REDUCTION OF LIFETIME RATES

HC Deb 12 May 1981 vol 4 cc633-65

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

4.38 pm

Mr. Robin F. Cook (Edinburgh, Central)

To hon. Members with aesthetic sensibilities, there is a certain pleasing contrast in the way that we have moved from the taxation of the unemployed and strikers to the question of the taxation of the Duke of Westminster. Yesterday the Committee was asked to increase the tax burden on the unemployed and strikers and to provide the Treasury with a special power to withhold tax refunds to those groups of the low-paid. Today the Committee is asked to slash the rates of tax the next time the Westminster estate changes generation.

It is appropriate that the Committee should begin by reflecting on the social priorities of the Government which make such a contrast and on what such a contrast tells us about their general fiscal policy. Yesterday the Financial Secretary produced a totaliser in which he gave a cumulative figure for the cost of Opposition amendments to date. If I remember his figure correctly, it was some £4 billion.

The Minister of State, Treasury (Mr. Peter Rees)

No—£4,250,000,000.

Mr. Cook

I omitted the £250 million.

I shall not again go through the general argument which we had on that issue. I am pleased to see that the Treasury Bench is keeping the accumulator running in tandem with our amendments. When the next election comes, I hope that the Financial Secretary will tell the electorate of his pride in the achievement during the passage of the 1981 Finance Act, in the course of which the Treasury Bench used its majority to protect the revenue of the Treasury, increase it by £4,250 million and protect it against the irresponsible amendments of the Opposition who sought to prevent the nation's tax burden from going up.

Let us be clear about the thrust of the amendments we have already discussed. It has been not to cut taxes which existed when the Conservatives came to office, not even to cut taxes which existed before Treasury Ministers opened their little red boxes and discovered what was in the Budget, but to prevent taxation from going up to a figure even higher than it was before March 1981, let alone March 1979 when we left office.

Our amendments are designed to prevent income tax from being increased by the back door by the failure to revalorise the tax thresholds because the Prime Minister lacked the courage to increase income tax by the front door by putting up the rates. Our amendments are designed to avoid the new burdens on the unemployed and strikers by bringing them into the tax net for the first time.

We have been told in the course of debate on the amendments that is is necessary that these new tax burdens should be placed on the low-paid and the unemployed on the ground of fiscal prudence and because of the expense of keeping two-and-a-half million people idle. I began to get the impression at one stage yesterday that the Financial Secretary was getting a positive pride out of being the Minister who is responsible for a 10 per cent. increase in the nation's tax burden expressed as a percentage of GDP. I hope that he will show that same pride to the electorate at the next general election.

Having debated these matters in the past, when we have been consistently told of the need for a responsible attitude to increasing the tax burden and the Opposition's frivolity in resisting that increase in the tax burden, today we are dealing with a clause in which the tax on inherited wealth is dramatically cut. The Opposition oppose that cut. I very much hope that the Chancellor of the Exchequer will deduct the saving that the amendment would represent to the Treasury from the cumulative total that he is working out for presentation at the conclusion of the passage of the Finance Bill. I hope that he will be precise in the figure he gives to us on the credit side of the balance sheet.

There is a curious coyness in the Red Book about how much the relaxation of taxes on capital transfer will cost. In table 2, a figure is given for the cost of the clause—£4 million in a full year. Other figures are given against the relaxation in the capital transfer regime provided for in subsequent clauses of which this clause is the first part. The total value of the figures given in the Red Book is £20 million. Clause 89 deals with the limit on the cumulation period to 10 years. In the table on page 10 of the Red Book there is the letter (i) which refers to a footnote which states "Cannot be estimated".

My hon. Friends who were in the Chamber yesterday will remember that there was a precision about the Government's calculation of the cost of Opposition amendments. Yesterday the Chief Secretary rebutted my amendment which would have relieved strikers of the payment of taxation on the supplementary benefit they received. The Chief Secretary said that the amendment would cost £130 million. He admitted that the figure was speculative. He was not sure how many strikers claimed supplementary benefit, but he thought that about one-third did. We were talking of long-term strikers who were not defined, and there was a certain vagueness about the way in which the calculation was made, but the figure was precise. It was not £125 million, not £150 million; it was £130 million.

Although the Treasury can be precise about the revenue obtained by taxing the striker, when we press for figures on what it will cost to extend relief to those who pass on inherited wealth we are told that it cannot be estimated. I assure the Committee that the effect of this part of the Bill, of which this clause forms the keystone, will be to reduce the revenue received by the Treasury from the taxation of capital transfer. That is inescapable, and I think I would carry the Minister with me in saying that.

