§ CAPITAL GAINS TAX: EXEMPTION FOR SMALL AMOUNTS
§ Mr. Kenneth Baker (Acton)
I beg to move Amendment No. 131, in page 22, line 22, leave out ' £50' and to insert ' £200'.
§ The Temporary Chairman (Sir Ronald Russell)
With this Amendment we can discuss Amendment No. 133, in page 22, line 21, leave out from 'assessment' to end of line 22 and insert:'if the total market value of such of his chargeable assets as are disposed of in the year does not exceed £750'.No. 195, in line 22, leave out '£50' and insert '£75'.
1373 No. 134, in line 23, leave out subsections (2) and (3).
No. 132, in line 24, leave out '£50' and insert '£200'.
No. 196, in line 24, leave out '£50' and insert '£75'.
No. 135, in line 38, leave out from beginning to 'it' in line 39 and insert:'For the purposes of this section'.
§ Mr. Baker
I should like to thank the Chair for selecting this series of Amendments. Similar ones were considered upstairs, so the arguments have been well aired. But one could say the same of all the Amendments selected in the last few days. Indeed, a characteristic of the Recommittal has been a series of encores with slight changes in cast. I believe that one of the characteristics of the London theatre season is the revival of musical comedies like "The Desert Song" and " The Dancing Years ", the tunes of which the audience know so well that they are attracted to go again. But I hope that this will not persuade the Government to get on the bandwagon of revival and repetition. I hope, however, that the West End impressarios are more successful in attracting an audience than we are tonight.
We are grateful for the chance to try to persuade the Treasury again of the overwhelming advantages of our Amendments. Clause 26 seeks to give tax relief on capital gains. It is the first substantial measure of relief introduced since the Capital Gains Tax was brought in. It seeks to do so by saying that all capital gains of under £50 are exempt from the Capital Gains Tax, with a proviso for tapering relief from £50 to about £72 10s. Any gains above that figure are subject to the full tax of 30 per cent.
In general, we welcome such relief, but we disagree with the method in which it is being given and also with the extent of the relief. The Government's case for Clause 26 is that there will be some saving to the Inland Revenue in administrative costs in that the tax inspectors will not have to bother going through the schedules of gains and profits from small investors to ensure that they have their sums right, but it is fair to say that the Government cannot put their ringer on how much saving there will be. We have repeatedly asked what it costs to collect the Capital 1374 Gains Tax and the Government have repeatedly said that it is impossible to give the answer and that they cannot isolate the tax within the general level of other taxations.
However, the Chief Secretary, late one night in Committee upstairs, said that these figures would be revealed one day at an appropriate moment and I hope that this is it. We would like to know the cost of collection of the Capital Gains Tax so that we could judge whether there will be any material saving by the method of relief proposed in Clause 26. I feel that there will be a very small administrative saving to the Inland Revenue.
In the first place, if a taxpayer who has a liability to the tax is carrying forward a loss from one year to another—let us say, of £100—and this year makes a gain of £25, he still has to send in a schedule and the inspector must check up, and the carry forward loss may be reduced to £75. So, in the case of the taxpayer carrying forward his loss, there is no saving on the part of the Inland Revenue. Last week, I tried to find out from the Treasury how many taxpayers carry forward losses from one year to another, but the figure is not available. Indeed, what is aggravating about the tax and the whole administration of the tax system is the relative lack of information about it.
Secondly, it is ludicrous for the Government to say that they will make an administrative saving, but cannot quantify it. Any business which is to make an administrative saving by changing procedure knows how many man hours it will save and how many offices it will close, but the Government have no idea.
The object of the Amendment is to give relief in an entirely different way. In the debate on the last Amendment we discussed the Financial Secretary said, " One of my first objects is to put the Revenue to a great deal of trouble and the taxpayer to as little trouble as possible ". That is exactly the purpose of our Amendments. What I should like is not to exempt a particular gain but to exempt the disposal of a certain value of stocks and shares.
That would extend a principle which already exists in the law on Capital Gains Tax. The provision relating to chattels says that one can dispose of £1,000 worth 1375 in any one year. One could, in theory, make a capital gain of £999 if one were lucky enough to buy a chattel for £1 and sell it for £1,000, and the gain would be exempt from the tax. We should like to have stocks and shares treated in the same way so that the small investor is exempted—and in the Clause and the Amendments we are essentially dealing with the small investor—from having to go to the great trouble of keeping a full set of records of capital gains and losses over a year.
The Government's proposal to give relief from Capital Gains Tax on the first £50 means that the small investor must keep those records and do the sums, which are exceptionally complicated. They are probably well beyond the ability of most small investors without a calculating machine. Some of the formula; in the Capital Gains Tax provisions involve equations with as many as four different numerators and seven different denominators.
I should like to make one or two comments on Capital Gains Tax and the relief attempted to be given in Clauses 26 and 27. The tax is undoubtedly our most complicated tax. It yields about £15¼ million a year, and the Government estimate that this year it will yield about £44 million. I understand that the relief under the Clause is about £500,000.
