§ Mr. Richard Wainwright (Colne Valley)
I beg to move amendment No. 55, in page 76, line 26, leave out subsection (1) and insert—'(1) Section 37(1) of the Finance Act 1975 (rate of tax charged on chargeable transfers) shall be amended as follows:
- (a) After the words "chargeable transfer made by any transferor" there shall be inserted the words "to any transferee";
- (b) After the words "that transferor" in subsection (1)(a) there shall be inserted the words "to that transferee";
- (c) After the words "that transferor" wherever the same appear in subsection (1)(b) there shall be inserted the words "to that transferee".(2) For the purposes of subsection (1) above there shall be aggregated (as if made to one transferee) the values transferred by chargeable transfers made by a transferor whereby property becomes held upon trusts under which no interest in possession subsists immediately after the transfer has been made.'.Capital transfer tax was launched to further the admirable objective of an irreversible shift of wealth. It has failed. There is no sign of a shift and the yield from the tax has dropped since it was launched in 1975. To go back even further, if one takes the yield in real terms of estate duty and capital transfer tax in 1950 as 100, by last year it had fallen to 20. That is why the Labour Party is making heavy weather of defending capital transfer tax. Contrary to Labour's hopes years ago, the tax has not become the people's friend and nor has it become a great emblem of social reform.
My party has long believed, and stated when capital transfer tax was inaugurated, that it would fail to redistribute wealth because from its inception in 1894 tax capital tax has been a tax on the donor's estate instead of the recipient's, and so has not encouraged the wealthy to divide their gift among a number of recipients. They still concentrate an inheritance or gift on one person. The fact that it is not a tax on the recipient is at the heart of the failure to redistribute wealth through capital taxation.
The amendment is technically defective, but it attempts to make capital transfer tax recipient-based. We wish to see what is technically known as an accessions tax—namely, a swingeing capital transfer tax levied on the recipient, with the tax base and the rate of tax governed 668 by the total amount received in gifts and legacies from all donors during a recipient's life. It would be a powerful encouragement for the wealthy to subdivide their wealth, as only in that way could they minimise the tax bill for beneficiaries. For example, a properly graduated accessions tax would give a man with an estate worth £1 million the choice of leaving or giving it to only one person—in which case it would attract an enormously high rate of duty—or splitting it among 40, 50 or more donees, in which case practically no tax would be due.
It is not a novel concept. Had the House been well advised, way back in 1894 estate duty might have been launched on that principle. At the time A. J. Balfour stated:in Heaven's name, apply graduation like rational beings and graduate property in proportion to the amount enjoyed, not to the amount left by those who can no longer enjoy it.That was a splendid statement of the purpose of a donee-based accessions tax, and it applies in most parts of Europe.
The fatal handicap of the capital tax system that we have been lumbered with since 1894 is that it has simply transferred wealth from individuals to the State. There has been no redistribution directly to other citizens, which does not commend the tax to the generality of people, who do not see justice in huge estates passing into the maw of the State. It has not helped to build up a country of people of modest wealth, as many hon. Members would like to see.
It is time that we faced the fact that the basis of capital taxation over the past 81 years has failed. For instance, according to the former Royal Commission on the Distribution of Income and Wealth, on 1976 figures, and admittedly making no allowance for pension rights, which would modify the figures, 5 per cent. of the population owned 46 per cent. of the wealth. Only 40 per cent. of total wealth was owned by the bottom 90 per cent. of the population. Inheritance and large gifts are still a major cause of inequality.
If our amendment were adopted, improved and built on to reform the tax, it would become a great engine of voluntary redistribution. Small businesses would be helped. The successful founder of a business would be encouraged to divide it partly among a number of helpful and reliable employees instead of being tempted to pass it wholly to one or two members of his family, whose competence may be unproved or severely in doubt.
We would like to see the tax transformed to create an engine of redistribution instead of continuing the unsuccessful method of confiscation. I hope that the concept will appeal to both sides of the Committee. We shall not press the amendment to a vote on the present wording. To transform radically such a tax is not within the competence of amateur draftsmen. it may require major legislation. However, the amendment enables us to discuss a principle that is long overdue for serious debate.
§ Mr. Peter Rees
The hon. Member for Colne Valley (Mr. Wainwright) has initiated an interesting debate. It is not for the first time that we are indebted to the Liberal Party for generating a debate of this kind. My mind goes back to 25 January 1975 when Mr. John Pardoe, then the Member for Cornwall, North, initiated a similar discussion. I say that in no critical sense. The hon. Member for Colne Valley is right to go on stimulating us 669 to think and rethink about our various taxes. As he will have judged from my contributions in our last debate and from previous interventions I have made on the subject of capital transfer tax, I do not assert that CTT is a perfect tax, or even that, with all the assiduity we shall bring to its improvement and reform, it is ever likely to become a perfect tax. With the passage of time, however, we shall hope to eliminate some of the grosser imperfections.
It is important in an area such as this, where individual property owners must take decisions about the handling of their property—whether agricultural, industrial or merely quoted stocks and shares—to try to establish a measure of certainty. The framework at least should be relatively secure so that they can take these decisions with reasonable confidence. I hope that we shall never close our minds to improvement of the tax. The hon. Member reminded us that there are many precedents for what he has in mind in other EEC countries. Most of them go for a donee-based tax—not necessarily for an accessions tax. I was a little uncertain as to the precise form of tax the hon. Member had in mind.
I should be the last to take issue with the hon. Gentleman on the technicalities of the amendment, which is an irritating tendency on the part of Treasury Ministers when they criticise amendments. We are concerned here only with the principle. The hon. Gentleman will recall that the last Conservative Administration in 1972 produced a Green Paper on a possible inheritance tax. As I have always conceived the difference, with an inheritance tax pure and simple the measure of the charge depends on the amount received by the donee from one particular donor. An accessions tax is imposed on accretions to the wealth of an individual from whatever source.
