'In section 126 of the Finance Act 1976 (exemption from stamp duty for transfers of loan capital) at the end of subsection (3) (which provides that the exemption shall not apply to loan capital carrying a right to interest exceeding a reasonable commercial return or a right on repayment to an amount not reasonably comparable with what is generally repayable) there shall be inserted "but subsection (1) above shall not be prevented from applying to any loan capital by virtue of paragraph (a)(i) or (b) above by reason only that it carries a right to interest or, as the case may be, an an amount payable on repayment determined to any extent by reference to an index showing changes in the general level of prices payable in the United Kingdom over a period substantially corresponding to the period between the issue or raising of the loan capital and its repayment." .—[Mr. Lawson.]
I beg to move, That the clause be read a Second time.
This new clause is straightforward. The Labour Government in 1976, in the Finance Act of that year, made fixed interest loan stock by companies free of stamp duty. For understandable reasons, that exemption from stamp duty did not extend to index-linked industrial loan stock. In view of the fact that the present Government have introduced index-linked gilt-edged securities, we felt it right that the exemption that the Labour Government introduced for fixed interest loan stock should be extended to index-linked loan stock. Indeed, this is in accordance with the recommendation of the Wilson committee, as the House will be aware, which stated that
in order to encourage experimentation, the present impediments, which make it difficult for companies to issue indexed securities, should be removed.
Stamp duty could be one such impediment. It is perhaps appropriate to mention that the introduction of index-linked gilt-edged securities by the Government has enabled an important additional degree of flexibility to be added to the Government funding operations. Indeed, the two issues have been very successful so far. Intitially there was a certain amount of somewhat ill-informed comment—it is dying down now—on the market's reaction to the second issue of indexed gilts last week. We were told originally, when the issue was under-subscribed, that we had mistimed the issue because the institutions had no money. That was rapidly proved to be false when the whole of the rest of the stock was snapped up from the issue department of the Bank the following morning.
It was also argued, with the wisdom of hindsight, that the yield of 2·8 per cent. in real terms at which the issue was made was too high. Of course, when stocks are auctioned it is impossible to say in advance what the yield will be. That is in the nature of auctions. But if we compare the 2·8 per cent. in real terms with the alternative, which would have been about 15½ per cent. nominal—which is what long-dated conventional gilt-edged securities were yielding at the time—the 15½ per cent. nominal can be considered to be a lower yield only on a singularly defeatist view of inflation, and one that the Government most certainly do not share.
The right hon. Gentleman ought to know that gilt-edged tactics and funding proposals are not signalled well in advance. We issued the first £1 billion of index-linked gilts in March and the second £1 billion only last week. No doubt there will be other issues, because these two have been successful. It is remarkable that last week the Government were able to sell £1 billion of long-term debt at a real yield of under 3 per cent. in what were particularly adverse market conditions, both domestically and world-wide, with interest rates and short rates in particular, rising both here and abroad, and the pound weakening at the time.
That demonstrates that the new instrument enables us to maintain the momentum of the funding programme—which is a vital component of our monetary strategy—at a time of considerable market uncertainty. It is further evidence of the advantages of the increased flexibility in funding operations that we have recently introduced. It means that it is possible to avoid funding pauses without resort to such tactics as "the grand old Duke of York".
We felt that it was appropriate that the stamp duty exemption, which applies not only to all gilt-edged securities but to fixed interest industrial loan stocks, should be extended to index-linked industrial loan stocks that any companies in the future might see fit to introduce. I therefore commend the new clause to the House.
I welcome the fact that the exemption from stamp duty is to be given in respect of stock that is available to any purchaser. That marks it off sharply from the extraordinary and perverse limitations that are imposed on the Government's gilt-edged index-linked stock, which hitherto has been available only to a very limited and privileged class of purchaser.
I tabled a question to the Financial Secretary on Monday, asking whether, in the light of the Government's unsuccessful operation last week, they would now see the sense of making their index-linked gilts available to ordinary British citizens. I am somewhat encouraged not to receive a flat, negative in answer to that question, although I still await the answer.
Only a moment ago, in proposing the new clause, the Financial Secretary talked about his auction of index-linked Government stock. To me, and I imagine to other hon. Members on both sides of the House, it is a very peculiar auction—not to say a rigged auction—where one can get admission as a bidder only if one shows a highly privileged ticket as an institutional subscriber. That is not my definition of an auction. An honest auction should be open to all genuine bidders, great and small, whether they come from privileged institutions or whether they bring their own savings in an old stocking.
In so far as the new clause does not share what I and my hon. Friends believe to be a severe defect of the present gilt-edged index-linked stock, I am happy to welcome it.
The hon. Member for Colne Valley (Mr. Wainwright) pursued the case of the successful auction. I should have thought that a successful auction is not one at which the reserve price fails to be met, and something has to be bought in and sold subsequently. Therefore, I would not take the view that this has been quite as successful as has been made out.
We have no quarrel with this form of providing the kind of instruments that pension funds rightly require, and we look at developments as they come. We shall await further developments with interest.