Clause 24. — (Abolition of Duties.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 11th July 1949.

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Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden 12:00 am, 11th July 1949

I beg to move, in page 16, line 31, to leave out Clause 24.

We now come to one of the major Debates of this afternoon, that is, on the subject of the alteration in the Death Duties and the abolition of the Legacy and Succession Duties. You have suggested, Mr. Deputy-Speaker, that the Debate on these Clauses should take place together. I think that will be convenient, and we should like to reserve our position in regard to voting on one or both of these Clauses. The Debate thus gives us an opportunity to consider what the Chancellor described in his Budget speech as a moderate lift in the Death Duties. The more we have examined this matter, either from the angle of the desire of the Chancellor not to favour the family or from the point of view of the lift, the more we think this is a subject which deserves further Debate upon the Report stage of the Bill.

Now, there appear to be several propositions put forward by the Government with which we disagree profoundly. The first proposition was put forward by the Solicitor-General in the course of our previous Debates, and that was that the present law is unjust in its operation. The second proposition put forward by the Government, and the Chancellor during his Budget speech, is that it is better not to favour the family when making a will. The third proposition is that the burden of the Death Duties should be increased. I confess that I feel more inclined to be highly critical upon the first two propositions, and on the subject of the burden of the Death Duties simply to express my great regret that this section of the Revenue should be called upon to raise a large sum of money in order to help us through our present economic crisis and difficulties—but I will deal with that matter at the end of my remarks.

I shall now make one or two general observations which apply to the various propositions put forward by the Government spokesmen. The first general observation is that it is quite clear that the Chancellor and the Government have undertaken this so-called reform in regard to Clauses 24 and 25 for what is described as administrative convenience. They are proud of themselves for abolishing the Legacy and Succession Duties because, they claim, those duties have been difficult to administer and because, presumably, they occupy a large staff in their administration. I call this a very poor peck at tax reform. If we are to reform all our taxation structure, I would direct the attention of the Government to the need for reforming our Income Tax generally, instead of concentrating so much upon these two taxes which have been operating for many years to the satisfaction of all those who have been beneficiaries and, I hope, to the satisfaction of those who have now passed away.

5.0 p.m.

I do not believe that to approach a reform of the taxation system simply from the angle of these two taxes is either an important move or a just move, I do not believe that the result which will be produced by the Government's so-called reform will be just to the widow and family. The second general observation is that the really heavy incidence of the alteration of the burden is due to the Government being in a muddled state of mind, for I maintain that they have tried to combine a reform in the Legacy and Succession Duties with the very considerable lift upwards which the Chancellor has tried to give to the Death Duties. When we examine the effect of these two efforts together—an attempt at reform and an attempt at lift—we see that at cerain scales in the range of estates a definite, severe injustice has crept in; and no taxation system will endure if there is injustice. I doubt whether the Revenue in future years will be able to look forward to the same results from the Death Duties generally as it has done in the past.

The first arguments to which I want to address my attention are those put forward by the Solicitor-General in the course of our previous Debates. They are chiefly on the subject of the elimination of the preference for the family, which normally we should desire the testator to have. I quote the actual words of the Solicitor-General in his first argument, because it is very important that the whole case of the Government on this matter should be demolished. The right hon. and learned Gentleman said: … notwithstanding that the testator has intimated as his desire that the relative shall have her legacy free of duty, we, in enforcing the present law, go contrary to his wish and carve the Legacy Duty out of the residue of the estate … the present state of the law is … utterly irrational. During the Committee stage, hon. Members on this side attempted to show that it is not the state of the law that is irrational, but the Solicitor-General's mind, because it must be clear to him, the Solicitor-General, that if it is the intention of a testator to leave a certain sum to a beneficiary, if he consults a capable firm of solicitors or lawyers of repute he will be given advice which will enable him to make his own wish in making his will.

For example, if a man takes legal advice in making his will, which it is usually desirable to do, he can, with the aid of modern science in the legal world, presumably reach an accurate picture. He can so draw his will that the Legacy Duty under the present state of the law is taken from the residue, and so the point made by the Solicitor-General is met. We do not, therefore, think that the right hon. and learned Gentleman's first point, that the law does not now operate fairly, can hold water, because, if a will is properly made, with legal advice, it is possible for the testator to aim at the target and to hit it. If, however, the testator does not wish to consult a lawyer and makes his will in a wrong way, it is possible to uphold the Solicitor-General's argument.