§ Mr. Richard Wainwright
I can confirm for the Minister of State that under an accessions tax the gifts to one recipient, whatever the source, are accumulated and taxed.
§ Mr. Rees
I certainly seize the underlying theory of the hon. Gentleman's proposition—to encourage people to diffuse their wealth fairly widely. If an accessions tax were ever to commend itself to the House there would be a certain arbitrariness in its operation. The donor might not at any given time know the accretions of wealth to a particular donee. If the purpose of such a tax were to encourage the donor to diffuse his wealth as widely as possible, I suggest that possibly an inheritance tax might achieve that more readily. If the root concept which the hon. Gentleman is advocating is the widest possible diffusion it could be that that would be secured by an accessions tax, because in so far as these matters can be determined, obviously the donor would wish to diffuse his wealth among those donees who had received the fewest previous accretions.
Several practical difficulties must weigh with us, however. I appreciate that the hon. Gentleman does not expect the walls of Jericho to fall on this occasion, or even perhaps in the lifetime of this Parliament. No doubt, with the assiduity which characterises his interventions, and which characterised those of Mr. John Pardoe in these matters, the hon. Gentleman may want to return to this matter in later Parliaments. The hon. Gentleman's proposal would involve possible fragmentation of economic assets. There is then the argument between distribution and efficiency. It can be argued—we are 670 talking in generalities and not in particular cases—that it is better to ensure that, for example, a viable unit, whether it be a farm or a company or even an unincorporated business, should be passed on intact to the next generation.
An accessions or inheritance tax would tend to lead to the fragmentation of such units. Again, therefore, it would be a matter for the House to decide between the conflicting principles of economic efficiency and wider distribution. This is precisely the issue that arises in considering the relative advantages of primogeniture as against the Code Napoleon. I imagine that the diffusion of wealth was one of the reasons that led Napoleon Ito introduce his code in that regard. I am not persuaded that over the intervening century and a half the British economy has fared 'worse than the French economy, or that, if it has, it is because we have not adopted some measure, whether it be something like the Code Napoleon or an accessions tax such as the hon. Member suggests to diffuse wealth. That issue would have to be debated more thoroughly than we are able to debate it tonight.
Secondly, an accessions tax would add to the already formidable complications of the taxes on the transmission of wealth that we encounter with the CTT. It would certainly be a more difficult tax to administer. It would be for the House to determine, however, whether administrative complications outweighed the possible social advantages.
Finally, very few forms of inheritance or accessions tax that I have studied would deal adequately with trust property. This is a special feature of British property law which is not reproduced to anything like the same degree—indeed, if at all—elsewhere in the Community.
Although I am not unsympathetic to the underlying theme of the amendment, for the reasons that I have given I must advise the Committee to reject the amendment. In his usual agreeable way the hon. Member for Colne Valley has wished to ventilate this point to enable us to debate the principles. I hope that he will feel that we have at least, in the relatively early stages of this Parliament, come back to an important theme and given it a little thought. Perhaps we may put it aside until some later Parliament when the country may feel that a further overhaul of our tax system is necessary.
§ Mr. Richard Wainwright
The Committee will have noticed that the Minister of State did not launch on any major defence of capital transfer tax as it stands. I acknowledge that with hope. Before many years are out there may have to be a major reform of capital taxation, if only to help to keep social peace and to ensure a greater measure of justice.
The hon. and learned Gentleman made some play of what he considered to be the advantages of an inheritence tax where the recipient's graduated scale of paying the tax would not apply to every gift that he or she received regardless of source, but simply to each set of gifts from one source. There is little equity in that sort of inheritance tax because a second generation could become very rich on the basis of gifts from different sources which under an inheritance tax would not be accumulated in order to establish a rate of tax.
I also believe that an inheritance tax is wide open to avoidance because if there is no accumulation of all gifts regardless of the source, it is open to potential donors to get together and plan an operation in which each of them 671 will give relatively modest gifts to a variety of persons. Because there is no total accumulation they will be able to achieve a very low rate of tax for a lucky recipient.
On technical grounds, there is little to be said for an inheritance tax and a great deal to be said—as some countries have discovered—for an accessions tax. Anyone who advocates a serious degree of capital taxation must face the problem of fragmentation of businesses and farms. Although there are dangers of fragmentation, the horrors of it are greatly exaggerated. I practised as an accountant for 25 years. During that time, my general observation—it is a generalisation and, therefore, risky—was that the ideal family business was not under the direction of one family or even two, but under that of three, or four unrelated families, between whom there could be a certain amount of creative tension. Because of their wider span there is a more sporting chance that each generation in that mix of three, four, or five families will produce a bright child to manage the business.
There is not necessarily a correlation between defending small and medium-sized businesses—as, like most hon. Members, I vigorously do—and maintaining that they must remain in the proprietorship of one family. Such a correlation is often alleged. However, it does great harm to the cause of small businesses. It is a defence of privileged wealth rather than a defence of the economic efficiency and social value of small businesses.
I turn to the last major difficulty that the Minister raised. This year, Treasury Ministers are making less play than usual of administrative costs and of the burden of maintaining the staff required. That is a welcome relief to those of us who believe that a civilised tax system is worth an administrative cost and who do not shrink from more Inland Revenue staff in the cause of equity and expedition in taxation.
This year, the Government cannot make much play of their traditional defence, because they have just added 3,500 people to the staff of the Inland Revenue to embark on this extraordinary adventure of taxing unemployment benefit and other social security benefits. Therefore, the extra administrative burden of an accessions tax—in which the rate of tax would depend upon the accumulation thus far in life or all gifts of legacies to the taxpayer concerned—would be almost entirely clerical compared with capital transfer tax. Obviously, a record would have to be kept of all those who had received substantial gifts. However, I hope that such an operation would be computerised and would not involve a substantial amount of extra administrative expertise.
