§ (1) Section forty-seven of and the Eleventh Schedule to the Finance Act, 1946 (which in relation to the effect for estate duty purposes of gifts inter vivos and of certain other transactions extended from three to five years the period before the death which is material for the purposes of the enactments referred to in the said Schedule), are hereby repealed and the enactments referred to in the said Schedule shall have effect accordingly in all respects as if the said section and the said Schedule had not been enacted.
§ (2) This section shall have effect only in the case of any person dying on or after the seventh day of April, nineteen hundred and fifty-nine.—[Major Hicks Beach.]
§ Brought up, and read the First time.
Major W. Hicks Beach (Cheltenham)
I beg to move, That the Clause be read a Second time.
This is an extremely simple point, and I think I can explain it to the Committee quite briefly. The intention of this new Clause is to restore the position as regards gifts inter vivos and the liability to death duties as it existed before the Finance Act 1946. I shall amplify what that would entail. When the liability for Estate Duty was created by legislation in 1894, it was provided that where a person made a gift inter vivos to any donee and died within a year of the gift, that gift was liable to be assessed for duty and was in fact aggregated in the estate.
I say straight away that if we are to have a system of taxation such as Estate Duty, obviously there has to be some form of safeguard to protect the position in which a person makes a gift and dies, perhaps, a month or a week after making the gift. There has to be some form of protection, but the proposition in my new Clause is that the five-year rule is 78 too long and we ought to go back to the position by which a person had to survive only three years after making the gift. My reason for suggesting this change was largely caused by my experience as a practising lawyer over a great number of years.
There are two fundamental reasons why this matter should be very carefully considered. First, I think I should have general support, certainly from this side of the Committee, and I hope from all sides, in saying that a gift inter vivos during the life of the donor is a highly desirable thing because it spreads the general welfare of the country at the earliest possible moment. I stated that in the debate in 1946 when the three-year rule replaced the five-year rule and I noticed at that time that there seemed to be universal agreement that gifts inter vivos were a good thing in themselves.
My other practical approach to this matter is this. I do not suggest that anyone is seeking to avoid paying Estate Duty on gifts made within five years of the death of a donor, but the fact remains that very often it is quite innocently done and quite difficult to trace when gifts have been made in fact within five years. It would be the general view of the legal profession that the five-year period is too long and we should revert to the three years. As I said, it is an extremely simple point. What it really amounts to is, does the Committee want to encourage gifts inter vivos or not? If we do, I think the period should be reduced to three years.
I want to make quite clear that I have been on record on many occasions as saying that I believe the whole system of Estate Duty is profoundly bad, and in proposing this new Clause I do not want it said against me that I am in any way supporting the instrument of Estate Duty. It is unsound because we are using capital for an income payment. That must be unsound from an economic point of view, and we are doing socially great harm in using this type of tax, which is simply dissipating capital for an income purpose. I hope the Government will accept the new Clause, but, if they do not accept it, I hope we shall have some assurance that the whole problem of Estate Duty will be reviewed.
79 5.45 p.m.
Anyone who deals with these matters, as I have done for a great number of years, knows quite well that there are any number of anomalies and that cases of great hardship arise. As I say, in my view this is a thoroughly out-of-date tax when one studies the economic position. Therefore, I hope that if I do not get my new Clause accepted, I shall at least receive an assurance from the Government Front Bench that the whole matter will be considered before next year.
§ Mr. Diamond
Will the hon. and gallant Gentleman explain exactly what his view is about the reorganisation of Estate Duty in relation to gifts inter vivos? Is he arguing that it is difficult to collect the Estate Duty on gifts inter vivos when they have been made five years before death as opposed to three years, and, therefore, that gifts inter vivos ought to be separately taxed as gifts, or is he arguing that they should not be taxed at all?
Major Hicks Beach
I can answer that straight away. I am not in favour of a gift tax. My proposition is a simple one. It may be the view of hon. Members opposite that Estate Duty is a good tax, but it is not my view. What I say is that if we have Estate Duty we should have a period, which is a realistic one, when we can make a gift inter vivos. Probably I have more experience than the hon. Member and than most hon. Members on this point, and my opinion is that a five-year period is not practicable. If we want a practical approach, three years is the right period. One year would be too short.
§ Mr. Mitchison
I always listen with great interest and attention to the hon. and gallant Member for Cheltenham (Major Hicks Beach) on the subject of Estate Duty. He appears to be particularly concerned with the financial aspects of death, and he contrives to make as cheerful a speech on the subject as one reasonably can. I listened to this one with my usual respect and attention.
