying—and I assume hon. Gentlemen opposite are not—that thereafter, when they are perfectly normal citizens, beneficiaries treated differently from anybody else.

Sir John Hall

I think that the Chief Secretary, no doubt because of my faulty expression, did not quite take the point I tried to make. I was endeavouring to draw to his attention a case where a man, possibly a widower, had been [column 789]seriously injured as a result of an act of terrorism. Because of his injuries and his family responsibilities, and perhaps because he had small children who needed to be looked after, he was awarded a substantial sum in compensation. Within a short time he died and, as I understand, and as the Bill is drafted, his estate will be liable to capital transfer tax.

If I am wrong, perhaps the Chief Secretary will intervene now to say so. If I am right, it means that the children who were to be looked after under the terms of the compensation originally granted will find themselves with a much reduced figure of compensation than that given to their father in the first place, because they have many years to go before they are adult. I am not suggesting that this should be a continuing benefit. Indeed, later on, whatever sum they might have when they transfer it will be liable to tax in the normal way. But I am suggesting that this case should be looked at.

Mr. Russell Fairgrieve

We should remember one other human aspect of the amendment proposed by the hon. Member for Londonderry (Mr. Ross). Leaving aside the question of compensation and tax hereafter, what happens to a family in such a situation?

A person who is about to embark upon upon a successful business career may be killed, and immediately the whole future standard of living of his spouse and the expectations of the children are affected. A very different life pattern will affect the whole family, with nothing like the anticipated, projected, or possible standard of living for the future.

In dealing with pure matters of compensation, and the tax treatment of these people, it is as well to consider the background situation.

Mr. Barnett

On the point just made, it must be the case that the compensation itself must take into account the loss, the expectations, and everything else. That cannot be a matter for the tax, but for the compensation.

I understand the point made by the hon. Member for Wycombe (Sir John Hall). I certainly should have no wish to harm a beneficiary whose father had been given compensation but died shortly afterwards and he, the beneficiary, suffered as a result. That would not be my [column 790]intention, and I promise the hon. Gentleman that I shall look at the matter with a view to being helpful.

Mrs. Thatcher

The Joel BarnettChief Secretary said that the compensation would take that factor into account. That is so only if the compensation is grossed up for the amount of capital transfer tax that would otherwise be payable upon the transfer on death.

I do not know what the present state of law is with regard to this compensation and a new tax. There used to be a provision under which damages had to be grossed up to take into account the tax that would otherwise be payable, in order to put the position back truly into the position of net after tax.

The Chief Secretary's argument will hold only if the original compensation is fully grossed up for capital transfer tax. Otherwise, it will have to be made certain that the transfer does not attract capital transfer tax.

Mr. Barnett

I say to the right hon. Lady that I am happy to look at that, but the position is not dissimilar from that under estate duty. We are not now talking about lifetime transfers but about a man who has died as a result of his injuries. The situation with estate duty is exactly comparable, and under estate duty rules the donee, or the beneficiary, would have to pay tax on the figure that he receives. It is exactly the same under capital transfer tax.

I shall be happy to look at the point the right hon. Lady makes, because I have no wish to see the kind of persons about whom we are talking suffering any more than they have already suffered by the loss of a parent.

Mr. Wm. Ross

I think that the right hon. Lady is more nearly right than the Chief Secretary. A person who is killed by terrorist activity in Northern Ireland may have had a business or owned a farm, but when compensation is awarded for that death there is no recognition of the effect that capital transfer tax or the old estate duties will have on the family. I think that the right hon. Gentleman should look at this matter very closely. Families will find themselves in a difficult situation, and it is most unfair that a wife who loses her husband and finds herself and her family in great hardship [column 791]should also find that her financial situation is much worsened.

Mr. Joel Barnett

I am sure the hon. Gentleman is aware that under the Bill—we have discussed it enough—the wife could not suffer because, unlike with estate duty, there would be no tax liability.

Amendment negatived. [column 802] Third extract

6.15 p.m.

Mr. John MacGregor

I beg to move Amendment No. 63, in page 83, line 12, leave out “£1,000” and insert “£2,000” .

The Chairman

With this we may take the following amendments:

No. 857, in page 83, line 12, leave out “£1,000” and insert:[column 803]

“£2,000 or when added to all such transfers of value made in the previous four years, £5,000 (the alternative maximum); provided always that in respect of the three years ending 5th April 1976 to 1978 (inclusive) there shall be substituted ‘one, two and three years’ and ‘£2,000’, ‘£3,000’ and ‘£4,000’ for four years and ‘£5,000’ respectively, and for the years ending 5th April 1974 and 5th April 1975 paragraph 3 hereof shall apply” .

No. 64, in page 83, line 13, leave out “£1,000” and insert “£2,000” .

No. 858, in page 83, line 13, leave out “£1,000” and insert:

“both the permitted maximums” .

No. 422, in page 83, line 19, at end insert:

“(3) Transfers of value made by a transferor to any one transferee in any one year and not exempt under any other provision are exempt to the extent that the values transferred by them (calculated as values on which no tax is payable) do not exceed £500” .

No. 496, in page 83, line 22, at end insert:

“(4) Where in any year of assessment, a transferor does not make transfers not exempt under any other provision in the aggregate of £1,000, he shall be entitled to carry forward the difference between the aggregate value of the gifts made (calculated as values on which no tax is payable) and £1,000 and to increase the exemption limit for the immediately following year of assessment by the amount of the difference (the aggregate of such £1,000 and difference being called in this sub-paragraph the ‘adjusted limit’) and if in that year of assessment the aggregate value of gifts (not otherwise exempt and calculated as values on which no tax is payable) does not exceed the adjusted limit, the difference between the aggregate value of the gifts in that year and the adjusted limit shall be carried forward to the immediate following year of assessment and so on” .

No. 65, in page 83, line 26, leave out “£1,000” and insert “£2,000” .

No. 305, in page 83, line 27, leave out “whichever of the following is the greater” and insert:

“the sum of the following” .

No. 66, in page 83, line 28, leave out “£1,000” and insert “£2,000” .

No. 306, in page 83, line 31, at end, insert:

“and

(c) the value of any gift which would have been excluded from the property passing on the donor's death for the purposes of estate duty if he had died immediately making the gift” .

No. 859, in page 83, line 38, at end insert:

Small Gifts

(4) Transfers of value made by a transferor [column 804]to any one transferee in any one year are exempt to the extent that they confer a benefit on that transferee in the aggregate of not more than £100. In this paragraph ‘year’ has the same meaning as is defined in paragraph 2 hereof” .

Mr. MacGregor

I wish to speak to Amendment No. 63 and to a number of the other listed amendments.

As the Chief Secretary knows, I have tried to be brief in putting forward my arguments, in the interests of progressing speedily with the Bill. However, on this occasion I must warn the right hon. Gentleman that I shall speak for some time because of this mass of amendments which you, Sir Stephen, have put with Amendment No. 63. Some of the amendments differ in what they seek to do, and several of them are, in our view, important.

Subject to what the Chief Secretary says in reply, we may wish to divide on No. 496 and perhaps on 422, 305 and 306. My remarks now are addressed to all the amendments, but at the end of the debate we may wish to divide on those amendments separately.

Amendment No. 63 goes with No. 64. Both seek to raise the amount allowed as an annual transfer exempt from tax from £1,000 to £2,000. The amendments would raise this amount in two separate lines of the Bill. With those amendments also should go Nos. 65 and 66, which have a similar purpose, but which relate only to the figures of £1,000 and £2,000 in the transitional period.

To understand why we regard these amendments as being right and important it is necessary to set this relief in the context of the capital transfer tax as a whole. I want to consider the tax particularly as it applies to transfers to children or to others. I am not talking about the position in relation to the spouse, with which we have already dealt, because transfers to the spouse would be freed in this case.

First, there is the question of rates. In this connection I want to get one point on the record, because it gives the reason why we think that increasing this relief to £2,000 is justified. Looking at the level of rates relating to the transfer at death—I am not now talking about transfers during a person's lifetime to persons other than the spouse—the Chief Secretary has made great play about the fact that there is a major concession to the other spouse because now no tax is [column 805]applied at the time of the death of the first spouse.

I want to consider the effect on the children or, indeed, other tranferees, but I am thinking of the children particularly. This is why we want to have Amendment No. 63. It is not true that the effect on the children would be the same as under estate duty, because if one assumes that the two spouses have followed the normal good tax advice in the past—that is to say, they have equalised their estates and made life interest wills in each other's favour—the burden at any level of capital transfer tax is greater than estate duty.

This is very important in relation to the amendment. The Consultative Committee of Accounting Bodies has already made it clear—and this has also been published in the Solicitors Journal—that at any level—and they gave examples of £20,000, £50,000 and £100,000—the total of capital transfer tax on the second death is greater than it was under estate duty in the past. It would be 280 per cent. greater, in fact, in the case of £20,000. Admittedly, this would be only a small sum of about £3,500, but nevertheless it represents a substantially greater burden of tax on the death of the second spouse than was the case under estate duty.

I agree that it is possible that, under capital transfer tax, the first spouse to die could leave £15,000 to his children and that would escape duty. But in this case the surviving spouse would suffer, and it is particularly important that this should not happen among those with lower incomes and is one reason why the first spouse would not wish to do it.

If we are talking about low amounts of capital, under capital transfer tax almost certainly the first spouse would wish to leave the entire sum to his widow to help deal with inflation. But if he passed it on to the children, to minimise the impact of capital transfer tax on the death of the second spouse, that second spouse would not have the benefit of that capital, as she would have done under the old estate duty rules on the life interest.

My first point is that capital transfer tax, as it applies on death, is tougher than the old estate duty rules. This is an important reason for trying to give some relief on lifetime gifts, greater than has already been given. [column 806]

Following on from that, it is true to say that with inflation at its present level, the Chief Secretary should not in capital transfer tax have made the rates heavier; he should have lowered them, as compared with the existing levels of estate duty, to take into account the impact of inflation. In that context the £1,000 per annum exempt transfer is very low.

I have been talking so far about transfers on death and comparing them with estate duty. But if one takes into account the fact that this is a new tax, the exemption is quite insufficient and is one reason why many of us have said that we think the total impact of the tax is penal.

I turn now to the particular exemption. I wish to take up a theme, following my remarks on inflation, which I am sure my hon. Friend the Member for Blaby (Mr. Lawson) will follow—indexation of the £1,000. I know the amendment does not deal with indexation, but we all recognise that it is unlikely that the present Government would raise the £1,000 on a regular annual basis. Therefore, we should take account now that the £1,000 figure is very low, will be even lower next year, and lower still the year after, by raising it to £2,000.

Next, I wish to turn to the international comparisons in relation to these sorts of exemptions. I believe that it is right, when looking at the total burden of the tax, that we should see what other countries do. I do not necessarily say we should follow them, but their experience in gifts tax should be taken into account.

We have already heard in earlier debates that the total capital taxes per head is much higher under these proposals than in most other countries. I want to look not at the totality, but at the rates as they affect this set of amendments. The maximum rates of capital transfer tax are, on average, elsewhere 62 per cent. and nowhere as high as in this country.

In the example of children—and I make no apology for using that example because it is children of whom I am particularly thinking in relation to Amendment No. 63—in no major European country is the rate of tax more than 35 per cent. Indeed, the maximum rate for children in France is 20 per cent.; in Germany it is 15 per cent.; in Belgium, 17 per cent.; in Norway, 35 per cent.; in the Netherlands, 17 per cent.; and in Austria, 15 per cent.

I hope that in due course we shall be able to talk about these rates. But if we [column 807]were to have this amendment, at least some of the savage effects of the high rate that children would have to suffer under capital transfer tax would be alleviated.

International comparisons of the special allowance for children show that where these are given they are much more generous than the allowance given under Amendment No. 63.

For example, in France, the allowance is £9,000, in Belgium it is £2,200 and in Austria it is £6,760. One way in which we can try to bring this tax a little more into line with what is regarded as reasonable in other countries is to pass this amendment.

I have already justified raising the relief on the annual transfers. I would again emphasise that, although I have referred to the impact of estate duty and capital transfer tax on death, we are talking about a totally new tax.

There is another reason why I believe that the amendment is justified. There are many small gifts given each year that could easily amount to well over £1,000. I understand that one of the absurdities, for example, is that any sole trader who gives people Christmas presents, or gifts of that sort, cannot obtain relief for income tax and will, therefore, have to list all these items and make a return of them under Schedule 4.

I realise that a number of those items would come out of income, but some would come out of capital. This would be the most complex type of return to have to give if the exemption limit were only £1,000. By raising the limit from £1,000 to £2,000 we should reduce the administrative complications for both the donor and the Inland Revenue.

Hon. Members on this side of the Committee, and I would have thought that some hon. Members opposite would have supported us, have already expressed a desire to see an encouragement of the redistribution of wealth. An increase from £1,000 to £2,000 per annum would encourage transferors to think in terms of more redistribution of wealth. That is an additional reason for the amendment.

I should like to ask one or two questions about the provision to which the amendment relates. I think that I understand the position, but there is confusion among many advisers and outside bodies as to whether the £1,000 comes on top of [column 808]normal expenditure as in para 4.

A difficulty was cited by, for example, the Life Offices Association in relation to life policy premiums.

6.28 p.m.

Sitting suspended for a Division in the House.

6.43 p.m.

On resuming——

Mr. MacGregor

I was on the point of asking the Chief Secretary for clarification of a matter about which people have questioned me.

I was giving the example of a life policy premium, which was one of many examples that could be cited. If the transferor is contributing, say, life policy premiums of £1,000 a year to a life policy for someone else, it is a transfer. If, as I understand it, the definition of “normal” means “habitual” , clearly in that case the life policy premiums would be paid normally, that is, annually. Should I be correct in thinking that once all the requirements in paragraph 4 had been taken up, one could go on to the £1,000 under paragraph 2? As I understand it, one can aggregate them all together, but I should be grateful for the Chief Secretary's confirmation of that.

6.45 p.m.

To return to the amendment, the raising of the figure from £1,000 to £2,000 is, in our view, necessary to alleviate the penal rates of the tax elsewhere, and to remove the enormous antagonisms which will be caused not only by the penal rates, including the penal figure of £1,000 a year, but also by all the administrative complications and bureaucratic interference in small gifts. It would lessen the administrative nightmare, and it would aid fiscal morality. Without amendment, the low limit of £1,000 will cause a lot of people to find ways of trying to get round the tax.

I turn to Amendment No. 422. There is a similar amendment, Amendment No. 859, though at a lower figure, I believe, in the name of the hon. Member for Cornwall, North (Mr. Pardoe). Amendment No. 422 deals with a separate point. It seeks to apply the small gifts exemption of £500 allowable under estate duty to this tax. [column 809]

I recognise one difference in the amendment as drafted. It refers to a small gifts exemption of £500 every year whereas that was not the case under estate duty. This is a matter for argument, and it may be that £500 each year is too high. However, in defence of the way in which the amendment is drafted, I repeat that we are not here talking about the same sort of tax as estate duty. We are talking about gifts that could be made many years before the seven-year provision under estate duty prior to death.

There is one other important aspect where Amendment No. 422 differs in its purpose from Amendment No. 63. It applies the exemption to the amounts given to each transferee. It is a further encouragement to the distribution of wealth.