I hope that the Minister will accept that this is an important subject that requires further investigation. When the Inland Revenue is allowed to acquire a full-time research staff, I hope that this change in taxation will be high on its agenda. Given the admitted defects in the amendment's drafting—which I fear were inevitable—I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, That the clause stand part of the Bill.7.45 pm
§ Mr. Jack Straw (Blackburn)
The central objection to the old estate duty, which capital transfer tax replaced in 1975, was that it could be avoided altogether by transfers 672 that were made seven years or more before death. Essentially, it was a voluntary tax and, therefore, an unfair one. It taxed only the unlucky, those who died prematurely, or the ill-advised. The prime purpose of capital transfer tax was to tax capital transfers whenever they took place, in life or at death.
Since the idea of the tax was that it should be a progressive one—taxing proportionately more those whose wealth was the greatest—the tax charge in a lifetime had to be a cumulative one. Obviously, if the tax had been annual, the wealthiest could have transferred the whole of their wealth in yearly parcels at just below the tax threshold and could have avoided the tax altogether. In 1975 the House decided on a system of capital transfer tax. It said that a man, for example, with £250,000 who transferred half of his wealth during his lifetime and left the other half upon death should be in roughly the same position in terms of the tax charge as the man who made no transfers in life and who left the whole sum on death. Therefore, the lifetime accumulation of transfers for tax purposes was central to the fair and effective operation of capital transfer tax.
I have spelt that out because no one should be in any doubt about the significance of the clause. By the apparently technical device of replacing the lifetime accumulation rule with a 10-year accumulation rule, the Government have effectively abolished a central principle of capital transfer tax and have undermined its main purpose. Of all the decisions that the Government have taken to transfer tax from the poor to the rich and to widen inequalities of wealth, the one contained in the clause is the most significant. It will have profound implications for the distribution of wealth.
We should look at the full consequences of this substantial concession. We should consider the consequence of its cost. My hon. Friend the Member for Edinburgh, Central (Mr. Cook) raised this subject in the debate on clause 88. The Minister appears to be reaching for his Red Book again. I refer him to page 10, and to footnote (i), in the text where the Government should have come clean and spelt out the cost of the concession. When the Minister replied to clause 88 Labour Members noticed his silence on the cost of the concession. We want to know the Government's estimate. Why do they say that the cost of the concession cannot be estimated? Do they think that it is prudent to run the nation's affairs by embarking on significant and substantial tax concessions without working out their cost?
If the Minister cannot estimate the cost of the concession to the nearest £1 million, will he estimate the cost to the nearest £100 million? I hope that he will do so. When the Government took their decision they must have had some idea of the cost involved. Let the Minister tell the House. In our judgment the cost is great, and is likely further to reduce the return on capital transfer tax. Over the next few years it will reduce it at a time when there would have been an increasing yield from capital transfer tax if the old lifetime accumulation rules had remained.
If the Opposition cannot estimate the cost of this concession, we can at least make some estimate of its benefit to individuals. The 10-year accumulation rule means that a husband and wife can transfer £100,000, for example, to their son or daughter every 10 years without incurring a tax charge. In addition, as a result of the change in the Budget to increase the annual tax-free concession on transfers from £2,000 to £3,000, a husband 673 and wife can transfer another £60,000 to their children or to anybody else over a period of 10 years. The effect of the changes made in the Budget means that a husband and wife can together transfer £560,000 every 10 years to their children or anyone else without incurring liability to tax.
Let us take the example of someone in middle age who, after building up a business, decides to sell it to a public company and receives, let us say, £560,000 for the sale of his family company. He wants to transfer that wealth to his children without incurring a tax charge. If he survives—assuming that he has no other estate—for 33 years after the sale, he can dispose of his £560,000 without tax. In my estimate he would have saved £155,000 in tax had the lifetime accumulations rules remained and the concession on the annual amounts, which are tax-free also, not been raised. Even if that person died after 21 years he would have saved £90,000 in tax on a total estate of £560,000.
Some of my hon. Friends may say that they know few people who have £560,000. That is not true, because we all know the Prime Minister. In 1965, the Prime Minister's husband sold his interest in the Atlas Preservative Company to Burmah Oil for that sum. If he had sold that interest in the Atlas Preservative Company today for £560,000 and survived for 21 years thereafter—and adopted the practice that I have suggested—he would have saved £95,000 in tax. If he lives for 33 years afterwards he will save £155,000 in tax. That is a measure of the concessions that the Government have made in the Bill to the wealthy.
But the Prime Minister and her husband are by no means the wealthiest in the Cabinet. There are many others who are far wealthier than the Prime Minister. I have counted eight Cabinet Ministers who come into the category of millionaires.
§ Mr. Straw
My hon. Friend is quite correct. There is the Home Secretary, the Secretary of State for Industry, the Leader of the House, and the Secretary of State for Employment, who I am told has farms and land valued at £700,000. The Lord Privy Seal is heir to his father's industrial estate in Scotland and to another substantial fortune. The Minister of Agriculture, Fisheries and Food sold his shareholding in Slater Walker in 1970 for £405,000 and sold an estate in 1976 for a further £250,000. The Secretary of State for the Environment has a £600,000 majority shareholding in the Haymarket Press. The Secretary of State for Scotland, who I am told will one day become a viscount and, if preferment comes his way, a duke—has substantial interests in a family brewery and an estate.