I believe that Capital Gains Tax will become the sort of Schedule A Tax of the 1970s, producing a relatively small amount of money with the maximum amount of annoyance and inconvenience. The short-term and ordinary Capital Gains Taxes should be simplified as a matter of urgent priority. The Clause does not simplify the tax at all. It introduces a new concept of relief on a particular value of gains and gives no relief to the small investor who must keep records.
I also believe that because of the complexity of the tax there is a great deal of unconscious evasion through the sheer ignorance of the small investor. He simply cannot understand the complexity of the tax. Unless the tax is radically reformed, it will put too great a strain on the fiscal honesty of individual taxpayers. Fiscal honesty is a very rare flower which does not take root in many 1376 Continental soils. In our country it is on the whole a hardy perennial, but the Capital Gains Tax and the provisions which the Clause seeks to change—
§ The Temporary Chairman
The hon. Gentleman is going rather deeply into the Capital Gains Tax. We are not on the Question, That the Clause stand part of the Bill. We are only debating the Amendment.
§ Mr. Baker
I shall address my remarks to the Amendments, Sir Ronald, which range very wide, as they represent a substantial modification of Capital Gains Tax.
We on this side of the Committee contend that this is not a sensible way to reform the tax. It is supposed to be administratively simple, but we do not believe that to be so. The whole structure of the tax at present throws too great a weight on the fiscal honesty of the individual taxpayer, on human nature. I think that it was Damon Runyon who said:When human nature is concerned, the odds are six to four against.6.45 p.m.
I do not believe that a great number of taxpayers return all the acquisitions they have made during the year, all the assets they have changed, and the gains or losses they have made. It is up to the Treasury to start reforming the tax. It is probably too much to expect that we shall see any fundamental change of heart by Report, but there are many ways in which it can be done. I should be out of order if I suggested any, but, as a start, I suggest that the Committee should give very careful consideration to our proposals, which in essence aim at relieving the enormous administrative burden on the small investor. We are not here concerned with the large investor, the large unit trust of the large investment trust but the small investor and the enormous burden the present tax puts on him.
§ Mr. Walter Clegg (North Fylde)
It is a great pleasure to follow my hon. Friend the member for Acton (Mr. Kenneth Baker), who was such a welcome reinforcement of the Committte when it met upstairs. He has fully covered many of the arguments which I should have advanced, and I shall not follow quite the same line.
1377 I should like to speak to Amendment No. 195, which is rather more modest than my hon. Friend's, not because I disagree with a word my hon. Friend said, or because I consider his Amendment to be less valid than mine. In fact, I would prefer his, because, as he said, it would result in a greater saving of time for the taxpayer.
I had better explain why Amendment No. 195 in the name of my hon. Friend the Member for Leicester, South West (Mr. Tom Boardman) and myself is so modest. We seek merely to increase the limit by £75. The reason is the attitude consistently adopted upstairs by the Chief Secretary and other members of the Treasury team. He proved a very difficult man to persuade, though I still hope to appeal to him at the last gasp. Even if he had sympathy with something, at the end of the day he would argue that the country could not afford it at present, that this year about £900 million had to be raised, and that was it. It was a good long-stop argument.
The right hon. Gentleman's argument about the necessity to raise that amount of revenue this year is powerful. When one considers the latest trade figures and the unemployment figures out today, one can see some reasoning behind it. At the same time, though no one would deny that the country's economic position is difficult, I still think that there is room for the Amendment. There is certainly room for the £50 exemption. I am asking the right hon. Gentleman to go just a short step further. There is room for manoeuvre because not only would the Inland Revenue be saved much time and effort by the Amendment, but it would encourage the small saver.
The small saver has recently been going in for unit trusts in a big way. Hardly a day passes—certainly, never a Sunday —without unit trusts advertising new issues. Money is obviously pouring in. This trend is to be encouraged, because these are small investors who are using their money to help industry. This is the first time this has occurred on such a scale.
I want to refer to a difficulty which may well discourage many investors. Many of these schemes enable investors to pay a certain amount each month, with which units are bought. At the end of 1378 the year they have units which have been bought at different prices. This makes the completion of tax returns very difficult. After an investor has had some experience of unit trusts, he may decide that the effort involved is too great and he may switch his money to other forms of investment, which would be a bad thing in this stage of the country's fortunes.
I will give an analogy which would be more suitable for the Financial Secretary, if he were replying, because of his great knowledge of the fishing industry. I would liken the Treasury to the fisherman who uses not a narrow mesh which catches all the small fish which he then has to throw back, but a broader mesh which allows some of the smaller fish to slip back into the sea, so that, when he throws in his net at a later stage, he gets a haul of very succulent fish. This is what might happen in the fiscal field if the Chief Secretary were to broaden the net and thereby let some of the small fish escape; in future, the Treasury would reap great benefits.