As with Amendment No. 63, there is a further justification for this amendment in that it would greatly ease administrative difficulties in return for giving up a comparatively low yield. There will be administrative difficulties in this context because there will be many small gifts in one year. The amendment would help that situation.

There is also one question I should ask the Chief Secretary in relation to this amendment. It applies to a narrow transitional point, but it is important. As I understand it, the Bill as drafted applies retrospectively, although neither in the Chancellor's original statement nor in the White Paper was this aspect foreshadowed. It applies in this way. In the case of small gifts in the past year use of the transitional provision to make small gifts, which was applicable under estate duty, could have been undertaken by a number of people on the assumption that—as was made clear in the White Paper—

“for immediate purposes it might be taken, for gifts made in the period from Budget day to a date to be fixed in the second Finance Bill, that such exemptions as are now provided for Estate Duty would apply.”

So the £500 small gifts exemption, if undertaken since 26th March by individuals, would come within the terms of the sentence I have just quoted from the White Paper.

It would be reasonable for many people to feel that they could take advantage of that proviso and also—this was foreshadowed in the White Paper—make a gift of under £1,000 in the year in question. There may be [column 810]some who have done both in perfectly good faith, and there was no reason why, as the White Paper was drafted or as any original intentions were given out—they should expect to be caught. As the Bill is now drafted, they will find that they are caught. I shall be grateful if the Chief Secretary will comment on that, that is, applying to small gifts exemption prior to the 10th September.

Now, Amendment No. 496, an extremely important amendment. Again, it is rather different in intent. It would make it possible for individuals, where they have not taken up the £1,000 exemption in any one year, to carry it forward the same way as capital losses can be carried forward for capital gains tax purposes. I think there are various reasons for urging this amendment. First, there is the haphazard incidence at which capital will become available to the transferor. As a result, there may be many years when it is not possible for him to release enough assets to make a £1,000 gift.

Second, there is the haphazard incidence in relation to the transferee. For all sorts of reasons, the transferor may not wish to make any gifts in a particular year to the transferee. Finally—this applies particularly in an inflationary age—those with modest capital may not wish to take advantage of the £1,000 exemption in the earlier years of their lives. It may become more attractive to them as they approach retirement or later age, but in their earlier years they will feel the need to keep as much capital as they can in their own estates.

Therefore, if we do not have an amendment of this sort, the effect of the capital transfer tax as it stands is that the £1,000 a year exemption will substantially more benefit the better off and disadvantage those with modest capital.

There is another argument. We have the famous £75,000 shop discussed in an earlier amendment, when it was said by the Financial Secretary that if advantage was taken of the £1,000 each year it might be possible to pass the shop on at the end. That, of course, introduces a ludicrous parcelling off process, because somehow or other one has to convert one's shop into shares so that one can transfer a small part of the shop each year. [column 811]

If it were possible to carry forward the £1,000 exemption, particularly where the person's capital is mainly in a single asset, it would not be necessary to resort to those ludicrous devices.

Unless there is a change, we shall see nonsenses of another sort. For example, if an individual has a set of four prints or pictures which together are worth more than £1,000 but individually are worth less, we shall find him passing a picture over each year. How much more satisfactory it would be if he could simply store up his exemption. Therefore, there is a lot to be said for Amendment No. 496.

Finally, I come to Amendments Nos. 305 and 306. These important amendments taken together are an attempt to remove another example of retrospective legislation of which no indication was given. The only passage in the White Paper on this point—indeed, the only public reference that I can find anywhere prior to the publication of the Bill, states that the Chancellor in his original Budget statement:

“reserved for the future the question of the rates and basic exemption limits but said that for immediate purposes it might be taken, for gifts made in the period from Budget day to a date to be fixed in the second Finance Bill, that such exemptions as are now provided for estate duty would apply.”

The White Paper goes on:

“Any gift made in that period which would not be chargeable to that duty if the donor died on the day after the gift was made would be exempted from the new charge.”

As I understand the situation, there are instances of gifts made between Budget day, 26th March, and publication of the Finance Bill, gifts made in good faith but which, it now appears, are caught by the provisions of the Bill.

I refer in particular, to what I understand are often called “die next day” gifts. The donor enters into a trust deed for payment, say, of school fees for a named child and gives up all rights to the fund except on the death of the child. That type of fund has been accepted by the estate duty office, and the seven-year rule did not until now apply to that type of fund.

It is that sort of fund—there may be other examples—which I have in mind in Amendments Nos. 305 and 306, because where such trusts have been taken out there was no indication that they [column 812]would be caught. On the contrary, indeed, because it was made clear in the White Paper that those who had done so would be safeguarded.

It may be possible that Government Amendment No. 669 will cover these cases, but nevertheless I commend Amendments Nos. 305 and 306 so that we may at this stage, long before we come to Government Amendment No. 669, have the Chief Secretary's assurance that their amendment covers such cases.

A whole range of issues is raised by these amendments. They are not all similar to Amendment No. 63, and, depending on the Chief Secretary's reply and the comments of my hon. Friends, it may be that, in addition to Amendment No. 63, we may wish to press some of the others.

Mr. Peter Rees

I shall address myself to Amendment No. 63. I do not need to elaborate on the general considerations which lead me to support the amendment moved so ably by my hon. Friend the Member for Norfolk, South (Mr. MacGregor), except to say that perhaps the present limit of £1,000 is a little ungenerously drawn even when read with the various other exemptions in this schedule. I hope that the Chief Secretary will not curb our, and his, natural generosity in this way but will give us full rein.

I shall address myself more particularly to the practical aspects my hon. Friend has outlined. In doing that, I am conscious of a slight disadvantage in that we are debating Schedule 6 before we have debated Schedule 4. I am concerned with the practical burdens that may be placed on a taxpayer if the exemption limit is not raised to some figure—£2,000 is suggested—in having to put in accounts to the Revenue as required under paragraph 2 of Schedule 4.

It is necessary, Sir Stephen, with due deference to anything you may direct, to consider the two provisions together. My understanding of paragraph 2 of Schedule 4 is that one must return anything that would be chargeable unless it is otherwise exempt. It will now be apparent why I linked the two together, because we are now dealing with exemptions.

Does that mean one must return everything, even though in the aggregate it is below £1,000, because but for that [column 813]specific exemption everything is included—even the drink that I recall buying for the Chief Secretary during the summer in the Smoking Room. That may be part of my normal expenditure—I am in the habit occasionally of indulging myself with Chief Secretaries—and but for the exemptions I might be obliged to pay capital transfer tax. Much as I esteem and cherish the Chief Secretary, I might be deterred if I had to pay capital transfer tax on every drink I stood him in the Smoking Room.

Apart from general principles and reasons of generosity and good sense, do not administrative considerations lead the right hon. Gentleman to look with favour on the suggestion, first, that the £1,000 limit should be increased to £2,000, and second, on Schedule 4 paragraph 2, could he not say that everything within the limit does not need to be reported? Otherwise, the practical burdens on taxpayers will be impossible. Frankly, I shall not bother to return every drink or meal that I stand someone else, or every Christmas and birthday present. I hear a clicking of tongues from hon. Members opposite, but I shall be interested to know whether they propose to keep such a meticulous record of their generosity in order to conform to the legal obligations which Schedules 4 and 6 would appear to impose on them.

7.0 p.m.

I hope that the Chief Secretary will be able to reassure us, first, that he is a person of generosity—as we hope and suspect—but also that he is a person of practical good sense who would not wish to heap on the British taxpayer duties and obligations which are beyond all reason.

Mr. John Pardoe

In this group are included my three Amendments Nos. 857, 858 and 859. It will be clear that the first part of Amendment No. 857 seeks to do exactly the same as the amendment moved by the hon. Member for Norfolk, South (Mr. MacGregor), namely, to raise from £1,000 to £2,000 the amount which any one transferor may give in any one year. Primarily, I want to link that to the efficiency of tax collection.

It is not simply a question of how efficient it is for the Revenue. I hope that the Chief Secretary, whenever he is [column 814]urging us to accept a new kind of tax, will have available to him a detailed estimate of the exact cost to the Revenue, and I hope that he will be able to tell us that, by raising the limit to £2,000, we could save a certain amount of work. But, more than that, I hope that the Chief Secretary will have got from the Revenue some estimate of what this £1,000 exemption will cost to taxpayers in bother, administration and accountancy fees.

First, I ask the Chief Secretary what the relief will cost—I am sure he will tell us that—and second, what will be the value of the effort saved. I am sure he is well aware of the book published by the Institute of Fiscal Studies on the hidden costs of taxation. There are an alarming number. Whenever we consider a new tax of this sort, these figures should be available to us, on both sides of the tax collection system, not only the Revenue but the taxpayer as well.

I am not saying that £1,000 is not a considerable amount of money to give away in one year. I certainly do not write it down as peanuts. To many people it is a substantial sum. But to a large number of people today a £1,000 gift is not a super-stupendous thing to get steamed up about. After all, a Mini from British Leyland now costs more than £1,000—though whether that means that £1,000 is little or that a Mini is too darned expensive, I am not sure.

The £2,000 is likely to save a great deal of administrative costs, and it is a more reasonable figure to start with in considering the introduction of a new tax. The Chief Secretary will not expect me to let slip a chance to say that we want that £1,000—or £2,000, if we get our way with the amendment—indexed. Of course, we should like it to be reviewed regularly. Otherwise, at a rate of inflation of 25 per cent., it will not be many years before all council tenants will be paying capital transfer tax.

The second part of Amendment No. 857 is an attempt to average the limit over a period of five years. Again, I believe that it would bring about great administrative saving on both sides, and especially for the taxpayer.

The Chief Secretary will probably say that there is a mathematical mistake, if not a logical mistake—I suspect both—as the £5,000 probably ought to be £10,000. It then links in with the first part of the amendment where I seek [column 815]to raise the £1,000 to £2,000. But I am not sticking to the exact figures in the amendment. They are there to illustrate the principle. It would of course be possible to choose a smaller amount for the alternative maximum than a multiple of the annual amount.

Amendment No. 859 is on the rather different point of whether a person may exceed the £1,000—or the £2,000 which we seek—provided that he spreads it around. As the Chief Secretary will be aware, this again is on all-fours with, I think, the first amendment we debated on this tax, in which I sought to make it a tax on the transferee rather than on the transferor. I put in a figure of £100. I am sure that the Chief Secretary—indeed, I hope even the hon. Member the representative of the Tribune Group—will not think that that is an excessive amount. In other words, if one gave a few gifts of up to £100 to different individuals during the course of a year, that should not count towards the £1,000 that the individual is able to give. It is encouraging to spread it around. It is encouraging the distribution of wealth at a modest level.

I hope that the Chief Secretary will be able to come forward with some concessions not only on the major point of raising the figure from £1,000 to £2,000—in earlier debates last week, I think we heard some vague words from him that sounded as though he might possibly be moving in that direction—but also that he will take up the further points that I have raised in the subsidiary amendments.

Mr. Wiggin

I shall address myself first to Amendments Nos. 63 and 64, as there are some points of substantial principle involved. It is not just a question of multiplying the suggested figure by one, two, three or any other factor. It is a question of the effect of this exemption and how it will be possible to work it. The Chief Secretary may argue that this is already a pretty substantial concession which, particularly when applied over a period of time on an annual basis—there is the great family we heard about—can be totted up to show over a lifetime a substantial sum.

However, when one considers also the concessions, if that be the right word [column 816]to use, with regard to gifts from income, which he may argue is another way of getting over day-to-day problems, one sees that there are some very substantial hurdles involved. In order to try to persuade him to increase the £1,000 to a higher figure, perhaps I may comment briefly on the hurdles that have to be jumped if one is to receive substantial sums out of income.

First, it has to be

“part of the normal expenditure of the transferor” .

That will lead to endless arguments. For instance, would the gift of a car, which the hon. Member for Cornwall, North (Mr. Pardoe) mentioned, to a child—or to a common law wife, since we have been discussing that—be considered as something coming out of normal income? It has to be made “out of income” . And in addition, it must be shown that the income left was

“sufficient … to maintain his usual standard of living” .

What about the sole trader or the farmer who makes a loss in a particular year but manages to get an average income by having, say, one good year in three? That is not uncommon in farming. He would not qualify under either subparagraphs (b) or (c).

What of the person looking after someone in an old people's home? I appreciate that there will be amendments to deal with this point later, but that is a situation in which he might well wish to use extra capital to help over a period of time when income did not cover the expenditure.

What about the person who wishes to take a younger person into his firm for a partnership? This is a chargeable event under Clause 18(2). What about the aged widow, whose daughter has given up her life and income-earning prospects to look after her mother? That could well be a case where £1,000 out of capital would be quite insufficient to make up for the joint loss of income that is necessary under the three headings—and (b) particularly—that I have named. I hope that the Chief Secretary will appreciate that there can be many situations where grave difficulties could be caused if this figure is as low as £1,000.

There are other matters, too. Should a farmer decide to give a transfer to [column 817]sons in blocks of £1,000, there will be a number of difficulties to be faced, not the least of which will be the cost of the transfer itself and the cost of conveyancing X acres of land. I should point out in passing that it is only after the transfer has taken place that one would value the land, so one would have to guess roughly how many acres one would transfer, pay all the legal costs, and still keep it all to £1,000 by agreement with the district valuer. Although that is a separate point, it would be easier if we had a higher figure in the first instance so that the cost of the transfer could be carried over a greater amount.

My hon. Friend has covered the point about the de minimis provisions in Amendment No. 422 and I strongly support what he has said. This is a well established principle. It seems to me that there will be great difficulty in the case of the shopkeeper about whom we have heard who will be giving away £1,000 every year. Will he be prohibited from giving presents to his family? I cannot believe that the Chief Secretary wishes that. I accept that there must be a reasonable figure here which people can easily understand. In other taxes, capital gains tax, for example, figures [column 818]are used and I do not think that the Revenue has many problems over it.

Amendment No. 496, the carryforward amendment, particularly concerns agriculture. I harp deliberately on agriculture because it will be very seriously affected by this tax. There are times when, for a short period, agriculture prospers, and it may be beneficial in the planning of one's business that a transfer should be made then. But, looking back over the last 10 or 15 years, one can see other times when, as the result of a bad harvest or disease, or even bad Government—in fact, mostly bad Governments—things have not gone well and it would not have been possible for a farmer to make a transfer and still keep his business together. Therefore, I should favour the totting up of the concession. It is not a wholly new principle. One is allowed to carry forward losses both in income and in capital gains tax, and the same would be perfectly reasonable here.

I shall not address myself to the other amendments, but I hope that those points are fully taken.

7.14 p.m.

Sitting suspended. [column 819][Mr. Richard Crawshaw in the Chair]

8.49 p.m. On resuming——

Mr. Ridley

I support my hon. Friends in these amendments, and I find it surprising that a party which has set its heart upon the implementation of this tax is so unwilling to support it by listening to the detailed improvement of the tax to which the Committee has been submitting it. I do not know whether the sausage rolls are of particularly good quality tonight, or why else hon. Members opposite were unable to bring themselves back to the Committee, but our progress has been constantly impeded either by Opposition Members not turning up to make a quorum, or by Government supporters making long and provocative arguments when replying to the debates.