It is therefore appropriate to review briefly the history of the taxation of capital transfer over the past decade or two. Over the past decade the revenue received by the Treasury from the taxation of capital transfer has declined, whether expressed as a percentage of total receipts or as a percentage of GDP. Even in cash terms it has declined.

In 1972 the Treasury received £482 million from death duty. Ten years later in the past financial year the Treasury received £415 million. I do not give figures adjusted for inflation; I give crude cash figures. If we were to adjust that figure for inflation, we would have to allow a reduction of two-thirds, so that in real terms the revenue from the taxation of capital has gone down by two-thirds in 10 years.

Sir Charles Fletcher-Cooke (Darwen)

Is the hon. Gentleman taking into account the large concession which the right hon. Member for Leeds, East (Mr. Healey) gave on capital transfer to a spouse? This must have deprived the Inland Revenue of an enormous amount of money. I do not grumble about that; I think it is quite right.

Mr. Cook

I am not making any party point in the review I am making. I said that the revenue from the taxation of capital transfer had declined over the past decade and I was coming on to the point the hon. and learned Member for Darwen (Sir C. Fletcher-Cooke) referred to, because it is highly relevant to the proposal further to reduce the rates on capital transfer. The hon. and learned Gentleman is correct. The Labour Government played their part in reducing the taxation derived from capital transfer. When capital transfer tax was introduced by the Labour Government, the seven-year exemption which obtained on death duty was abolished. The effect of the seven-year exemption from death duty was to render estate duty more or less a voluntary tax, paid only by those who disliked their heirs even more than they disliked the Inland Revenue.

It was, therefore, entirely reasonable of the Labour Government at the time when they abolished the exemption and brought in capital transfer tax—which represented a tax on cumulative gifts throughout lifetime and at death—to examine whether other adjustments should be made to the tax regime. Two major adjustments were made, to one of which the hon. and learned Member for Darwen referred. The other was the reduction in the rates for transfers of less than £310,000. That was perceived at the time, rightly or wrongly, as a reasonable and right quid pro quo for the abolition of the exemption period. I am pleased to see that I carry the hon. and learned Gentleman with me.

However, in a subsequent clause, the Bill restores the principle of an exemption period. The Bill brings back into tax law the principle that so long as one carries out the capital transfer sufficiently far in advance of the date of death that will not be included in the full rate of death duty. The cumulative principle is destroyed by the Bill.

That brings me back to the point perceptively raised by the hon. and learned Member for Darwen. As the rates were reduced, and as the exemption for transfers between spouses was created as a quid pro quo for the abolition of the exemption period, surely one could argue that when that exemption period is restored, as is done in the Bill, the rates should revert to where they were when the exemption period was abolished. The rates should revert to where they were when the special arrangement was made under the 1975 Act to treat all transfers as cumulative over the life-time. That could be put forward reasonably on that basis, were we in order to put forward an amendment increasing a charge.

Far from proposing that the rates should revert to where they were when the exemption period last obtained and not even leaving them where they were before the Bill was introduced, once again importing into tax law the principle of an exemption period, it is striking that in addition to restoring the exemption period, this clause will once again cut the rates which operate.

What possible justification can there be for simultaneously recreating the exemption period and cutting the rates and increasing the extent to which we were generous to those who carry out capital transfers when we abolished the exeption period?

My hon. Friends who were in the Committee yesterday heard the Financial Secretary, in response to the debate on strikers' pay, enunciate three general grounds for creating new taxation. I believe that the Minister of State missed that pleasing passage in his colleague's speech. It might be as well for the tranquillity of his thoughts about the fiscal purity of his Government that he missed the reasons which were adduced by the Financial Secretary for fresh taxation. I shall reiterate them for his benefit.

Mr. D. N. Campbell-Savours (Workington)

One of the reasons was malice.

Mr. Cook

Let us be fair and objective. The Financial Secretary did not say that one of the three reasons was malice. He gave three reasons why the new taxation was legitimate: first, that striking was voluntary; secondly, that striking damaged the economy; and, thirdly, that strikes were aimed to increase income. He said that those were three cogent reasons for imposing a new tax burden.

Let us apply those three laws of fiscal policy adduced by the Financial Secretary to the proposal in the clause not to increase the tax burden, but to reduce it. Does the converse of those three principles apply in this case? Are we to be told as a justification for reducing the rate of tax on capital transfer that inherited wealth is not voluntary but involuntary? Are we to be told that if the Duke of Westminster had been given freedom of choice and freedom of his own volition he might have chosen to be born the son of a poor man who would have had to strike to increase his income? Are we to be told that as a matter of ill luck he was born to inherit a large slice of London and that he was stuck with the revenue which came from it and that every time he was not looking his father shovelled another bucketful of the stuff across the table towards him? Are we to believe that that was a wholly involuntary act and, therefore, he should be relieved of part of the taxation that fell on him before the Government came to office?

