Finance (No. 2) Bill

Orders of the Day — Clause 98 – in the House of Commons at 9:15 pm on 3rd May 1984.

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

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

We listened with amusement to the hon. Member for Corby (Mr. Powell), who, having got nothing from the Chief Secretary except a few kind words, immediately abandoned the companies about which he grieved so much, leaving them to suffer the burden of taxation which, in his view, will wipe them out, thus adding to the never-ending number of companies that have gone into liquidation under the present Government.

Clause 98 proposes yet more reductions in the rate of capital transfer tax and the indexation of the thresholds at which the tax is payable. It will abolish the three highest rates of capital transfer tax applying to transfers of assets after death, abolish the three highest rates of capital transfer tax applying to lifetime transfers, and reduce tax on other lifetime transfers of assets from 35 per cent. to 30 per cent. and from 30 per cent. to 27 per cent. at what appears to be a modest cost of £49 million. I shall return to that apparent modesty as this is simply yet another reduction in the tax.

The Chancellor has talked of the unnecessarily high rates of tax that discourage enterprise and risk taking. The Government have provided no empirical evidence for that. There is no evidence to suggest that the tax has prevented the formation of companies or the continuation of successful ones. It is the Government's conduct of economic policy, the pursuit of high interest rates in the initial part of their first term of office and the lack of demand that have destroyed the companies that have floundered. Those are the factors that have led to the highest rate of company liquidation that we have experienced for many years. If the Government were really worried about the health of companies, they would be changing their economic policies rather than fiddling around with tax changes to give even more benefits to the better-off.

Even the present rates of capital transfer tax allow large amounts of capital to be transferred. The £60,000 that can now be transferred without being liable to tax is to be increased to £64,000. Because the exemption is renewed every 10 years, a married couple can arrange for as much as £384,000 to be transferred in a 30-year period without being liable to tax. It is an ineffective tax which was regarded as so much so a couple of years ago that an article entitled "Capital Transfer Tax: An Obituary" appeared in Fiscal Studies. The article was premature, as it followed the 1981 Budget. The patient is dying, but dying very slowly. It was not quite dead then, but it was pretty ineffective.

10.15 pm

The article then gave an example. The Chancellor's reduction in capital transfer tax in the 1981 Budget meant that almost all personally owned businesses had low tax rates. Even on assets worth as much as £4 million, the effective tax rate was less than 12 per cent. once in a generation or about 0·4 per cent. in a year. Those were the estimates in the article. I see that the hon. Member for Corby has left his place, no doubt to sympathise with all the suffering companies that he has so abruptly deserted. He could hardly claim that an effective tax rate at that level was any great suffering to companies.

More recently, the Treasury and Civil Service Sub-Committee, in a report called "The Structure of Personal Income Taxation and Income Support" which had all-party support, had this to say about capital transfer tax: Capital transfer tax contained general exemptions, including the ability to transfer wealth freely between spouses and a reduction in liability on private business on agricultural land. As the Financial Times noted following the March 1982 Budget, all of these concessions plus the raising of the threshold has meant that CTT has declined as a proportion of GNP and that all but the very wealthiest can almost escape tax entirely. For even 1982–83, the absolute amount of tax is expected to fall. CTT raises little more revenue, even in cash terms, than the estate duties which it replaced. It represented only 1·2 per cent. of all Inland Revenue receipts, little more than an eighth as much as that raised before the last war. Proposals in the March 1982 Budget to index the tax for inflation will result in a further decline in future revenue from that tax. The Select Committee examined a wide range of evidence, and the report showed clearly that little of the tax was collected.

After all, the tax is easily avoided—this was one of the glaring omissions from the speech of the hon. Member for Corby. This is shown by the endless financial advice given in the financial sections of newspapers and in Accountancy Age. I have a couple of articles from that paper that will serve as an illustration. One of them suggests that one should take the avoidance so seriously that one plans from the cradle to the grave. To make that clear, it has a series of photographs, ending with a picture of a graveyard, when presumably one will have lost interest in capital transfer tax.

In considering gifts to children or the younger generation, the article said:

where possible gifts should be made of assets likely to appreciate in value. Woodlands, for example, offer a significant planning tool. The article then goes on to mention one or two other examples, as though there are many people who can seriously give some woodland to their children as a way to avoid capital transfer tax and as though that is a serious part of life for the majority of people. Avoiding this tax is an indulgence for the wealthy and the ways to avoid it are simple.