I estimate that those eight Cabinet Ministers who have substantial individual holdings near the £1 million mark will save about £1 million collectively by the concessions being made by the Government. No ordinary members of the public will benefit from these concessions, but eight of the wealthiest members of the Cabinet, if they play the rules, as no doubt they will be advised to play them—they will have excellent advice from the Minister of State—will save about £ 1 million. That is a low estimate of the benefits that they will receive, provided that they survive for more than 10 years to take the benefits of the lifetime accumulation provisions.
§ Mr. Straw
Those Ministers will not survive in the Cabinet for 10 years, but I suspect that they will be wished a long and happy life, after they are pushed out, to enable them to retire to their noble estates. One of the facts of life is that those who are wealthy tend to live much longer than those in social classes 4 and 5, who work themselves into an early grave and die much earlier than those who do not have to work.
§ Mr. David Winnick (Walsall, North)
Does my hon. Friend agree that those who will substantially benefit, especially members of the Cabinet, should declare an interest? I am not aware that one person, the Prime Minister or anyone else, has yet declared such an interest.
§ Mr. Straw
Neither am I. Much of the information provided in the business background of hon. Members has had to be elicited from Conservative Members rather than being volunteered. It is no wonder that the Minister of State, in his speech to the London Society of Chartered Accountants on 21 October last year, said:In practical terms much more has already been done than many people realise".That is so, but one group that realised that much had been done consisted of the members of the Cabinet and their colleagues.
Why do we object so fundamentally to the change? First, we object because of its inequity and the way in which it will greatly increase the inequalities of wealth in this country. In the same speech the Minister said:at a time when the scope for general tax reductions is not great it may well be difficult to move as fast and as far as we would like.The Minister is correct in saying that the scope for general tax reductions has not been great under this Government. There have been no tax reductions under this Government for the majority of the population, but it has suffered tax increases. It is sheer humbug for the Minister to say that it has been difficult for the Government to move as fast and as far as they would have liked on capital transfer tax. The truth is that the Government have moved fast and far on capital transfer tax, and by the concessions made last year and this they have essentially turned the tax once again into a voluntary tax for the ill-advised or for those who have the misfortune to die early.
I would that the Government had shown the same resolve as they have in so quickly undermining the capital transfer tax and in creating jobs for people and finding opportunities for school leavers and the long-term unemployed, and as they have in lining the pockets of themselves, their families and the rich, whom they represent.
While the Minister and his colleagues may not be worried about the way in which the changes are producing inequalities between the rich and the poor, they should be concerned about the way that the clause will produce inequalities between one kind of rich and another. The clause 89 perversely discriminates against self-made business men and in favour of the landed gentry and those who inherit wealth. The Government should reflect on how that discrimination against small business men has come from a Government who, of all Conservative Governments since the war, is the Government who have trumpeted their concern for small businesses. When the 675 Prime Minister was leading for the Opposition on the Finance Bill in 1974 and 1975 on capital transfer tax she said:when we consider the effect of the taxes at present proposed on small businesses, the only rational conclusion is that the Chancellor and his hon. Friends are out to destroy them."—[Official Report, 17 December 1974; Vol. 883, c. 1396–1397.]That view was echoed by the present Secretary of State for Defence in backing up the Prime Minister. He said:the Tory Party exists as much as anything to represent the continuity of family life and the family business and family farm."—[Official Report, 22 January 1975; Vol. 884, c. 1477.]The 10-year accumulation period favours those who inherit their wealth early and discriminates against those businessmen who start off from nothing and gradually build businesses until, at the age of 55 or 60, they find that they can transfer their business to a public company and realise the capital gain and the value of the business. If the Government seek to help the people whom they favour most—the so-called wealth creators who start with nothing and build up their businesses—they should introduce a concession for them instead of for people who inherit their wealth.
§ 8 pm
§ Mr. Straw
People who have built up their businesses and cannot sell them until late in their working life and who, unlike the idle rich, are likely to die early of a heart attack through over work, are penalised.
We also object to the concession because of the yield. The Government must say what they expect to lose as a result of this substantial concession and change in capital transfer tax. If the Minister fails to give an adequate explanation why the cost of the concession cannot be estimated, and was not even estimated when the Treasury devised the Budget, he must never complain about amendments that prevent the Government from raising taxation in this way.
Nothing illustrates more clearly the irresponsibility of the Government in terms of their overall economic policy and the say in which they have helped the rich and discriminated against the working population and the poor than the fact that they cost every charge that they heap on the poor and the working population but when they make a massive concession to the rich and wealthy they cannot even be bothered to work out the cost to the country. For those and other reasons we oppose the clause.
§ Mr. Campbell-Savours
I draw the attention of the Committee to the Conservative Party campaign guide issued in 1977. It is good reading, and I always bring it to such debates because it offers background to comments made by Conservative Members. Referring to taxation, it states that Conservativesintend to reduce the overall burden of tax".It qualifies that by sayingas soon as the economic situation permits.That means, when the economic position has been sufficiently revitalised to provide spare public expenditure for areas of taxation and taxation change to which the Government give priority. It means that under such conditions the Government would propose changes such as those contained in the clause.
I have dealt with the principle behind the Government's strategy. I turn to considering how they identify the priorities. The campaign guide was used by Conservative 676 candidates throughout the country to advance the case for Conservatism at the general election. On priorities, the guide states that inThe Right Approach To The Economyof October 1977—and I am sure that hon. Members will not wish to disown that document—under personal taxation it says:A reduction in the load of personal taxation is given top priority"—as we have seen in the last Budget. The document continues:It will be financed by expenditure economies, by that part of North Sea oil revenues that can be spared from debt repayment, and if necessary by a switch from direct to indirect taxation.We should, of course, need to take account of the effect of any such change on the living standards of poorer families—especially those who depend entirely on certain social security benefits.They were the priorities when the Conservatives sought the support of the people to form the Government. They have reversed their priorities. Even the principle has been changed to accommodate the prejudices of Conservative Members.
