Clause 30. — (Capital Gains.)

Orders of the Day — FINANCE (No. 2) BILL – in the House of Commons at 12:00 am on 12th June 1967.

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Photo of Sir John Hall Sir John Hall , Wycombe 12:00 am, 12th June 1967

I beg to move Amendment No. 182, in page 36, line 13, at the end to add: (2) For the year of assessment 1967–68, the rate of capital gains tax shall be 25 per cent. This is the third year in succession that the Opposition have moved to reduce the rate of Capital Gains Tax. In the first year, 1965, it was moved from the Liberal benches, but last year and again this year the reduction was moved by my right hon. and hon. Friends. The arguments used on previous occasions are as valid now as they were then, and their truth does not become less by repetition. Nothing more clearly demonstrates the truth contained in Alexander Pope's line that Hope springs eternal in the human breast; than our moving this Amendment for the third time. He went on to say that Man never is, but always to be blessed, and little realised when he penned that line that he was describing what would be the whole philosophy of the Government Front Bench.

5.45 p.m.

If there is one achievement of which the Government can take pride it is in the field of fiscal legislation. That may sound rather odd in the ears of my hon. Friends, but the Government have succeeded in doing something which I do not think any previous Government have done—to make our tax law so complicated that even tax counsel and accountants cannot understand it, or give proper advice on it to their clients.

The Government have also succeeded in so overburdening the Inland Revenue that the Chancellor of the Exchequer had to buy off a threatened strike last year, and it is clear from the recent conference of Inland Revenue staffs that they find the present situation very grave and unsatisfactory. The Government have also succeeded more than any previous Government—I must be fair and say that other Governments have had a good shot at this—in diverting top men from their proper productive jobs to the consideration of tax affairs to the detriment of the economy.

If I were to try to give pride of place to the tax which has contributed most to this undesirable result I think that I should give it to the Capital Gains Tax. Professor Wheatcroft, who, together with Mr. Park, has produced as authoritative a volume on Capital Gains Tax as any volume can be in the present confused state of the tax, expresses this point very fairly on page 457 of his book, in which he points out: Unfortunately, however, the Capital Gains Tax also has considerable demerits. First of all, it is unlikely to produce any substantial revenue for a number of years. A tax which brings in no money but involves the country in extremely complicated administration, both to the Revenue and to the tax payer, is a handicap to the country at a time when it is suffering from a serious shortage of skilled manpower. I could quote further from his strictures, but I think that that is enough for my purpose.

What is the revenue that we are likely to get from the tax? In his 1965 Budget speech the Chancellor of the Exchequer estimated that it would build up to, I think he said, £125 million at some unexplained time in the future—[An HON. MEMBER: "Fifteen years."]—Yes, in 15 years. He estimated then that in 1966–67 the yield from long and short term tax would be £12 million, and in 1967–68 £30 million.

I understand that the actual result in 1966–67 was £7 million and the estimated out-turn for the current fiscal year 1967–68 is £5 million. The cost of our proposal to reduce the rate from 30 to 25 per cent. would be under £1 million on the basis of the present estimate, a very modest proposal. But, of course, this is entirely arithmetic. Nobody really knows what the figures will be. Whatever we put up to the Committee as a possible yield from the tax at this stage appears to be simply guesswork.

However, we know that in other countries the revenue from this type of tax is small and the cost of collection is very high. What we do not know is what the cost of collection is in this country. Certain of my hon. Friends and I have tried from time to time to get information on this point by varying our questions to the Treasury Bench. But with that skill which one so admires its members manage to stonewall in their answers, and we still have no information on the point. But we do know the total cost in terms of extra Inland Revenue staff and accounts staff. The total time spent on it by many thousands of people throughout the country must be high. We also know that the tax as now operated is increasingly becoming a tax on capital as well as on capital gains.

I turn again to the only authoritative book outside the Inland Revenue's own pamphlet on the subject. Professor Wheatcroft gives very interesting tables on page 2 of his book. Table 1 shows the money gain of an asset at different rates of inflation with a constant real value over five, 15, 20 and 25 years. Let us take an example from that, bearing in mind that the Index of Retail Prices in April this year showed a rise of 10·8 per cent. since October, 1964. It would not be unreasonable to take 5 per cent. as the rate of inflation under the present Government for a period of years until they are superseded. Taking it as 5 per cent., at this rate of inflation an asset worth £100 today will be valued in 10 years' time at £162·9 and there will be a tax on the gain of nearly £19 if the rate of 30 per cent. still applied. Taking the value of the asset 15 years from now, an asset of £100 now will then be worth £207·9, and if it is realised then, the tax on gain will be slightly over £60. If we take it over the whole period of 25 years, the value of that asset will be £338·6 at the end of that period and the tax on the gain will be over £100.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

With regard to the tax on the gain, if the hon. Gentleman wants to be completely fair to the Committee he should point out that the rate that he has taken applies to a very small percentage of taxpayers.

Photo of Sir John Hall Sir John Hall , Wycombe

It applies to a percentage of taxpayers, it is true, but the full rate applies to many taxpayers in addition. If one takes the smaller rate, the argument still remains that it is a tax on capital and not a tax on capital gains. What one sees here is that whereas one has an asset at the end of these various periods which is worth no more in real terms, nevertheless in each case the individual concerned has had to pay tax of an increasing amount, which is the tax on capital.

Professor Wheatcroft has made clear in Table II on the same page that with inflation Capital Gains Tax is equivalent to a wealth tax at a substantial rate. Perhaps this was the intention of the Government when they introduced Capital Gains Tax. If so, it did not say so, but it may well have been their intention.

Our proposal to reduce the rate to 25 per cent. will not cure this, however, but it will tend to reduce its effect. Furthermore, it will bring us into line with the U.S.A., which is the one country with which the Financial Secretary has on the two previous occasions when we have debated the substance of this Amend-suggested that we could properly compare ourselves. It was this comparison, as the Financial Secretary will no doubt remember, that led to the birth of MacDermot's Law in 1965. That is an event that we have celebrated each year about this time, and no doubt it will find its place in due course in the cautionary tales with which we regale our grandchildren.

I would remind the Committee of MacDermot's Law. I will sum it up as accurately as I can. Briefly, it was that if we have a higher maximum level of personal taxation than any other country, our other taxes should also be higher. As the United Kingdom has a much higher maximum level of personal taxation than any other country, the Capital Gains Tax should also be higher. I remember on a previous occasion summing this up by a version of an old verse: High taxes have higher taxesUpon their backs to bite 'em,And higher taxes have higher taxesAnd so ad infinitum. That seemed roughly what MacDermot's Law amounted to.

Many tax experts take a rather different view, the view that when Capital Gains Tax was introduced at the rate of 30 per cent. there should have been substantial reductions in the top rates of Surtax. This is a fairly widely held view. Nevertheless, the Surtax remains at the top rate of 91¼ per cent., excluding the surcharge which we are paying this year.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

Could the hon. Gentleman explain why, if there was a 30 per cent. rate of Capital Gains Tax, it would be very logical to reduce the Surtax level?

Photo of Sir John Hall Sir John Hall , Wycombe

The reason is that it is considered that the maximum rate of Capital Gains Tax affects those who come into the Surtax level, and, therefore, if one imposed a rate of 30 per cent. of Capital Gains Tax, which includes an element of wealth tax in it, it would have been logical in itself, if social justice is to be done, to reduce the top level of Surtax at the same time. Perhaps in consequence of this the Financial Secretary may be moved to give a small concession, though after his intervention I am not very hopeful about that.

I am driven to quote Alexander Pope again. In "Letters to Fortescue" he wrote: Blessed is the man who expects nothing for he shall not be disappointed. In that sense I am blessed indeed because I expect nothing. A Government who can produce the Selective Employment Tax and the Capital Gains Tax in its present form are unlikely to be moved by any appeal to their sense of fiscal justice. Ministers who were unmoved last year and the year before by the eloquent arguments advanced by my right hon. and hon. Friends must, I fear, have developed a built-in resistance to reason and logic.

I very much regret that the Joint Under-Secretary of State for Economic Affairs—he has now left us—who from time to time in our previous debates in 1965 and 1966 supported our point of view with great cogency and logic, should gradually become contaminated by the atmosphere of the Government Front Bench and is coming to a point when before long I am sure he will be arguing even against his own convictions.

I do not want to repeat the arguments that were advanced on the two previous occasions. I have tried to avoid doing so. I have taken another point altogether. As I have tried to resist that temptation, I hope that the Financial Secretary will resist the temptation to repeat the usual argument about this concession benefiting only Surtax payers—even if that were wholly true, which it is not. I remind him that the overwhelming majority of the leaders of our community on whom we depend for their skill, drive, initiative and enterprise are Surtax payers, and if they become really convinced that the Government believe it right to maintain the most savage progressive Surtax system of any major industrial country—and knowing that continuing inflation will push them higher up the Surtax scale without increasing their real income—they may reconsider the motives of prestige, power and status which the Chief Secretary believes keep them anchored to this country without regard to the mundane matter of net income.