One of the reasons why there is a popular sentiment in favour of taxing capital transfers is the arbitrary nature of inherited wealth. Because it is arbitrary, there is a popular sentiment that it is entirely appropriate that it should be taxed more heavily than the income for which people must work and which they must earn by their own efforts.

Mr. Sydney Bidwell (Ealing, Southall)

It is a typical Tory assumption that strikes are about improving income. I believe that that would be in the minority of circumstances which lead to strikes. Often it is a matter of removing a pig of a manager. It is nothing to do with increasing income.

Mr. Cook

I defer to my hon. Friend's knowledge of those matters. I do not believe that he would allow me to be tempted back to a general review of yesterday's debate. I assure him that those of us who participated in that debate were well aware that there were considerable misconceptions on the Conservative Benches about why some men felt driven under compulsion to strike.

The Financial Secretary's second. reason for the justification of a new tax was that strikes damaged the economy. Therefore, will we be told that capital transfers should be relieved of a large part of the tax which is due on them because they benefit the economy? If so, that will be a highly contentious claim.

All hon. Members agree that the performance of the British economy over the past century has been sluggish. It has not been particularly impressive compared with some of our international competitors. It is one of the characteristics of the British economy and British society that over that century gross inequalities and inherited wealth have persisted despite the oppressive taxation of capital transfer which has often been alleged by Conservative Members.

International comparisons in those matters are difficult because of the different ways of calculating wealth. However, those who have studied the matter generally come to the conclusion that there is evidence to suggest that the distribution of wealth ownership in Britain is more unequal than, for example, in France or in the United States. They conclude that part of our poor performance may be traced to the gross inequality of wealth holdings which arise from our inability to redistribute them among a wider section of the population. It would not be surprising if that were so.

A number of economists have commented on the damaging effect of inherited wealth and the gross inequality which that creates. For instance, I have a characteristically trenchant quote by Maynard Keynes, who observed: The hereditary principle in the transmission of wealth and the control of business is the reason why the leadership of the capitalist cause is weak and stupid. It is too much dominated by third generation men. I realise that Maynard Keynes is not held in high reverence by Conservative Members. I shall give them a quotation from a distinguished fellow Scot of the previous generation, Andrew Carnegie, who spent the earlier part of his life acquiring a fortune such as is not seen these days and the latter part of his life inveighing against the iniquity of inherited wealth and dissipating that fortune so that it would not be inherited by his descendants. He said that leaving fortunes to families was most injudicious and liable to do more injury than good to the recipients. At first hand we have a tribute to the dangers which can arise and the damage that can be done by the principle of inherited wealth giving rise to gross disparities in wealth distribution.

The problem is that gross concentrations of wealth reduce the incentive to ensure that that wealth is put to the purpose which would give optimum income. The people who hold large concentrations of wealth are not under the same incentive to make sure that it is put to productive use as those who hold small concentrations of wealth. I am not a Londoner. Perhaps when the Minister responds he will say that the large holdings of the Duke of Westminster have been entirely in the interests of the development of London and the prosperity of its people. However, I can speak with some authority for Scotland. In my country there are vast wildernesses in the Highlands and moors which are kept that way because the wealthy who own those moors do not require to obtain the return on their income which an ordinary farmer or smallholder would.

Those moorlands are preserved as wildernesses by families such as the Vesteys, either as a tax dodge or as a pleasure ground in which they can play. There is a repeated conflict between the interests of those who own that wealth and the moors and of those who live on them, who would want to obtain their living from developing that land but who are discouraged from doing so. Those wildernesses will be assisted in their preservation by the clause, which will reduce the rate of tax which will fall due when those vast estates change hands between generations.

The Financial Secretary said that the third reason for the new impost was that strikes were about increasing income. By the same token, far from cutting the rate of tax on capital transfer the Government should be increasing it. Inherited wealth confers a handsome income that is secure against the threat of redundancy. I am prepared to wager that the present or the next Duke of Westminster will riot be drawing unemployment benefit, liable to taxation, with the Treasury withholding his tax refund. He not only enjoys a large income from the capital transferred; he also enjoys greater security than those who have to work for their money. It is, therefore appropriate that he should pay a higher rate of taxation.

5 pm

How can be explained the contrast between the Government's petty and vindictive attitude to strikers and their warm and generous attitude to the Duke of Westminster in this clause? Capital transfer tax is not particularly oppressive. The exemptions are generous. Last year the Treasury doubled the exemption level: it went up to £50,000. The Minister of State observed to the London Society of Chartered Accountants that the effect of doubling the exemption was to remove from any liability to capital transfer tax two-thirds of the transfers that had previously come under the tax.