The reality is that the Bill introduces changes which will affect the lives and standards of living of hundreds of thousands, if not millions, of people. The money raised on the back of a series of repugnant clauses before the Committee yesterday is being given back to a small minority of people—the rich, the wealthy and the privileged.
Another aspect grieves me particularly. If Conservative Members consider carefully they will decide that the clause does not provide an incentive. I believe firmly that reducing the load of capital transfer taxation by enabling one generation to transfer wealth to another easily, without penalty and in a way which allegedly aids that following generation, does not act as an incentive. It is a positive disincentive.
Some people—not the landed gentry or Members who have inherited large tranches of wealth—pulled them-selves up by their bootlaces and made every effort many years ago, with little in their pockets but with sheer determination, to set up companies. They were excellent entrepreneurs in their way. They built the machinery with the help of the people whom they hired and generated the wealth which is regarded as so crucial. They were never helped by inherited wealth. If many of those people had inherited wealth in the post-war years, they would never have surfaced as successful entrepreneurs. The incentive was that they did not inherit wealth. They set out to create and generate wealth in the belief that they were capable of doing that.
When the Minister of State replied to the amendment tabled by the hon. Member for Colne Valley (Mr. Wainwright), he was cool and rational. He was particularly lucid, reasonable and understanding. He should adopt the same approach to the question of inheritance taxation, capital transfer taxation and other taxes based on capital. Perhaps the Conservative Party should re-examine its position. I believe that Conservatives are making a grave mistake. They misunderstand what drives the classic entrepreneur—the man or women who supports them.
The clause will give a very few people a large amount of wealth for doing nothing at all. It will also destroy for another small number of people the opportunity of setting up in business, recognising their own abilities and 677 acquiring an experience in life, the great joie de vivre or enjoyment that stems from making that vitally important contribution to the future industrial development of our society.
§ Mr. Winnick
Yesterday we debated the Government's proposals to penalise the unemployed and those on supplementary benefit as well as those who have the audacity to go on strike. Today we are debating another section of the community—the richest and the most prosperous. There could not be a greater contrast between the attitude of the Conservative Government towards the poorest, so often the victims of Conservative economic policies, and the other small and powerful group which is well represented on the Conservative Benches, certainly on the Front Bench, who will do very well out of the clause. The richest and the most prosperous will no longer be hurt in any way by the capital transfer tax which was introduced by the Labour Government.
One of the saddest features of Britain is the vast concentration of private wealth in relatively few hands. There has been very little progress—under Labour Governments, too, though we started in the right direction. We live in a society where 1 per cent. of the adult population—no more—still controls nearly 25 per cent. of private wealth, and where 5 per cent. own about 44 per cent. of all such accumulated wealth in the country. Inheritance has undoubtedly ensured that such vast concentrations of private wealth have continued. That is not disputed. Until something is done about it, we shall remain a very unequal society.
I do not deny that my right hon. Friend the Member for Leeds, East (Mr. Healey), when he was Chancellor of the Exchequer, made concessions that were welcomed at the time by the Conservative Party. I wish that he had not made those concessions, but at least he introduced the capital transfer tax and at least, given time and without the sort of concessions that were unfortunate and perhaps unavoidable in the circumstances, we could be working towards a more equal society than is likely to occur if clause 89 is accepted.
The clause drives a coach and horses through the capital transfer tax. One wonders why the tax is being allowed to continue at all. What purpose will it serve—except cosmetic purposes? Perhaps the Government have decided that it would not be right to take away capital transfer tax, and that they should simply destroy its effectiveness. Why should anyone bother to pay the tax under the clause? What purpose is served, unless, purely from ill luck, one dies before the 10 years are up and before the donor has lived 10 years afterwards? Otherwise it would seem ridiculous for anyone to pay the tax. I do not blame rich people for using the clause, as they will. They are not to blame. Why should they be blamed? They are being provided with the necessary legislation to assist them. They would be foolish not to use the ammunition and the assistance that are being given by this Government to the rich and prosperous in our community.
As my hon. Friend the Member for Blackburn (Mr. Straw) has said, the tax would clearly be of greater use among the rich to those who have inherited their wealth. The self-made man takes time to make money. By the time that he has made sufficient money to be in a position to give it away during his lifetime, he will be much older than the younger rich person in early middle age who will find 678 it most beneficial to give his money away in gifts as quickly as possible to make sure that no tax is paid within the first 10 years.
Sometimes we are given lectures by Conservative Members about the way in which they want to help the self-made man. However, when it comes to a choice between the self-made man and those who inherit their wealth, they help those who inherit their wealth. Of course, the clause is a godsend to the rich, and that is what it is meant to be.
When I consider how offensive the clause is, I cannot forget the many people in my constituency and in the constituencies of my right hon. and hon. Friends who are in great financial difficulty. I cannot forget the letters that I receive, for example, from widows who understandably complain about the amount of tax that they pay on their small income. I think, too, of the many elderly people in my constituency who need help with paying their fuel bills but who are unlikely to get it unless they are on supplementary benefit. I think of the unemployed who are desperately trying to make ends meet and whose unemployment benefit was increased by 5 per cent. less than the rate of inflation. Such people are being penalised by this Government, and yet the Government are assisting people who have vast amounts of private money
My hon. Friend the Member for Blackburn was right to ask "How much will it all cost?" When we ask about our constituents who need help, we are constantly told "There may be a case, but there is not the money. We cannot increase public expenditure." Yet how much will the Revenue lose as a result of the concessions in this clause? The Government view the matter in such a lighthearted fashion that they have not even given a figure, so clearly determined are they to assist the people whom they represent. The Government's attitude was summed up in our debate yesterday, and also in this debate. The Government are totally dedicated to transferring more wealth to the richest people in our society. There is a lesson for my right hon. and hon. Friends. If the Government are so single-minded in their determination to help the rich, surely the lesson for us is that when Labour comes to power we must be just as determined and single-minded in acting on behalf of the people whom we represent. Some of us on the Labour Back Benches sometimes criticise Labour Governments because they tend to be a little weak and do not have the single-mindedness and dedication of Tory Governments. We must learn the lesson and ensure that the next Labour Government bring in a new capital transfer tax and withdraw so many of the concessions now being made. That will be the right way for a Labour Government to act.