I believe that it would be highly advantageous for the Committee to deal expeditiously with the Bill. But the Government are running themselves into a situation where, because of their own lack of concern and care, the Bill is likely to take a little longer through Committee than they thought. If my hon. Friends press or probe any topics at great length in the sittings to come, it will be the fault of the Government for not having taken sufficiently seriously the need to pay detailed attention to every line of what they themselves have described as the most important fiscal innovation in a generation.

We are discussing the fiscal innovation that says that a taxpayer can give away £1,000 every year without attracting this tax. Let me reflect, before we come to the meat of the matter, how extraordinary it is that it has been made such a crime to give, that we must ration [column 820]giving, that the natural instinct of man to give or to pass on to his children is to be treated as a taxable offence, as a fiscal impropriety that is to attract taxation.

There was a time when citizens gave money to the State so that it could pursue its wars or other programmes, whatever they might be. Now we have a time when the State is gracious enough to allow us to give away £1,000 a year. If one wants a reason for the decline in our society, for the inefficiency of the British performance, it is this belief that to make money and to give it is wicked; to squander money and to live on the State is honourable. That is enshrined in the schedule.

How on earth will the Chief Secretary police it? How will he enforce that nobody gives more than £1,000 a year? All members of the Committee, and particularly you, Mr. Crawshaw, will be at great pains to sit back on Christmas Day and, as we enjoy the plum pudding and turkey, say “Now what have I made this year in terms of chargeable transfers? I have given my niece a box of chocolates. I have given so-and-so a second hand motorbike that does not work.” One will tot up the figures under Schedule 4, as my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) wisely pointed out. I notice that he is not here.

Hon. Members

Where is he?

Mr. Ridley

He is totting up his list.

We are to record all of these, and we shall. When we think we have reached £1,000, we shall declare it to the Revenue and volunteer to pay such tax as we believe to be due from us from time to time.

But will everybody in the country do that? Will all people be aware of the provisions of the Bill? If they are, will they be prepared to follow it? What is the Revenue to do if they are not? The Chief Secretary will know that most people nowadays pay in sugar, olive oil, or Krugerrands and that the use of pound notes is thoroughly to be discouraged because they have such fleeting value. How will the Revenue know whether people give their children a few Krugerrands on the side? How will it tell whether a motorcar that once belonged to somebody else is transferred? How will it check up? Is it not that we shall create [column 821]a premium for the dishonest to make capital transfers that we cannot tell?

That is why we should increase the amount that one may legitimately give away. It is no defence against the iniquities of the tax, but at least it means that most of the normal gifts and transactions that families make to secure their own survival will be free from declaration to the Revenue and the returns under Schedule 4, with all the difficulties that will attend the enforcement of the tax.

I do not believe that the Chief Secretary will be able to tell us how he intends to administer the tax. How can he know who has made the transfers and whether they have been valued properly? There are 55 million people in this country. How can he tell which of them has made a proper declaration, which one has exceded his £1,000 limit, and who has not?

There are many people who honestly and properly pay their taxes as they think fit and legal, and those who are prepared to stretch their comprehensive education at the hands of the State to the point of declaring that they do not understand what the tax law is—and there are many of them, and more and more coming up—who will not pay. Those who pay honestly resent this. There will be great indignation that some pay and some do not.

Then there will be the phenomenon of people informing about others. I have constituents who inform me of others who are drawing national assistance or unemployment pay when they should not be doing so. I have no doubt that I shall receive letters and telephone calls after this tax is paid saying “So and so gave a field, or a couple of motor cars, or some other asset, which is worth more than £1,000. Will you check whether it is in his return for capital transfer tax? If it is not, will you make sure that he pays?”

That is not the spirit of enterprise and endeavour; that is the spirit of beggar-my-neighbour. I do not believe that it is right to encourage it. Therefore, I support my hon. Friend's first amendment, which proposes that we should increase the amount from £1,000 to £2,000.

Mr. Wiggin

This is an extremely important issue that my hon. Friend is raising. I have always understood—and I [column 822]may be quite wrong about it—that the Revenue has always been glad to receive information of this sort, even to the point of giving financial rewards for it. Although I accept that the Board of Inland Revenue is not directly responsible to the Chief Secretary, does he envisage rewards being given for information, particularly relating to this tax?

Mr. Ridley

My hon. Friend cannot, in an intervention in my speech, get a reply from the Chief Secretary. But I will relay the question. How does the Inland Revenue offer rewards for information of this sort? I hope that it does not and I do not think that it does.

I remember the Revenue taking one of my constituents to court for refusing to pay tax on pay that Mr. R. Smith had received from the Territorial Army. My constituent was able in court to prove that it was a different Mr. R. Smith, but what a shabby thing to do. What a pity that a man who served his country should be prosecuted, in theory, for not paying his tax, although he had not even joined the Territorial Army or earned any pay!

One has to be more delicate. I am worried about the Inland Revenue's public relations and I should dearly like to see the Revenue better advised on public relations. The first thing to do is to pass the amendment, which would allow people to have £2,000 clear before the snoopers started getting to work.

9.0 p.m.

But I wish to dwell upon Amendment No. 496, which deals with the £1,000 a year figure. We must return to the famous Gilbert and Sullivan shop able to provide £1,000 a year from each of the spouses owning it to the children or other beneficiaries.

How fortunate it would be if one were an only child. If the parents had 10 children, they would get only £100 a year each from each parent. If there is one child, it would receive £2,000 a year. That would appear to be an anomaly, but we dealt with the donee-donor point on the Floor of the House. It is a fundamental defect of the Government's proposed tax that it will be payable only for each donor rather than for each recipient.

But it is fundamentally to misunderstand the nature of wealth and investment to believe that as much as £1,000 [column 823]every year can be paid out. The Financial Secretary showed that in his speech last week, when he told us with pride and a beaming face that £1,000 could be paid each year from each parent out of this mythical shop without attracting the tax. But most people who have a certain asset value have invested it, and usually they have over-invested. It is much more common for people to be over-invested than under-invested. Whether they have shops, farms, private companies, land, or forestry, whatever it may be, they do not have that sort of spare capital hanging around that they are able to push over to their heirs.

It would be thoroughly bad if they could or did do so, because from time to time some cash balances would accumulate in the business and people would feel able to make a further investment. They might invest in new machinery, an extension to the farm building, planting an additional 10 acres of forest, and so on. That is not done out of money that is lying idle in the bank. It is done because they believe that the market is right, and they either borrow the money or put in part-borrowed and part-saved-up money to make that investment.

It does not necessarily follow that every year there will be a surplus of cash lying in the bank to give to the beneficiaries. Therefore, it seems almost immoral to make a concession that £1,000 a year may be given, provided that it is given every year. It goes against the trade and business cycle of whatever industry we may consider. My hon. Friend will talk a lot about agriculture. I am sure that he will be the first to agree that agriculture is highly cyclical. There are some years when one cannot give £1,000. One is lucky if one can borrow £1,000. There are other years in which one can give that £1,000.

The same is true of private companies. They are not in the position that spare cash is always lying about. If the concession is to be made it will be of benefit only to the rich person who has idle money in the bank. If one has a bank balance that is doing nothing, and out of that £1,000 a year can be paid tax free to one's heirs, beneficiaries or girlfriend, whatever the case may be, that is “bully for you” . But that is of benefit to the people who are not using their capital, those who have not invested it.

[column 824]

Mr. Alf Bates

I am very confused.

Hon. Members

You always are.

Mr. Bates

It may be that I am, but I seek enlightenment from the hon. Gentleman. It seems to me that he is now making the point that he made last week when we discussed the Gilbert and Sullivan shop—that £1,000 a year is an impossibly high sum for people to be able to pass on. Yet, despite that, the hon. Gentleman appears at the same time to be asking under the same category of amendments that the sum be increased to £2,000.

Would it not be something of an extra burden on those poor folk if we were to increase the sum to £2,000? I am totally confused about the question. Is £2,000 too much to pass on, or is it too little?

Mr. Ridley

I agree with the hon. Gentleman that he is totally confused. It is obvious that if one has a very large asset base, maybe a base that Labour Members find obscene, supposing one has a £1 million of value, it may not be evident that one had £1,000 available to pass on in any one year.

As I patiently explained, when the hon. Gentleman clearly was not listening, most people are over-invested; they do not have ready cash lying about. The requirement that one can give £1,000 a year, no more and no less, tax free, is ridiculous. The point is that at some years one may be able to give £50,000 and other years nothing. So, if we are to ration the gifts that are tax free in this way, it would be better to give an accumulative allowance of £1,000 a year than to give £1,000 for each year, and that only.

Mr. Denzil Davies

The hon. Gentleman seems a little confused. The exemption is not an exemption of £1,000 cash. It is an exemption of £1,000 of value. Therefore, shares may be given away to the value of £1,000 without any of the cash problems he mentions.

Mr. Ridley

I always confuse hon. Gentleman opposite with the Government. I keep thinking that they will be soon. Members of the Government side help us in our debates because, although it may not make for progress, it enables [column 825]the finer points of the Bill to be brought out. They do us a great service. The hon. Member for Llanelli (Mr. Davies) has been particularly distinguished in this respect. I am sure that the Chief Secretary will recommend to the Prime Minister that he be made a PPS, which will effectively muzzle him.

Let us examine his proposition that one can give shares. Suppose that it is a private company. We shall be coming to those parts of the Bill dealing with the valuation of shares in a private company. He will know, as he is very skilled in these matters, that what value it put upon the shares of the private company is difficult to determine, and how to estimate what is £1,000 worth of shares in one's private company is, in itself, difficult.

There is also the question of control and the rights of minority shareholders in private companies. These will all be affected. So wise proprietors of private companies will come up against severe obstacles if they seek to operate the Gilbert and Sullivan shop and pay out this £1,000 a year, as it will affect the balance of ownership, the valuation of the share capital, and will do grave damage to the ability of the proprietor to raise money, when necessary, for further investment.

I should like to take the hon. Gentleman's contention further. Supposing it is a farm, 300 acres of land, which comes well within the scope of this tax; is he suggesting that three acres be given every year? Is he then suggesting that the farm be made into a private limited company and that shares amounting to £1,000 in value be passed over every year? He is not suggesting either. He is nodding his head horizontally rather than vertically. So the hon. Gentleman is agreeing that it was an impractical proposition that he put forward to me in relation to farms.

Mr. Davies

I accept that there are difficulties in relation to farms. I was not suggesting that one should form a farming company and give away shares every year. There is a problem in relation to farms that I hope to develop later.

The point I made was that the hon. Gentleman was putting too much reliance on cash, whereas this £1,000 is in exemption of a £1,000 worth of assets. Minority [column 826]holdings in private companies can be and are valued at a very low level. So one could give away quite a lot before reaching the £1,000 value of shares in private companies.

Mr. Ridley

It is dangerous to give away too many shares in a private company, as the hon. Gentleman will know. There comes a point at which the minority shareholder can become very vexatious. The hon. Gentleman may have charming children—he is the most charming man himself—but not everybody does. The idea that one has to give progressively larger parts of one's business to a son who may want to take the whole lot is not conducive to good business.

Mr. Lawson

Would not my hon. Friend agree that if a father wants to give £1,000 to his son, it is usually because he wishes the son to be able to enjoy the £1,000 and use it, and that a share in a Gilbert and Sullivan shop which is unmarketable, unsaleable, and brings in no dividend is hardly a present or gift of any value to the son?

Mr. Ridley

I agree entirely with my hon. Friend, but what value is it? So all these problems arise.

I hate being asked by the hon. Member for Llanelli (Mr. Davis) to take the time of the Committee, because I want to be very brief. But I want to return to the figure of £2,000, that is, Amendment No. 63. £1,000 now will be worth, maybe, £800 this time next year, and so forth. If the Government continue on their cruel conduct of the economy, it will be worth £500 in two, three years' time. Inflation will bite into this figure very severely. The Government have set their heart firmly against indexation. My hon. Friend the Member for Blaby (Mr. Lawson), who is the expert and high priest of indexation, will no doubt make these points.

Mr. Pardoe

Come, come.

Mr. Ridley

The hon. Member for Cornwall, North (Mr. Pardoe) is a disciple. He does not need to say “Come, come” ; he should say “Hear, hear” . He is a disciple of this point of view, and I am, too. My hon. Friend is merely the leader of those of us who believe that the unfairness of not indexing these figures is becoming quite intolerable.

The Government have accepted [column 827]indexation. They index pensions, supplementary benefit and a whole host of matters at the bottom end of the scale, but they rely on not indexing figures at the higher end of the scale to promote backdoor Socialism and egalitarianism without really trying. That is something that I thoroughly depreciate. If the Government accept indexation, they should accept it right across the board. My hon. Friend has been a great help in bringing attention to this weakness—among many—in the Government policy.

If this figure is not to be indexed, let us at least start off at a proper level, so that there may be something in hand to deal with the inflation that the Government will create in the months and years ahead. The Chief Secretary keeps telling us about his famous review, saying that he will review all these figures. When I asked him how he was getting on with the review of the £25,000 for interest relief, he told us on the Floor of the House that he had been very munificent and he had not put it down. We do not want him to take the decision about reviewing. We want the decision to be automatic so that he cannot gerrymander and mess about with it.

We do not like the idea that he is to review this figure in a year's time and say “I have decided to put the £1,000 for capital transfer tax relief down to £500, because the price of something or other has changed and that is what I consider to be important” . It is not what he considers important; it is what the taxpayer considers to be the value of the money that he has lost.

Let us have the figure indexed or let us double it now. Otherwise, there will be all sorts of small transactions, all sorts of problems of administration, all sorts of bitterness and jealousy among citizens, one complaining against the other, one sneaking and one saying that he has not made a gift. There will be litigation and all sorts of problems. Whatever we think about this tax, let us at least let out the ordinary people who do not have too much money and will not be accused of being in need of social engineering—which is a term hon. Gentlemen opposite like. Let us let them all out. I think that the Chief Secretary would be well-advised to accept the amendment. If he does not, I hope that the Opposition will press them to a Division. [column 828]9.15 p.m.

Mr. Hordern

I have only a few words to add to those of my hon. Friends, particularly those of my hon. Friend the Member for Weston-Super-Mare (Mr. Wiggin). He referred to farmers, whose income is very erratic from one year to another. So, also, is the income of many professional people. Tax barristers' incomes vary from year to year. Even the income of stockbrokers varies from year to year, regrettably. It can even happen that people in the professions can make a loss.

These people are very concerned with the phrase “the normal expenditure of the transferor” because in some of the professions there is no normal expenditure, because there is no normal income. These people are restricted to the level of £1,000 that they may give away. I see that the hon. Member for Luton, West (Mr. Sedgemore) laughs about this. I recall that, from time to time, Private Eye has to have recourse to appealing for funds. Where will it go to get these funds if people are to be frozen to £1,000? It will be extremely difficult. I do not know how it will be arranged and how long the life of Private Eye can be guaranteed. Certainly, it will not get money at all easily from those professionals and working people whose incomes are small, or whose income varies largely from one year to another.

I think that my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) made an exceedingly good point about the effect this will have on people's generosity, not only to their immediate family, but to others as well. It is certainly the case in the professions that a good deal of entertainment goes on. Certainly in the entertainment world and in the film business this is part of the way in which they conduct their business and their lives. If their incomes vary enormously, as they are bound to do, because of economic conditions, they will easily surpass the limit of £1,000 and find themselves subject to the tax. That seems to be another very good reason for the limit being raised from £1,000 to £2,000.