Let me tell the hon. and gallant Gentleman of one rather personal sympathy. I have always understood that the present provisions of Estate 80 Duty are thought to result in putting grandfathers into refrigerators when they reach an advanced age and a certain state of decrepitude. Being myself a grandfather no longer as young as I used to be and having in my house a particularly efficient refrigerator, I may be said to have a personal interest in the matter.
Apart from that, I listened to hear what the reason was for the proposed change. I listened very carefully. The only reason I heard was that it was the general view of the legal profession. I walked up a little lane by the Law Courts yesterday and passed a well-known legal bookseller, and it cannot have been a coincidence that practically the whole of the window was occupied by copies of a recently published treatise on avoidance. I am sure that that can have had nothing to do with the question of Estate Duty that we are now discussing.
However, the hon. and gallant Member must be well aware that one of the objects of this provision is to prevent people from making gifts at a very late stage of their life and so avoiding death duty. The only argument that I have ever heard put forward for this sort of reduction in connection with that was that they then might be less likely to be ingenious in avoiding. But I do not think that argument was put forward by the hon. and gallant Member, and I am sure that his sense of logic is too great to allow him to put it forward.
The hon. and gallant Member said that we all approve of gifts inter vivos. That is as may be, but I must point out to him that we do not merely impose taxes for reasons of morality. The hon. and gallant Member referred to the Clause discussed at the time of the 1946 Bill. It was pointed out by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), who was then the Chancellor of the Exchequer, that in a very large number of countries, including, at that time at any rate, the United States of America, gifts inter vivos actually are taxed, and that in this respect we are more moderate in our taxation than those other countries.
In the light of that, I should have thought that when a Clause of this sort was put forward we ought to have some better justification for it than that it was 81 the general view of the legal profession. It is almost the first time that I have ever heard the legal profession, of which I, too, am proud to be a member, held up as such a final and authoritative judge of our morality in these matters.
§ Lieut.-Colonel W. H. Bromley-Davenport (Knutsford)
I intervene for a moment only. We have been asked what the reason is for the new Clause proposed by my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach). I well remember the shouting, the expostulations and the noises coming from our Front Bench at the time that the right hon. Member for Bishop Auckland (Mr. Dalton) passed the legislation in 1946 extending the time limit from three years to five years. Therefore, the answer which I shall give from my point of view—and it is the point of view of all the back benchers on this side of the Committee—is that the reason is that we want to pass some Conservative legislation and put an end to Socialist legislation.
§ Mr. Erroll
I thought that my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) was about to embark on a general discussion of the principles of Estate Duty. I would agree with him that it is indeed a fascinating subject, but I would ask him not to expect me to reply to the points of general principle which he raised, except to deal with one point which he made concerning the injustice of collecting tax on capital and using it for revenue purposes.
I would point out that the Government spend far more revenue each year on capital account than is raised by means of Estate Duty, so that if one were to try to equate one with the other one would find that the yield from Estate Duty was nothing like enough to offset or equal the amount spent on capital account by the Government from year to year.
I am sorry that I have not been able to give my hon. and gallant Friend the reassurance for which he asked, namely, that I should state that there will be a review of the whole Estate Duty problem. Of course, Estate Duty, as with all other taxation matters, is kept under constant review in the Treasury and elsewhere, but I cannot add to that generalised and well-worn statement.
82 The question, therefore, is: should we stick to the five-year period or should we have a shorter period—five years or three years? I was glad that my hon. and gallant Friend did not suggest a one-year period; he agreed that that was too short.
My hon. and gallant Friend the Member for Knutsford (Lieut.-Colonel Bromley-Davenport) rightly reminded me of the loud opposition which we, then in opposition, gave to the proposals carried by the Socialist Government of the day in 1946 to lengthen the period from three years to five years.
§ Mr. Mitchison
I have looked the matter up. The Clause came up in Committee in 1946. Mr. Keeling, then a Member of the House, spoke on it, and my right hon. Friend the member for Bishop Auckland (Mr. Dalton) spoke on it, and the only other speaker in the discussion before the Division was the hon. and gallant Member for Ayr (Sir T. Moore), who simply said:The whole thing depends upon the scale of the original Death Duties."—[OFFICIAL REPORT, 24th June, 1946; Vol. 424, c. 824.]That was all the discussion on this matter that I can trace.
§ Mr. Erroll
Both the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) and I were Members of the House of Commons at that time, and one must remember that there were several stages of the Finance Bill, as there are now. The hon. and learned Gentleman has probably not had time to look at the other stages of the Finance Bill. It should also be remembered that HANSARD is notoriously reluctant to include in its text such noises as "Oh", laughter or those extraordinary noises which from time to time readily emanate from my hon. and gallant Friend the Member for Knutsford.