The exemption is even more generous than it first sounds. There is also an exemption for transfers between spouses. A father can give his son £50,000 exempt from tax and simultaneously give his wife £50,000 exempt from tax, and she can pass the sum on to the son exempt of tax, so in one day he can obtain £100,000 exempt of tax. Under clause 89, a family could repeat that operation free of tax every 10 years. Not many of my constituents will he able to do that, although it is curious that the Government appear to believe that a large slice of the population is bothered by the oppressive taxation of wealth.

At the 1979 election, my Conservative opponent debated with me in the Grassmarket, which comprises Victorian tenements with a small amount of council housing. It is notorious for its three large lodging houses, where 1,000 homeless men sleep. I pay tribute to my opponent for bearding me in a stronghold that Labour has not lost within living memory. He started by saying that it was his solemn duty to warn people that if the Labour Government returned to office they would impose a wealth tax on holdings of over £150.000. He may have felt that the warning was having no effect, because he tried to rub in the point by saying that £150,000 may sound a lot but that it would not even buy an 80-acre farm. At that point I knew that my seat was secure.

I doubt whether a single resident of the Grassmarket is likely to exhaust the exemption provided in last year's Finance Bill. Indeed, I should be surprised if I had a single constituent who was, with the possible exception of the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton), who I am of course honoured to have as a constituent.

It is striking that the exemption remains unchanged in this year's Finance Bill. The modest holders of wealth only slightly in excess of £100,000 do not benefit from the relaxation in clause 88. Only those at the top will hit the jackpot. One would have to reach £110,000 before starting to benefit from the reduced rates in schedule 11, but thereafter the savings are generous.

If a man is transferring £1 million to his son, or he and his wife are concurrently transferring £2 million, the rate of tax is cut from 70 per cent. to 45 per cent. If a man is transferring £2 million to his son, or he and his wife are concurrently transferring £4 million, the rate falls from 75 per cent. to 50 per cent. The savings are startling. My hon. Friends and I are not accustomed to making calculations on bank accounts of that magnitude, so I tell them that on the first transfer of £2 million the saving would be £445,000, which is as much as many men could hope to earn in a lifetime. If another £2 million remains in the kitty, the family can do the same again 10 years later with the same saving.

I am struck by the fact that in his Budget speech on 10 March the Chancellor of the Exchequer stated: In a year in which we can give no income tax relief, I cannot make major changes in capital taxation."—[Official Report, 10 March 1981; Vol. 1,000, c. 778] I understand his reticence. We understand why he felt obliged to assure the House, when he could not up the threshold by a single penny, that, equally, he could not afford to relax the tax on capital transfer. However, this clause shows that the Chancellor has been able to afford major changes in capital taxation. He has made generous reductions in tax for a very limited group. I do not know what justification the Government will give for that, but when the Chancellor says that he cannot afford to raise tax thresholds and so has brought into tax for the first time 1,200,000 low-paid people and is imposing tax on the unemployed and strikers, it is an insult to those people to give such largesse to the Duke of Westminster. We have failed to save the low-paid and the unemployed from taxation, but at least by voting against clause 88 we can try to save them from that insult.

Mr. Clive Soley (Hammersmith, North)

My hon. Friend the Member for Edinburgh, Central (Mr. Cook) made a constructive contribution to the debate. The Government have said that they could not afford the amendments that we put forward, but this provision, among many others, concerns one area in which they could have saved money.

We may owe the Government an apology. My hon. Friend has patiently and kindly pointed out why it is wrong to add the cost of all our amendments together to reach a glorious total of £4,000 million. He explained that each amendment stood on its own, but the Government appeared unable to understand that basic fact of parliamentary life. It has now dawned on me that perhaps they do not know that the amendments have not been passed. We thought that they knew what was happening. In one way they know exactly what is happening. They know what their taxation is aimed at. They are taking from the poor and giving to the rich. It is a reversal of the Robin Hood principle.

Concern about the public sector borrowing requirement leads to expenditure cuts and a resultant rise in tax rates on real income. As indirect taxes are also being raised, a cut in capital transfer tax needs to be thoroughly justified, and there is no such justification.

Wealth is even more unequally distributed than income. Since I have already complained about the unequal distribution of tax on income, I complain even more strongly in respect of tax on capital. There is some evidence to suggest that the distribution of income is slightly more even in the United Kingdom than it is in the United States or Canada. However, for wealth the reverse is true, and the top slice of the population owns a larger share of wealth in this country than does its counterparts in North America.

Estimating at current prices the value of wealth that was at some time transmitted—given or inherited—and expressing it as a fraction of total personal wealth, leads one to suggest that about a quarter of all wealth is transmitted. The proportion is much higher for the top 1 per cent. of the population than for those lower down the scale. When the owners of large amounts of wealth die that wealth is largely retained by the relatives, and that is the main problem that we face with the clause.