I remind the Chief Secretary—although I am sure that he needs no reminding—that some years ago in Italy the Financial Secretary to the Treasury gave £400,000 to the Exchequer, so concerned was he with the state of the nation's economy, but if this provision is passed, whereby someone can give no more than £1,000 [column 829]without coming up against the tax, I can only say that nobody will look with any relish at the prospect of giving any money voluntarily to the Exchequer or, indeed, to anybody else. This is a very ungenerous aspect of the tax. Of the many ungenerous aspects of the tax, this is possibly the worst.

I agree with my hon. Friend the Member for Cirencester and Tewkesbury that the very least that should happen is that the exemption for this tax should be raised to £2,000, and I would suggest that it should be indexed as well. I have great pleasure in supporting my hon. Friend the Member for Norfolk, South (Mr. MacGregor) in this amendment.

Mr. Brian Sedgemore

When I listen to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) telling us about the ordinary people who want to give away £1,000 or £2,000 of their money each year to their offspring, and when he says that they want to do it, not for the purposes of tax avoidance, but out of the sheer generosity and purity of their hearts, I am reminded of Hilaire Belloc's Matilda. If Hilaire Belloc will forgive me, I think the poem goes:

“Matilda told such dreadful lies It made one gasp and stretch ones eyes. Her aunt who, from her earliest youth, Had had a strict regard for truth Attempted to believe Matilda Alas, poor aunt, the effort killed her.”

Hon. Members

More.

Mr. Sedgemore

In my constituency of Luton, West there are not a lot of farmers and, therefore, most people do not have this problem of what to give their three-year old son for Christmas every year—a tractor, a combine harvester or a Land Rover. Instead, they have to resort to such prosaic gifts as Dinky toys. Few of them have fields to give away, though I suppose they could mortgage their gardens and perhaps a bedroom or two. Equally, it seems to me that those people in Luton, West who decide to get married—and love flourishes in Luton, West, just as it does in Finchley—do not have nuggets of gold for wedding gifts.

My main reason for rising to speak—and it was intended to be a brief interjection—was to apologise for my absence from the Committee last night when the right hon. Lady the Member for Finchley (Mrs. Thatcher) returned in triumph. [column 830]When the Government Whips asked me whether I would pair with the right hon. Lady, I felt it my duty to play my small rôle in this tidal movement of history. And when the right hon. Member for Leeds, North-East (Sir K. Joseph), in that still unpublished interview with the Observer, said that what this country needs is a new Messiah, I had no idea whom he had in mind. But a woman Messiah seems to me a splendid idea, and an ad man's dream. I hope that the right hon. Lady will serve the working people of this country as well as those who live in the suburbs of Southern England.

Mr. Fairgrieve

As the person who, it was eventually, decided would be the most easy to have absent from the Committee for part of the evening, and who subsequently paired with the hon. Member for Luton, West (Mr. Sedgemore), may I say that I was delighted with his extraordinary, if poetic, intervention. Whatever he may say, it is interesting to note that the argument that comes through is somewhat difficult to understand. Of course, we appreciate that there is no question of any wealthy Socialists, only wealthy Conservatives.

I support the amendment moved by my hon. Friend the Member for Norfolk, South (Mr. MacGregor) which asks that this figure be increased from £1,000 to £2,000. Even in the short space of time that has elapsed since the Bill was drafted this figure has been considerably eroded, and when one considers today's values and prices one realises that the figure of £1,000 is far too low.

My hon. Friend also referred to Amendment No. 496. I believe that it is vital to consider the necessity of carrying forward this amount year by year. Conservative Members have pointed out that if one is building up a small business, or if one is involved in agriculture or other industries, it may not be possible to produce a gift each year, even if one wants to.

This takes me back to the main point on which I challenge the hon. Member for Luton, West; namely, the idea that there is something wrong to want to work for one's children. I find that extremely difficult to understand. To me it is like Canute and the waves again. What is basically so wrong with trying to work for the next generation? This argument comes up time and again.

I believe that we should be able to [column 831]carry this figure on year by year. I should hate to see the sort of situation with an individual that happened in local authorities—I was a member of one for many years—where there was a colossal rush at the end of the year to spend any money that had not already been spent. That never happens in business. It never happens with individuals. It happens only when one is using other people's money.

Furthermore, I believe that this is totally unenforceable. There will be evasion on a massive scale and, as I said yesterday, as soon as there is evasion the law, the inspectorate, the Inland Revenue, all fall into disrepute. In this country today we are getting law upon law, and tax upon tax. It is fully sufficient that we have a Finance Bill once a year. Indeed, in many years one would think—but possibly I am being too naive here—that a Finance Bill could be just a few pages making some amendments to the present laws and the laws of that year. But to have a booklet produced every year, or even twice a year, with another set of laws brings the whole system into disrepute and its completely misunderstood by the populace at large.

I believe that we must have regular reviews. Although I am not happy about certain aspects of it, the indexation mentioned by my hon. Friends must be across the board. It must relate to all matters, not just to selected ones. A good start might be, for instance, matters such as the deposit put down in order to stand as a Member of Parliament. I think that that goes back to the last century. It might have been a good idea if that had been indexed. [Hon. Members: “Why?” ] If it was worth £150 to stand 50 years ago, presumably it is worth that much more today.

Finally, I support my hon. Friends who have asked—and I hope the Minister will accept what they have said—that the amount should go up, that it should be allowed to be carried on year by year and that it should be subject to continual review.

Mr. Cecil Parkinson

I should like to support this group of amendments, and in particular Amendment No. 496. I must declare an interest here. I have lived for most of my married life—the last 20 years—near to Luton—and I am prepared to admit it, which might surprise some people. By listening to the hon. Member [column 832]for Luton, West (Mr. Sedgemore)—and I have listened very carefully to his remarks since he came into the House—I have built up a strange picture of Luton, and of Luton, West in particular. I remember that the first speech the hon. Member made in the House was about the middle classes. Although he likes to pretend the opposite, Luton is a very prosperous town. The first thing I remember him saying was that the middle classes were a creditcrazy, wife-swopping group and totally not to be trusted, so half of his constituents were immediately consigned to the dustbin.

The Chairman

Order. I do not think that this is very relevant to the schedule we are discussing.

Mr. Parkinson

I hope that as I develop my remarks you will change your mind, Mr. Crawshaw.

Mr. Ridley

On a point of order, Mr. Crawshaw. Surely wife-swopping is highly relevant, because on who one's wife is depends whether one can give her all one's capital without paying the charge. If one swops wives, one can also swop spouse exemptions.

The Chairman

The point I am seeking is that, desirable though this constituency appears to be, it is not relevant to the schedule. We are dealing with amounts.

Mr. Parkinson

The way in which it is relevant is that I want to try to prove to the hon. Gentleman that if he takes the trouble to have a really cool look at his constituency he will find that many of his constituents will be adversely affected by the Bill, and in particular by this part of it, and they might stand to benefit greatly from the amendments so ably presented by my hon. Friend.

Mr. Sedgemore

For the sake of accuracy, perhaps the hon. Gentleman would accept from me that—to use again the terminology of the right hon. Member for Leeds, North-east (Sir K. Joseph)—Luton has more people in socio-economic classes C, D and E than any other town of comparable size in this country, and that even those on relatively high incomes in car factories in Luton are earning at the most £3,000 a year. Is the hon. Gentleman seriously suggesting that out of an income like that they can give away £2,000 a year to their offspring or their mistresses? [column 833]9.30 p.m.

Mr. Parkinson

Luton is a fascinating town, and we could discuss it for a very long time tonight. All I would say to the hon. Gentleman is that my own firm—and I should declare an interest here—had a flourishing practice in Luton and a lot of people who came to that firm could have afforded to give away the sort of sum about which he is talking. It may not fit in with his preconceptions of the sort of constituency he represents, but the sad fact is that the hon. Gentleman does have a number of quite well-to-do people, and quite a considerable number of not quite so well-to-do people who will be adversely affected by this Bill.

Amendment No. 496 seeks to give a taxpayer the right to carry forward any amount less than the residue of the £1,000 that he was not able to give away in any given year. In putting this amendment forward, we are basing it on a principle, which is established in our tax law, that losses can be carried forward and used against future surpluses. My hon. Friend pointed out that quite a lot of people have fluctuating incomes, big in one year, and very small in the next. They might be in a position to give £2,000 or £3,000 away one year, but might have to borrow from the bank the following year.

All we are suggesting is that the Chief Secretary should accept that this sum of £1,000—or the amount that has not been used—should be available for carrying forward. We would accept that it should not be allowed to be carried forward indefinitely. One might put a time limit on it, as one does with losses for tax purposes in other areas, but it does seem to us to be a perfectly reasonable amendment to suggest.

The Financial Secretary spent a lot of time the other day pointing out to us that over a 20-year period the Government have accepted that a husband and wife can give away £75,000 and that will be socially acceptable. Therefore, all we are saying is that if the Government have steeled themselves to face dispositions of that kind they should not find anything objectionable about allowing the amount to be given over a period, and not just as a fixed sum each year.

In conclusion, may I point out to the Chief Secretary something that he is [column 834]probably already aware of, that the figure of £500 for gifts inter vivos that would be exempt was settled in 1949 by a Labour Government. I do not want to skate on the very thin or thick ice of indexation, or to get lured into a discussion of it, but £500 in 1949 as a sum which was acceptable to representatives of the Labour Party at that time, is not comparable with £1,000 now. The suggested figure of £2,000 is still modest by comparison with the £500 in 1949.

I hope that the Chief Secretary, after our enjoyable post-prandial, lighthearted debate, will look at these amendments seriously, as they are intended seriously. We do not think that they would damage the spirit of the tax—although we should not shed a tear if the spirit of the tax were slightly damaged—but we do think they should be acceptable to someone as fair minded as the hon. Gentleman.

Mr. Lawson

We are debating a large number of amendments, but three of them are particularly important. These are the amendment to increase the exempt gift amount from £1,000 to £2,000 in any one year, the amendment to allow £500 to any one transferee, and the amendment to allow the exempt £1,000—or £2,000 as we prefer—to be totted up. These three amendments are all-important. They have been argued very ably by my hon. Friend the Member for Norfolk, South (Mr. MacGregor), and supported equally ably by my other hon. Friends, notably the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).

The Government's whole approach to this worries me. They have run contrary not merely to all human nature and human instinct, but also to scriptural authority. The initial decision to make this a donor, rather than donee, based tax is totally contrary to the injunction that it is “more blessed to give than to receive” . That alone should have made the Chief Secretary and his colleagues consider that a donee-based tax would be preferable. I hope they will soon move in that direction.

At least Amendment No. 422 introduces an element of looking at the donee. This is important because of the absence of any really effective de minimis provisions in the Bill as it stands. It is ludicrous that everybody should have to tot up and make a list of every single Christmas present, every single birthday [column 835]present, every single gift of any kind, or anything which, under the terms of the Bill, could be considered a transfer, just in case, in conjunction with any other transfers they might make during the year, it comes over the £1,000 figure. This absurdity will to some extent be avoided by accepting the £500 amendment to any one transferee and by upping the limit from £1,000 to £2,000. We have, I know, a difficulty with the raising of the limit from £1,000 to £2,000. The Chief Secretary will say, among one or two other things. “Yes, of course. This is on top of what you can transfer or give out of income” .

We are in a difficulty because we have not yet come to the out-of-income paragraphs of the schedule. All I say at this stage is that there are many people who, in any given year, will not be able to make gifts out of income. It is not merely the farmers, who have been mentioned, or the stockbrokers, but actors and writers, too, who can go for a period when they are not earning anything at all. Therefore, when we put a limit on a capital gift in a particular year we have to set it at a level that is appropriate for a year when the person concerned may not have had any income at all. We cannot assume that he will have a large income and that he can give a lot out of that. We cannot make that assumption.

There is another group of people. Apart from those who have fluctuating earnings—actors and writers particularly fall in that category—and years when they earn nothing at all, there are also those who retire. They have very small incomes when they retire, and they may only need small incomes. But if they have been accustomed to making fairly generous gifts if they can, it is absurd they should suddenly be told that they must become stingy just because they are old and retired. It is a nonsense.

As I said, this runs contrary to all scriptural injunctions. This is in Proverbs, and I am sure the Chief Secretary will recollect it:

“A good man leaveth an inheritance to his children's children: and the wealth of the sinner is laid up for the just.”

I am glad to know that the hon. Member for Woolwich, West (Mr. Hamling) will support me on this, and I hope he will support us when we put it to the vote. It is only natural that people should want to be able to give something to their [column 836]children, and the £1,000 figure is wholly inadequate, and it is inadequate not merely because of inflation.

The Chief Secretary will be relieved to hear that I do not want to rehearse the arguments in favour of indexation. The arguments are very strong—in fact, they are unassailable—and we shall amend the figures on Report. I do not accept for a moment that raising the £1,000 to £2,000 gets over indexation. It will, however, be of some help until such time as it is indexed.

In the meantime, let us consider the situation mentioned last week by my right hon. Friend the Member for Finchley (Mrs. Thatcher). She referred to the cost of seeing one child through university, which can be over £1,000 a year. This is caught. The parent, knowing the child would go to university, may have been saving the likely expenditure out of capital. Many people have more than one child. I have four children. One of the problems of having children is that they tend to reach an educable age at roughly the same time. I am not as clever as my right hon. Friend the Member for Finchley, who has twins. Children do tend to reach school age and university age at much the same time.

Mr. Ridley

Is my hon. Friend aware that he would be much better off if he had four wives and one child?

Mr. Lawson

My hon. Friend is right. When I decided to arrange it the other way round I had no idea that the Government would bring in this measure. I should have conducted my affairs differently.

The case of educational expenditure is a good reason why I hope the Chief Secretary will accept the totting-up amendment. The educational expenditure that parents have to meet does not come evenly over their lifetime, and it is only right and sensible that they should be allowed to give away more out of capital during their time of heavy commitment if they had been giving away much less than the amount they are allowed out of capital at an earlier stage.

I hope that the Chief Secretary will look favourably on these amendments. In our earlier debates he indicated that he regarded the £1,000 a year figure as inadequate. I hope he will make it £2,000, and allow the totting-up. [column 837]

The point made by the Financial Secretary in the Gilbert and Sullivan shop example, and echoed by the hon. Member for Llanelli (Mr. Davies) who said that the gift need not be in cash, but in value, is an absurdity. The Financial Secretary talked about wedding gifts, and he included that in the grand total of £75,000. What sort of wedding gift is it if it is 20 per cent. of the shares in the Gilbert and Sullivan shop—no dividend yield, unmarketable, and no buyer? That would not be a present of any kind.

Mr. Hamling

It has antique value.

Mr. Lawson

The hon. Gentleman says it has antique value, but I have yet to see Sotheby's conducting auctions in this commodity.

We are putting forward genuine improvements to the Bill. We want to increase the amount out of capital from £1,000 to £2,000, because there may not be the possibility of making it out of income in a particular year and, for retired people, probably never while they are retired.