Mr. J. T. Price:

The hon. Gentleman is producing a most heartrending argument in favour of very wealthy members of our community. In that narrow band of logic there is a single argument that he can sustain so far as fiscal affairs are concerned. But is it not going rather far to suggest that all the people in the higher income brackets who have the privilege of paying Surtax render any useful service to the community? Surely it is a question of the professional owning classes, the great estate owners, who contribute nothing to the welfare of this country but are in that bracket. Surely the argument is invalid.

Photo of Sir John Hall Sir John Hall , Wycombe

It is, of course, true that not all Surtax payers make a useful contribution to the welfare and the economy of the country. It is also true that not all those who do not pay any tax at all make a useful contribution to the welfare and economy of the country.

Photo of Sir John Hall Sir John Hall , Wycombe

I should not like to say which Members of Parliament make the greatest contribution. Just because in a particular class of taxpayers there is a minority who may not contribute all that they should to the country's wellbeing and welfare, that is no argument for imposing a fiscal injustice upon all of them as a body. [Interruption.]

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. We are dealing with the rate of Capital Gains Tax.

Photo of Sir John Hall Sir John Hall , Wycombe

I was about to conclude by saying—

Mr. J. T. Price:

On a point of order, Sir Eric. I do not mind being rebuked from the Chair, whoever occupies it, if I am in the wrong. But the first interruption was by an hon. Member opposite. Surely he should not get away with it without challenge.

6.0 p.m.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Further to that point of order. I cannot, Sir Eric, hear my own Front Bench spokesman due to the sedentary interruptions of the hon. Member for Westhoughton (Mr. J. T. Price). Could he be asked to restrain himself?

Photo of Sir John Hall Sir John Hall , Wycombe

If I may be forgiven for intervening in this debate, perhaps I could now come to the end of my short speech on this Amendment. I was going to say to the Financial Secretary that to grant the concession which we ask, which, as I have already pointed out, on the figures already put before us is a very small concession indeed, and would not cost very much money, would at least be some assurance that the most able are not regarded as fiscal untouchables. It would go a small way to reducing the impact of the wealth tax which is contained in this Capital Gains Tax on top of the Surtax itself.

I am sure that the Financial Secretary has not even had to rehearse all the arguments; he has probably taken note of his speeches on previous occasions and will produce the same argument in trying to reject this Amendment. I hope that I am wrong in that. I hope that his approach will be a fresh one. I hope that he will see how the tax has been developed over the last three years, and has now come to the conclusion that he can at last grant the concession for which we ask.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The hon. Member for Wycombe (Mr. John Hall) started off with the argument that the Capital Gains Tax is a bad one because it brings in insufficient revenue, and he has moved an Amendment which reduces the revenue further, but that was only one of a number of contradictions in his speech.

Photo of Sir John Hall Sir John Hall , Wycombe

I am sure the hon. Gentleman does not wish to misrepresent me. I was not saying that it was a bad tax because it did not bring in sufficient revenue. I was merely saying that it was not bringing in the amount of revenue which had been estimated.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

With due respect, I understood the hon. Gentleman to mean that a tax which brought in the amount of revenue that this one did was not worth the trouble of collecting.

However, I will leave that, because it became quite clear during the hon. Gentleman's speech what he is really after in moving this Amendment. Of course, we need to consider that this Amendment will affect some people. It may be assumed that it will affect most, but, by the interventions which have been made, I think it has become clear by now that the people whom this Amendment is meant to help are the Surtax payers. Standard rate taxpayers pay, as we know, Capital Gains Tax at a rate of about 20½ per cent., and those who pay Income Tax at a rate less than the standard rate will have an even lower rate of Capital Gains Tax. The only people who pay this tax at the level of 30 per cent. are the high Surtax payers. Once again, we come to one of the favourite taxes for reduction of hon. Members opposite—the reduction of Surtax—and I think that this needs to be clearly understood here and throughout the country.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Why does the hon. Member make that assertion, that this for us is one of the favourite taxes for reduction? Is he not aware that, within reason, we are in favour of keeping taxes down, and that it is the party opposite which seems to be in favour of keeping taxes up?

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

It may be a purely personal impression, but it seems to me that the greatest fervour is aroused and the most heat generated amongst hon. Members opposite whenever Surtax or the reduction of Surtax is mentioned.

The purpose of the Capital Gains Tax was threefold, as I understood it. First, there was the need for fairness in taxation, the need to tax increases in wealth wherever it was and in whatever form. Secondly, there was the growing difficulty in distinguishing between capital gains and income; because of the various devices sophisticated people were beginning to employ it became extremely difficult to distinguish between income and appreciation of capital, and obvious that what really needed to be taxed was wealth.

The third and the big argument, as I understood it, was the closing of the loophole for the avoidance of Corporation Tax and this was really why it was introduced at the same time. With the introduction of Corporation Tax, with its many advantages in separating company tax from individual tax, encouraging the ploughing back of profits, and all the other benefits which, I believe, flowed from the introduction of Corporation Tax, a large part of this could have been negatived by artificial and untaxed creations of capital. This is prevented by the Capital Gains Tax. The formation of companies, and the selling of companies and the creation, in other words, of capital assets to avoid Corporation Tax would have been a loophole. The Capital Gains Tax effected the stopping of a loophole.

We all know that as soon as we stop a loophole, and stop it successfully, we then stop a large part of the activity going through that loophole. This is one of the reasons why, as we well know, Capital Gains Tax in its initial years will be a very low revenue raiser. It stops the use of making capital gains in the way that would have been so used if the tax had not been brought in. It is, therefore, in its essential nature, a long-term tax in its revenue aspects, but a short-term requirement to be used with the Corporation Tax. This was why it was so introduced, and I think that this should be clearly understood.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I want at once to bring this debate down to earth and to contradict outright and downright the hon. Gentleman the Member for Ashton-under-Lyne (Mr. Sheldon). The tenor of his speech, as usual, was to impute to me and many of my hon. Friends the sole desire to see Surtax and other taxes which afflict the wealthy and the well-to-do reduced. Nothing of the kind. Neither is it true: there is not one jot or tittle of truth in the statement made by the hon. Gentleman the Member for Ashton-underLyne—that only Surtax payers are affected by this Amendment. I wrote his words down—"only Surtax payers". What drivelling rot.

Take the Stock Exchange alone, of which the hon. Gentleman's knowledge is nil. There are 4 million owners of equity and other stocks and securities, including unit trusts, quoted on the London and provincial stock exchanges—4 million of them. Every one of the 4 million is affected by the Capital Gains Tax. Are all those 4 million people Surtax payers? Of course they are not. The number of Surtax payers in this country is relatively tiny.

The hon. Member has never carried out the juvenile exercise, the relatively simple exercise, of looking at the report of a unit trust, to see the extraordinary complexities in which we have now been plunged by the incidence of the capital gains duty. Does the hon. Member know, for example, that all the calculations in respect of the value of units declared half yearly by all our unit trusts often have to be shown to nine places of decimals of 1d. for the guidance of unit owners? And there are 4 million owners of stocks and shares afflicted.

Perhaps the hon. Gentleman the Member for Ashton-under-Lyne, when he has had time to reflect upon the errors of his utterances, will apologise for deliberately misleading the Committee, deliberately—

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I will give way in a moment, when I am ready. The hon. Gentleman is the most reluctant hon. Member of this Committee ever to give way. I will teach him how to do it in a moment.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

I shall have to be leaving in a moment, and may not be able to intervene if the hon. Member does not give way now.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

If the hon. Gentleman has to leave, I hasten him on his way. He will wait in his seat till I am ready for him. A pompous, arrogant statement. I have driven the hon. Gentleman out of the Chamber. Hooray! He is one Socialist Member who cannot take his medicine.

There are 4 million Stock Exchange investors alone who are interested in Capital Gains Tax. Then there are millions more people who own houses other than the houses they live in and who are also affected by the provisions of Capital Gains Tax. There are millions more people who own chattels and capital assets valued individually at over £2,000 other than stocks, shares and securities. All of them, under the provisions of the 1965 Act, are afflicted by Capital Gains Tax.

We now perhaps will realise what drivelling rot it was on the part of the hon. Member for Ashton-under-Lyne to use those words, "Only Surtax payers are afflicted by this measure." It was Socialist political polemics, seeking to represent that my hon. Friends and I are advancing the cause in this Committee only of rich men. On the contrary, we are advocating the cause of fiscal equity and simplicity.

Mr. J. T. Price:

Not so simple.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Does the hon. Gentleman wish to intervene? I gladly give way to him.

Mr. J. T. Price:

I was saying that the hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) is not so simple as he would have us believe. His argument is based on fallacious reporting of what my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said. My hon. Friend said that Surtax payers were only affected by the highest rate of Capital Gains Tax, which is 30 per cent. If the hon. Gentleman reads HANSARD tomorrow he will find that his rather bombastic argument is based on a misquotation of what my hon. Friend said. That is why my hon. Friend left the Chamber in disgust.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I disagree entirely with the hon. Member for Westhoughton (Mr. J. T. Price).