In 1976 the top 1 per cent. of the population owned 25 per cent. of the wealth. The bottom 80 per cent. owned 23 per cent. It is on that basis that we must make a moral judgment on the clause. Share and land ownership is a characteristic of the wealthy. The top 1 per cent. of the population owns 54 per cent. of all shares held by individuals. The pattern of ownership of land other than for housing is not dissimilar. Since the 1920s the share of wealth held by the top 1 per cent. of the population has become much smaller, but this Bill, unless amended, will, at best, slow that process and, at worst, reverse it.

On 14 March the Financial Times, discussing the change of perspective for the transfer tax, stated: The Capital Transfer Tax changes in this and the previous Budgets go far to reverse the trend to a more even distribution of wealth which has been a notable feature of the twentieth century. The Government are doing that while taking more in taxation, direct and indirect, from the poorer sections of society, saying that it is necessary for economic reasons.

One of the questions that those in the poorer sections of society are legitimately entitled to ask is, if it is necessary for them to make that sacrifice, why is it unnecessary for those who previously have fallen into the capital transfer tax net to do so. The clause provides for the surreptitious abolition of capital transfer tax. When I see figures such as those that underlie the clause I can well understand why the Government chose to terminate the study on the distribution of income and wealth. That was one of the first things to get the chop when the Government came to power.

Mr. D. N. Campbell-Savours

To hide the truth.

5.15 pm

Mr. Soley

My hon. Friend is right. The truth was painful. Above all, the distribution of wealth and the ownership of capital were so grossly and unfairly distorted as to lead to the type of economic and social problems about which even Conservative Members complain when those problems manifest themselves in the form of the class struggle, strikes and so on. However, the Conservatives refuse to tackle the root of the problem. There is no way, without being guilty of applying double standards, in which they can justify, economically or morally, reducing the tax bill of the wealthy, as my hon. Friend the Member for Edinburgh, Central (Mr. Cook) explained, while imposing a heavy burden on the lower paid.

The Treasury economic progress report of last month puts the capital transfer tax concession under the heading Developing the small firms sector". That is one way of covering up what the Government are doing. The arguments are all about encouraging employment and easing the transfer of family businesses to children. The problem is that the concessions apply generally, not just to businesses, and they go far beyond relief to small businesses because many of the businesses that will get relief are quotable on the Stock Exchange since they have a value of £4 million or more.

In farming, the agricultural landlord receives the biggest concessions, but the farming is done by the tenant. That was why the Labour Government did not extend working farmer reliefs to the agricultural landlord. We know that the tenant farmer might need the money, whereas the agricultural landlord was in a different position. The quality of the farming makes no difference to the landlord. The important factor is the person who is doing the farming. He may be entitled to relief, but the agricultural landlord should not benefit, as he will under the Bill.

Watering down capital transfer tax to the point of extinction is a classic case of the Tory Party paying its debt to the Country Landowners Association. The association is being so embarrassed by its self-interest that it is trying to dress up the argument to pretend that in some way the Government's action is of benefit to the farmer or the community. That is the classic argument of the parasite who finds a reason to exist as he does while relying heavily on others to do the work. The tragedy is that it adds to the bitterness and resentment that people feel about the inequality of wealth distribution.

In effectively abolishing capital transfer tax the Chancellor has moved back to the old estate duty that it was intended to replace. On 14 March this year The Times stated: It seemed that CTT had at last been converted back into estate duty, at least in some important respects. For many people the tax on their estates will be almost wholly avoidable if they start planning early enough. That is precisely what my hon. Friend the Member for Edinburgh, Central said. Charges will no longer be accumulated over a person's lifetime—only over the last 10 years before death compared with seven years under the old estate duty.

My right hon. Friend the Member for Leeds, East (Mr. Healey) said in his Budget speech in March 1974: Nothing is more offensive to the vast majority of ordinary taxpayers, most of whom are subject to PAYE, than the knowledge that people far better off than themselves are avoiding taxation by exploiting loopholes in the existing law. If the existing estate duty operated effectively, the great concentrations of private wealth would already have been broken up and with them many of the unfair advantages enjoyed by generation after generation of the heirs and relatives of wealthy men. In practice, however, the estate duty has always been a largely avoidable, indeed, a voluntary, tax. In particular, it does not bite on transfers of wealth made long enough before death to fall outside the charge. My first priority is to remedy its defects."—[Official Report, 26 March 1974; Vol. 871, c. 313–4.] We all acknowledge that the return on that tax was not as great as had been hoped or as it should have been. I am sure that the Minister will refer to that in his contribution. That is not an excuse for abolishing CTT or watering it down in the way proposed, however. It is a reason for reforming it. There is no indication in the Bill that that will happen. The only indication is that the very wealthy will benefit from extensive tax avoidance provisions which are not available to the majority of the population.