I return to the essential point of this short debate, which is whether it should be a five-year period or a shorter period. Here I must make the argument one of principle. The purpose of the five-year period is to protect the revenue from loss of duty through gifts of property late in life. This means that we must deter the individual from avoiding duty by giving property away in his lifetime, and the longer the period, therefore, the greater the protection and the more 83 effective the deterrent. The five-year period was started in 1946, since when the rates of duty have been increased, so that the need for this protection is now at least as great as it was in 1946, if not more so.
Basically, Estate Duty may be regarded as a tax on capital passing in the ordinary course of human life and human death. Therefore, property should not escape the charge simply because steps have been taken to prevent its passing on death. In the light of this, I believe that a five-year governing period is by no means excessive, especially as we, unlike many countries, have no gifts tax. I think it is important to remember that point. In these circumstances, a five-year period is not excessive. Therefore, I hope that the Committee will reject the new Clause if my hon. and gallant Friend is not prepared at this stage to withdraw it.
§ Viscount Hinchingbrooke (Dorset, South)
I feel that the observations of my hon. Friend the Economic Secretary, who usually delights the Committee with his wit, tact, charm and considerable knowledge of these subjects, will on this occasion come in a rather distasteful way to hon. Members, particularly to some of us on this side of the Committee.
It is rather unexpected to hear these rather flat observations fall from my hon. Friend's lips, and I conceive that he has not given this subject in this very short debate the consideration which, as a thorough-going Conservative Minister, he ought to have given it. I think he has accepted a plain brief from the officials, who have, quite rightly, no concept of what the scale, scope, effect and purpose of taxation should be from the point of view of the governance of the State but are concerned to get as much money into the Treasury as they possibly can and to justify it by any possible sort of means.
I feel that those people in the country who are expecting a Conservative Government at some stage in the next five years or less to undertake a comprehensive review of the whole incidence of Estate Duty will be greatly disappointed by the speech which my hon. Friend has been called upon to make, no doubt because of assiduous duties in another 84 direction and because of his allowing a piece of paper with these absurd and curious arguments to be laid before him.
There are very large forces in this country exemplified in newspapers and magazines and in societies of every sort and kind which are interested in this subject. There is the whole of the Conservative Party machine. There is the Conservative Parliamentary Party which, as my hon. Friend ought to know—I do not see why I should not reveal it to the Committee, because I am not going to speak about it in detail—has done a great deal of work on the subject and entertains high expectations and high hopes. This is another example of the most unfortunate and unpleasant way in which Ministers get detached from the thinking of the Conservative Party and its ultimate purpose when they get into the high Government machine and spend all their time with these neutral officials in the Treasury. I do not use the word "neutral" in the sense that it has been used in the case of Mr. Liberace, as we heard last week.
Perhaps it is too much to expect a further reply from my hon. Friend, and I notice that my right hon. Friend the Chancellor of the Exchequer cannot be present during this short debate, but I trust that, having permitted myself this short outburst, before the Finance Bill has finished its course, perhaps on Report or on Third Reading, the Chancellor will indicate that it is the purpose of the Government to allow some review, either Parliamentary of extra-Parliamentary or Governmental or purely party, which will result in some change being made in the heavy incidence of this legislation over the past thirty or forty years which in some respects has done grave damage to our society.
§ 6.0 p.m.
§ Mr. Gower
My only complaint about the reply of my hon. Friend the Economic Secretary is that he seemed to display an unhealthy appetite for the proposition of bringing the taxpayer to heel. It may well be that there is a good case for the five-year period. I think that, on balance, there probably is. The five-year period may well be necessary; but my hon. Friend seemed to imply that it is a jolly good thing. He seemed to have the sort of appetite for it which would feed on more. I hope that that is not 85 true. I hope that his appearance was deceptive and that he will take the view that we should always be vigilant in this House—
§ Mr. Frederic Harris (Croydon, North-West)
I got the impression from what my hon. Friend the Economic Secretary said that it was evil for anybody to give his estate away. I fail to understand why the Minister should say that. He should justify that remark to the Committee.
§ Mr. Erroll
If I may say a word in reply to my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke), I should like to point out that this Clause deals only with the period—five years or a shorter period. There is no question of a general debate on the principles or the ethics or the justification for Estate Duty. If we are to have Estate Duty, the question is, what is a reasonable period? Five years seems to be the right period. If one lives for longer than five years after making the gift, the gift does not attract Estate Duty, and that should be a sufficient answer to my hon. Friend the Member for Croydon, North-West (Mr. F. Harris).