Mr. J. T. Price:

The hon. Gentleman can read my hon. Friend's words.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

What I shall read first is the green carbon unedited copy of the speech of the hon. Member for Ashton-under-Lyne, to make certain that nothing has been corrected. I know the tricks much better than the hon. Member for Ashton-under-Lyne does. Perhaps the hon. Member for Westhoughton thought that I was running out of steam.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

On a point of order, Sir Eric. Is it in order that an hon. Member's speech can be altered and, in so doing, that the hon. Member for Worcestershire, South (Sir G. Nabarro) knows the "tricks" whereby that is done?

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

It is not in order to suggest that any hon. Member makes corrections in the OFFICIAL REPORT apart from mere verbal corrections which, by custom, are recognised.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

That is my reading of the situation, Sir Eric. I am delighted that we are in complete unanimity on this matter. I want to return to the Capital Gains Tax after these interruptions.

Of course, the miniscule yield of this duty has a bearing on our considerations as to the way it should be amended. I turned up the Financial Statement for the year to check the figures. Last year, the Budget estimate for 1966–67, printed on page 10 of the Financial Statement, was a yield of £5 million. The out-turn was £7 million. The Financial Secretary will recall that, in answer to a Question a few weeks ago, he gave me the precise figure of £7·2 million. This year it has fallen. The estimate is £5 million and after the Budget changes it is said still to be £5 million. I wonder why it is falling!

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I suggest that it is obvious why the yield is falling. It is because no one is making any capital gains under this Government. It is difficult enough for stocks and shares to keep where they were at the beginning of the year.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I profoundly disagree. I am only an amateur punter on the Stock Exchange. When I see the Financial Times index of equities going up and down very steeply, as it has been going up and down very steeply between 284 a matter of little more than 12 months ago and 346, as it is now, I would point out that this is the sort of time when people make money on the Stock Exchange, and the Treasury is more likely to attract Capital Gains Duty on a move- ment of the stock markets as steeply as they have moved in the last 12 months than if the stock markets remained on a plateau. I am fascinated to know the answer, having argued the ethics of Capital Gains Tax with Socialists and Fabians for 20 years or more. I remember a disputation in Coventry in 1948 with the present Leader of the House, who was trying to mislead an audience of Coventry people that it was possible to raise hundreds of millions of pounds a year by a comprehensive Capital Gains Tax. I made then the same kind of speech as I am making now.

6.15 p.m.

Wily people will always find their way around this iniquitous form of taxation, because, fundamentally, it is an inoperable tax. It is so complicated and capable of so many devious activities within the scope of the Statute that the Treasury, I fear, will never secure any substantial sum of money from it. The Financial Secretary will no doubt point to me as an arch-villain in tax evasion matters. I am nothing of the kind. But I do believe in condemning, root and branch, taxes which are so complex as to be incomprehensible to the chartered accountancy profession and to intelligent men and women who are subject to them.

I also believe, with a good deal of professional opinion behind me both in the legal and chartered accountancy professions, that the yield of this tax is going to continue to be miniscule. What are the facts? The Chancellor and Prime Minister were going round the country volubly, three years ago, and trying to bamboozle people, pointing an accusing finger at the Tory Administration of the day. They were saying that the tax was worth a revenue of £125 million a year. It was said over and over again, not just once.

Of course, uninitiated members of the general public—coal miners, engineers, artisans, labourers, agricultural workers and the remainder—who are uninitiated in complex fiscal matters, believed it. The Chancellor and the Prime Minister said, "Let us take £125 million out of the pockets of the rich."

A favourite expression of the Prime Minister's in those days was "the Cottons and the Clores". He used to impugn this and then follow it up by saying that £125 million would be the benefit to the general bodly of taxpayers. What, therefore, should be done about it? he would ask. He said, "We shall apply it to the poor, the poverty-stricken, the families on the lowest income scales. We will take it from the rich and give it to the poor."

Where is that £125 million? It has not shown up. Neither will it show up. That is why I am attacking it today.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

Order. We are not discussing the Capital Gains Tax in general, but an Amendment saying that the appropriate rate should be 25 per cent.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Thank you, Sir Eric. If a tax is wholly bad, as I seek to demonstrate that this one is, we should remit the badness by reducing it—only by a tiny margin, but at least reducing it.

The Treasury estimate this year is £5 million, and less than last year, in the second year of collecting this tax. Why is it less? If we bring it down from 30 per cent. to 25 per cent. it would cost something less than £1 million, but I am not sure exactly how much it would cost, because the Treasury's estimates in these matters have an unhappy habit of being very wide of the mark.

I propose, and I am sure the great majority of my hon. Friends propose as well, to continue to attack this form of taxation. The Tory Party does not accept it in principle.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am glad to have the Liberal Party putting me on the primrose path. Does the Liberal Party wish me to give way?

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I would remind the hon. Gentleman that it was his own Government who introduced the short-term Capital Gains Tax.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Now we are getting places. The hon. Gentleman has interpolated "short-term". The Tory Party introduced short-term provisions—six months for the Stock Exchange and three years for land. That does not give a blessing to a comprehensive gains tax covering chattels of all descriptions for all time.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

I do not want to interrupt, but we cannot go into the short-term Capital Gains Tax. We are discussing the present rate of tax and whether it should be 30 per cent. or 25 per cent.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I would remind you, Sir Eric, with deep respect, that whether the rate is 30 per cent. or 25 per cent. it applies equally to the whole gamut of considerations which I have named: Stock Exchange securities, land and chattels of all descriptions.

The Tory Party, to avoid certain malpractices—people buying stocks and shares at the beginning of a Stock Exchange period and selling them before the end, which does nobody any good—consented to a form of tax at a very short-term modest level—what is now the equivalent of the betterment value within the Land Commission over three years on land—not a comprehensive Capital Gains Tax.

This year, I hope that my hon. Friends and right hon. Friends will take the view that we should condemn root and branch this form of taxation, because it is inequitable, because it militates against savings, because there are 4 million people in this country with Stock Exchange securities—and 4 million is not the tiny number of Surtax payers—because the Statute is incomprehensible, because the cost of assessment and collection by the Inland Revenue is probably greater than the whole of the £5 million estimated yield this year, so abstruse is the Statute in this context, and because this form of taxation is wholly bad and ought continuously to be condemned by a party which espouses capitalism as opposed to Socialism. The object of Socialism is to deprive the owners of property of their property.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

The hon. Gentleman is going far wider than debate on the Amendment ought to be allowed. We are only discussing what the appropriate rate for Capital Gains Tax should be.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The lower the better.

For all those reasons I hope we shall see the Treasury Bench accept this year a salutary reduction, an overdue reduction, though only a token reduction, for when we return to the benches opposite—which will be not long delayed, I hope— it will be my sincere desire that my party will abolish this iniquitous form of taxation.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

The hon. Member for Wycombe (Mr. John Hall) did not appear to advance any arguments precisely in support of the Amendment. I could not tell from what he said what was so horrid about the present level of this tax and so superb about the level which he proposed. He directed his arguments, such as they were, to the general nature of the tax. I thought that that was strange.

Then, when I listened to the hon. Member for Worcestershire, South (Sir G. Nabarro), I realised how wise the hon. Member for Wycombe had been, because the argument which we have heard—and I will confine myself to the Amendment before us—seemed quite extraordinary. The hon. Member for Worcestershire, South referred to his activities—successful, as I understood him to boast—on the Stock Exchange and protested that the gains he made there should be subject to tax.

I cannot see in what way that kind of activity contributes towards the economy which, in his other speeches, he is so anxious to promote. This sort of activity seems comparable to some form of gambling, and I understand the hon. Member is with me in suggesting that taxes on gambling should be significantly increased.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman has unkindly and incorrectly used the word "boast". What I said, and I repeat the words, was, "I am myself a modest punter on the Stock Exchange". I did not say whether I was successful or unsuccessful, but I believe in loss leaders in the context of Capital Gains Tax to avoid a liability at least in the early stages.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

It is unusual to hear the hon. Member opposite claiming the virtue of modesty. Perhaps it was ungracious of me to have paid attention to the tone and manner in which he spoke rather than the actual words which escaped his mouth. I believe that the hon. Member opposite is with me in suggesting that taxation upon gambling should be increased. If punting on the Stock Exchange is no more or less than a form of gambling, then the tax applicable should be related, for example, to the tax on football pools. I see no merit whatever in the arguments advanced that the tax upon gains, or alleged gains, made by the hon. Member opposite should in any way be less than the tax that now operates upon football pools operators, which I think to be proper and just.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

Surely the hon. Gentleman is aware that there is no taxation on football pools winnings. Two years ago, an Amendment was suggested by the Liberal Party to tax football pool winnings, but it was rejected by the hon. Gentleman's own Government.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

It was the most ridiculous Amendment I had ever heard in the history of debates in the House of Commons. Of course there is a tax on football pools.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

Winnings on football pools.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

I am perfectly well aware of what the tax upon football pools is. Because it is not levied upon winnings is of no relevance in noting that it is levied upon football pools. It could equally well be levied upon winnings. There would have to be a slightly different amount, but the tax is nonetheless a tax upon money put into football pools.