I want a more equal society. If I have the good fortune to live to a ripe old age, I do not want to have to say that 1 per cent. of the adult population still owns and controls vast amounts of wealth, like now—almost 25 per cent. A society in which there is such a contrast between the vast majority of people who own so very little and the remaining 5 per cent., 6 per cent. or 7 per cent. who own so much is sick. I want to end that situation, and the way to do so is by having a Labour Government with the same determination to advance the interests of the people that we represent as this Tory Government have shown on behalf of the rich.
§ Mr. Peter Rees
The hon. Member for Blackburn (Mr. Straw) is capable of careful and thoughtful speech. I cannot say that his intervention on this occasion has lived up to what we have come to expect of him. His tone seemed to colour the subsequent contributions from the Opposition Benches.
§ Mr. Rees
I am entitled to make certain criticisms of Opposition Front Bench contributions. On previous occasions we have had some thoughtful, penetrating analyses of the problems that we debated. I do not know whether the hon. Member for Grimsby (Mr. Mitchell) can speak on these matters.
Although it was not easy to detect, we have been debating clause 89. Much play was made of the question of cost by the hon. Members for Blackburn and Walsall, North (Mr. Winnick). As always, because the Opposition adhere to the conspiratorial theme, they suggested that there was a gigantic cover-up. The cost of clause 89 is shown as nil for the year 1981–82, and a footnote states that it is difficult to estimate for subsequent years.
I want to put the problem in perspective. The hon. Member for Blackburn, in a wild flight of fancy, suggested that it should be calculated to at least the nearest £100 million. The yield of capital transfer tax is about £425 million. We estimate that, of that yield, the charge on lifetime transfers has been £5 million a year to date. Therefore, even with all the resources commanded by the Labour Administration, with a dedicated and intelligent Chancellor, that was the yield on lifetime transfers. That does not suggest that we are talking about sums of £100 million.
§ Mr. Straw
When the Minister elucidates on that question, will he accept that there is no comparison between the yield of lifetime transfers, when there was the lifetime accumulation rule, and the yield that will be lost on death under the proposed 10-year accumulation rule? There was by no means as much incentive under the previous arrangement for people to transfer during their lifetime. Under the new arrangements, there will be a substantial incentive for people to transfer during their lifetime to avoid a charge of tax on their death.
§ Mr. Rees
The hon. Gentleman has made the most powerful case for introducing the provision that I have yet heard. I had intended to make that point later. Of course, people have been discouraged from making lifetime transfers—not withstanding the concessions introduced by the previous Labour Administration which the hon. Member for Walsall, North found so offensive—because of the way that the tax is structured.
Under the combination of clauses 88 and 89, if they commend themselves to the Committee, there will be a flow of lifetime transfers. Therefore, the yield of capital transfer tax may increase rather than decrease. The hon. Member for Blackburn wanted me to elaborate on why it is difficult to give a precise figure. He will realise that the tax will not have been in operation for 10 years until 1984. It is difficult to know precisely—although one can guess in general terms—what the pattern will be with the new arrangements for lifetime transfers as exemplified in schedule 11 and with the 10-year accumulation period.
Far from there being a loss of revenue, there may be an increase. That should gladden the heart not only of the 680 hon. Member for Blackburn but the hon. Members for Workington (Mr. Campbell-Savours) and Walsall, North. They have debated the matter in a high flow of rhetoric, which no doubt commends them to their constituency associations, but they have not penetrated deeply into the heart of the problem. I commend the provison to the Committee because it will probably stimulate a flow of lifetime transfers, stimulate the mobility of property between one generation and the next and simplify the system for the taxpayer who will have to keep a record of his transfers for only 10 years rather than for a lifetime.
There seems to have been a certain misconception in the mind of the hon. Member for Blackburn about the distribution of wealth between the two parties in the House. If he wants to initiate a serious debate, I can only say that it cheapens our debate to speculate on the wealth in either party. He might care to consider whether there are not certain accumulations of wealth even in the higher reaches of his party. It does not advance serious consideration of a serious subject if he treats the subject in the way that he did. I am sure that when he reflects on the matter he will realise that he did not do himself, the subject or his party full justice. It is better to confine the debate to the more important aspects. As I have already said, the provision will probably increase the flow of the revenue to the Exchequer, increase the flow of lifetime transfers and simplify the system for taxpayers.
The hon. Member for Workington was kind enough to say that at one point in our debates I had been lucid and reasonable. That was because I was responding to a lucid and reasonable argument in favour of an inheritance or accession tax put forward by the hon. Member for Colne Valley (Mr. Wainwright). On this occasion we have had a trivial debate riddled with cliches about the class war. The case against the provision is shown in the triviality of the speeches from the Opposition Benches. I hope that my hon. Friends, who have devoted considerably more thought to the clause than have Opposition Members, will recognise its merits and support it in the Lobbies tonight.
§ Mr. Straw
As the Minister has set the tone by offering compliments to Opposition speakers, I must tell him that the Opposition found his arguments less than convincing, especially those about the cost of the concession. His explanation as to why there might be an increase in revenue from the substantial concession—it has been described as a concession to those paying the terrible burdens of capital transfer tax—defies the imagination.