The Solicitor-General's next argument in defence of this irrational proposal to remove the preference or benefit from the family was when he said: Whereas we have an increase of from 3 per cent to 13 per cent. in the case of an estate of £6,000, with a big estate—an estate charged at the rate of 75 per cent. which is the rate charged on estates over £2 million—the increase is 2½ per cent. That is another reason why the present rate of Legacy Duty is indefensible. It is rather an extreme case to take a £2 million estate as an illustration, but it is obvious that when we start by a levy of 75 per cent. extra duty in one case and 3 per cent. in the other, any percentage rate for Succession Duty must mathematically represent the smaller proportion or the larger initial figure. If we look at the illustration given by the Solicitor-General, we find that in the end the gentleman who is in the fortunate position of owning a £2 million estate has to pay a tax of about £1,550,000. The Solicitor-General might well feel satisfied that, taking the whole of the duties together—Succession, Legacy and the ordinary Death Duty lift—the Chancellor does quite well out of the larger estate. In the case of the smaller estate—the £6,000 estate—the total liability will amount to about £750. I do not, therefore, think that the present law is operating particularly much in favour of the larger estate, and when we come to the increase in the lift the larger estate will, of course, be very much more hit than it was before.

The Solicitor-General's third argument was in these words: At the same time we have considerably advantaged the poor dependent relatives who, in the future, will not have to pay the 20 per cent. which, in the case of a small legacy, is very heavy indeed if the relative is dependent largely upon the legacy for his or her support …"—[OFFICIAL REPORT, 27th June, 1949; Vol. 466, c. 792, 794.] The right hon. and learned Gentleman went on to make the burden of his argument that, thanks to the new irrational procedure proposed by the Government—taking away the preference given to the family—it would now be possible for the Government, so to speak, to insist that testators leave fairly and squarely the right amount of money which the Government think they ought to leave to people who are not their own near relatives. I do not believe that the distant aunt, the mistress, the friend, the chauffeur or anybody else will be advantaged by the Government's proposal, or that any Government can dictate to a testator how he decides his own will. At present, as I have tried to show, if we take legal advice and operate the present law as it stands, we can, in fact, achieve the results we desire; if we want to leave more to our families than to other people, we can achieve that result. If we want to switch the burden of our legacy on to the non-family person, non-related by blood, we can equally well do so.

I do not believe that these things will be effected better by the Government's reform. In fact, the very reverse will happen to what the Solicitor-General said he desired, because if he tells, as he is telling, the public in this country that the present preference rate for the family—the widow especially—is to be removed, and that, in fact, the incidence of the new rates at certain levels over £17,500 is to go right against the family such care will be taken by testators to look after their own families that the distant relatives—those who have served them faithfully and who are not relatives by blood—will be much worse off than before. Therefore, I draw the Solicitor-General's attention to the weakness of his own arguments, because I believe that this reform will not achieve the result he desires and that he will be cursed by the ass, as Balaam was in the end, instead of being blessed by that venerable animal.

I want now to turn to some of the broader aspects of this particular reform. The Solicitor-General's main argument was that in the case of the family with an estate below the level of £17,500, the situation had been positively improved. However, if we examine some slightly larger figures, we find that the facts are somewhat disturbing as between the present and the future proposed law in regard both to the family and to strangers in blood or charities of any sort. Take, for example, an estate of £23,000. Under existing law the present rate of duty for a stranger is 12 per cent. Under the Budget proposals, however, there will be an actual reduction, as against the family, of some £3,358, as compared with the burden which would have fallen on the stranger under the existing law. Take the same estate of £23,000, and in the case of the family we find that, instead of a reduction as compared with the existing position, there is actually an addition of £286. As far as I know those figures are correct and they indicate a colossal improvement in the case of a stranger and a slight deterioration in the case of the family. On an estate of £67,000, where the general rate has gone up from 27 per cent. to 40 per cent., we find that the family, the widow and child or lineal descendants, are worse off by £7,734, whereas the stranger is still better off by £1,072.

These are striking examples of the particular range of income to which the Solicitor-General did not give his attention very closely when he was addressing us on the last occasion. We claim that it is quite wrong for the Government to satisfy themselves that they are being equitable in the figure of £17,500 if, in fact, they are introducing gross anomalies of this sort in the general range of duties higher than that. We are told that there should not be one law for the rich and one for the poor. I am using those terms relatively in reference to these figures, but it is not an equitable basis on which to erect any taxation system that we should treat certain people's estates with gross unfairness just because we combine the general lift of £20 million which the Chancellor wants from Death Duties with these new proposals for the abolition of preference under the Legacy and Succession Duties.