We want the totting up, because the expenditure pattern by which a parent or grandparent might want to help a child or grandchild is uneven. We want the de minimis provision, because it is an absurdity to expect everybody to make a list and declare every single present they make, however small, in case at the end of the year—because who knows what might happen during the year?—the total might add up to more than £1,000. I hope that my right hon. and hon. Friends will press the amendments to a vote if the Chief Secretary is so unwise as to not accept them. 9.45 p.m.

Mr. Newton

I apologise for intervening at this stage, not having been present throughout the debate. I shall intervene only briefly to ask what is perhaps an over-simple question, but it is one which has occurred to me more and more during that part of the debate that I have heard. What precisely is the point of these complicated provisions for an annual exemption and a lifetime exemption? My hon. Friends have demonstrated fairly conclusively that the annual limit of £1,000, £2,000, or whatever other figure is decided, will have capricious, anomalous and unfair effects [column 838]on different taxpayers.

In what is becoming the famous shopkeeper case, the Financial Secretary totted up every possible thing that could be done through a lifetime to show how a man could ultimately give away a £75,000 shop more or less free of charge—provided he split it up into bits and gave a bit as a wedding present, a bit as an annual gift and a bit in any other way possible. But to my ordinary simple mind, it would be far more sensible to set a £75,000 annual exemption and let him give away the shop in one lump.

The more I listen to this debate, the more it seems to me that the logical answer to the problems that my hon. Friends have revealed very clearly is to scrap the annual exemption altogether and drastically to increase the lifetime exemption to a figure which, say, would assume that a man would be giving away capital at the rate of £1,000 a year for 25 years, and make the lifetime exemption £40,000 instead of £15,000. These are purely illustrative figures to make the point. In my simple-minded way, that is the conclusion to which I have been led by the last half-hour or so of argument.

There is one other argument in support of that. The system proposed by the Chief Secretary, leaving aside the unfairness that my hon. Friends have exposed, will also increase beyond need the difficulties of rapid succession. Clearly, the shorter the man's life, the less he will be able to give away the £1,000 a year. The unfairness will be increased on that front, too—something with which we are too familiar in capital taxation.

I should appreciate it if, in reply to what my hon. Friends have said on these amendments—with much of which I have a great deal of sympathy—the Chief Secretary would also comment on what seems a much more straightforward way of solving the whole problem and stripping this tax of a lot of the absurdities that will arise from these proposals.

Mr. Joel Barnett

Having listened to this debate since about half-past six, I seem to have formed the opinion that hon. Gentlemen want me to increase the figure from £1,000 to £2,000. They have managed to convince me that that is what they wish. The hon. Member for Braintree (Mr. Newton) would seem to prefer to [column 839]go back to estate duty, which I appreciate, as do other many hon. Gentlemen, my making a massive exemption up to about £40,000, and I imagine even my hon. Friend the Member for Luton, West (Mr. Sedgemore) would not have many constituents with that kind of figure.

Mr. Newton

Let me return to the shopkeeper point. The Chief Secretary used these figures to show how a man could give away £75,000 free of tax over his lifetime.

Mr. Sedgemore

He was humouring the hon. Gentleman.

Mr. Newton

Perhaps, but if so he should explain exactly what he had in mind. He cannot both deploy the argument he used two or three days ago and the argument he is using now.

Mr. Barnett

With the greatest possible respect, I have said that I have sat and listened to every speech in this debate since half-past six. There are 11 amendments and I propose to answer all of them, one of which will be on the point which the hon. Gentleman raised.

It is clear what hon. Gentlemen want. I note the point which was made by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), that those who pay honestly will resent this tax. With the greatest possible respect, I submit to him and the Committee that those who will resent this tax are those who did not pay estate duty. That is the fact of the matter.

That is why we are seeking to move to capital transfer tax. When I hear hon. Gentlemen saying how unjust capital transfer tax is, without a word about estate duty and how unjust that was to the vast majority of ordinary people who paid their estate duty honestly, I am a weeny bit surprised. But let us leave it at that.

Mr. Peter Rees

By saying “the vast majority of people who paid their estate duty honestly,” is he suggesting that those who made gifts inter vivos and who were lucky enough to survive for seven years avoided estate duty dishonestly?

Mr. Barnett

No. I was not suggesting that for a moment. As the hon. and learned Gentleman knows, I have never suggested that avoidance of tax is either dishonest or illegal. He knows that. I have said it to him and to the Committee [column 840]at least 100 times to the best of my knowledge, but I shall try again another time.

The point has constantly been made that the £1,000 will not be enough for many people. I venture to suggest to the Committee that that is a slight exaggeration. For the vast majority of ordinary people it will not only be enough, but will be far more than they are able to transfer per year on top of the amount out of income. That there will be a small number for whom it will not be sufficient I do not deny. Having listened to the delightful remarks of hon. Gentlemen opposite I may have some difficulty in convincing them, but I shall try to show them why I am not able to accept the amendments, and why I am able to offer some reasonable concesions.

I begin where it all started, with the serious and, as we would expect, carefully presented case of the hon. Member for Norfolk, South (Mr. MacGregor). He gave us arguments and reasons for my accepting Amendments Nos. 63, 64, 65 and 66 that would increase the annual amount of capital per year from £1,000 to £2,000. He gave us, as we have had previously, examples of how, in certain cases, under capital transfer tax, despite the spouse exemption, there would be greater tax than under estate duty. However, as the hon. Gentleman recognised, this would be on the second death, which is, I venture to suggest, not a fair comparison. As I said yesterday, we are seeking under capital transfer tax—and I should have thought that this would receive the overwhelming support of most people—to give the maximum relief at the first death to the widow. That is what we are seeking to do.

The hon. Gentleman gave us some examples. I gave some other examples yesterday whereby under capital transfer tax the amount due would be substantially less than under estate duty.

Mr. Lawson

I had not intended to make this point at this time, but if the right hon. Gentleman is going to make this comparison between capital transfer tax and estate duty will he take on board first, that they are totally different taxes, and, secondly, that the capital transfer tax has the added burden of the capital gains tax put on to it, whereas estate duty did not? Therefore, when the right hon. Gentleman is making this comparison will he always add an element for capital gains [column 841]tax which, in an era of inflation, is inevitable, because there is always a paper gain—a very substantial one.

Mr. Barnett

I should rather not add in capital gains tax. For one thing, I should probably be out of order. For another, there was capital gains tax at death before 1970, when the previous Government changed it. We have already indicated that that will be reversed.

In any case, that is a separate thing and a separate tax.

I am dealing with capital transfer tax and the proposal that we should, by this series of amendments, increase the relief from £1,000 to £2,000. We have had the same argument as before, namely, that we should index it, whatever figure we have. If I do not please anybody else, I know that if I were to accept that proposal I should delight the hon. Member for Blaby (Mr. Lawson). He will not be altogether surprised if I tell him that I am not proposing to accept an amendment to index the £1,000. In any case, there is no amendment to that effect, so I cannot accept one.

The need for the sum of £1,000 to be increased from time to time is self-evident. I know that hon. Gentlemen would prefer to have it indexed but, for reasons which I have previously given, I prefer to have a general review and to look at these figures and thresholds annually. I promise the Committee that that is what we propose to do.

The hon. Member for Norfolk, South, made some international comparisons. With the greatest respect to him, to make these comparisons in one tax, without making comparisons in other taxes and other social benefits, is unfair.

Mr. MacGregor

I should be happy to do that. I put forward my comparisons on the rates of tax. I did not go to the levels of capital tax as a whole. I know from long study that if one looks at other forms of direct taxation and at other taxes on individuals one finds that the argument still hold good vis-à-vis this country and our competitors.

Mr. Barnett

With the greatest respect to the hon. Gentleman, one cannot look only at taxes. One has to look much further than that.

Mr. MacGregor

indicated assent.

[column 842]

Mr. Barnett

I am glad that I carry the hon. Gentleman with me on that, because he is a reasonable man.

He asked me about the sole trader——

Mr. Ridley

The taxpayer is likely to look only at taxes. Is the right hon. Gentleman aware that in this country the yield of capital taxes is £10 a head, whereas, in other countries it varies between £2 and £8 per year—that is, before this tax or the wealth tax come in. The wretched payer of the tax is not going to be terribly interested in being told that he might get more social security in this country after he has been busted by the tax.

Will the right hon. Gentleman address himself to the point? Why do the Government believe that it is necessary to increase capital taxation when it is already five times higher in this country than in Germany or Italy?

Mr. Barnett

I am sure the hon. Gentleman will appreciate the position of the taxpayer who pays say, as little as £10 a year. If he had to choose between not paying that £10 and paying something towards his child's school fees, towards his health costs and all the other things which are supplied in the social system, which would he choose? I do not wish to excite the hon. Gentleman. It is late, and I can see his hair standing on end. I should rather not disturb him.

I was about to answer the serious question of the hon. Gentleman for Norfolk, South which may bother a lot of people. This concerns the traders who might give Christmas gifts to buyers, and so on, and might, therefore, be caught for capital transfer tax.

I assure the hon. Gentleman that payments by traders are excluded from capital transfer tax liability if, in the first instance, they are allowable expenses in the trade. Secondly, even if they are not allowed, as long as they are for genuine commercial reasons they will not be liable for capital transfer tax.

The hon. Member for Cornwall, North (Mr. Pardoe) spoke about the administrative costs. He said that it would be more reasonable to increase the sum to £2,000. There would presumably be a few less if the margin was £2,000, £3,000 or £5,000, but the difference would not be very great. The administrative costs would still be there. [column 843]

10.0 p.m.

The hon. and learned Member for Dover and Deal (Mr. Rees) and the hon. Member for Blaby asked me about the enforcement provisions. Again, I am going a little wide because, as both hon. Members are aware, we shall becoming to that point shortly on Schedule 4. We should finish Schedule 6 by 10.30, so we should not be too long getting to Schedule 4. On that schedule we shall be dealing with the question of liability and accountability. Knowing the patience of both hon. Gentlemen, I am sure they would prefer to wait until I reach that stage. In any event, you, Mr. Crawshaw, would be most upset if I kept him from his bed by discussing something which went wider than the group of amendments that we are discussing.

Mr. Peter Rees

I am sure Mr. Crawshaw, that the Chief Secretary would not wish to impute to you sentiments which you do not hold. The right hon. Gentleman has dealt a little summarily with the serious points put to him. I pointed out that there was a necessary interaction between the £1,000 or £2,000 limits and the reporting provisions in Schedule 4. So that I can judge how I might be disposed to vote on the raising of this limit, I should like to know how it ties in with the reporting provisions. I shall not be satisfied unless I get some indication from the Chief Secretary of how he answers the pertinent questions I put to him in the context of this schedule.

Mr. Barnett

The hon. and learned Gentleman knows how fond I am of him, because he gave as an example the drinks he bought me once in the smoking room. If he feels that badly about it, I shall be glad to give him the money back.

Mr. Peter Rees

On a point of order Mr. Crawshaw. I thank the right hon. Gentleman for the financial inducement, I beg leave to withdraw the points but will you rule whether this is proper conduct from a Minister of the Crown towards a back bencher.

Mr. Barnett

I should never wish to induce the hon. and learned Gentleman [column 844]to do anything against his will. There are some things I should like to do, but I say nothing more about that and turn to he point he put to me.

The hon. and learned Gentleman will be aware, having read the Bill page by page and line by line, that paragraph 2 of Schedule 4—which will be amended, I hope, if the Committee will accept it, by Amendment No. 662—would limit the liability to account for gifts as chargeable transfers and would include transfers exempted by Schedule 6. I cannot say that I hope that that satisfies the hon. and learned Gentleman, because that would be asking too much, but I hope that it will at least send him to bed happy, or happier than I sometimes see him.

I turn now to Amendment No. 422 which, as the hon. Members for Norfolk, South and Cornwall, North recognised, is trying to move back to a donee-based tax together with a donor-based tax. I know that there are some who would like both—a donor-based tax and a donee-based tax—and it looks as though the hon. Member for Cornwall, North would like to have that kind of tax. But I doubt that the hon. Member for Norfolk, South or any of his hon. Fellows would like to have both. I understand that they are not too happy with the one that we have.

The hon. Member for Norfolk, South was reasonable enough to say that £500 would probably be too much and he might be prepared to go to a lower figure.

Mr. MacGregor

I am sorry if I did not make it clear. I think £500 is a very reasonable figure, not least because it was fixed so long ago. Where I think there is room for argument is as to whether it ought to happen every year, or whether there ought to be some limitation on the number of years for which it applies to one single transferee.

Mr. Barnett

So there is some distinction in what the hon. Gentleman was saying. The hon. Member for Cornwall, North is, as usual, much more modest in these matters. He would only seek to include a donee-based figure of £100. But I hope he will agree that if one were to go for a figure as low as £100, or something similar, that would be more than adequately met either out of income or out of the de minimis £1,000 capital.

With regard to Amendment No. 306, to which the hon. Member for Norfolk, South referred—taken together with Amendment [column 845]No. 305—the hon. Gentleman recognised that Government Amendment No. 669 would at least partly cover his point, as it gives effect to my undertaking in last year's Budget debate, to which I referred on Second Reading, that such exemptions as were provided for estate duty would apply to gifts made in the period from 26th March 1974 to the publication of the Bill on 10th December 1974. His amendment would go further and would take it to 5th April 1975. I hope that he will agree that what I propose in the amendment I have put down will entirely meet the commitment I gave to the House.

Mr. MacGregor

Does that mean that the various examples I gave—the small gifts one, for instance, and the one relating to “die next day” settlements up to 10th December—would be covered by Amendment No. 669?

Mr. Barnett

Yes, I am glad to tell the hon. Gentleman.

Amendment No. 496 sought to carry forward the gifts allowance so that if a man could not give a gift in a particular year the relief could be a carried forward for later years. I find that very difficult to accept. I rarely expect to carry the Opposition with me, but I hope that on this occasion I may manage to do so. The net result of that, given the £1,000, or rather, the £2,000 that hon. Members wish, would be that by the time a man reached the age of 21 he would have accumulated a figure of £42,000. If he was married, his wife would have accumulated another £42,000, making a total of £84,000 exempt from capital transfer tax. I imagine that hon. Members opposite would not have too much objection to that. I can see that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) would be delighted. However, I am sorry to tell him that I shall not be able to accept the amendment for that reason.

Mr. Lawson

Does not the Chief Secretary realise that, whatever the sum may be, if it is delayed until the last year and then given as a lump sum, because of inflation it is in fact a smaller sum that is being given in real terms than the total amount given each year that the right hon. Gentleman is prepared to meet?

Mr. Barnett

With respect, I suppose he could have inherited something at birth, [column 846]but in normal circumstances the average man, by the time he reached the age of 21, would not have accumulated a great deal of money—[Interruption.] Of course, he could not pay that amount of money, and he would not have that liability. I am sorry if the hon. Gentleman does not agree with me. I do not expect him to. But to give a relief which would mean a massive reduction in the yield of capital transfer tax, although I know that that is what the Opposition want, is something that, for the reasons I have given, I could not accept.

Mr. Peter Rees

rose——

Mr. Barnett

If the hon. and learned Gentleman will forgive me, I shall give way to his leader.

Mrs. Thatcher

I am most grateful to my hon. and learned Peter ReesFriend. I think there is a little confusion. As I understood it, what my hon. Friend for Blaby (Mr. Lawson) was pointing out was that if under the present system £1,000 is given by the parent each year, the same amount would have accumulated by the age of 21 and it would be worth vastly more, because it would perhaps have increased in real terms, than if it were given as a lump sum at the age of 21. The amount of £1,000 20 years ago represented better pounds than present-day pounds. That situation appears likely to continue under most Governments.