The Minister was right, and he accepted that I was right, to say that there would be an increase in lifetime transfers under the new arrangement. He must ask himself why that will happen. It is because it is more attractive for people to transfer during their life rather than to leave their property on death. It is more attractive to do so for two reasons. First, the lifetime rates are substantially below the rates on death, and secondly, the effect of the changes made this year and last year mean that a husband and wife can now transfer £160,000 every ten years free of tax.
The combination of lower rates and the fact that over a 30-year span someone who has inherited £500,000 at the age of 30 years may dispose of that total sum without having to pay a penny piece in tax must mean in common sense that there will be a loss of revenue. If, as we suspect, the clause and the Bill pass through the House of Commons and are enacted, we shall carefully monitor the progress of these provisions and their yield.
681 8.30 pm
If the Minister of State is convinced that these proposals will increase rather than decrease revenue, he is probably the only man in the United Kingdom who holds that belief. It is utter nonsense. In an explanation of the substantial changes that are being made to capital transfer tax, even the The Times commented:For most people capital transfer tax has, as a result of this Budget, become close to being a voluntary tax, or at least a tax on the badly advised.If it is a voluntary tax, it will be a tax paid in far smaller amounts than would have been so—
§ Mr. Campbell-Savours
Will my hon. Friend try to draw the Minister on the vital issue of incentives? The hon. and learned Gentleman has argued that the introduction of the clause would be an incentive to small businesses and for others to set up small businesses. Surely it needs to be proved to the Committee that the hon. and learned Gentleman has a case. He has not answered the suggestions of my hon. Friends that his argument is incorrect.
§ Mr. Straw
I agree that the Minister has answered neither that argument nor those advanced in drawing attention to the way in which the changes embodied in clause 89 discriminate against the self-made man in favour of those who inherit wealth. The Minister merely dismissed our comments as trivial and said that they lowered the tone of the debate. I should be delighted to give way to him if he wished to answer our contentions. I suspect that he wishes to stay in his place.
The clause embodies a concession that is deeply unfair. It drives a coach and horses through the concept of capital transfer tax and once again makes it a voluntary tax. The provisions will work in favour of the well-advised, the wealthy, and those who inherit their wealth and against small businessmen who put together their businesses over many years and who do not have the benefit of advice from gentlemen such as the Minister of State. They will find themselves paying for the concessions that are given to others.
§ Question put, That the clause stand part of the Bill:—
§ The Committee divided: Ayes 163, Noes 110.683
|Division No. 181]||[8.32 pm|
|Alexander, Richard||Carlisle, Rt Hon M. (R'c'n )|
|Alison, Michael||Chalker, Mrs. Lynda|
|Ancram, Michael||Chapman, Sydney|
|Arnold, Tom||Clark, Hon A. (Plym'th, S'n)|
|Aspinwall, Jack||Clark, Sir W. (Croydon S)|
|Baker, Nicholas (N Dorset)||Clegg, Sir Walter|
|Banks, Robert||Cockeram, Eric|
|Bendall, Vivian||Colvin, Michael|
|Benyon, Thomas (A'don)||Cope, John|
|Berry, Hon Anthony||Costain, Sir Albert|
|Bevan, David Gilroy||Cranborne, Viscount|
|Biffen, Rt Hon John||Crouch, David|
|Biggs-Davison, John||Dean, Paul (North Somerset)|
|Blackburn, John||Dorrell, Stephen|
|Bowden, Andrew||Dover, Denshore|
|Braine, Sir Bernard||du Cann, Rt Hon Edward|
|Brinton, Tim||Dunlop, John|
|Brittan, Leon||Dunn, Robert (Dartford)|
|Brooke, Hon Peter||Eggar, Tim|
|Brown, Michael(Brigg & Sc'n)||Fairbairn, Nicholas|
|Browne, John (Winchester)||Fairgrieve, Russell|
|Bruce-Gardyne, John||Faith, Mrs Sheila|
|Budgen, Nick||Farr, John|
|Cadbury, Jocelyn||Fenner, Mrs Peggy|
|Carlisle, John (Luton West)||Fisher, Sir Nigel|
|Carlisle, Kenneth (Lincoln)||Fletcher-Cooke, Sir Charles|
|Galbraith, Hon T. G. D.||Proctor, K. Harvey|
|Gardiner, George (Reigate)||Raison, Timothy|
|Garel-Jones, Tristan||Rathbone, Tim|
|Goodlad, Alastair||Rees, Peter (Dover and Deal)|
|Gow, Ian||Renton, Tim|