I cannot accept the extraordinary arguments advanced by the hon. Members on the Liberal bench that the tax on football pools is somehow different or more meritorious than the existing state of affairs. I will not continue, or I shall be ruled out of order, much as I would like to refute those extraordinary arguments.

The simple point that I wanted to make, before I was diverted by the hon. Member for Orpington (Mr. Lubbock), was that this tax on capital gains seems entirely comparable with a tax upon gambling. I see no reason, therefore, why the level of tax should be in any way differentiated. For that reason, it appears to me that the existing level of tax is entirely appropriate.

6.30 p.m.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

The argument of the hon. Member for Chislehurst (Mr. Macdonald) is most peculiar. First, he says that the tax on capital gains is analogous with a tax on gambling, and then displays complete ignorance of the system of taxation on gambling. He ought to know that on the football pools people can win sums of up to £300,000 which are not treated as income in their hands and that they get away without a penny of tax, whereas with Capital Gains Tax people can pay up to 30 per cent.

If we agree that winnings on gambling on the Stock Exchange are identical with the winnings on football pools, then, in all logic, we should tax at 30 per cent. football pool prizes of £300,000, or at such reduced rates as we have in this Clause. I am sorry that the hon. Gentleman has not studied the facts before coming to the debate. If he had done so, he would not have made these ridiculous comparisons.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

I do not want to prolong discussion on a matter which is not directly relevant, but I am perfectly well aware of how football pools are taxed. There is a tax of approximately 30 per cent. on football pools. That is an undisputed fact. To say that the people who take the winnings are not taxed is absurd. Of course they are taxed. It is simply that the tax does not fall precisely on the winnings. It falls on the total stake going into the pools, but the effect of the tax is the same.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

Then let us take the analogy a little further. Companies in which people invest are also taxed. They pay Corporation Tax, and so on. That is the analogy with what the hon. Gentleman said about the taxation of football pools themselves. But there is a complete absence of any parallel in the final stages of taxing capital gains, Stock Exchange winnings and football pool winnings. I would have thought that that was so elementary that it must be obvious to the rest of the Committee, even if it still escapes the hon. Member for Chislehurst.

However, I know that you do not want me to develop this further, Sir Eric, so I will come to the Amendment itself and try to eschew the general remarks on the Capital Gains Tax which have tempted some hon. Members into discussing matters which are wider than the Amendment. I agree with the hon. Member for Worcestershire, South (Sir G. Nabarro) that a reduction is necessary, but I do not think that the argument has been put to the Financial Secretary as it should have been and as it was developed in some detail two years ago.

I am not concerned with the general arguments about the merits of the Capital Gains Tax as such. I happen to be one of those who believe that a tax of this nature is a necessity, but here we are discussing only the rate and whether it should be 30 per cent. or 25 per cent. I have no doubt that the Financial Secretary will remember that when we discussed this matter two years ago I pointed out that many of the gains on which the tax would be levied would not be real and that, because of the change in the value of money, people would find themselves paying tax when in fact they had a reduced sum of money in real terms at the end of the period.

I then gave the example of medium-dated gilt-edged securities on which appreciation might be at about 2½ per cent. or 3 per cent. per annum—I gave an actual gilt-edged security as an example—with the amount of the discount on its maturity value taken over the period of years which would elapse before maturity giving a certain inevitable capital appreciation. In the context of a steady rate of inflation, such as we have had since the war, a person investing in such a security at, say, 84 and holding it until maturity then disposing of it at 100 would have made a capital gain for the purposes of the Finance Act, 1965, but, in fact, would have lost money. He would find that it was worth less than before and he would then have to pay tax at 30 per cent., or at some reduced rate if he was not a Surtax payer.

The hon. Member for Chislehurst may have misunderstood what was said by his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) when suggesting that the Amendment would benefit only those paying Surtax, because it deals only with the maximum rate and not with the provisions for alternative charge contained in the Finance Act, 1965.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I must contradict the hon. Gentleman. He is quite wrong about that. The tax applies to any chattel over £1,000 so long as the chattel is kept for longer than 12 months. If the chattel is a mink coat at £3,000, it applies to that. Under the Amendment, the Capital Gains Tax on it would be reduced from 30 to 25 per cent.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

The hon. Gentleman has not got it quite right. I am talking about the alternative charge to tax. I am looking at the booklet published by the Institute of Chartered Accountants, which I find easier to understand than the Finance Act itself. It says that it is provided in the Finance Act, 1965, that If it should prove to be to the benefit of an individual for any year of assessment in any part of which he was resident in or in which he was ordinarily resident in the United Kingdom, the capital gains tax payable on his total long-term gains of that year, less losses of that year and losses brought forward, will be restricted to an amount equal to the income tax (including surtax) which would be payable if a fraction of his net gains were taxed as if it were income, instead of the whole of the net gains being taxed at the flat rate of 30 per cent. The fraction of the net gains on which the notional income tax (including surtax) will be calculated is:where the net gains are less than £5,000, one-half of the net gains; … He has this alternative.

I understood the hon. Member for Ashton-under-Lyne to be saying that as the alternative charge to tax had not been altered, persons who had opted for that and found it to their benefit to do so would not be advantaged by the reduction in the maximum from 30 per cent. to 25 per cent. As far as I can see, he is quite correct. But that is not a reason for rejecting the Amendment. It is a very good reason for moving another so as to bring into line these alternative charges so that they bear the same relationship to the original rates as 25 per cent. bears to 30 per cent. I am sure that it would not be beyond the wit of the hon. Member, if he agreed with that principle, to devise a suitable Amendment for the alternative.

In the meantime, I urge the Financial Secretary to look with some favour on this proposed reduction. "MacDermot's Law" has been mentioned. I remember very well the debate in which he said that because our maximum rate of Income Tax was 91¼ per cent., as compared with 70 per cent. in America, it was reasonable for us to have a separate maximum rate of Capital Gains Tax of 30 per cent. as compared with the 25 per cent., which was the maximum rate in the United States.

At the time I thought that that was a peculiar argument, and I still think so. My main reason for asking him seriously to consider accepting the Amendment is that inflation is a much more serious problem in the United Kingdom than it has been in the United States in the past few years. Even if his contention were right and a high level of personal tax required a high level of Capital Gains Tax, "MacDermot's Law" should be applied only in real and not in money terms when money terms cause people not only to lose money when they invest in gilt-edged securities over a period of time, but, into the bargain, to add insult to injury, having to pay Capital Gains Tax as well.

Mr. J. T. Price:

Under the guise of moving a token reduction of 5 per cent. in Capital Gains Tax, Opposition spokesmen have sought to raise a general opposition to the whole principle of Capital Gains Tax. I understand from the Rulings which you have already given, Sir Eric, that it would be quite out of order for me to be drawn into a general debate, but I am entitled to say that whatever the rate of Capital Gains Tax may be, hon. Members opposite, with all their expertise in the affairs of the Stock Exchange, the City of London and the manipulation of property in all its guises, must forgive me if when they attack the tax on ethical grounds and try to trump up ethical arguments, I and my hon. Friends make stiff rejoinders. We at least have taken the trouble to study not only the mechanics of this form of taxation, but the ethics of the distribution of wealth.

I listened with considerable interest and amusement and with some respect to the hon. Member for Worcestershire, South (Sir G. Nabarro). It is inevitable, and no one holds it against him, that he comes into this Committee with a bombastic, dogmatic, enunciation of all kinds of ideas that have been flowing from his active brain ever since he was a Member and probably before. But he must not expect that we swallow all those arguments hook line and sinker. We do not.

The hon. Gentleman was trying to argue that the Capital Gains Tax in its present form was the maximum and not the universal rate. But if it produced nothing at all it has at least altered the direction in which the manipulators of financial investment were operating. The main objective for a skilful and prudent investor before we introduced this principle into our fiscal law was not to get a good high yield of dividend on a particular equity, but to so manipulate equities and other forms of property, particularly land, so that they did not attract any taxation.

This may have had a very salutary effect upon these transactions. I sometimes hear hon. Members opposite, who individually, I hold in the highest respect, arguing vehemently that there is something ethically wrong in attacking the state of affairs existing before the introduction of Capital Gains Tax. When one talks of ethics one must also consider that before this tax came into being the people who were using every technical device, with the most skilled professional guidance—of lawyers and accountants—were doing so for the main purpose of defeating the objects of this House in having certain taxation measures on the Statute Book.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

The hon. Member has recognised that he cannot debate the ethics of the Capital Gains Tax. We can only discuss the appropriate rates.