Mr. Barnett

I am delighted at the comment made by the right hon. Lady, because she has entirely made my case as to why it would not be too difficult for small business men, particularly given the additional relief that I have suggested, to be able to pass on the business, particularly at small levels, to their children.

Mr. Peter Rees

I am obliged to the Chief Secretary for his continuing courtesy. May I point out, however, that he has unwittingly made an important point. The right hon. Gentleman may not have appreciated that it would probably be impossible for infants to make valid gifts of £1,000 a year until they attain their majority. That means that for 18 years of their lives they will, in fact, have been disfranchised. I was not privileged to hear the examples given on an earlier occasion in respect of the Gilbert and Sullivan shop, but it may be that the matter would have to be recast [column 847]on the basis that £18,000 at least would not be able to be passed over by any person because he would not be able to make valid gifts during his minority.

On that basis, would the Chief Secretary look again at the question? It means, in effect, that a person's giving in the context of the reliefs will begin only when he or she achieves his or her majority.

Mr. Barnett

I am always obliged to the hon. and learned Gentleman for the education that he bestows upon us all. It always pleases us, as I am sure he knows, and I say that with as much feeling as I know he always has when he tells us how genuinely he makes his points. Naturally, we accept that in early life it would not be possible for those gifts to be made. But under the amendment it is proposed that it would be possible to accumulate the £2,000 each year, so that by the time a young man or woman has reached the age of 21, £42,000 would have been transferred by the parent. I do not feel able to accept that kind of amendment.

Even with the instruction the hon. and learned Gentleman has now given, and even if I consider the matter further I should not be able to accept it.

Mr. Ridley

rose——

Mr. Barnett

Before the hon. Gentleman intervenes, I was coming to an interesting point he made earlier in one of his speeches.

Mr. Ridley

rose——

Mr. Barnett

I shall give way to the hon. Gentleman to make a further point if he will allow me to answer his first comment. The burden of his case was that a shopkeeper would not have cash in the bank and would find it difficult to pass on any money. That is one of the reasons why small business men in the past, for a variety of reasons, did not wish to, or could not, pass on money or assets in their lifetime to their children. They paid much more estate duty than that kind of person will now pay under capital transfer tax.

Mr. Ridley

Reverting to the slightly earlier point, the Chief Secretary said that it would be unfair to allow people to pay £1,000 to their children during their minority because they would have £21,000 from each parent by the time they were 21 years of age. Surely the right hon. Gentleman realises that even under the tax as drafted very rich people who have cash at the bank can do just that. There is nothing [column 848]to stop them. The people who are disadvantaged are those who are not liquid and do not have cash at the bank. Therefore, the effect of the amendment would benefit the less well off, without in any way advantaging the better off.

Mr. Barnett

Amendment No. 496 would allow accumulation right through life at times when the parents, as hon. Gentlemen have admitted, would not have the money to give and would not be able to give it if they had it because they would need it for themselves. That was precisely the argument advanced. That will not happen, except in a small proportion of cases.

The hon. Gentleman says that from his point of view I may be being too generous in allowing £1,000. I promise him that I shall consider that. He has made a fair point. It is possible that, as the Bill stands, I have been too generous and I promise him, as I always like to do, that I shall consider the point he has made.

Mr. Newton

I think that the Chief Secretary is on the verge of not treating a serious point seriously. The point has been made that a wealthy couple with a lot of cash may have given their children £42,000 each by the time the children are 21. The Chief Secretary is now objecting to the idea that it is somehow reprehensible that a child might be given £42,000 in one lump on a cumulative basis but it does not matter if that has happened over 21 years. To me, that is rubbish. 10.15 p.m.

Mr. Barnett

I am not suggesting £42,000. That is what hon. Gentlemen are suggesting by increasing the £1,000 to £2,000.

Mr. Newton

rose——

Mr. Barnett

The hon. Gentleman must allow me to finish answering his question before he puts another. He is now saying that the £1,000 is even more generous, which was the point I was about to make, because for couples it is £2,000. If he is now saying that it is even more generous than I was suggesting he is probably right.

Mr. Newton

I am not talking about the figures. If we apply algebra, the Chief Secretary's argument is that there is somehow something OK about the child getting 42 times A at the age of 21 whereas it is not all right if he is given 42 times A over [column 849]a period of 21 years. To me, that is plain nonsense.

Mr. Barnett

I know that hon. Gentlemen opposite are prone to accuse Government Front Bench spokesman of the kind of thing of which he has just accused me. I would not dream of doing that to him. Of course, it is possible, even for a man without cash in the bank, to make a transfer. That point was made by my hon. Friend the Member for Llanelli (Mr. Davies.) It is not true that a man cannot make a transfer simply because the cash is not in the bank. It can be made. For the reasons given, I could not agree to go beyond the £1,000.

I can see some areas where there might be some difficulty. These areas have not been mentioned frequently, although the hon. Member for Weston-super-Mare (Mr. Wiggin) did so. One area that could pose a problem concerns maintenance of dependent relatives. I take that point. I believe that the right hon. Lady the Member for Finchley (Mrs. Thatcher) made a similar point. I am prepared to look, before Report, to see whether a way can be found of giving specific exemption for contributions towards the maintenance of dependent relatives.

The second point concerned maintenance of children in full-time education, for example, where it is no longer possible out of income. I made the point earlier that in most cases it would be out of income and would not be liable to capital transfer tax, but I can see that there may be cases where that may not be possible—for example, where a man is unemployed for a time, and so on. I am prepared to consider that point and hope to come back on Report with an appropriate amendment.

I should like to think that hon. Members will feel that the £1,000—which is £2,000 for a couple—which can be given throughout life, or whenever, plus out-of-income gifts, plus the further reliefs I am suggesting, would not be at all ungenerous. In the circumstances, I hope that they will feel able to accept what I have said and not press the amendments. However, I say that without too much hope.

Mr. Peter Rees

I did not want to interrupt the Chief Secretary's speech, but there was one point with which he dealt a little summarily. I hope, therefore, the Committee will permit me to come back to it. [column 850]The Chief Secretary suggested that certain business expenses were covered by paragraph 8 of Schedule 6.

It will be within the Committee's knowledge that business entertainment is not exclusively deductible for tax purposes. I know the whole question of business entertainment is a slightly emotive subject for hon. Members opposite, but I am sure they will accept that in certain businesses it is necessary for people to entertain. The relief is very much limited by a measure introduced by the previous Labour Government. Basically, the deduction is allowed only in relation to foreign buyers.

Let us assume a sole trader or partnership which, because of misfortune, does not have any business income for that year. Let us assume that, by the custom of the trade, the partners are obliged to entertain certain people with whom they do business. That can be quite an expensive operation. It is well known that even the Labour Party, and even the trade union movement, occasionally indulges in a certain amount of what might be called business entertainment. They may, therefore, incur considerable expenditure which will not be covered by paragraph 8 of Schedule 6 because it will be disallowable in computing their profits for tax purposes.

Presumably, therefore, that will count against their £1,000. If it exceeds it, it will be subject to capital transfer tax. If it happens—it may not be so unusual in these hard times—that they have no or only negligible business income, they may not be able to take advantage of the normal expenditure relief. I appreciate that the Chief Secretary has dealt with our points with as much courtesy and patience as he could command after a long debate, but could he address himself to this one further point, which I thought he dealt with a little summarily.

Mr. Joel Barnett

The hon. and learned Gentleman obviously did not hear what I said earlier. I said that, depending on the facts of each case, if the payments were for genuine commercial reasons there would be no liability for capital transfer tax. I said that in reply to a direct question put to me by the hon. Member for Norfolk, South (Mr. MacGregor).

Mr. Peter Rees

That answer carries the matter no further forward. The Chief Secretary does not point to any provision in the Bill which would justify this generous [column 851]exemption which he appears to be conceding. Some kind of extra-statutory concession may be contemplated. I am never happy with extra-statutory concessions. If there is a statutory provision which justifies what the Chief Secretary is saying, will he do the Committee the courtesy of pointing to it?

Mr. Barnett

I know that the hon. and learned Gentleman normally goes to bed early in the evening, but he has overlooked a clause and subsection. Clause 18(4), which we debated interminably, makes quite clear that there would be no liability for capital transfer tax when it was thought the expense was for a bona fide commercial reason. Clause 18(4) would entirely rule that out.

Mr. Fairgrieve

One aspect of the Chief Secretary's reply worries me, and I should be grateful for his comments on it. Again, we have the dogmatic approach. To me, it is very similar to what is happening in education, in the destruction of the grammar schools and the treatment of those who can pay only a part of school fees.

It is easy for the really wealthy to make these gifts, but those who are struggling—the smaller man, the entrepreneur, the shopkeeper, the farmer—are being hit. What the Government are doing in education they are here doing in finance. Will the Chief Secretary comment upon this new principle of Socialist egalitarianism?

Mr. Graham Page

Will the Chief Secretary be a little more forthcoming on the concessions which he has in mind? It is difficult, from the short statements he has made, to understand quite where he wishes to make the concessions. Is it in the amount of the £1,000 to be increased to the £2,000 which our amendments desire in certain cases, or even perhaps to exempt altogether? Or is it in the totting-up? I hope that it is on both. He said only that there were areas where there might be difficulty, namely, dependent relatives and maintenance of children.

This goes to the root of the argument in this debate, particularly on the totting-up case. The amount of maintenance for children varies with their age, and it may well be that for one year it is sufficient to pay out quite a small sum but as they grow up larger sums are involved. In that case the totting-up clause, to use a sort of shorthand phrase for it, would be of great [column 852]value so that there was a carry-forward from year to year of so much of the concession that had not been used up.

If it is to be a concession on the amount, could I draw the Chief Secretary's attention to this? He said that those who would resent the limit of £1,000 would only be those who had avoided estate duty. But, surely, this provision in the Bill is intended in part to take the place of the £500 gift inter vivos in Section 33 of the Finance Act 1949. If £500 was the figure in 1949, we are entirely justified in putting the figure at £2,000 at the present time. The £500, of course, was the limit to one beneficiary. There again, the amendments of the hon. Member for Cornwall, North (Mr. Pardoe) deal with that point. But it is difficult to know how to vote on these amendments when the Chief Secretary is not more forthcoming on the concessions which he is prepared to make.

Are the concessions to be on the question of totting up? Are they to be on the total amount, or are they to be the amount to any one beneficiary? We must know something more about the concessions. The right hon. Gentleman obviously would not have mentioned them unless he had them fairly firmly in mind in some detail, and we ask for that detail so that we may decide whether to continue this debate for a little longer, provided that we are in order, or allow it to pass on that basis. May we have a little more information?

Mr. Pardoe

The Chief Secretary will know that it is never my aim to extend our debates, and he will recall that I spoke of my amendments not primarily in terms to equity or fairness or anything of that sort but in terms of administrative efficiency both for the taxpayer and for the Inland Revenue. I did so briefly, and I thought that he would come forward with some facts and figures about the cost of the amendments and the cost of the original £1,000 exemption in loss of revenue. But his only reply to the point I was raising—if he reads it he will realise that it was somewhat inadequate—was that there might be a few people at the margin who might come off the tax if the limit were raised from £1,000 to £2,000. That is not good enough.

I put the questions specifically to the Chief Secretary. What is the loss of revenue on the £1,000 exemption? How many extra tax inspectors and collectors [column 853]of tax will be required if we leave it at £1,000 rather than at £2,000?

10.30 p.m.

I am not asking the Chief Secretary now, though I was originally, for the Treasury's estimate of the saving to the individual taxpayer. Heaven knows, it ought to be estimated and every Finance Bill ought to have an estimate of the hours that the individual taxpayer saves or expended by changes that we make in legislation. I do not ask the Chief Secretary for that information now because he will now know. The Treasury does not bother to find these things out. It does not care about the taxpayer's time. But at least the Chief Secretary ought to have answers about the extra number of Revenue officers and staff. If he does not have the figures, we must look more deeply into the reasons.

My eye was caught by the Financial Times yesterday, or the day before, reporting that a memorandum had been sent to the Chancellor from the Inland Revenue staff association urging him to block up a whole lot of loopholes for tax evasion and so on. The amount of additional revenue that would be brought into the Exchequer by blocking up the loopholes mentioned would be tiny. The number of extra jobs created in the Inland Revenue would be vast. The extra amount of salaries created for the public service would be considerable. That is damnable, and the Government have a duty to answer to Parliament for the efficiency of the collection of taxes. I hope that I receive a decent answer this time.

Mr. Lawson

The hon. Member for Cornwall, North (Mr. Pardoe) has raised a good point. We often boast of having the cheapest form of tax collection in the world, but if that is so it is because the true cost falls on the taxpayer, and it is a heavy cost. When that is taken into account we have a very expensive tax system.

We are very disappointed with the Chief Secretary's replies. He has not addressed himself to the de minimis point, the Christmas present matter. The only objection he has been able to put on totting up is based on minors. I am not sure whether it is gifts to minors that he is concerned about or gifts by minors. Either way, would he accept the totting up principle, if it were to begin at the age of 18, the age of [column 854]majority? Perhaps he would let us know about that. That might be a compromise suggestion. He gave no other argument against it.

I am particularly disappointed that the Chief Secretary is not prepared to increase the limit, because on Thursday last week in this Committee he led us clearly to understand that he would increase the limit. He said—referring to what was said by my right hon. Friend the Member for Finchley (Mrs. Thatcher)—

“If, on the other hand, she is suggesting that the figure of £1,000 should be larger, I come back to what was said a few moments ago, that that is quite separate from what we are now discussing. But I certainly could not accept any suggestion that we should allow an unlimited figure … it will be debated. It may be that the Committee will decide that the figure should be higher, but we cannot decide that on this amendment.” —(Official Report, Standing Committee A, 30th January 1975; c. 496.)

He was clearly giving us to understand that he was prepared to go to a higher figure than £1,000. Unfortunately, he did not say that it would be £2,000. He said it would not be an unlimited figure, and he clearly led us to understand that it would be higher than £1,000. Indeed, the Financial Times the following morning made a feature of pointing to this concession that the Chief Secretary was foreshadowing. But now he has not made any concession at all. We should like to know why he is backtracking from what he clearly indicated last week.

Mr. Ridley

I must pay tribute to the Chief Secretary's patience and care in replying to these debates, and tonight has been no exception. He has a rotten brief, he has a filthy tax to defend, and he is a hard-pressed overworked man. We are full of admiration for him. We do not want to put too much on him and overlay him with too much difficulty and work, but, considering the force of the case he is defending, he made a very good fist at trying to defend a pretty lousy Revenue brief.

The right hon. Gentleman keeps saying that he wants to carry the Committee with him—he will find it easier now that his hon. Friend the Member for Luton West (Mr. Sedgemore) has left—and he did carry me with him, I confess, on all but one point, and I want to push this point back at him very strongly. It is what has become known as the totting-up point.