The advice is summed up at the beginning of the article where it says:

Your estate will be healthy if you keep making the gifts. Another major article refers to how to inherit the earth the efficient way. There is plenty of advice and there are tax avoidance schemes of all sorts, which have proliferated under this Government. There are ways to make sure that whatever rates are proposed in the Finance Bill can be avoided. The reductions that the Chief Secretary and the Government have so kindly given to their friends are meaningless for many of the people who, on paper, look as though they should be paying capital transfer tax but who in fact pay very little.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

It really will not do for the hon. Lady to say that tax avoidance schemes have proliferated under this Government when she knows, first, that the higher the rates of tax the more people endeavour to avoid paying it—it is inevitable, it is human nature—and, secondly, because of the recent decision of the House of Lords in the case of Furniss v. Dawson which outlawed a wide range of tax avoidance schemes.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

The hon. Gentleman's place is in offering yet more advice. As he and Treasury Ministers know well, as soon as one tax avoidance scheme is stamped on it is replaced by another. If one is serious about collecting such a tax, one is constantly trying to close one loophole after another.

The hon. Gentleman shrugs the matter off by saying that it is just human nature that people should try to avoid paying higher rates of tax. I should love to hear what he has to say about alleged cases of social security fraud. Does he just shrug his shoulders then or does he endorse everything that the Government have done to increase the number of inspectors who chase after social security fraud but not those who chase after income tax fraud?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Does not the hon. Lady understand the distinction between tax evasion and tax avoidance? Social security fraud is akin to tax evasion, not tax avoidance. I was not talking about fraud, nor was she earlier.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

I certainly was talking about tax avoidance. The hon. Gentleman finds it difficult to understand the simple point that I was making. He shrugs his shoulders and says that it is just human nature for people to try to avoid paying tax. He certainly would not shrug his shoulders if it were a social security matter. If he did, I should like to see it happening. I know that it would be a rare occurrence among Conservative Members. I do not mean to imply that Labour Members condone social security fraud any more than we would condone tax fraud. Our attitude to both is the same. I wish that Conservative Members were as energetic in chasing tax fraud and in closing tax avoidance loopholes. The hon. Gentleman need not wriggle in his seat. I carefully made the distinction between the two.

The total revenue from capital transfer tax in 1981 was £479 million. In subsequent years the figure ranges from £500 million in 1982 to an estimated £680 million in 1984. Of course, in terms of the total tax take from income tax, VAT, and so on, that is a tiny proportion. The Government are bent on reducing both the amount and the proportion. Since they first started changing the rates and thresholds for capital transfer tax in 1980—not in 1979—including this year's proposal, the Government have spent £350 million in four years to reduce what is a light tax indeed and a small proportion of total revenue. When that is set against demands for money in other directions, whether for schools, hospitals, the reversal of the housing benefit rules, an increase in the age allowance and so on—admittedly I have taken the figure over a four-year period—nevertheless £350 million is exactly the amount of money that the Government constantly declare that they cannot find to fund projects, allowances or benefits which would help the majority of people in Britain and not a tiny minority who are already pretty well off. It is no wonder that capital taxes contribute only 1·3p in the pound—the figure for 1984–85—compared with 3·9p in the pound in 1973–74. We are talking about a tiny amount.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell , Mid Bedfordshire

Will the hon. Lady take the opportunity to clarify Labour's position? Would she greatly increase the tax or abolish it? Would she introduce a wealth tax and nationalise land?

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

It is amazing that Government Back-Bench Members are even better at dreaming up manifestos for us than Ministers. We are not committed to nationalising land.

Photo of Stuart Bell Stuart Bell , Middlesbrough

A figleaf—but there is not much to cover.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

My hon. Friend the Member for Middlesbrough (Mr. Bell) tempts me to say that it is a figleaf which is larger than required. Perhaps I should not be tempted.

I have answered the first part of the question posed by the hon. and learned Member for Mid-Bedfordshire (Mr. Lyell). My answer to the second part is that we are in the process of reviewing the tax structure. With what is left of the capital transfer tax by the time that we take office—I hope in October 1987—it will not be worth raising the rates or adjusting the thresholds. Capital taxation must be rethought in a more effective way. That is an answer to the hon. Gentleman. More will be forthcoming in the years to come. The hon. Gentleman must try to make what use he can of that.

The Government's claim is that the highest rates are badly out of line with comparable rates abroad. The hon. Member for Corby, who is still out of the Chamber, made plenty of that—[HON. MEMBERS: "Where is he—reading his speech?"] I should think that the hon. Member is trying to understand his speech. What confuses the hon. Member and many other Government Members is that they tend to think of the rates rather than the corrected amounts and therefore regard them as a proportion of taxes including social security.

The taxes on capital in Belgium, France, the Netherlands, Denmark and Greece are higher in proportion to total taxes than in the United Kingdom. Neither the. Chancellor's nor the hon. Member for Corby's claims were correct. Their assessment of international comparisons is about as reliable as the comparisons with EEC figures that were discussed earlier this week.

A long time ago, in 1975, the Prime Minister, then an Opposition spokesman, gave a commitment on capital transfer tax. Complaining about the then Chancellor, she said that he had brought in a capital transfer tax which, unless it was repealed in time, would cripple business and farms. It did neither. It was left to the Conservatives to cripple business and, as a result of agreements with the EEC, to cripple some farms. This Government have destroyed more companies than ever the Labour Government did, whatever Conservatives now say about the kind of taxation that we then introduced.