Mr. Price:

I am prepared to do that and I do not wish to detain the Committee because I can see that the Financial Secretary wishes to get on to the next business.

It is not a valid argument to say that in a moment of weakness, aberration or forgetfulness, we on his side of the Committee should agree to a small reduction of 5 per cent., because it might be justifiable in present circumstances. We are not to be taken in by that sort of thing, because this is an argument directed not against the rate of the tax, but against the very tax itself.

I am rather surprised that such an experienced campaigner as the hon. Gentleman the Member for Worcestershire, South should try to buttress up his very weak argument by saying that when we advocated the Capital Gains Tax on our election platforms we were speaking to a lot of illiterate people such as, and I took his words down, "miners, engin- eers, labourers, and so on". These people, he said, in their deep ignorance could not understand what the Stock Exchange was about. They had voted for us in ignorance.

The hon. Gentleman must not imagine that because people who are doing useful work, and who are the foundation of the economic life of the country, miners, engineers, labourers, are to be spoken of here so disparagingly as the hon. Gentleman seems to impute. I wonder whether, in South Worcestershire, he has no one but bookmakers and stockbrokers to appeal to when he goes on to the election platform.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I included farm workers and referred to agriculture and horticulture. They predominate in South Worcestershire. What the hon. Gentleman has conveniently left out of his argument, when he brought in this unfortunate word "disparaging", which I reject utterly, was that I said that these are not normally people very well versed in the complexities of capital gains provisions. The majority of Members on the benches opposite do not begin to understand what it is all about, let alone their constituents.

Mr. Price:

I do not think that that has advanced modern thought very much. I am concerned with all kinds of heretical ideas that are introduced, not only by the hon. Gentleman, but by the hon. Member for Wycombe (Mr. John Hall), who even quoted the poet Pope to reinforce some of the arguments that he was using. The hon. Gentleman spoke of this as being the highest taxed country in the world. It is not true. The argument might be proven on direct taxation, but if one couples direct and indirect taxation, and makes a league of the nations, the total impact of taxation is higher in many other countries, including the United States.

6.45 p.m.

The hon. Gentleman the Member for Orpington (Mr. Lubbock) made an interesting speech. I can understand the full-blooded arguments of the hon. Gentleman the Member for Worcestershire, South and some of the hon. Gentlemen opposite, but I can never understand the half-cocked arguments of the Liberal Party. First of all, the hon. Gentleman says that he agrees in principle with the Capital Gains Tax, but he goes on to argue, as I have so often heard argued by other members of the Liberal Party, that because inflation is a continuing process, and the nominal value of capital becomes less in relation to its purchase price, one must not have a Capital Gains Tax at all. If I am wrong, perhaps the hon. Gentleman will put me right.

This does not apply to land. There was a generation of Liberals in the days of Lloyd George—the "God gave the land to the people" brigade, whom I deeply respect and who were some of my political forebears. There have been scandalous manipulations of land needed for public works such as hospitals, schools and roads, necessary to make society efficient. Since I came to this House, 16 or 17 years ago, land in my division on which could have been bought for £30 an acre when I first became a Member is now being sold at £3,000 to £4,000 an acre for building pockethandkerchief-sized bungalows. This is the scandal about which the Liberal Party ought to be talking and fighting, not tying itself with all kinds of petty arguments about Capital Gains Tax.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I could have saved the hon. Gentleman's breath in the last five minutes by reminding him that in the near future the betterment levy will take over the responsibility for recouping for the community the increase in land values, and that, therefore, it will not be dealt with under this tax deduction of 30 per cent. to 35 per cent., as proposed in the Amendment. This proposal will have no effect whatever on the taxation of increased land values.

Mr. Price:

That may be so. We will have to wait and see what are the effects of the betterment levy. I am quite philosophical about it. There are sure to be clever people who will find all kinds of devious methods to avoid the impact of betterment levy.

As to the general question of the capital gains on chattels, there may be a strong argument for simplifying in this respect. At the same time, there are many prudent and shrewd investors who, even though beaten on manipulating stocks and shares, will not hesitate to buy diamonds, rare works of art, antique furniture, in the hope of hedging themselves against the effects of taxation and other things. I hope that I have put forward some points worthy of consideration by hon. Members, and I trust that the Committee will reject the Amendment.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

The hon. Member for Westhoughton (Mr. J. T. Price) and the hon. Member for Ashton-under-Lyne (Mr. Sheldon) returned to the old argument that we on this side of the Committee are concerned only with reducing taxation in a fairly narrow band, particularly Surtax. I hope that they will recognise that our attitude to taxation in general is that it is too heavy and that people pay too much tax of all kinds. They must not, therefore, deem it strange that we should explore opportunities to reduce all kinds of taxation. That is the attitude of most of us. This is but one of many different kinds of taxation which we seek to reduce, though modestly.

Unlike my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), I have no deep philosophical objection to the principle of Capital Gains Tax. I do not think that anyone on these benches can speak for all of us. There must be a great variety of opinions about the merits of such a tax. Nevertheless, I think that the hon. Member for Westhoughton will recognise that this particular tax, as introduced by his party a couple of years ago, is at a higher rate than that which obtains in countries where there is a free economy in which it has been tried. That is a matter which deserves the Committee's serious attention.

The Capital Gains Tax must be a very disappointing tax for the Government. The revenue yield from it has been very small indeed. The estimate for the next year is about £5 million, or slightly in excess of £5 million. I think that the Financial Secretary and his colleagues must recognise that there must be some reason beyond those which have been stated in the debate why the yield has been so disappointing. One is the disincentive effect on people of a tax of this percentage to sell their holdings. This is very serious. It is not desirable that investments should be frozen, or that a sum of money should be frozen in a particular shareholding for ever. In many cases, it is desirable that the holder of a shareholding or some other form of wealth should dispose of it and that the money should flow into some other form of investment.

One of the reasons why the yield from the tax has been so very disappointing is that many people who, in other circumstances, would have sold have been disinclined to do so and to pay perhaps one-third or slightly less in tax. The Committee would not be fulfilling its duty if it did not look closely at the tax as it obtains in its present percentage. I should have thought that the hon. Member for Westhoughton, who is inclined usually to be fair in his assessments, would not think it strange that a responsible Opposition should examine carefully a tax of this kind which, even on the Government's own assessment, is very disappointing.

My hon. Friend the Member for Wycombe (Mr. John Hall) was right to point out that the tax appears to have placed an extraordinary burden on the Inland Revenue officers and that it has diverted an enormous amount of talented manpower which, perhaps, could have been used more effectively in other sectors of the economy.

I hope that the Government are considering methods of changing the tax. I should not think that anything said in the debate was a fatal objection to a modest reduction in the tax such as is called for in the Amendment. I agree with the hon. Member for Orpington (Mr. Lubbock) that if the Government could accept the principle of a reduction in the maximum rate they could also, to be fair, study the possibility of reducing the impact of the tax at the lower levels. If they did that, it would be a fillip to one particular sector of the economy.

I return to my original premise. Taxation has tended for a long time, under Governments of both parties, to be excessive. It greatly needs to be reduced.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

Many of the speeches have been derogatory of the Capital Gains Tax, but we have heard remarkably few arguments in support of the Amendment, which is to reduce the rate from 30 to 25 per cent. We have heard that this is a complicated tax and that it throws a heavy burden on the Revenue.

I know that many Members dislike the Capital Gains Tax. In spite of that, I had always thought that the Opposition were in support in general of the principle of taxing capital gains and having a general Capital Gains Tax. But the hon. Member for Worcestershire, South (Sir G. Nabarro) tells us that that is not so. I do not know whether the hon. Member for Wycombe (Mr. John Hall), speaking from the Opposition Front Bench, would confirm that.

In any event, what is the argument about complication and the burden on the Revenue to do with the rate? How would reducing the rate from 30 to 25 per cent. reduce the burden on the Revenue.

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

If the rate were moderate, presumably people would be prepared to pay it without the interminable argument which goes on in working out what should be paid.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

If the hon. Gentleman thinks that people would argue less about paying 25 per cent. rather than 30 per cent. he is not in touch with reality.

The hon. Member for Wycombe suggested that my right hon. Friend the Chancellor of the Exchequer had had to buy off a threatened strike in the Revenue over the Capital Gains Tax. I assure the hon. Gentleman that that is not the case. There were a few foolish people who talked in terms of strike action. They very nearly prejudiced the claim which was successfully made and to which the hon. Gentleman referred.

The hon. Gentleman quoted Professor Wheatcroft's book and his criticism that the tax would not produce much revenue for a number of years and that it was complicated in its administration. I do not know whether the hon. Gentleman or Professor Wheatcroft would have preferred that we made the tax operate, as we did, only on gains since Budget day, in which case it was inevitable that the revenue would be small in the initial years and would build up to a substantial sum. I should have thought that that plainly was right, otherwise we should have a retrospective tax. Unless it is being said that it is wrong to introduce the Capital Gains Tax, it is no criticism to say that the revenue in early years will be small.