As my hon. Friend the Member for Edinburgh, Central has pointed out, it will now be possible to make tax-free gifts of up to £50,000 per donor every 10 years. A husband and wife could therefore leave £100,000 to a child every 10 years.

Mr. Campbell-Savours

Will my hon. Friend suggest to the Minister of State that it might be in order for him to qualify what is in the Red Book and give some indication of how much money is involved? We should know how much the Government are giving to the very rich.

Mr. Soley

That is a good point. I hope that the Minister will come forward. I expect that the Conservative Benches will give us what they have given us in the past few days, namely, hardly an answer other than that from the Minister. He has made plaintive excuses for the economic necessity of their actions. I shall be interested to see how Conservatives justify tax handouts to the rich, given that in the past few days they have justified increased tax burdens on the poor.

Our amendments have tried to undo some of the Budget's harm. Ultimately, if we want a more equitable system we must tax gifts and bequests. There is strong evidence to show that those who die wealthy have inherited large amounts of money. That is a key factor. For many years, wealth has been passed on in the form of inherited wealth. Several effective studies have been made of that. It is obscene to allow such wealth to go untaxed, year after year and generation after generation, when the ordinary people are being asked to make enormous sacrifices.

Some form of wealth tax is needed. I would be the first to acknowledge that there are difficulties with a wealth tax. I should love to hear what the Minister thinks. We should consider an annual tax on consumption and gifts. The person receiving the gift should be taxed on it. That might be an impressive step forward and might break the continuity of wealth-holding. In other areas such a tax has been referred to as a lifetime expenditure tax. I am not convinced by all the arguments, but there is some merit in them. There is certainly no merit in abolishing, in effect, capital transfer tax. Both subjectively and objectively we know that some people are much more wealthy than others. That must be justified. Some Conservative Members still fall back on the old argument that the rich are necessary for capital investment in industry and the regeneration of wealth. If there were some evidence to that effect the argument might be impressive. However, there is virtually no evidence. As we now know, most investment comes from large organisations and trust funds and does not come from private capital. There is no reason to believe that the money that is repaid to the wealthy will be ploughed back into the economy in order to produce more wealth.

No better example could have been given than that of the large estates in Scotland. They benefit no one but the owner, despite the fact that the areas involved suffer from all the problems of rural poverty. The Budget punishes the poor but rewards and protects the rich in areas such as capital transfer tax. The Tory Party, which has a reputation for doing that, has won back its reputation for being the party of mass unemployment tha it lost for a short time after the Second World War.

There are two things that society cannot tolerate for long without them becoming a serious threat to its social fabric. Those two things are mass unemployment, and an awareness amongst many of the unemployed that the wealthy are becoming wealthier and are being protected.

Together, those two things are potentially explosive and will damage the social fabric of a community. It is to the Government's shame that they have not only perpetuated a problem but made it worse. As the Financial Times said, they have begun to turn the clock backwards. The Government have a lot to answer for. Unfortunately, we might not have seen the full consequences of their actions yet.

Mr. Stuart Holland (Vauxhall)

My hon. Friends have already stressed the importance and significance of wealth and the wealth-creating principle in Conservative economic philosophy and the emphasis given to that before the 1979 election. It is important to draw attention to what Conservative Members said before the election in relation to this crucial plank of their economic policy. They allege that wealth and wealth creation—through mechanisms such as the easing or abolishing of capital transfer tax—would not only alleviate the position of the over-privileged in society but would be the main vehicle and motor for the accumulation of capital and, with it investment, job creation and regeneration of the economy.

That is clearly shown in the 1977 statement "Outline of an Economic Strategy for the Next Conservative Government", which was made by four Conservative spokesmen, namely, the future Chancellor of the Exchequer, the future Secretary of State for Industry, the future Secretary of State for Employment and the future Secretary of State for Energy. As they spelt it out, the main features of their approach to the economy were:

1. "(i) Provision of a more stable economic climate …
2. (ii) Strict control by the Government of the rate of growth of the money supply.
3. (iii) Firm management of government expenditure.
4. (iv) Lower taxation on earnings, capital and savings, to increase the rewards of skill and enterprise—paving the way"—

I emphasise that— to more secure jobs, particularly for the young. In other words, according to those not irrelevant members of the Government, the relaxation of wealth taxation and increased inequality in this society was not only to reward enterprise but to pave the way for more employment and for more youth employment.