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The Conservatives have decided to tackle capital transfer tax in a different way. At first I thought, having looked back at what the present Prime Minister said in 1975, that this was another example of a Tory broken promise. But it is nothing of the sort. Instead, they have gone in for killing off CTT slowly; it is, for this tax, death by a thousand cuts, and the Government have altered the rates and turned a blind eye to tax avoidance schemes. It was said in a recent Financial Times article:The last three years, however, have seen the emergence of off-the-peg CTT avoidance schemes which have been mass-marketed, mainly by life assurance companies, and have so far attracted an estimated £1·5 billion. As for the Conservative Government, not only has it expanded the reliefs from CTT; it has also turned a blind eye to many loopholes. In some cases, it appears deliberately to have created loopholes — for example, by repealing rather than beefing up the clause which deemed interest-free loans to be a partial gift. According to barrister Robert Venables, a tax specialist, the Government have been very clever. Their original plan to repeal the tax would have looked too much like favouring rich. Instead, they have allowed most of their supporters to avoid its harmful effects by careful planning. That sums up precisely what the Government have done with capital transfer tax. They have made up for the loss of revenue by vastly increasing the tax burden on wage earners, and particularly low wage earners, many of whom now bear the brunt of the £17 billion increase in taxation which the Conservatives have imposed since 1979.

There is no way out for most wage earners. They pay their tax through the PAYE system. They cannot indulge in tax avoidance schemes or hire accountants to find a way out of paying their tax. That is the prerogative open to many who are better off, and the Government have indulged this kind of tax avoidance, thus enabling the wealthy to reduce their tax burden, and in some cases to pay hardly any tax at all. No wonder such people are laughing all the way to the bank, for life is good for them under the Conservatives.

Tax inspectors have been reduced in number and it is more difficult for them to carry out their work of checking the accounts of companies and individuals. Meanwhile, the Government have stepped up their attack on social security fraud. They are determined to harass working-class people, impose burdens of taxation on them, deny them benefits through legislation and ensure that not one of them escapes. If they were equally concerned to close the loopholes in capital transfer tax, they would have our support for the provisions that they wish to include in the Bill. If that were their concern, the unity to which hon. Members have referred this evening could be restored.

However, the clause will favour once again the wealthy in our society. It will reduce the tax burden for them and we cannot give our support to such a measure. We are here to protect the interests of the low paid. We are here to protect the interests of the average wage earner. We are not here to protect the interests of the wealthy and to enable them to avoid tax. It is not our purpose to continue to reduce the burden of taxation on them at the expense of the low and average wage earner.

Photo of Stuart Bell Stuart Bell , Middlesbrough

I appreciated and enjoyed the speech of my hon. Friend the Member for Thurrock (Dr. McDonald), notwithstanding the fact that it was laced with certain interventions of levity from Conservative Members. We would expect them to introduce levity during a debate on the proposed reduction of capital transfer tax rates. I think that my hon. Friend did justice to our cause and we are grateful to her for stating it so clearly.

My hon. Friend the Member for Workington (Mr. Campbell-Savours) has mentioned the hon. Member for Corby (Mr. Powell). I wished to be charitable at this time of night and it was my intention not to mention the hon. Gentleman, but having used notes copiously and having declared an interest, he thought that it was fitting for him to withdraw his amendment after a few words from the Chief Secretary to the Treasury. He reminded me of a worthy Member of this place, Aneurin Bevan, a great socialist, who once said, "He who fights and runs away lives to run another day." The hon. Member for Corby will do exactly that for he left the Chamber when we began to debate whether the clause should remain part of the Bill. One consolation for my hon. Friends is that the hon. Gentleman will be a member of the Standing Committee which will consider the Bill. We look forward to many lengthy sessions running until two o'clock or three o'clock in the morning on the complex issues raised by the Bill. We look forward also to the hon. Gentleman's interventions.

My hon. Friend the Member for Thurrock referred to a statement that was made by a former spokesman of the Conservative party who is now the Prime Minister. The right hon. Lady criticised CTT in 1975 and said that a future Conservative Government would abolish it. That cry was heard throughout the life of the previous Labour Government. It was heard from the inception of the tax. The Foreign Secretary, who became the Chancellor of the Exchequer in 1979, claimed on 27 October 1976 that the mix of capital taxes discouraged the creation of individual and national wealth. The right hon. and learned Gentleman was Chancellor for four years, but he did not rid the tax system of CTT. He had as little courage in that respect as Chancellor as that which he has shown in other areas.

I wish to make no criticism of the Foreign Secretary, but CTT was criticised by Conservative Members, yet when they formed a Government in 1979—they have now been in office for five years, a fact of which we have been reminded forcefully today—they did not abolish it. It remains on the statute book after five years of Conservative Government.