It is easy to criticise and to say that the administration of the tax is complicated. But that is the inevitable result of trying to make the tax fair. I say without fear of denial that ours is the fairest Capital Gains Tax anywhere in the world. Part of the price to be paid for that is that its administration is complicated.

But, bearing in mind that we intend the tax to last and be a permanent feature of our system, is it not better and right that we should get the structure of it as fair as we can, even if the price in terms of work load and administration is fairly considerable, bearing in mind that, as my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said in an excellent speech, one of the reasons for the tax was to produce greater social equity so that people who made substantial increases in their wealth in the form of capital gains should not escape the tax net? It is an object of social justice which underlies this tax. That being so, it was our duty to make the tax as fair as we could.

7.0 p.m.

The hon. Member for Wycombe said, as a supposed criticism, that the tax produced less than was estimated, but he was wrong about that, as was shown by his hon. Friend the Member for Worcestershire South who quoted the figures. Our estimate of the yield last year was £5 million. The outturn was 7·2 million.

Photo of Sir John Hall Sir John Hall , Wycombe

When I gave the original estimate, and mentioned a figure of £12 million for the last completed fiscal year, I gave the original estimate given by the Chancellor in his 1965 Budget speech.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I do not recall the passage to which the hon. Member refers, but I confidently say that my right hon. Friend did not estimate the return for this tax within the first year or two as being £12 million. Perhaps the hon. Member is thinking of a figure which included the Corporation Tax on capital gains. That is something which we are not discussing either on the Amendment or in the figures about which we have been talking.

In dealing with the general features, we had the suggestion by the hon. Member for Worcestershire, South that this was an inoperable tax, one that people would easily be able to evade and from which we would never be able to collect a substantial amount of revenue. I have heard the hon. Member, in his usual confident manner, make exactly the same criticism of death duties. I heard him describe it as a voluntary tax which no one need pay unless he wanted to. Last year, we collected just under £300 million by this voluntary tax, and we estimate that in the coming year we will collect over £300 million. I am not, therefore, greatly impressed with that argument.

I turn to the real question whether the rate should be 30 per cent. or 25 per cent. First, let us see who would be affected by the Amendment. My hon. Friend the Member for Ashton-under-Lyne was perfectly correct. We can all be indirectly affected, but the only people who would be directly affected by the Amendment would be Surtax payers. The hon. Member for Worcestershire, South, who, I am sorry, has left the Chamber, and who has been so abusive about the lack of understanding by my right hon. and hon. Friends concerning the tax, showed his complete ignorance by his whole argument about the way that the tax works, because he ignored the alternative basis of charge. Even when it was pointed out to him by the hon. Member for Orpington (Mr. Lubbock), he still showed that he was completely ignorant even of the alternative basis of charge, let alone how it works.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Would not the hon. and learned Gentleman agree that any reduction in the rate would tend to lessen any disincentive effect that the tax might have upon sales or transactions which in turn would attract the duty? Might it not happen that if there were a smaller disincentive effect in that respect, the revenue would be increased?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

No, I do not accept that argument. The alternative basis of charge provides that if it is to the advantage of any individual taxpayer to have half his gains for the year up to a maximum of £5,000, plus the whole of the gains in the year in excess of £5,000, treated as an addition to his income of the year instead of being taxed at the 30 per cent. flat rate, he is entitled to elect to have it so treated. That is the alternative basis of charge.

That means, in practice, that the flat rate of 30 per cent. applies to gains accruing to a relatively small minority, to individuals with a marginal rate of tax—Income Tax plus Surtax—of 10s. in the £ or more. It applies to about 400,000 taxpayers—and that is all—assuming that all those taxpayers realise capital gains. Four hundred thousand is the greatest potential number of individuals to whom the rate can apply.

The number of taxpayers to whom it does not apply—people who actually pay tax who, if they realised capital gains, would pay not at the flat rate, but at a lesser rate—is about 19½ million taxpayers, whose marginal rate is the standard rate and who would pay at the rate of 20·5 per cent. Again, as my hon. Friend the Member for Ashton-under-Lyne pointed out, those who pay less than the standard rate—I do not have the exact figure, but from memory it is about 12 million taxpayers—will pay at less, in some cases substantially less, than the 20·5 per cent. rate.

It is, therefore, a complete fallacy for anyone to think that the usual average rate on which people pay tax on capital gains is 30 per cent. It is not. That is the rate which applies to a small minority of 400,000 Surtax payers. What we are discussing is whether their rate of Capital Gains Tax should be reduced from 30 to 25 per cent.

How do we decide what is the fair and right rate at which those wealthy people should pay tax on their capital gains? I am sorry if I disappoint the hon. Member for Wycombe in repeating some of the arguments of previous years, because we have discussed this subject thoroughly for the past two years and this is the third occasion. The arguments are the came.

I suggest that one can arrive rationally at a reasonable rate only by comparison. One can make internal comparisons with the rate which people pay on other forms of wealth and external comparison with what happens in other countries. Let us start with the internal comparisons. The theoretical basis for this tax is that it is not fair or right that people, in particular wealthy people who on the whole are those who make most of the capital gains, should be able to make increases and to realise increases in their total wealth in the form of capital gains and escape the tax net when they would have to pay tax on increases which in law take the form of income. That is the reason for it.

The starting point, therefore, is a comparison with the rate of what those people pay on their income. When there are high rates of Income Tax and of Surtax for wealthy people, I suggest that a very low rate is not a reasonable rate. A second reason for this is to try to provide a disincentive for the sort of arrangement by which people artificially try to dress up what is income as an increase in capital. Again, if there is too great a disparity, the incentive is increased.

I repeat, as I have said in previous years, that for wealthy Surtax payers who normally pay a high rate on their income, a flat rate of 30 per cent. is a low and a moderate rate. It would be quite unreasonable, particularly in a year when we are not reducing other levels of taxation, to reduce that by 5 per cent.

In view of what I have been saying, it may be argued that the rate should be higher than 30 per cent. Indeed, my hon. Friend the Member for Chislehurst (Mr. Macdonald) argued that this should be equated with gains which people make from gambling. The short-term gains tax, which was introduced by the party opposite, in a sense does that and equates it wholly with income. It is added to income and is taxed at the Income Tax rate.

When dealing with longer-term gains, however—and some of these gains may be made over a considerable number of years—there are reasons for saying that there should be a lower rate. First, our steeply graduated rates of Income Tax and Surtax would mean a very heavy rate indeed if a person had to add the whole of his realised gains to his income for the particular year of realisation. Secondly, there is the point, which was made by the hon. Member for Orpington and also by the hon. Member for Wycombe in opening the discussion, of the inflation element which may be present in a long-term gain.

As was made clear at the outset, that was something which was taken into account. We thought that it was the right and fair way to take it into account when we were fixing the rate, and that is another reason for having this low rate of 30 per cent.

Then one can make comparisons with other countries. However, it is not right to suggest, as the hon. Member for Barry (Mr. Gower) did, that ours is the highest rate of Capital Gains Tax in the world. It is not. There are other countries with substantially higher rates. But it is not fair to make comparisons with them because of their different tax structures. The only country with a structure comparable to ours is America—

7.15 p.m.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

Before the hon. and learned Gentleman leaves the point about inflation, can he justify the case where a person has a money gain but not a real gain and, nevertheless, is required to pay 30 per cent. on it?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

If I took up that point, I should be going back over all the old arguments. We went into all this in great detail two years ago. Equally, there can be cases where a person finds himself brought into a higher tax bracket for Income Tax purposes when he has not made any total increase in his income in real terms.

To complete what I was saying about the international comparison and comparing our system with America's, this is where what has been referred to as "MacDermot's Law" becomes relevant.

When one compares their rate for Capital Gains Tax, which is a 25 per cent. rate, with our rate of 30 per cent., assuming that my first point is valid and that there should be a correspondence between the Capital Gains Tax rate and the rate of personal taxation of income, one cannot compare our Capital Gains Tax rationally with that of America without looking also at their rates for taxes on income.

It must be remembered, too, what is the wealth of that country as a nation, and the average levels of income there compared with the level here. When one makes that comparison, I suggest that our rate of 30 per cent., which I repeat is only the rate for Surtax payers, is a reasonable one. I hope that no one in the Committee will continue under the illusion that this is the general rate for the payment of Capital Gains Tax. It is not. The vast majority of individuals pay at a rate of 20½ per cent. or less.

I regret that there is nothing novel about my argument, because I have advanced the same reasons as have been given for the last two years. However, for those reasons, I must urge the Committee to reject the Amendment.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I have been listening to the Financial Secretary very carefully. He has advanced a curious argument which perhaps can be summed up by saying that, because some of our taxes are too high, we must see that all of them are. It is an extraordinary basis on which to approach taxation on behalf of the Government.