It is not good enough to argue that it is all right for someone with sufficient [column 855]wealth to pay every year during the whole of his lifetime £1,000 in gifts to his beneficiaries, be they his children or anyone else, simply because, by virtue of his wealth, he can afford to do that—and for him to be allowed to escape tax on all those £1,000 gifts, while the man who has invested and is using his capital to earn and to produce, who may not be in a position to produce £1,000 in cash or shares every year, is not able to do so and escape tax. This is to favour the liquid and the rich as opposed to the invested and the less well off.

I submit that it is a similar point to the one raised earlier by the hon. Member for Cornwall, North (Mr. Pardoe) on the two-tier petrol price. He suggested, in effect, that everybody should get an allowance of £125 a year from the Government to subsidise his motor car in the form of cheap petrol entitlement. The Chief Secretary is now suggesting that everybody should get an allowance of £1,000 a year in order to enable him to cover small gifts without their having to be accounted for. If that is so, it is grossly unfair to say that those gifts have actually to be made. It is rather like saying that the only people who can get the benefit of the cheap petrol are those who actually burn it, because, of course, the consequence is that they use more petrol than if it were not so. If one cannot store up one's entitlement from one year to another, it is discriminating against those who are less well off.

I accept the need for an exception. I think that my hon. Friends are overstressing the de minimis point because this is the de minimis point—the £1,000. If it is de minimis, it must apply every year. If in one year one is over-borrowed or making no income or away on business without time to attend to the matter, it should make no difference; one's entitlement should not be lost simply because the payment could not be made in that year.

The Chief Secretary has failed to carry the Committee—to use his own phrase—and, in the phrase of his hon. Friend the Financial Secretary, the thrust of his argument was rather blunted on this one, and I hope he will reconsider. I am prepared to go as far as to suggest a compromise—a very long way for me. It would make me happy, and I am sure it would make my hon. Friends happy, even to reduce the £1,000 so that it may be £700 or £800, provided that it is accumulable. It would then at least be fair to all [column 856]taxpayers. But on this point, which my hon. Friend the Member for Norfolk, South so rightly picked out, we are on the verge of perpetrating an injustice unless we can persuade the Chief Secretary to change his mind.

At this time of night, and after the sort of brief he has had, his judgment is probably clouded and he might like to adjourn the Committee to consider the matter. We could certainly accommodate that, but I would not advise my hon. Friends to leave this point until we have had a slightly more favourable response from the Chief Secretary.

Mr. Joel Barnett

May I say to the Member for Cirencester and Tewkesbury (Mr. Ridley) who, as ever, is charming, delightful, reasonable and moderate, and to whom I am obliged for his kind congratulations, that I assure him that I am neither tired nor sick of listening to hon. Members opposite. Even though I may appear so, it may not always be true.

I take the serious point he makes, that he would be prepared to accept a figure lower than £1,000. I was gratified to find that I had convinced him on every other point but this one. I am very proud of that.

The hon. Gentleman makes the point that if it were lower than £1,000—he mentioned £800, or whatever it might be—he would be prepared to go along with it. On that very fair point, I should be prepared to look at a lower figure, cumulated, though not necessarily for life—that might be too much—but I should be prepared to look at that, because it is very different from the point in the amendments. I say that without commitment, because I genuinely want to consider what he said.

The hon. Gentleman has made a fair point and I have promised that I shall look at it. I am prepared to consider whether it would work. I cannot promise more than that because, as he knows, I have listened to the debate since half-past six, and I have had no opportunity to consider how it would work. However, I promise to consider whether there is a way of meeting that point.

Mr. Graham Page

I do not like to interrupt this honeymoon between the Chief Secretary and my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), but I should not like to be the best man or a bridesmaid at this wedding. There is no justification for [column 857]decreasing the sum of £1,000, with respect to my hon. Friend. He may feel so generous towards the Chief Secretary as to offer that compromise, but I cannot feel that the rest of us would be happy to reduce the £1,000 when, on the inflationary basis, we should be trebling, if not doubling it as in the amendment.

Mr. Barnett

I assure the right hon. Gentleman that I have no wish to cause him to disagree with his hon. Friend. As I have said, any figure on which we eventually settle will be kept under close review year by year.

The hon. Member for Cornwall, North (Mr. Pardoe) asked me a number of questions. I am sure that he realised when he asked them that it is the perfect ploy to ask a question which it is impossible to answer. He asked me what is the loss of revenue. Until we see the tax in operation, we shall not have the faintest idea how many people will take advantage of this generous offer, whatever we fix it at.

The hon. Gentleman next asked how many additional Inland Revenue staff there would be. I can satisfy him on that because he knows there is a very small staff on CTT anyway. The difference between the figure of £1,000 and £2,000 would be tiny. I am confident that he was aware of that before he even asked the question, and I am happy to have been able to tell him what he already knew.

Mr. Pardoe

Not true.

Mr. Barnett

It is not true? He makes me think less of him than I did before.

The difference in the yield of tax as between £1,000 to £2,000 is impossible to estimate for the same reason, because one does not know how many people would utilise it, as I am sure the hon. Gentleman is aware.

10.45 p.m.

The hon. Member for Aberdeenshire, West (Mr. Fairgrieve) asked about education and the amount that would be allowed. I made clear in the debate—probably yesterday, but it seems like two months ago—that education for a minor would be wholly out of income, and there would therefore be no question of any capital transfer tax; it would be the liability of the parent.

Mr. Fairgrieve

I am afraid that the Chief Secretary misunderstood the point [column 858]of my argument. I apologise if I did not make it clear. I was merely trying to back up my hon. Friend's by pointing out that, as in his party's educational policy, so in its financial policy, it is hitting not at the really wealthy but at those in the middle.

Mr. Barnett

On that we shall just have to disagree. I have said on numerous occasions that those in the middle paid estate duty in the main, and those who were very wealthy did not. I must disagree with the hon. Gentleman.

The direct question put to me by the right hon. Member for Crosby (Mr. Page) was: What sort of relief did I have in mind for helping those who were seeking to maintain a dependent relative? I am here in Committee for so many hours of the day and night that I have little time to consider precisely the relief I should propose to give on Report, but, given that we will finish the Committee stage of the Bill shortly, I shall have an opportunity in the brief gap between then and Report to consider precisely what I have in mind. However, to give the right hon. Gentleman an idea, the choice clearly lies between outright exemption for contributions towards the care and maintenance of dependent relatives and a limited exemption expressed in a figure. That is the way in which I should propose to look at the matter. I cannot tell the right hon. Gentleman more than that for the reasons which I have stated, but I hope that that will be satisfactory to him.

If I have not satisfied everybody, I feel that I have done a most remarkable thing in nearly satisfying the hon. Member for Cirencester and Tewkesbury.

Mr. MacGregor

I shall be brief, because I am as anxious as the Chief Secretary to make progress. I am grateful to him for his comments on my Amendments Nos. 305 and 306. I am happy with those comments, which meet all the points which I raised.

However, on this batch of amendments, the right hon. Gentleman has justified much of his argument, as he so often does, on the ground that the vast majority of people take such-and-such a view, and in so doing he implies that he is talking in terms of social justice. I regard myself as one of these ordinary people. Indeed, were it not for the fact that I have been prudent in taking out life policies and an insurance policy on my house, I should be well below the limit which is applied here. [column 859]From that standpoint, I believe there is more than one view of social justice. As one of the far from wealthy, I regard it as a worthy objective of economic and social policy to enable and encourage individuals to build up capital and savings for themselves. It is in the general national interest as well.

I accept that there must be some limitation on what people pass on—but this is where I part company with the Chief Secretary—leaving aside the economic consequences, which are one thing, I do not regard it as social justice that punitive taxation of an individual's efforts to make savings can be justified on the ground that the majority of other people have not got them. This is a substantial difference between us on this tax.

The right hon. Gentleman's doctrine is dangerous to pursue on economic grounds. I am encouraged from what I briefly read in the newspapers this morning by the discovery that the Government are now relenting on the first lettings tax. I am encouraged that the arguments which we put forward on the last Finance Act have at last been accepted. I believe that many of the other arguments that we are now putting forward on realistic economic grounds will be accepted before long, and, apart from that, it is dangerous in terms of equity and social justice if the Chief Secretary pushes his argument too far; I must repeat that all these amendments are different and they were lumped together. As the Chief Secretary will know well from his own experience in opposition, one puts a lot of amendments down not to produce a consistent case, but to pursue various topics on a general clause.

I am not persuaded by any of his objections to our Amendment No. 63. I do not wish to repeat the arguments but, for all the reasons we have put forward, it would be right to press it.

On Amendment No. 496; the Chief Secretary has already conceded the principle of £1,000 a year. As drafted, that exemption will not help those whose assets are either modest or tied up. The principle of the amendment is right—even if one wishes to make certain changes on the time limit, which we may do later.

On Amendment No. 422: the Chief Secretary made it clear that one cannot run a transferor tax and a transferee tax at the same time. It has been done in estate duty and it is worth pointing out that it is not a wholesale transferee tax; it simply carries [column 860]on a modest exception. But I believe it to be right in terms of the distribution of wealth. So I hope that, with some modifications and amendments to the way in which it is drafted, we can later discuss this amendment, too.

These amendments, particularly No. 63, appear to go some way towards removing the worst effects of the tax on the small trader, the small businessman, or others with modest capital. They will help remove the dangers that it will run into on fiscal morality. Above all, it will help to minimise penal levels that are unparalleled in other countries. Subject to what my right hon. Friend the Member for Finchley will say, I hope that we shall press Amendment No. 63.

Mrs. Thatcher

I shall be brief, as usual. We are grateful to the Joel BarnettChief Secretary for the small concessions he has given and, in particular, that he is to honour the undertaking in the White Paper and embodied in Amendment No. 306.

But on the two main amendments—that about increasing the £1,000 figure to £2,000 and the accumulator—let me summarise what I believe to be our main conclusions. If one is imposing a new tax like this at quite heavy levels, one must provide good clear exemptions from it if it is to be observed, for otherwise there will be attempts at evasion. One of the best possible exemptions is the gift that can be given completely clear of the tax every year.

Undoubtedly, the £1,000 limit, with no possibility of accumulation, is too small for many ordinary circumstances. For example, for a young person starting a career, for the first time going away from home, is best helped to buy a small property. One might be in a position, not having been able to give £1,000 before, to give £1,000 or £2,000 towards the deposit in that year. One will be straight away into the tax. But that will not be the end of the problem. Such young people will undoubtedly need a telephone, a couple of night storage heaters, some furniture, which comes not as cash but as benefits in kind but which is money's worth.

This is a very ordinary circumstance that often occurs, particularly if one is selling one's own house and can give a young person help towards starting out on his own. One will be right into the tax and be over the £1,000. If one had an [column 861-862]accumulator for, say, three or four years, one would be clear of the tax.

The alternative is to say “I will not bother to help them. I will get them to apply for council accommodation,” which is far more expensive on the rates and far more expensive on the taxes, whereas a young person could be helped to help himself. But one cannot do that kind of thing under these provisions.

With a good clear exemption, not so many small reliefs will need to be provided, of the kind the Chief Secretary gave for maintenance and children and full education. They would all be contained within the larger annual exemption with a moderate accumulator.

Quite apart from that argument, even taking the argument that the £500 was fixed in 1949 under Section 33 of the Finance Act 1949, that alone would be sufficient to take the annual exemption up to about £2,000. But the £500 and the £2,000 would not be comparable, because the £500 was in respect of each person who received the gift whereas the £1,000 now is in total in respect of the person who gives the gift. So the £500 could have applied to each child of the donor. The £1,000 here applies to the parent.

For these reasons, I think that we should press the amendment providing that the exemption should be greater than £1,000. We have chosen the figure of £2,000.

I hope that the Chief Secretary will consider a limited accumulator. Perhaps we have got it rather too big in our amendment. But even a Vauxhall car—I have a very battered Vauxhall car and I should love to follow the hon. Member for Luton, West (Mr. Sedgemore) in his Matilda saga, but even a Vauxhall car costs more than £1,000 now. I am not sure what a second-hand one costs. £1,000 is too limited in each respect, but a two- or three-year accumulator would greatly help.

For those reasons, I hope that we shall follow my hon. Friend's advice, which I endorse, and divide on Amendment No. 63 to increase the exemption from £1,000 to £2,000. I suggest that we ask the Chief Secretary to consider a limited accumulator and do not vote on the amendment relating to that, but return to the matter with a more limited amendment on Report. It looks to me as though it will be a very long Report stage, judging by the number of considerations which have yet to be made.

Question put, That the amendment be made:—

The Committee divided: Ayes 15, Noes 17.

Division No. 14]

AYES

Mr. John Cope

Mr. Russell Fairgrieve

Sir John Hall

Mr. Peter Hordern

Mr. David Howell

Mr. Norman Lamont

Mr. Nigel Lawson

Mr. John MacGregor

Mr. Tony Newton

Mr. Graham Page

Mr. John Pardoe

Mr. Peter Rees

Mr. Nicholas Ridley

Mrs. Margaret Thatcher

Mr. Jerry Wiggin

NOES

Mr. Joel Barnett

Mr. Alf Bates

Miss Betty Boothroyd

Mr. Jim Callaghan

Mr. Denzil Davies

Mr. Jack Dunnett

Dr. John Gilbert

Mr. Ted Graham

Mr. William Hamling

Mr. Joseph Harper

Mrs. Helene Hayman

Mr. Douglas Hoyle

Mr. Mark Hughes

Mr. Brian Sedgemore

Mr. Arnold Shaw

Mr. John Tomlinson

Mr. Michael Ward

Question accordingly negatived.

11 p.m.

Mr. MacGregor

I beg to move Amendment No. 259, in page 83, line 42, after “normal” , insert “and reasonable” .

The Chairman

With this we may take the following amendments:

No. 260, in page 83, line 44, leave out from “income” to end of line 47.

No. 341, in page 83, line 44, leave out “and” .

No. 342, in page 83, line 45, leave out paragraph (c).

Mr. MacGregor

This amendment seeks to add words in the estate duty clauses in the Finance Act 1910. Although I am aware that there have been arguments as to whether we should follow estate duty precedents in this case, we think it reasonable to do so. [column 863]

But we shall also be discussing other amendments, because basically they hang together. I assure the Chief Secretary that I shall speak for a much shorter time on this amendment because there are not so many amendments being taken together as on previous occasions. I should like to ask him one or two questions about the paragraphs to which these amendments refer. I hope that I shall not keep the hon. Member for Durham (Mr. Hughes) too busy on his feet by so doing.

First, I should like to know how “normal” is to be interpreted in paragraph (4) (a). I thought originally that this lack of knowledge was due simply to my lack of accountancy training. But I am comforted by the thought that the Consultative Committee of Accounting Bodies is also querying the meaning of the word “normal” in this context.

Therefore, it would be helpful to have some comment from the Chief Secretary on this point; particularly as to how “normal” would be interpreted for fluctuating incomes. In that context, could he say whether “normal” still means habitual, and if so, in the capital transfer tax situation, would this mean that the first one of two in any series of habitual gifts—and I may have to come back to a life policy premium situation—would be a chargeable transfer even if continuation of the habit eventually exempted subsequent gifts in the series?

May I make that a little clearer so that the Chief Secretary is able to reply fully? If “normal” means habitual in the capital transfer situation, does it mean that the first one of two in any series of habitual gifts would be regarded as a chargeable transfer? I refer especially to life policy premiums. My reason for raising that subject is that it is causing some uncertainty among some life offices.