We should be grateful to my hon. Friend the Member for Thurrock for stating so clearly, concisely and forcefully at the end of her remarks the beliefs and tenets of the Labour party. It is proud to believe in a fundamental and irreversible shift in the balance of wealth and power in favour of workers and their families. It has been suggested by Conservative Members that we would substitute tax on capital by the nationalisation of land—move from the sublime to the ridiculous and back again—but it is a fact that we favour labour as opposed to capital. We have never made any bones about that.

When in office, we introduced a capital gains tax, capital transfer tax, development gains tax, stamp duty and an investment income surcharge. We are not ashamed of our record in government. We do not seek to wriggle away from it. The Chief Secretary might wish to blame us for our record and to suggest that we were misguided. He should not feel that we regret that we imposed the taxes on capital and sought to advance the cause and interests of labour. When we are returned to office, as I believe we shall be, we will again shift the emphasis away from capital in favour of labour. We make no bones about that aim.

I sought to intervene when the hon. Member for Corby made a statement in response to an intervention of my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher). My hon. Friend referred to the levels of taxes, including social security contributions, in other European countries. The hon. Member for Corby said that that was a matter of opinion. I wished to intervene to say that it was a matter not of opinion but of facts. Those facts are published by Her Majesty's Stationery Office in "Economic Trends" for December 1983, which clearly shows in table 4 that the proportion of total tax, including social contributions paid from taxes on capital in 1981, were as follows: Greece, 1·4 per cent., Belgium, 0·9 per cent., France, 0·8 per cent., the Netherlands, 0·5 per cent., and Denmark, 0·4 per cent. That is not anecdotal evidence or opinion, but facts. My hon. Friend the Member for Stoke-on-Trent, Central sought to draw those facts to the attention of the Committee.

one of the major justifications the committee has heard for the reduction in the capital transfer tax and the review of the transfer was that unnecessarily high rates of tax discourage enterprise and risk taking. That claim, like many of the Chancellor's claims, is not supported by any evidence, including empirical evidence. The capital transfer tax operates only against very high levels of transfers. Transfers of capital of less than £60,000 attract no liability. Because the exemption is renewable every 10 years, a married couple could arrange for as much as £384,000 to be transferred during a 30-year period without incurring any capital transfer tax liability. These cuts in capital transfer tax will continue the overall decline in capital taxes, which will contribute only 1·3p in the pound collected by Inland Revenue in 1984–85, compared with 3–9p in the pound in 1973–74. Those facts are from the "Financial Statement and Budget Report" for 1984–1985 and "Financial Statistics" for June 1983.

Part of the Government's justification for the cuts in capital transfer tax is that high interest rates are badly out of line with comparable rates abroad. We have clearly shown tonight that that is not the case.

Labour Members are proud to assert again our defence of labour against the interests of capital. I support fully the statements of my hon. Friend the Member for Thurrock. We will always be opposed to any measures to alleviate the tax on capital. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said on 14 March 1984 during the Budget resolution and economic debate:

If there is money to reduce the rate of capital transfer tax from 75 to 60 per cent., how can the chancellor justify a cut of £185 million in housing benefit?"—[Official Report, 14 March 1984; Vol. 56, c. 415.] We are no more likely to get the answer to that question tonight than my right hon. Friend was on that occasion.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington 10:45 pm, 3rd May 1984

I shall speak only briefly, as I hope to speak on Report. I wish to comment on the speech of the hon. Member for Corby (Mr. Powell), who read his brief with care. I must tell him that there are many hon. Members who, over the years, have repeatedly risen in the annual ritual of debates. We have witnessed the festering, sordid underbelly of British Conservatism in action, demanding further reductions in capital transfer tax to feed their festering greed—which everyone knows is wrong when, every year, the amount of money made available by the state to those in need is cut. We are tired, sick and fed-up of the process. It is an embarrassment to the House of Commons and it should be an ambarrassment to the Government. It puts a shame on every hon. Member who supports this nonsense—this sordid, disgraceful annual exercise.

The Minister may shake his head, but he knows that if the House was televised—and I have always voted against that, despite the strong pressure from my hon. Friend the Member for Great Grimsby (Mr. Mitchell)—the Minister would not dare to stand at the Dispatch Box and make the statement that he is about to make. He knows that the British people—and I would like his attention—would take exception to the way that the Government annually hand out this sordid money to their even more sordid friends.

Photo of Austin Mitchell Austin Mitchell Chair, Treasury & Civil Service Sub-Committee, Opposition Whip (Commons)

I shall be brief. I wish to add to the chorus of protest from the Opposition. We will vote against the motion that the clause stand part of the Bill because it is a further stage in the long process of whittling away the capital taxation that is an essential part of any reasonable, fair tax system. The Government are taking the teeth out of capital transfer tax.

It is a basic principle not only of a Socialist society but of any fair tax system that there should be substantial taxation of capital. Capital is well able to bear its share of the common weal. A few welts on capital in the common weal is no more than social justice. Wealth is powerful enough to bear its share.