I rise to make two points. The first of them is to pick up something said by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) about the cost of collection of Capital Gains Tax by the Government. I want to stress the immense cost to the country in terms of skilled labour employed in private industry which is needed in accountancy and managerial skills tied up in dealing with the complicated provisions of Corporation Tax and Capital Gains Tax. The stage has been reached today when it is true to say that it can be more profitable for an industrialist or businessman to spend half a day with his accountant than to spend half a month trying to get export business.

Mr. J. T. Price:

Perhaps the hon. Gentleman will tell the Committee how a reduction of 5 per cent. in the Capital Gains Tax will affect the number of skilled accountants and civil servants required to administer it. Will it reduce them, and, if so, by how many?

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I shall come to that argument shortly. I was making the point at this stage because it had been raised earlier. The amount of work which has to be done by an accountant in valuing a share going back over past rights issues for years is amazing. However, if I pursue that point further, Mr. Jennings, you will probably rule me out of order, so perhaps I might come to the points made by the Financial Secretary.

I nearly laughed aloud when I heard him suggest that ours was the fairest form of Capital Gains Tax in the world. He actually suggested that it was as fair as it could be made.

As the hon. Member for Orpington (Mr. Lubbock) said, it is a tax on inflation. This is the first Government in history to have imposed a tax on and made a profit out of inflation. By no stroke of the imagination could it be called fair.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

The hon. Gentleman says that we are the first Government in history to do it. He is wrong. The Americans began by having an exclusion in their tax for the inflation element, but they found that it did not work and removed it.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

They did not have the disadvantage of a Government whose policies were as inflationary as this Government's have proved to be in practice—

Photo of Mr John Jennings Mr John Jennings , Burton

We are getting very wide of the Amendment. Hon. Gentlemen are tending to talk about the principle of capital gains instead of the words of the Amendment, which seeks to reduce the rate by 5 per cent. Perhaps we might now come more narrowly to the Amendment.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

Over the past two years, we have seen a decrease in the value of money, with a rate of inflation in excess of 5 per cent., which is the amount by which we seek to reduce a rate of Capital Gains Tax. All the time since 1965 the meter has been ticking away. The Government can argue that they are only taking a small amount of money in Capital Gains Tax, but, all the time, the effect is greater and greater. The business community finds itself more tied to its existing investment, because it does not dare sell out and lose such a vast proportion of its capital.

The tax affects our farmers particularly. I represent a constituency which is partly farming, and an important factor which has to be faced is that we have a Ministry of Agriculture which wants to see larger farms, but a Treasury which, by means of Capital Gains Tax, will produce the fragmentation of farms.

If a farm is owned by a man for 20 years and inflation runs at 5 per cent. a year, without an increase in land acreage, the value on paper will have doubled, and 30 per cent. of that has to be paid out in Capital Gains Tax. The effect is that, when that farmer dies, sells his farm or, more often, gives it to his son, he has to find cash to hand to the Treasury far in excess of any savings which he may have made in running his farm over that period of time. He has to sell off land, which produces the fragmentation of farms when they should be coming together into larger units. This is a serious matter to the farming community, to the small businessman and to the business community in general.

There is one other aspect which has not been mentioned. The Government and the country know of the desperate need for Britain to increase her investments in the modernisation of her industries. But how can capital be accumulated to invest in modernisation with an excessive rate of Capital Gains Tax which reduces people's incentive to save and reduces the formation of the capital which is so desperately needed by the nation?

Photo of Sir John Hall Sir John Hall , Wycombe

We have had a useful, and perhaps rather wide, debate. I apologise for rising when I know that several of my hon. Friends want to take part in the debate, but I think that an opportunity may occur for them to speak on following Amendments.

The Financial Secretary did not disappoint me. I rather fancied that we would hear the same argument that we heard on two previous occasions, despite the fact that I tried to avoid deploying the same argument again, and concentrated on the element of wealth tax which forms part of the Capital Gains Tax as it now exists.

As far as I can understand it, the argument has come down to the basic one that as the rate of 30 per cent. applies to only a comparatively few taxpayers—the Financial Secretary said that 400,000 surtax payers represented the extent of the problem—and as the rate of Surtax in this country is very high, indeed higher than it is in America, it is right that the rate of Capital Gains Tax should be high as well. I find it hard to understand—and I am sure that my hon. Friends do, too—why the mere fact that only 400,000 taxpayers are involved means that we should do nothing to help them. There are many instances in which we help a small section of taxpayers, yet when it comes to those who pay the highest rate of tax, apparently it is somehow immoral to suggest that they should be given relief.

On many occasions we have heard this comparison of taxes, and about the operation of "MacDermot's Law". We find it hard to accept this law. It means, I suppose, that if Surtax is increased—which under the present Government is quite likely—we shall have to increase the rate of Capital Gains Tax at the same time because the two will have to be brought into relation in some way. It means that as far as can be arranged we should increase the taxes paid by those paying the highest rate of Surtax. They should be required to pay a higher local rate of tax. They should, as far as could be arranged, pay a higher rate of national

taxation that is paid by those who pay Income Tax and Surtax at a lower rate. This is a difficult argument to sustain, and I do not propose to take up time discussing it any further.

I think that I shall be expressing the wish of my hon. Friends if I say that we cannot accept the arguments which have been advanced by the Financial Secretary, just as we were not able to accept them on previous occasions. I am sure that I am expressing the wish of my right hon. and hon. Friends when I say that we ought to take the matter to a Division to express our views in the Lobby.

Question put, That those words be there added:—

The Committee divided: Ayes 121, Noes 185.