|Gray, Hamish||Rhodes James, Robert|
|Greenway, Harry||Rhys Williams, Sir Brandon|
|Griffiths, Peter Portsm'th N)||Ridsdale, Sir Julian|
|Gummer, John Selwyn||Rifkind, Malcolm|
|Haselhurst, Alan||Rossi, Hugh|
|Hawksley, Warren||Royle, Sir Anthony|
|Hayhoe, Barney||Sainsbury, Hon Timothy|
|Heddle, John||St. John-Stevas, Rt Hon N.|
|Henderson, Barry||Shaw, Giles (Pudsey)|
|Hordern, Peter||Shelton, William (Streatham)|
|Hunt, David (Wirral)||Shepherd, Colin (Hereford)|
|Hunt, John (Ravensbourne)||Sims, Roger|
|Hurd, Hon Douglas||Skeet, T. H. H.|
|Jenkin, Rt Hon Patrick||Speed, Keith|
|Johnson Smith, Geoffrey||Speller, Tony|
|Jopling, Rt Hon Michael||Spicer, Jim (West Dorset)|
|Kaberry, Sir Donald||Sproat, lain|
|King, Rt Hon Tom||Stanbrook, Ivor|
|Kitson, Sir Timothy||Stanley, John|
|Lee, John||Stevens, Martin|
|Le Marchant, Spencer||Stokes, John|
|Lloyd, Peter (Fareham)||Stradling Thomas, J.|
|Luce, Richard||Taylor, Teddy (S'end E)|
|Lyell, Nicholas||Tebbit, Norman|
|Macfarlane, Neil||Thatcher, Rt Hon Mrs M.|
|MacGregor, John||Thomas, Rt Hon Peter|
|McNair-Wilson, M. (N'bury)||Thompson, Donald|
|Major, John||Thorne, Neil (Ilford South)|
|Marlow, Tony||Thornton, Malcolm|
|Marshall, Michael (Arundel)||Townend, John (Bridlington)|
|Mates, Michael||Trippier, David|
|Mather, Carol||Viggers, Peter|
|Maude, Rt Hon Sir Angus||Waddington, David|
|Mawby, Ray||Wakeham, John|
|Maxwell-Hyslop, Robin||Waldegrave, Hon William|
|Mellor, David||Walker, B. (Perth)|
|Miller, Hal (B'grove)||Walker-Smith, Rt Hon Sir D.|
|Mills, Iain (Meriden)||Ward, John|
|Mills, Peter (West Devon)||Warren, Kenneth|
|Morgan, Geraint||Watson, John|
|Murphy, Christopher||Wells, John (Maidstone)|
|Myles, David||Wells, Bowen|
|Needham, Richard||Wheeler, John|
|Nelson, Anthony||Whitney, Raymond|
|Newton, Tony||Wickenden, Keith|
|Normanton, Tom||Williams, D.(Montgomery)|
|Onslow, Cranley||Wolfson, Mark|
|Page, Richard (SW Herts)||Younger, Rt Hon George|
|Patten, John (Oxford)|
|Percival, Sir Ian||Tellers for the Ayes:|
|Powell, Rt Hon J.E. (S Down)||Lord James Douglas-Hamilton and Mr. Robert Boscawen.|
|Prentice, Rt Hon Reg|
|Price, Sir David (Eastleigh)|
|Allaun, Frank||Cunliffe, Lawrence|
|Alton, David||Davidson, Arthur|
|Archer, Rt Hon Peter||Davis, T. (B'ham, Stechf'd)|
|Atkinson, N.(H'gey.)||Deakins, Eric|
|Beith, A. J.||Dempsey, James|
|Bennett, Andrew(St'kp't N)||Dewar, Donald|
|Boothroyd, Miss Betty||Dixon, Donald|
|Brocklebank-Fowler, C.||Dormand, Jack|
|Brown, Hugh D. (Provan)||Douglas, Dick|
|Buchan, Norman||Dubs, Alfred|
|Callaghan, Rt Hon J.||Duffy, A. E. P.|
|Callaghan, Jim (Midd't'n & P)||Dunwoody, Hon Mrs G.|
|Campbell-Savours, Dale||Eadie, Alex|
|Clark, Dr David (S Shields)||Eastham, Ken|
|Cocks, Rt Hon M. (B'stol S)||Ellis, Tom (Wrexham)|
|Coleman, Donald||Ewing, Harry|
|Concannon, Rt Hon J. D.||Faulds, Andrew|
|Cook, Robin F.||Fitt, Gerard|
|Craigen, J. M.||Fletcher, Ted (Darlington)|
|Cryer, Bob||Foster, Derek|
|Foulkes, George||Price, C. (Lewisham W)|
|Graham, Ted||Race, Reg|
|Grant, George (Morpeth)||Radice, Giles|
|Grimond, Rt Hon J.||Richardson, Jo|
|Hamilton, James (Bothwell)||Roberts, Ernest (Hackney N)|
|Hamilton, W. W. (C'tral Fife)||Rooker, J. W.|
|Harrison, Rt Hon Walter||Roper, John|
|Haynes, Frank||Sandelson, Neville|
|Heffer, Eric S.||Sever, John|
|Holland, S. (L'b'th, Vauxh'll)||Sheldon, Rt Hon R.|
|Hooley, Frank||Silverman, Julius|
|Howells, Geraint||Skinner, Dennis|
|Huckfield, Les||Soley, Clive|
|Hughes, Robert (Aberdeen N)||Spearing, Nigel|
|John, Brynmor||Spriggs, Leslie|
|Johnston, Russell (Inverness)||Steel, Rt Hon David|
|Jones, Barry (East Flint)||Stewart, Rt Hon D. (W Isles)|
|Kilfedder, James A.||Stoddart, David|
|Lamond, James||Straw, Jack|
|Leighton, Ronald||Thorne, Stan (Preston South)|
|Lofthouse, Geoffrey||Tilley, John|
|Lyon, Alexander (York)||Tinn, James|
|McCartney, Hugh||Wainwright, E.(Dearne V)|
|McElhone, Frank||Wainwright, R.(Colne V)|
|Maclennan, Robert||Weetch, Ken|
|Marshall, Dr Edmund (Goole)||Welsh, Michael|
|Martin, M(G'gow S'burn)||White, Frank R.|
|Mason, Rt Hon Roy||Wigley, Dafydd|
|Millan, Rt Hon Bruce||Wilson, Gordon (Dundee E)|
|Mitchell, Austin (Grimsby)||Winnick, David|
|Morris, Rt Hon C. (O'shaw)||Woolmer, Kenneth|
|Morris, Rt Hon J. (Aberavon)||Wrigglesworth, Ian|
|Morton, George||Young, David (Bolton E)|
|Parry, Robert||Tellers for the Noes:|
|Penhaligon, David||Mr. Allen McKay and|
|Prescott, John||Mr. Joseph Dean.|