The process of taxing capital leads to an essential part of a dynamic, healthy and vigorously competitive society—the shake-up of capital. Much of the sluggishness of British capital has been caused by firms descending from father to idiot sons without innovation or new ideas, and gradually wasting away as families withdraw from management, live on capital and run down their businesses. That has especially happened in the wool business of the West Riding, where I was brought up. The Opposition want to avoid that sluggish society. We want a competitive society in that there should be a turnaround, a shake-up and new blood.

The chorus of protest that developed in the late 1970s about the burden of income tax was due to the inadequate share borne by capital. We have been good at taxing income—perhaps too good—but very bad at taxing that section of wealth that is well able to carry its share burden.

The capital transfer tax has been a sad experience for the Opposition. It has been a hate symbol for Conservative Members. When it was introduced 10 years ago, I and a large section of the Labour party had high hopes for it. My right hon. Friend the Member for Leeds, East (Mr. Healey) said that it would produce howls of anguish from the rich, yet we have been disappointed because capital has borne a diminishing share of taxation. In 1968–69, estate duties amounted to 7 per cent. of the Government's total income from tax. In 1982–83, with capital transfer tax, the income amounted to 1·1 per cent. Thus, there has been a substantial reduction in the tax share carried by capital.

That decline in the capital share of the tax burden puts Britain, as has been pointed out, at the bottom end of the table for capital contributing to taxation. A far lower proportion of capital contributes to taxation in Britain than is the case in Belgium, France and most other Common Market countries, with the exception of Ireland.

Photo of Austin Mitchell Austin Mitchell Chair, Treasury & Civil Service Sub-Committee, Opposition Whip (Commons)

The capital tax share in Britain is certainly substantially lower than that in Greece.

There are numerous reasons for the failure of capital transfer tax. In a sense, the tax was introduced a little too speedily. In an article in the Financial Times of 24 March 1984, Lord Barnett admitted that the speed with which it had been introduced had made it more complicated and less effective than it might have been. We had to face a continuous barrage from the tax fiddlers' party, which is ably represented tonight, and from people who have dedicated their lives to doing well for capital and to providing loopholes and all the little fiddles through which capital creeps out. They are skilled at that sort of thing.

I must admit that the Labour party does not have the expertise in tax matters that we need. Conservative Members should not worry, though, because we shall develop it. When capital transfer tax was introduced, immediate concessions were made. There were mistakes such as a reduced rate on lifetime transfers and an unlimited exemption for gifts between spouses. Given the need to shake up capital and to provide more dynamic in society, the major reductions in the taxable value of farms and small businesses were also a mistake.

In 1976–77, I was involved for the first time in a Finance Bill, having been persuaded by the Labour party Whip that it was an honour to take part in it. That was two weeks after I had been elected to Parliament. I must say, I learnt very rapidly. I watched that process of exemption for land and small businesses. It defeated what I saw as one of CTT's main objectives, which was to shake up capital and to get it to change hands. I wanted to give it more vigour, and to put it into new hands, so getting the dead wood out. But that objective was not helped by the exemptions.

Since 1979, the Conservative party has been in office, and we have had the sordid sad spectacle of it taking the teeth and guts out of CTT. [Interruption.] This is not a requiem to CTT, as it still has life. However, Labour Members should look at the whole structure of capital taxation. That will almost certainly mean a wealth tax. I do not know whether that means a revived and strengthened CTT or a return to death duties, coupled with a simpler gift tax. However, the taxation of capital and wealth must be one of our priorities when we form the Government after the next election. By taking the teeth out of CTT and allowing capital to escape so easily, by putting the burden increasingly on the poor and removing it from the shoulders of the wealthy, Conservative Members will have brought such changes on themselves.

Photo of Stuart Bell Stuart Bell , Middlesbrough

On a point of order, Mr. Armstrong. I am a new Member of the House, and perhaps you could give me some guidance. I was under the impression that one was not allowed to speak from the Cross-Bench seats as they are not part of the House of Commons.

The First Deputy Chairman:

No one has spoken to the House from those seats.

Photo of Mr Peter Rees Mr Peter Rees , Dover

Labour Members have tried to flog a bit of life into what was otherwise a rather dispiriting exercise from the Opposition side. I suppose that, adopting the purple prose of the hon. Member for Workington (Mr. Campbell-Savours), I must regard myself as part of the festering, sordid under-belly of the Conservative party. I bear that with as much equanimity as I can, and I look forward to some equally highly charged prose in our encounters in Committee Room 10. It might add a little life to our proceedings.

What saddens me is that Opposition Members are right to say that this has become an annual ritual. The phrases and sentiments from the Opposition never vary. It is a pity that we cannot have a rational debate about the balance of taxation between capital and income, and the consequences of any course of action. Instead we have highly charged speeches which I do not believe Opposition Members take seriously.