Division No. 359.]AYES[7.25 p.m.
Allason, James (Hemel Hempstead)Harris, Reader (Heston)Page, Graham (Crosby)
Bell, RonaldHarrison, Col. Sir Harwood (Eye)Page, John (Harrow, W.)
Biffen, JohnHarvey, Sir Arthur VerePardoe, John
Biggs-Davison, JohnHastings, StephenPearson, Sir Frank (Clitheroe)
Bottom, Sir CliveHeald, Rt. Hn. Sir LionelPercival, Ian
Boyle, Rt. Hn. sir EdwardHeseltine, MichaelPike, Miss Mervyn
Braine, BernardHiggine, Terence L.Pink, R. Bonner
Brinton, Sir TattonHiley, JosephPym, Francis
Bromley-Davenport, Lt.-Col. Sir WalterHill, J. E. B.Rawlinson, Rt. Hn. Sir Peter
Brown, Sir Edward (Bath)Holland, PhilipRenton, Rt. Hn. Sir David
Bruce-Gardyne, J.Hooson, EmlynRidley, Hn. Nicholas
Buck, Antony (Colchester)Hordern, PeterRippon, Rt. Hn. Geoffrey
Carr, Rt. Hn. RobertHornby, RichardRodgers, Sir John (Sevenoaks)
Chichester-Clark, R.Howell, David (Guildford)Russell, Sir Ronald
Cooke, RobertHunt, JohnSharples, Richard
Cooper-Key, Sir NeillJenkin, Patrick (Woodford)Shaw, Michael (Sc'b'gh & Whitby)
Craddock, Sir Beresford (Spelthorne)Jopling, MichaelSinclair, Sir George
Cunningham, Sir KnoxKing, Evelyn (Dorset, S.)Smith, John
Currie, G. B. H.Kitson, TimothySummers, Sir Spencer
Dance, JamesKnight, Mrs. JillTaylor, Sir Charles (Eastbourne)
Davidson, James(Aberdeenshire, W.)Lancaster, col. C. G.Taylor, Edward M.(G'gow,cathcart)
Dean, Paul (Somerset, H.)Langford-Holt, Sir JohnTaylor, Frank (Moss Side)
Deedes, Rt. Hn. W. F. (Ashford)Loveys, W. H.Temple, John M.
Doughty, CharlesMcAdden, Sir StephenThatcher, Mrs. Margaret
Elliott, R.W. (N'c'tle-upon-Tyne, N.)Turton, Rt. Hn. R. H.
Emery, PeterMacArthur, Ianvan Straubenzee, W. R.
Errington, Sir EricMacleod, Rt. Hn. IainVaughan-Morgan, Rt. Hn. Sir John
Eyre, ReginaldMcMaster, StanleyWalker, Peter (Worcester)
Fisher, NigelMarten, NeilWalker-Smith, Rt. Hn. Sir Derek
Fletcher-Cooke, CharlesMaude, AngusWall, Patrick
Fortescue, TimMawby, RayWard, Dame Irene
Gilmour, Ian (Norfolk, C.)Maxwell-Hyslop, R. J.Weatherill, Bernard
Glover, Sir DouglasMaydon, Lt.-Cmdr. S. L. C.Webster, David
Glyn, Sir RichardMills, Stratton (Belfast, N.)Wells, John (Maidstone)
Goodhart, PhilipMiscampbell, NormanWhitelaw, Rt. Hn. William
Cower, RaymondMore, JasperWills, Sir Gerald (Bridgwater)
Grieve, PercyMurton, OscarWilson, Geoffrey (Truro)
Grimond, Rt. Hn. J.Nabarro, Sir GeraldWolrige-Gordon, Patrick
Gurden, HaroldNoble, Rt. Hn. Michael
Hall, John (Wycombe)Nott, JohnTELLERS FOR THE AYES:
Hall-Davis, A. G. F.Onslow, CranleyMr. Anthony Grant and
Harris, Frederic (Croydon, N.W.)Osborne, Sir Cyril (Louth)Mr. David Mitchell.
NOES
Albu, AustenBeaney, AlanBooth, Albert
Allaun, Frank (Salford, E.)Bence, CyrilBoyden, James
Allen, ScholefieldBenn, Rt. Hn. Anthony WedgwoodBraddock, Mrs. E. M.
Atkins, Ronald (Preston, N.)Bidwell, SydneyBray, Dr. Jeremy
Atkinson, Norman (Tottenham)Binns, JohnBrown, Bob(N'c'tle-upon-Tyne, W.)
Bagier, Gordon A. T.Bishop, E. S.Buchanan, Richard (G'gow, Sp'burn)
Barnett, JoelBlackburn, F.Callaghan, Rt. Hn. James
Carmichael, NeilHowarth, Robert (Bolton, E.)Page, Derek (King's Lynn)
Carter-Jones, LewisHoy, JamesPaget, R. T.
Castle, Rt. Hn. BarbaraHuckfield, L.Pannell, Rt. Hn. Charles
Cos, DenisHughes, Rt. Hn. Cledwyn (Anglesey)Parker, John (Dagenham)
Coleman, DonaldHughes, Hector (Aberdeen, N.)Pavitt, Laurence
Concannon, J. D.Hynd, JohnPearson, Arthur (Pontypridd)
Conlan, BernardIrvine, A. J. (Edge Hill)Peart, Rt. Hn. Fred
Craddock, George (Bradford, S.)Jackson, Peter M. (High Peak)Pentland, Norman
Crawshaw, RichardJohnson, James (K'ston-on-Hull, W.)Perry, George H. (Nottingham, S.)
Cronin, JohnJones, Dan (Burnley)Prentice, Rt. Hn. R. E.
Dalyell, TamJudd, FrankPrice, Christopher (Perry Barr)
Davidson, Arthur (Accrington)Kelley, RichardPrice, Thomas (Westhoughton)
Davies, Dr. Ernest (Stretford)Kerr, Russell (Feltham)Pursey, Cmdr. Harry
Davies, Harold (Leek)Lee, John (Reading)Randall, Harry
Delargy, HughLewis, Ron (Carlisle)Robinson, W. O. J. (Walth'stow,E.)
Dempsey, JamesLomas, KennethRogers, George (Kensington, N.)
Dewar, DonaldLuard, EvanRoss, Rt. Hn. William
Diamond, Rt. Hn. JohnLyon, Alexander W. (York)Rowlands, E. (Cardiff, N.)
Dickens, JamesMcBride, NeilShaw, Arnold (Ilford, S.)
Dobson, RayMcCann, JohnSheldon, Robert
Doig, PeterMacColl, JamesSilkin, Rt. Hn. John (Deptford)
Dunwoody, Mrs. Gwyneth (Exeter)MacDermot, NiallSilverman, Sydney (Nelson)
Dunwoody, Dr. John (F'th & C'b'e)Macdonald, A. H.Slater, Joseph
Ellis, JohnMackenzie, Gregor (Rutherglen)Small, William
English, MichaelMackie, JohnSpriggs, Leslie
Ennals, DavidMaclennan, RobertStewart, Rt. Hn. Michael
Ensor, DavidMcMillan, Tom (Glasgow, C.)Swain, Thomas
Evans, Albert (Islington, S.W.)MacPherson, MalcolmSwingler, Stephen
Faulds, AndrewMallalieu, E. L. (Brigg)Symonds, J. B.
Finch, HaroldMallalieu, J.P.W.(Huddersfield, E.)Taverne, Dick
Fletcher, Raymond (Ilkeston)
Fletcher, Ted (Darlington)Manuel, ArchieThomson, Rt. Hn. George
Floud, BernardMapp, CharlesThornton, Ernest
Foot, Sir Dingle (Ipswich)Marquand, DavidTinn, James
Ford, BenMarsh, Rt. Hn. RichardTomney, Frank
Freeson, ReginaldMason, RoyTuck, Raphael
Galpern, Sir MyerMaxwell, RobertUrwin, T. W.
Gordon Walker, Rt. Hn. P. C.Millan, BruceWainwright, Edwin (Dearne Valley)
Gourlay, HarryMiller, Dr. M. S.Walker, Harold (Doncaster)
Gregory, ArnoldMitchell, R. C. (S'th'pton, Test)Wallace, George
Grey, Charles (Durham)Moonman, EricWatkins, David (Consett)
Griffiths, David (Rother Valley)Morgan, Elystan (Cardiganshire)Watkins, Tudor (Brecon & Radnor)
Griffiths, Rt. Hn. James (Llanelly)Morris, Alfred (Wythenshawe)Wellbeloved, James
Hale, Leslie (Oldham, W.)Morris, Charles R. (Openshaw)Willey, Rt. Hn. Frederick
Hamilton, James (Bothwell)Morris, John (Aberavon)Williams, Alan (Swansea, W.)
Hamilton, William (Fife, W.)Moyle, RolandWilliams. Alan Lee (Hornchurch)
Hamling, WilliamMulley, Rt. Hn. FrederickWilliams, W. T. (Warrington)
Hannan, WilliamNowens, StanWilson, William (Coventry, S.)
Harper, JosephNoel-Baker, Rt.Hn.Philip(Derby,S.)Winnick, David
Harrison, Walter (Wakefield)Oakes, GordonWinterbottom, R. E.
Hart, Mrs. JudithOgden, EricWoof, Robert
Haseldine, NormanO'Malley, BrianYates, Victor
Hazell, BertOram, Albert E.
Henig, StanleyOrbach, MauriceTELLERS FOR THE NOES:
Herbison, Rt. Hn. MargaretOrme, StanleyMr. Ioan L. Evans and
Hooley, FrankOswald, ThomasMr. Ernest Armstrong.
Howarth, Harry (Wellingborough)Owen, Dr. David (Plymouth, S'tn)

Question proposed, That the Clause stand part of the Bill.

Photo of Mr John Jennings Mr John Jennings , Burton

I think that it would be for the convenience of the Committee if I put this Question without discussion, the reason being that the Clause merely adds Schedule 13 to the Bill and that anything that could be said on the Question, "That the Clause stand part of the Bill" should be able to be said on the various Amendments to the Schedule. I should be grateful if the Committee could meet me in that regard.

Photo of Mr John Nott Mr John Nott , St Ives

On a point of order. The point that I wanted to raise concerns the statement of the Financial Secretary that the 30 per cent, rate applied only to Surtax payers. I shall certainly raise the question when we debate the Schedule if you wish, Mr. Jennings, but I would have thought that it applied more properly to the Clause.

Photo of Mr John Jennings Mr John Jennings , Burton

Of course it does, but if I give way may I have an assurance from the hon. Member that his speech will be brief?

Photo of Mr John Nott Mr John Nott , St Ives

I shall certainly be brief—

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I fail to see how any question which is relevant to the rate of tax can be relevant to the Question, "That the Clause stand part of the Bill".

Photo of Mr John Jennings Mr John Jennings , Burton

The unfortunate thing is that it is not relevant to the Schedule either. I deliberately did not see the hon. Member when he rose, but I am prepared to allow him to make a brief speech on this point, provided that my generosity is not taken advantage of.

Photo of Mr John Nott Mr John Nott , St Ives

I shall not take advantage of your generosity, Mr. Jennings. Due to a misunderstanding at the end of the debate on the previous Amendment I did not have an opportunity of putting the point to the Financial Secretary. It is an extremely important one. The argument put forward by the hon. and learned Gentleman is utterly misleading. Having made several comments about the speeches of my hon. Friends, he went on to say that the argument was relevant only where a member of the public paid Surtax. I suggest that that is completely misleading.

Let us suppose that, every year, a young executive—not a Surtax payer—earning £2,000 a year puts aside, on his after-tax income, £500. The day comes when he needs to sell the I.C.I. shares—let us say—which he has bought with the £500. He wants to sell them to buy a house. He then becomes a Surtax payer for the first and only time in his life. In that case he then as to pay a 30 per cent. rate of Capital Gains Tax. For the Financial Secretary to say that my hon. Friends were making a misleading point is in itself misleading.

Let us take another case of a young company executive with an option in a company. Year by year he is waiting for his option to be called. The day comes when it is, and in that one year he makes a capital gain, on which he has to pay tax at the rate of 30 per cent. It is not correct to imply that the 30 per cent. rate applies only to Surtax payers it would apply only to them if people with capital gains always sold those capital gains bit by bit, year by year, but that is often quite impracticable.

Question put and agreed to.

Clause ordered to stand part of the Bill.