The statement added that its purpose was not to destroy jobs but to lift the crippling burden on the private sector and to create the conditions needed for new and more secure job-creating wealth". Its authors had the grace to make the admission: Of course this is much easier said than done. They might well stand by that qualification of their claims. They appear to be against not only State spending—which will be important in relation to later clauses—but credit. That is surprising. That major policy statement by Conservatives who are now Ministers claims that it is not only pressures for monetary expansion from excessive public spending that have caused problems for the economy, but private demand for credit as well". That is an economic philosophy. In effect, the authors are saying that wealth and wealth creation are superior to credit and bank borrowing or to the generation of direct resources from public expenditure.

My hon. Friend the Member for Hammersmith, North (Mr. Soley) implied that Ministers are concerned to aid small and medium-sized enterprises. It would be surprising if enterprises could be aided by wealth transfer alone. The financing of investment needs by enterprises in the economy is largely through self-financing—retained earnings—and through bank borrowing, or credit. It has hardly been done via the redistribution of wealth or through the stock market. Many members of the public may be puzzled and perplexed when they listen to a brief summary of the stock market share price index after the news or after the "World at One". They have to listen to it as if it bore some direct relation to investment and job creation in the economy.

5.30 pm

The relationship is tenuous if not non-existent. Less than 5 per cent. of the investment needs of British industry over the past 50 years have been met by stock market finance. It is in the stock market and the playing of the stock market that wealth is so notably concentrated. Already fewer than 2 per cent. of the holders of personal shares command and account for about 80 per cent. of those shares. We are talking not about the rich but about a minority class or clique of super rich within the system, who do not translate those savings into industrial investment. There are good reasons for them not to do so under present conditions.

A widely neglected fact in relation to wealth creation, savings and investment, is that about 85 per cent. of finance raised on the British stock market goes into investment outside this country. The main mechanism by which it does so is either through portfolio investments abroad or direct investment through the mechanism of British companies operating in different countries. Yet that process—which in essence competes with the savings available for investment in this country—has been facilitated by the Government through the abolition of exchange controls, which should be seen as an integral part of their economic strategy jointly with their alleged promotion of enterprise and investment, jobs and youth employment, through the current provision for capital transfer tax.

We cannot say that we were not warned. That combination of the four Ministers warned us that the tax strategy of a future Conservative Government not only would promote personal savings in capital building—note the use of the word "building" which by implication is positive and constructive and implies people using their hands to put together bricks, mortar, concrete, steel and even machine tools. The Ministers told us that they would ensure Stronger encouragement to personal savings and capital building on the widest possible scale. The personal incentive argument carried much force with a section of the electorate during the last general election. It should be admitted by the Opposition, too, that it carried force because of promises of cuts in personal taxation. My hon. Friend the Member for Edinburgh Central (Mr. Cook) is correct to say that the easing of taxation provisions on wealth over £150,000 was of marginal interest or relevance to most of those who voted for the Conservative Party.

It may be of interest to some of those observing the debate that while the Government have not yet managed to fulfil their undertaking on personal taxation cuts in real terms to the electorate as a whole, they are prepared to go ahead with the provision to ease taxation and further increase the wealth of a minority of the population—probably less than 1 per cent. of those concerned.

While the Government may not be deterred from that because of their passionate, indeed, metaphysical, belief in the virtues of promoting investment in jobs by increasing disparities in wealth, they might look at the track record of a further major concession on taxation directly relevant to investment and wealth creation in the wider public sense. That is, what happened to tax relief on corporate profits over the past decade or more? If the argument is that the reduction of tax thereby increases incentives to invest—in the case of wealth it makes available more savings for investment—let us consider the transmission mechanism through the corporate sector. Nominally, corporation tax runs at 52 per cent. of a firm's total tax. By 1974, that had been reduced effectively to 26 per cent. of pre-tax profits in the corporate sector. Through further measures introduced in the 1970s through tax relief on stock appreciation—I was a critic of that at the time, and I still remain highly critical—the effective taxation on corporate profits was reduced further from about 26 per cent. to less than 6 per cent. of total profits.

For the bigger businesses within the system, the effects of the combination of investment grants, depreciation allowances, tax relief and stock appreciation, research and development assistance—a range of incentives—virtually abolished taxation.

In the late 1970s, the top 25 profit-earners in the economy were collectively earning pre-tax profits of £4½ billion on which they paid corporation tax of less than £150 million.