Photo of Mr Peter Rees Mr Peter Rees , Dover

The hon. Lady says that she takes them seriously. The kindest thing that I could say about her speech was that it seemed to be a series of newspaper articles cobbled together. She can prove me wrong in Committee with her formidable command of the details of fiscal legislation, but I doubt whether the inwardness of her speech made a great impact on her.

The principal theme of the hon. Lady's speech was that capital transfer tax is now completely ineffective. I look back with some nostalgia to 1974 and 1975, when I and some of my hon. Friends obviously spent far too much time discussing this tax. I was interested to read, as no doubt was the Committee, the candid and charming admissions of Lord Barnett that the tax was not well thought out, not well put together, and not well defended on that occasion. It was a commentary on that Administration and their endeavours in this area.

I remind the Committee that the majority of the reliefs to which the hon. Lady and her hon. Friends have taken exception were introduced into the tax during those debates. I was especially interested in the statement of the hon. Member for Great Grimsby (Mr. Mitchell), speaking with all the authority of an Opposition Whip and presumably, therefore, enunciating Labour party policy, that a future Labour Government would have nothing to do with gifts between spouses. The sentiments which I respected and which led the right hon. Member for Leeds, East (Mr. Healey) to introduce the tax are evidently no longer current in the rather harsher climate prevailing in the Labour party.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

That is not what he said.

Photo of Mr Peter Rees Mr Peter Rees , Dover

That is what can reasonably be inferred from what the hon. Gentleman said. I should prefer to debate this matter with the hon. Member for Workington when he is standing, not sitting down.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

That is not Labour party policy.

Photo of Mr Peter Rees Mr Peter Rees , Dover

Then I am reassured. If it is not Labour party policy, I do not know what the hon. Member for Great Grimsby was complaining about. Perhaps I am attaching too much significance to his words. Perhaps he thought that he would help the debate along and that, to make an amusing exchange, he would cast off a few frivolous ideas. He made great play of dynamism, and I take his point. How far should a fiscal system be designed to encourage a dynamic society and economy?

That would be an interesting subject for a debate, and it was precisely that sort of consideration, as I recall from our debates on the introduction of capital transfer tax, which led the right hon. Member for Ashton-under-Lyne (Mr. Sheldon)—or it might have been Lord Barnett, as he now is—to introduce an amendment at a late stage reducing the rate of tax on lifetime gifts to encourage people to pass on their capital so as to make a more dynamic economy, and so that capital would not be retained by older members of society. I do not know whether the hon. Gentleman still approves of that relief. He told us that the Labour party's policy does not embrace the abolition of relief on lifetime gifts. Apparently he personally is moving away from the idea of a reduced rate on lifetime gifts. There is a serious theme underlying this which was picked up by his right hon. Friends when we debated these matters between 1974 and 1975.

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Coming back to the hon. Lady's main theme, which is that capital transfer tax is now a totally ineffective tax ripe for the final chop, some of my hon. Friends might wish that that were so, but I should like to give the yield figures. The highest yield under the Labour Administration was in 1977–78, when the figure was £398 million. Adjusted to 1984–85 figures that would be £758 million. The yield on capital transfer tax in 1983–84 was £610 million. In 1984–85, assuming that the amendments we propose commend themselves to the Committee, the yield will be £680 million. That is less than £758 million, but not by a great deal. For the hon. Lady to suggest that the tax has been robbed of all effect does not seem right.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

The Chief Secretary knows full well that he is making a spurious point and that the figures relating to the amount of revenue collected from capital transfer tax during the term of the Labour Government were for a transitional period. As the Inland Revenue has itself stated, this was a transitional period when estate duty was being phased out and capital transfer tax was in the process of replacing it. The point is not the amount, be it £500 million or over £600 million as is expected this year, but the proportion of total revenue which capital transfer tax constitutes. If the Chief Secretary takes that figure for comparison he will find that it is much lower under this Government.

Photo of Mr Peter Rees Mr Peter Rees , Dover

I am sorry, but the hon. Lady does not support the point that she is endeavouring to make. The simple test of whether a tax is more or less effective than when it was introduced is the yield. I have given the yield figures. If the hon. Lady wishes to put down a question to me to amplify the point I shall endeavour to answer it. She has now shifted her ground very adroitly, as one expects of such a charming hon. Lady, to a different point. I have to give the figures as I know them.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

I gave those figures.

Photo of Mr Peter Rees Mr Peter Rees , Dover

I am deeply apologetic to hon. Members if I bore them by giving the figures twice over. They do not support the conclusion that the hon. Lady is endeavouring to draw. The right hon. Member for Llanelli (Mr. Davies) knows a little about this tax, because he and I sparred for many long hours during the winter of 1974–75. He will recall the difficulties and imperfections of the tax and the very eloquent way in which he and his right hon. Friend introduced the reliefs of which the hon. Member for Great Grimsby now complains. I know that the Labour party is shifting its complexion and its ideas. There will be a rather cold frisson in the country when we hear from the hon. Member for Thurrock (Dr. McDonald) that the whole capital taxation system will be reviewed. We shall probe in these annual exchanges just how far the thinking of the Labour party has progressed, if it has. I suggest that it has probably regressed. I suspect that the Labour party has learnt nothing from its experience in power and from its fiscal mistakes.