As for the noble Lord's remarks about my accepting a Treasury brief, it may be that I have got out of touch with certain of my back-bench colleagues. I do my best to rectify that in the Smoking Room and elsewhere. But I do deprecate very much his suggestion that I have merely taken an official brief from neutral officials. There is no question of that at all. If my hon. Friend likes, he may see my notes which guided me. They are all written out in my own handwriting after careful study of all the evidence placed at my disposal. I accept complete responsibility for what I said. I am only sorry that the noble Lord should have found it so unsatisfactory.
§ Mr. Albu
It is always a fascination to us on this side of the Committee when we have these debates which affect Estates Duty. I think it would be in order for me to refer to the fact that 86 the new Clause was moved on a matter of principle in order to encourage the disposition of estates by gifts rather than by legacies.
It is interesting to observe the passionate feelings which are aroused by any attempt by the party opposite to redress the movement which we on this side of the Committee have been trying to make towards a more equal distribution of property. It shows what utter humbug it is when we read these statements of party policy concerned with attempts to bring about a wider distribution of property.
The Economic Secretary made it clear that the retention of the five-year period was essential if we were to maintain the purpose of Estate Duty at all. It is clear that hon. Members opposite, including the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), are passionately in favour of reducing the period in which inter vivos gifts are taxed in order to make it easier to give away property so that it does not become taxable on death. This would make it more difficult to change the system of the distribution of property whereby 1 per cent. of the people own 50 per cent. of the property. We on this side of the Committee support a wider property-owning democracy and we support the Government in resisting these extremely reactionary ideas.
§ Mr. F. P. Crowder (Ruislip-Northwood)
I wholly associate myself with the remarks made by my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke). It is a very bad reflection on the Government and the Conservative Party that the Minister should have made the sort of speech which he delivered a few moments ago. It is even worse when he has to admit that it was his own speech and not one that was planted on him at the Box. The Government have been in office for eight or nine years. We have had ample opportunity during that time to take some steps to reduce the penal effect which Estate Duty is having upon families and the country as a whole. There has been no review of this matter and no steps have been taken in any shape or form to reduce the tax.
I like this Clause because it reduces the period from five to three years. I submit that it would be more useful if 87 any gift made inter vivos were subject to the duty at varying rates over a period of years, instead of having this ghastly idea of gambling with death—for that is what it is, and nothing else. One knows of cases where old people have been advised by their doctors to spend a day or two in bed each week in order that they can survive the necessary period to enable the gift to be made free of tax. That sort of policy, in my view, is wholly undesirable.
Death duty should be reviewed carefully, because it is most unfair in nearly every instance. If often causes unemployment and breaks up estates which need not have been broken up, thereby affecting the traditions of our country and in particular of the countryside.
I think it was last year that I introduced a Bill called the Variation of Trusts Bill, which fortunately very few Members on the other side of the Committee were able to undertand. I am bound to say that to begin with I had the greatest difficulty in understanding it myself.
§ The Deputy-Chairman (Sir Gordon Touche)
Order. I am not sure how these remarks relate to the Clause under discussion.
§ Mr. Crowder
They relate in this way, Sir Gordon. We were supported in that Measure by the party opposite which, to my surprise, did not mind the Revenue getting a great deal less money as a result of the Bill. What they liked was the prospect of the large estates being broken up and, as it were, sorted out into smaller portions throughout the families concerned. I cannot see why, if such a Measure meets with the acceptance of hon. Members opposite, gifts inter vivos at certain rates and in certain sizes should not be treated in that way.
I think that at the moment the rule is that any person may make a gift of £500, and no more, in any one year. One would have thought that that figure should have been increased somewhat and should be taxed at different rates. Of course, as the noble Lord pointed out, the whole matter should be the subject of review. It could have been subject to review during the past eight or nine years when this party has been in office. I am sorry to see this excellent new 88 Clause brushed aside in the somewhat casual fashion which the Minister has seen fit to adopt this afternoon.
§ Mr. Harold Wilson (Huyton)
In view of the fact that we have discovered something about which the Tory party really cares, and in view of the very obvious manner in which the Economic Secretary—despite the fact that he has admitted that he can not only write but can even read his own writing—has very much upset some of the leading members of the intelligentsia of his own party, would it not be appropriate if we were to adjourn the debate for long enough to enable the Chancellor to come and intervene? This seems to be a major matter which affects the internal morale of the Conservative Party, and we hate to see it so divided.
§ The Deputy-Chairman
I could not now accept a Motion, "That the Chairman do report Progress and ask leave to sit again".
§ Mr. Wilson
I was not moving to report Progress, Sir Gordon, because I thought it most unlikely that you would accept such a Motion, but I hoped that I had taken long enough in making my point to allow the Front Bench to send for the Chancellor so that he might measure the extent of the revolt which appears to be taking place on his back benches.
§ Question put and negatived.