Secondly, and perhaps this will explain even more precisely what I am getting at, will there be any concession under the capital transfer tax corresponding to the first premium concession that was available in certain circumstances for life policies under estate duty? In a statement made by one of the Chief Secretary's predecessors in May 1968 this first premium concession was granted and it would be helpful to know whether that also applies under the capital transfer tax.

Thirdly, I have a more general question relating to paragraph (4) (c). What kind of [column 864]evidence will the transferor have to produce to demonstrate that his usual standard of living has been maintained in the context of a series of gifts liable to capital transfer tax?

I ask that question because, although that applied with estate duty, there was only one time at which the situation occurred. The evidence had to be produced and viewed only once, namely after the death of the donor. But here, presumably, under capital transfer tax, it will have to be done every year if the transferor or donor comes into that situation. It would be helpful, therefore, if some indication of the kind of evidence could be given.

I shall go slowly on the next issue because it is one of those elusive subjects that, when put to me earlier, made me feel was rather like “Now I see it, now I do not” —a situation that may arise out of the way in which the Bill is drafted, and I am sure that it is not intended. Paragraph 4 (c) says:

“that the transfer of value was part of the normal ‘and reasonable’ expenditure of the transferor;”

Let us again take the £1,000 life policy premium. After part of that premium, as part of the normal expenditure, is dealt with as sufficient to maintain his usual standard of living, can he then exempt the next part under paragraph 2, the £1,000 exemption?

To put it another way, if a premium of £1,000 under paragraph 2 is regarded as normal, does that preclude any other normal expenditure under paragraph 4? I hope that I have made my contention clear. If not, perhaps we may come back to it. It would be clarified if after the words “normal expenditure” in paragraph 4 (1) (c) the words “out of income” appeared.

Those were matters of clarification and there were many others, but I have tried to concentrate on the more important. I should like now to turn to the general purport and the reason for the amendment.

If all the amendments were to be passed, we should be inserting in paragraph 4 (1) (a) that one of the conditions would be:

“that, after allowing for all transfers of value forming part of his normal expenditure,”

and the only other condition would be that it was made out of his income, and paragraph 4 (1) (c) would be removed. That means that the transferor would not have to prove that he was left with sufficient income to maintain his usual standard of living, but he would have to prove that it was not only normal [column 865]expenditure, but reasonable. He would also have to prove that it was paid out of his income.

That means that no gift under this paragraph could exceed his income and it would also have to pass the test of being reasonable. I do not believe, therefore, that this amendment would drive a coach and horses through the Government's intention and certainly it would not lead to massive evasion. There would still be quite strict limitations on what would be exempt. That helps to explain the amendment and certainly deals with any suggestion that we are being over-lavish.

I should like to explain why I think the amendment is worthy of consideration. Many people will find great fluctuation in their circumstances, especially in an inflationary age, which means that their normal expenditure, including, perhaps, normal transfers of value which they have been accustomed to make, may suddenly exceed their income. I cite some examples.

It would certainly be true in the case of many old-age pensioners who have retired with modest capital and a modest level of income. Let us say that two or three years ago they had been accustomed to make small transfers of value to their children or someone else. They now find that they are unable to do so because of the squeeze on their net income as a result of inflation, rate rises, and so on. They nevertheless wish to go on making those small transfers. They may be gifts to grandchildren to enable them to do something.

Those transfers would be caught, but under the amendment they would not be caught. I suggest that my proposal would result in a reasonable situation.

Someone may have a large house, and bearing in mind the enormous increase in rates, maintenance and other expenditure in the upkeep of that house, he may find that he is no longer able to make the transfers of value that everyone would consider reasonable, out of income. There may be a situation in which dependants, perhaps through disablement or some other reason, suddenly require a larger transfer than they received two or three years ago.

Again, at the present time it is unfortunately possible that the transferor, in the middle of a year, suddenly finds himself without a job. His income level deteriorates substantially and he realises that, taking the fiscal year as a whole, it will no longer be possible to make the transfer out [column 866]of his net income and still maintain his standard of living.

A situation similar to the loss of a job is that of many small businesses, in which the business has collapsed or, as I have seen only too often in my constituency in the past few months, due to the difficulty of increasing their turnover but with expenditure, especially rates, constantly rising, small businessmen find that their net income has actually declined. The amendment is designed to help them, too.

I sum up by repeating that the paragraph provides no exemption for transfers of value in which the transfer exceeds the income of the transferor. It has the safeguard, too, that it must be a reasonable expenditure.

I believe that in addition to the changing circumstances argument that I advanced, if we allowed the amendment there would be a substantial administrative saving both to the taxpayer, or his advisers, and to the Revenue. It would avoid every act of kindness and small gesture having to be recorded where there was a risk that subparagraph (c) might start to operate, and therefore not having to prove maintenance of the usual standard of living.

I believe, too, that it would help to avoid the dangers of fiscal immorality. Above all, I think that in an inflationary age keeping subparagraph (c) would mean that only trivial sums would be collected. That seems to be trying to tie the tax up, revealing, indeed, almost the product of a niggling mind. I urge the Chief Secretary to look generously at the amendment and to think expansively. I urge him to let the greater objective that we have in mind, namely, avoiding excessive time spent on non-productive labour by all concerned, and trying to ease the situation of people who find themselves genuinely in difficulty, take precedence over the lesser objective, which seems to be to claw in on every act of kindness. I hope that the amendment will commend itself to the Committee.

11.15 p.m.

Mr. Barnett

I had a feeling that the hon. Member for Norfolk, South (Mr. MacGregor), in his lucid way, tended to make more of any possible difference that there might be between us than exists. If the hon. Gentleman seeks to go back to the previous group of amendments and increase the amount any donor may give per year, there is a difference. If the hon. Gentleman is only disagreeing on what is [column 867]out of income, I do not think that there is all that much between us. His amendments seek to take it from “normal” to “normal and reasonable” . That is basically his argument. I do not pretend that the definition is ideal. Nobody could suggest that. I do not believe the hon. Gentleman would suggest that his alternative is ideal. An ideal is not possible in these circumstances.

The hon. Gentleman looked at the former estate duty wording. From time to time, both of us have tended to use the estate duty wording on both sides of an argument. I want to deal with the estate duty argument, but first let me assure the hon. Gentleman that if the system under the Bill is found to be unfair in its operation we shall be happy to keep it under review, because it is a different tax from estate duty.

Let me explain the difference as far as this part of the estate duty law reflects on this part of the Bill. The estate duty provision which paragraph 4 effectively copies dates from 1968. Before that the exemption applied to gifts which were proved to the satisfaction of the Commissioners to have been part of the normal expenditure of the deceased and to have been reasonable, having regard to his income circumstances. That is what he has gone back to.

This exemption was replaced in 1968 because, despite the reference to income, it did not, in terms, exclude gifts out of capital. As a result, exemption was granted on occasions where people had been regularly disposing of their capital over long periods. The “reasonable” test was therefore scrapped. The new tests which now appear in paragraph 4 (1) (b) and (c) were substituted. That is the reason why the Government thought it better to leave it as we now have it.

I turn now to the hon. Gentleman's questions. First, on the definition of “normal” , he told me that the accountancy bodies were not clear on this, either. I am always fascinated to hear that, and I am always delighted to try to help them. I will say this slowly for the hon. Gentleman and for members of the accountancy bodies who may not be too far away. “Normal” means habitual when it is reasonably applied to the facts of each case. I hope that is clear to the hon. Gentleman and to the accountancy bodies. If it is not clear to the eventual taxpayer he always has the remedy, which is in the Bill, to appeal against anything unreasonable [column 868]that the inspector of taxes sought to do. However, I assure the hon. Gentleman that no inspector of taxes would seek to be that unreasonable.

The second question concerned a series of premiums on policies. I am happy to tell the hon. Gentleman that even the first one would qualify.

The third question was: what evidence would be required? The evidence would have to be appropriate to the facts of the case. It would be for the transferor to make his case. If it were a simple case there would be no difficulty, but if the Revenue, being unreasonable, did not accept it, under the Bill he would have the normal rights of appeal.

The hon. Gentleman then asked whether, if part of a premium were exempt, as out of income, would the balance be caught? It would again depend on the circumstances. In most cases where there is a chance of its being caught it would usually be exempt as part of the de minimis £1,000.

If I am not meeting all the points satisfactorily, I am at least trying to answer them. I now want to refer to the examples which the hon. Gentleman gave the Committee. Most were of people who were, for a variety of reasons, in straitened circumstances. They found themselves in difficulties, whether by being unemployed, or whatever. First, as regards unemployment, there is nothing in the provision requiring an annual look at a yearly income, so if a gift is made, say, in August and it is really out-of-income and the donor was in full employment in September the gift in August would still be covered by the out-of-income exemption. Is that clear to the hon. Gentleman? Perhaps he will look at it again in print.

I am happy to continue the point. One of the examples which he gave was of an elderly man who was in reduced circumstances, because of difficulties to which the hon. Gentleman referred, who found himself with a reduction in income and perhaps also in capital. Therefore, any trivial transfers which he made would be caught by the out-of-income rule. I would have thought that even if that were true, and if such an elderly person, in such limited circumstances, were to give away a large amount of that limited income and capital, he would be—in the circumstances described by the hon. Gentleman—in most cases exempt, either by the out-of-income rule from a trivial gift, or by the £1,000 capital exemption. [column 869]

Indeed, in fairness, that would apply to almost all the examples which the hon. Gentleman gave. It would be very rare, in his examples, for neither the out-of-income rule nor the £1,000 exemption to meet the circumstances.

I do not suggest that the wording in this paragraph is perfect. Of course it is not. No working can be perfect. But we have taken it from estate duty words which have been in operation and if, when it is in operation, we find that it does not work out under CTT we shall look at it quickly.

Mr. Graham Page

There is a great advantage in what the Chief Secretary has said about retaining words to have been known since at least 1968 and for which there have been precedents. However, I have one question. In the 1968 Act, it is the Board which has to be satisfied that these conditions apply. There is an appeal from the Board, and it is then for the court to decide. However as I see it, there is no such provision in the schedule. I am not sure whether this depends entirely on the Commissioners of the Inland Revenue—the Board's opinion. Are these conditions to their satisfaction? Is there any appeal from the Board on this? That is to say, does the same rule apply as applies in the Finance Act of 1968?

Mr. Barnett

I am happy to tell the right hon. Gentleman that the appeal would lie to the Special Commissioners.

Mr. Page

And from then, on appeal, I presume, to the courts?

Mr. Barnett

Of course.

Mrs. Thatcher

May I ask one question? Although the wording is the same, it is a very different tax from estate duty. In both the pre-1968 and the post-1968 estate duty provisions, Diamond on Estate Duty makes the same point. First, on the pre-1968 duly he says:

“Exemption under this head should be claimed. It is not made automatically unless the facts are obvious. A full statement of the circumstances is usually required.”

In connection with the post-1968 tax, he says:

“The onus is on the donee to satisfy the Board or the court that the exemption is due.”

Does that mean that all these gifts have to be returned and and actual claim made [column 870]and then the Board satisfied that the exemption is due?

Mr. Barnett

Where it is clearly exempt and the transferor is quite satisfied that any transfer is exempt either by the out-of-income or the £1,000 provision, there is no need for him to cover that in this return. I hope that is clear to the right hon. Lady.

On the point that she made about the situation before and after the 1968 Act, I was not trying to argue with her hon. Friend that one was likely, in practice, to prove better than the other. The post-1968 wording has been used for about seven years, as her right hon. Friend said. We have seen it in action. I know it is a different tax, but I should like to think, for the reasons I have given, that it would be perfectly reasonable in practice. I assure the right hon. Lady that if it is not, I shall quickly look at the matter.

Mr. MacGregor

The Chief Secretary has given a very reasonable reply. I should like to make two points.

It is worth keeping an open mind on this set of amendments. First, as my right hon. Friend the Member for Finchley (Mrs. Thatcher) said, this is a very different tax from estate duty and it may have very different effects, particularly in relation to gifts during lifetime. Second, since 1968 we have suffered enormous annual inflation, and this has produced a great deal of squeeze on the net incomes of many people who would have been making regular habitual gifts out of income to a transferee. They may find themselves in some difficulties as a result of the condition under sub-paragraph (c). However, in view of the Chief Secretary's willingness to keep an open mind on the way in which the clause operates—which, I presume, means that if there are difficulties we can return to the matter later—I do not wish to press the matter.

Mr. Graham Page

There is one point which was raised by my right hon. Friend the Member for Finchley (Mrs. Thatcher) about declaration. The Chief Secretary said that this does not have to be declared if relief was to be obtained from the tax, but I am reminded of Schedule 4, paragraph 2(1), which appears to impose that obligation.

Mr. Barnett

There is a Government amendment to that, to which I referred earlier. It seems a long time ago.

[column 871]

Mr. Page

I am much obliged. One cannot remember everything.

Mr. MacGregor

That was a helpful intervention. I was about to say that in view of the Chief Secretary's open response, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[column 877] Fourth extract

Mrs. Thatcher

I beg to move Amendment No. 893, in page 84, line 18, at end insert—

“(4) Sums expended in maintaining one or more dependent relatives in a nursing home, old people's home or mental institution, not exceeding an amount of £2,500 in each year of assessment shall be treated as normal expenditure and shall not be taken into account in determining whether other expenditure can be regarded as being discharged out of income. An excess of such sums over £2,500 shall be taken into account in determining whether they can be paid out of income” .

I think that the words of the amendment may cover what the Joel BarnettChief Secretary said that he intended to consider a few hours—or was it minutes?—ago. The amendment seeks to ensure that payments made by people for the support of elderly parents or dependent children up to a limit of £2,500 a year shall in any event be treated as expenditure out of normal income. Without the amendment, in so far as these payments exceeded £1,000 they might be caught under one rule or another, and they might not, of course, be treated as expenditure out of normal income. Under the amendment, sums up to that amount would in any event be treated as expenditure out of normal income.

I know that the Chief Secretary is sympathetic and I therefore do not wish to prolong the argument. Provided he will just tell us that he will do it, all will be well.

Mr. Joel Barnett

The right hon. Lady is having a marvellous week. On the first amendment she has formally moved I announced even before she moved it that I was thinking along those lines. I cannot satisfy her by saying that I would be prepared to accept precisely either the words or the figure. First of all, I think that there is a misprint in the first line, although I do not make too much about that, about “nursery home” instead of “nursing home” —not that that would matter. [Interruption.] It has been changed, has it? I am sorry. I am looking at the original amendment. I always like to look at the original. But let me hasten to assure the right hon. Lady that it does not matter.

Mrs. Thatcher

The Government never keep up to date.

Mr. Barnett

Oh, but they do. They are so far ahead that they have passed the right hon. Lady. I had promised to deal with the point before she even moved the amendment. One cannot be further ahead than that. I can promise her, as I said about two hours ago, that I shall look at [column 878]this form of amendment. I cannot commit myself to the £2,500 but I shall certainly look at the matter sympathetically. I hope, therefore, that the right hon. Lady will feel perfectly happy in the line I am proposing to take, as I believe I said earlier on Amendment No. 63.

Mrs. Thatcher

On that assurance, I hope that the Chief Secretary's sympathy will take him very nearly to the level of my own. We shall look at this again on Report.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.