Photo of Mr Archy Kirkwood Mr Archy Kirkwood , Roxburgh and Berwickshire

While we are thinking about potential reviews, may I insinuate the thought into the heads of those on the Treasury Bench that we on these Benches — [HON. MEMBERS: "We? Who are 'We'?"]. I have been sitting here since 4 pm. I have been here minute by minute through the Committee stage. It ill behoves Conservative Members to come in now and criticise me—

Photo of Mr David Harris Mr David Harris , St Ives

On a point of order, Mr. Armstrong. Is it in order for the hon. Gentleman to use the royal "we", when he is alone on the Liberal Benches?

The First Deputy Chairman:

Order. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) is completely in order.

Photo of Mr Archy Kirkwood Mr Archy Kirkwood , Roxburgh and Berwickshire

May I insinuate the thought into the Treasury Bench's head that a far better way of redistributing wealth, in terms of the sorts of taxes that we are talking about, would be to move towards an accessions tax, which would put the burden on beneficiaries?

Photo of Mr Peter Rees Mr Peter Rees , Dover

I am tempted to respond to the hon. Gentleman, because that is a serious matter which we have debated in the Conservative party and in the House of Commons, but I suspect that I would be out of order if I succumbed to that temptation. Many continental countries have a form of accessions tax and consanguinity reliefs which are much more generous than anything on offer here. I say that in the knowledge that some of my hon. Friends may think that we have not gone far enough in the Bill.

Let me put our proposals in perspective. We have heard many highly charged statements from the Opposition, but the cost of our proposals—over the indexation of the various bands—

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Give us the cash figures.

Photo of Mr Peter Rees Mr Peter Rees , Dover

If the hon. Member for Workington wants inflation to complete the work that his right hon. Friend the Member for Leeds, East failed to do, he will get no support from the Government and he should not get support from his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) who, with Mrs. Audrey Wise, of late lamented memory, and my right hon. Friend the Chancellor of the Exchequer thought it right to index The income tax thresholds. If that 'was right for income tax, it must, in equity and fairness, be right for capital taxes. Over and above the indexation of the various bands, the cost for 1984–85 will be £3 million. For a full year, it will be £9 million.

Photo of Mr Peter Rees Mr Peter Rees , Dover

No. I know that the hon. Gentleman gets a little over-excited in these debates. [HON. MEMBERS: "Oh."] When the hon. Gentleman describes me as the festering, sordid under-belly of the Conservative party, I am entitled to say that he gets a little over-excited.

The hon. Member for Thurrock said that if we had only devoted those sums to the lower paid we could have achieved a social and economic revolution. If hon. Members will recall that we have devoted slightly less than £2 billion to raising the threshold of income tax, taking 850,000 people out of tax next year, that will show the spurious nature of the points made by the Opposition.

Photo of Mr Peter Rees Mr Peter Rees , Dover

Well, I respect the hon. Gentleman and his father. We have had many interesting debates.

Photo of Mark Fisher Mark Fisher , Stoke-on-Trent Central

Although the Chief Secretary has failed to give my hon. Friend the Member for Workington (Mr. Campbell-Savours) the cash figure for which he has asked, he has been well briefed, and we are grateful for that. However, it does him no credit to drag out the tawdry and ill-considered figure of 850,000. As the right hon. and learned Gentleman knows, the vast majority of those people fell into tax only last year. It is not a real figure at all. The right hon. and learned Gentleman should come clean about it.

Photo of Mr Peter Rees Mr Peter Rees , Dover

The figure will be very real to those who are taken out of charge to tax. Nothing that the hon. Gentleman says will persuade me to the contrary.

My point is that if the Committee compares the resources which the Government are devoting to raising the thresholds for income tax with what we are devoting to ameliorating the burden of capital taxation, it will be realised that we have been more than even-handed in our fiscal approach. All the bogus and highly charged points made by Opposition Members are just part of an annual ritual exchange. I ask the Committee, the House and the country to consider the facts and to support us wholeheartedly in our endeavours to make a little more sense of a rather ill-conceived tax.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

We have listened again to the endless outpourings of the Chief Secretary, which have not answered any of the points that we have made. He says that 850,000 will be brought out of taxation by the Government's measures this year, but 550,000 of them would have been taken out of taxation by indexing in any case. He says that a married couple will gain about £2 per week. Much of that money will be taken back by increases in VAT on take-away food and other tax increases. The Chief Secretary, and other Conservative Members, would do well to consider the tax burden on families of VAT, income tax and customs and excise duties. The Chief Secretary should study the figures, and see what those increases in indirect taxation, including VAT will mean to many families.