People who make capital gains from unit trusts, or other small savings or shareholdings, do not do it by selling things so as to make a gain and buy other things. It is normally done for reinstatement. The reinvestment can grow and grow until it is of sufficient size for it to be worth the Treasury's while to catch it. At this very last gasp the Chief Secretary should think again and agree to accept the Amendment.
§ Mr. John Hall (Wycombe)
We must all be grateful to my hon. Friend the Member for Acton (Mr. Kenneth Baker) for having moved the Amendment in such an able manner. He was well supporter by my hon. Friend the Member for North Fylde (Mr. Clegg), who has tabled a rather more modest Amendment. My hon. Friend the Member for Acton, a comparative newcomer to Parliament, joined our proceedings in Standing Committee at a rather late stage to replace my hon. Friend the Member for Ormskirk (Sir D. Glover), who fell ill during those proceedings. My hon. Friend appears to have fully recovered and I am sure that the whole Committee will be glad to welcome him back to the House.
We now approach the end of the Recommittal stage of the Bill under the new procedure. It is interesting to note that 1379 this brave new experiment has produced a Recommittal stage at which, as we approach the Guillotine at 7 o'clock, the Government side is represented by two Ministers, one Whip, one P.P.S. and three back benchers. They are heavily outnumbered by hon. Members on this side. This illustrates the whole farce of the proceedings to which the Bill has been subjected.
I hope that the experience in Standing Committee, and certainly the experience during the two and a half days of Recommittal, will dissuade the Government from trying the experiment again. Hon. Members from both sides who were unfortunate to be incarcerated in Committee Room 10 day after day until the early hours of the morning—indeed, until breakfast-time on one or two occasions— will not want to go through that experience twice.
I do not think that the Bill has been examined with the care and attention that it would have received had it been taken from the very beginning on the Floor of the House of Commons. We are now on the first series of Amendments to Clause 26. There are 57 Clauses and 20 Schedules. Both sides of the Committee know that we shall be very lucky if we get beyond the new Clauses on Report. A very large number of them have been tabled.
§ The Deputy Chairman (Mr. Sydney Irving)
Order. I have allowed a certain amount of latitude in view of the rather special occasion, but I must ask hon. Members to speak to the Amendment
§ Mr. Hall
Mr. Irving, I should be trespassing on your good nature if I followed up the point which was very properly and cogently made by my hon. Friend the Member for St. Ives (Mr. Nott). I appreciate your Ruling and I will return to the Amendment. I felt that I had to make those points, and you have indicated that you appreciate that the special circumstances made it necessary.
1380 I am surprised at the way in which the Treasury has been constantly and consistently refusing to accept any of the Amendments on this subject, which have been moved with great eloquence by my hon. Friends, both this afternoon and in Standing Committee. It has been said time and again that, of the many necessary reforms to the fiscal system, the one essential reform is a reduction in the burden both on the Revenue, which is creaking and groaning under the burden placed on it by the Labour Government, and on the taxpayer. All of us know from personal experience—this is no party point—that more and more taxpayers find it impossible to find their way through the increasing jungle of fiscal legislation. All of us must have considerable sympathy with the problem facing the average taxpayer who, without professional assistance, has to read the Bill and try to understand the Clauses.
I have often thought that when Parliament is discussing these matters, especially if the experiment of discussing the Bill in Standing Committee is continued, a large proportion of the Committee should be tax lawyers, because they are about the only people who can understand the incredible complications of fiscal legislation and unravel the jungle of Acts that affect our day-to-day tax affairs.
One would have thought that a proposal such as this, either to increase the amount of exemption or to give the exemption to a specific sum of tax gains in a particular year, would appeal to the Government, because, despite what my hon. Friend the Member for Acton said, it would relieve some of the burden from the Treasury, but, above all, it would relieve the taxpayer of an immense amount of burden and relieve him of many complicated transactions.
When, in Standing Committee, I moved a very similar Amendment, I pointed out that the last Report of the Commissioners of Her Majesty's Inland Revenue which was available to us—that for the year ended on 31st March, 1967—shows that assessments of gains of up to £100 represented 55 per cent. of the total number of assessments in the year under review. Thus, if the Government were prepared to accept the Amendment to which my hon. Friend the Member for North Fylde referred, which would raise the limit from 1381 £50 to £75, a very large number of taxpayers who up to now have been caught by the Capital Gains Tax would be exempted. More than half of the total assessments would cease having to be met by the taxpayers or considered by the Inland Revenue.
During the concluding proceedings on the Amendments upstairs, both the one which suggested the increase of the exempt gains from £1,000—
§ It being Seven o'clock, The CHAIRMAN proceeded, pursuant to the Resolution of the Business Committee agreed to by the House on 18th June, to put forthwith the Question already proposed from the Chair.
§ Question put and negatived.
§ Question, That the Clause stand part of the Bill, put forthwith pursuant to Order [11th June], and agreed to.
§ Bill reported, without further Amendment; as amended (in the Standing Committee), to be considered Tomorrow.