The Chief Secretary talks about the annual debate on reducing the rates of capital transfer tax and raising the thresholds. There would not need to be an annual debate, if the Government had the courage to carry out the commitment that the Prime Minister gave in opposition and repealed CTT altogether. The Government do not have the nerve to do that, because they know how much opposition there would be throughout the country. They prefer to hold an annual debate at a late hour and to hope that the public will not notice—[Interruption.] It is the Government who select the clauses and the days. Hon. Gentlemen should find out something about the procedure. We should have preferred the debate to take place earlier in the day, or indeed on another day, as it could have done if the Government had provided more days for the Committee stage on the floor of the House. Right hon. and hon. Gentlemen would rather hold the debate at a late hour. They hope that the public will not notice that taxes on capital are being decreased, while the burden on wage-earners has increased steadily since 1979, and the Government are still holding to the same practices and policies. That is why we oppose clause 98.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 108, Noes 13.

Division No. 281][11.14 pm
Amess, DavidHowell, Ralph (N Norfolk)
Ashby, DavidHunter, Andrew
Baker, Nicholas (N Dorset)Jackson, Robert
Baldry, AnthonyJessel, Toby
Bellingham, HenryJones, Gwilym (Cardiff N)
Benyon, WilliamJones, Robert (W Herts)
Biggs-Davison, Sir JohnKershaw, Sir Anthony
Boscawen, Hon RobertKey, Robert
Bowden, Gerald (Dulwich)Knight, Gregory (Derby N)
Bright, GrahamLawler, Geoffrey
Brinton, TimLennox-Boyd, Hon Mark
Brooke, Hon PeterLester, Jim
Brown, M. (Brigg & Cl'thpes)Lyell, Nicholas
Buck, Sir AntonyMajor, John
Butterfill, JohnMather, Carol
Carlisle, Kenneth (Lincoln)Miller, Hal (B'grove)
Chapman, SydneyMoore, John
Chope, ChristopherMoynihan, Hon C.
Clegg, Sir WalterMurphy, Christopher
Conway, DerekNeubert, Michael
Coombs, SimonRathbone, Tim
Cope, JohnRees, Rt Hon Peter (Dover)
Couchman, JamesRenton, Tim
Cranborne, ViscountRhodes James, Robert
Currie, Mrs EdwinaRoe, Mrs Marion
Dunn, RobertRyder, Richard
Eggar, TimSackville, Hon Thomas
Evennett, DavidSainsbury, Hon Timothy
Fallon, MichaelShelton, William (Streatham)
Farr, JohnSims, Roger
Finsberg, Sir GeoffreySmith, Tim (Beaconsfield)
Forman, NigelSoames, Hon Nicholas
Forth, EricSpencer, Derek
Fraser, Peter (Angus East)Spicer, Jim (W Dorset)
Freeman, RogerSquire, Robin
Galley, RoyStanbrook, Ivor
Goodlad, AlastairStevens, Martin (Fulham)
Gow, IanStewart, Ian (N Hertf'dshire)
Gregory, ConalSumberg, David
Griffiths, Peter (Portsm'th N)Thomas, Rt Hon Peter
Grist, IanThompson, Donald (Calder V)
Ground, PatrickThompson, Patrick (N'ich N)
Hamilton, Neil (Tatton)Tracey, Richard
Harris, DavidTwinn, Dr Ian
Hawkins, Sir Paul (SW N'folk)Viggers, Peter
Hayes, J.Waddington, David
Hayward, RobertWakeham, Rt Hon John
Heathcoat-Amory, DavidWalden, George
Heddle, JohnWardle, C. (Bexhill)
Hickmet, RichardWhitfield, John
Hogg, Hon Douglas (Gr'th'm)Whitney, Raymond
Holt, RichardWolfson, Mark
Hooson, TomHoward, Michael
Tellers for the Ayes:
Howarth, Alan (Stratf'd-on-A)Mr. Archie Hamilton and
Howell, Rt Hon D. (G'Idford)Mr. David Hunt.
Bell, StuartKirkwood, Archibald
Bermingham, GeraldMcDonald, Dr Oonagh
Campbell-Savours, DaleMcWilliam, John
Cocks, Rt Hon M. (Bristol S.)Skinner, Dennis
Cohen, Harry
Cook, Frank (Stockton North)Tellers for the Noes:
Davies, Rt Hon Denzil (L'lli)Mr. Austin Mitchell and
Davis, Terry (B'ham, H'ge H'l)Mr. Frank Haynes.
Fisher, Mark

Question accordingly agreed to.

Clause 98 ordered to stand part of the Bill.

Clause 105 ordered to stand part of the Bill.

Bill (Clauses 10, 17, 18, 20, 21, 27, 57, 98, 105, 113; and Schedules 6 to 8 and 12), reported, with amendments; to lie upon the Table.