Maybe the Almighty knows, but I do not know the wondrous workings of the invisible hand as interpreted by the Government and how they expect that reducing taxation and making further resources available, will, of itself, transfer savings through to investment. We were told forcefully by the Chancellor of the Exchequer in June 1978: Tax cuts have a real creative importance. For they can allow the rapid accumulation of post-tax wealth by that comparatively small (and necessarily unidentifiable)"— the logic of "unidentifiable" escapes me; I do not understand why they should not be identified other than a disposition by the Conservative Party to protect its friends— necessarily unidentifiable band of people who have the capacity to identify and exploit new commercial opportunities (in services as well as manufacturing industry). Metaphysics are the brunt of the argument. The right hon. and learned Member was aware that a Conservative Government were likely to increase disparities in income and wealth, but welcomed it. As he said That is why we must restore the legitimacy of becoming rich by taking risks. It is "legit" to be rich. We should not feel any moral anguish about it. [Interruption.] It is clear sometimes when I try to move my car around the front or rear ends of the Rolls-Royces parked—not by Opposition Members—downstairs in the car park that there are certain right hon. and hon. Members who certainly have few scruples about the wealth that they enjoy. The crucial argument in relation to wealth is not, as Veblen said, "conspicuous consumption," which should be an embarrassment to those who psychologically feel the need to demonstrate it. The fact is that disparities in wealth do not promote investment in the system.

Mr. Soley

I do not wish to lead my hon. Friend astray, but will he consider my experience as a probation officer? Many of the people I knew got rich by taking risks, but they nearly all went to prison.

Mr. Holland

That is a point well put by my hon. Friend. I shows the different kinds of wealth; indeed, the two nations into which we are being divided—those who stand to benefit from this provision and the 98 or 99 per cent. of the population who do not.

The crucial feature of wealth and capital transfer provisions which are essential to what the Government are doing, is that they fly in the face of the failure of tax reductions as an incentive to investment not only in this economy but in economies abroad.

We know why it is being done. The Conservative leadership has not only abandoned and denounced State intervention in the economy; it has abandoned and denounced Keynesian economics. It has returned to the principles that pre-date John Stuart Mill, who, as a Liberal economist, strongly argued for progressive taxation within the system as the basis for making available sufficient funds for public contribution to the accumulation of wealth.

In social policy the Government are seeking to roll back the frontier of the State and with it the main gains made in housing, health and education by post-war Labour and Conservative Governments. Defending inequality in the name of liberty they have aimed to unleash initiative, investment and jobs by increasing incentives and rewards to the already well-rewarded, thereby increasing class disparities and coincidentally narrowing their own class base.

We see no evidence that greater wealth concentrated in the hands of a few creates more investment. It is important to remember that the wealth creation also bears only a tenuous relationship to another key plank in the Government's philosophy—monetarism and the role of the money supply. There is no logical connection between a macroeconomic policy, which lays so much emphasis on the role of the money supply in the economy, and the mechanism of wealth as an assumed prime condition for the translation of savings to investment.

It is clear from statements by Ministers in the debate on the Budget and in consequent debates, and by the Prime Minister to her own party last year, that many Conservative Members, in this respect at least—if in so little else—in making capital transfer and the transfer of wealth easier see themselves as still on course. It must be consoling to some Ministers, and almost certainly to some Conservative Back Benchers, to consider that in this respect the Government are still on course and that this is a pledge that they are able to deliver to the electorate and to their own supporters by reducing the effective taxation of wealth.

It might be rewarding, because we have been told "You turn if you want to. The Lady's not for turning." In this respect the Lady has not turned.

However, we can be sure that this will have no measurable effect on the promotion of investment or the creation of jobs, and certainly not on the creation of jobs for young people in the manner claimed by key Conservative Ministers in their crucial economic policy statement in 1977.

Since the general election the Prime Minister has claimed that Conservatives made plain what they would do. One might say that, although more stress was laid on cutting waste from the public sector than on laying waste to the public sector as they have done.

The Conservative themes of an open society—again metaphysics, of Von Hayek, with minor trimmings from Milton Friedman—were not especially threatening to an electorate which had by 1979 forgotten the poor law, the inquisition of the means test for social security benefit, rack rents and slum landlords, the lack of higher education for children from under-privileged groups and the high unemployment of the 1930s. In reality the negative economic measures taken by the Government in the Budget, returning us to the 1930s, will not be offset in the manner that they espouse and anticipate by capital transfers and the creation of private wealth.

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That is particularly important in relation to the role of small and big business in the economy. Less than 5 per cent. of the investment needs of British industry comes from the stock market. In addition, the main problem for small enterprise within the system often is not the mechanism of wealth transmission and problems posed by capital transfer tax but the lack of finding an heir. It is an irony central to contradictions in Conservative Party policy. In small firms the hereditary principle, lauded by this provision and in Conservative philosophy, is one of the greatest problems for small enterprise.

It is a classic of elementary analysis of the economics of a firm or enterprise—an analysis which is so elementary that Government Members are not familiar with it—that the problems for small firms come not so much with the original entrepreneur but in that phase of transition to establishment to a medium-sized enterprise. The transition from small to medium or large enterprise is difficult.

Where that transition has succeeded, for example, is West Germany. Hon. Members have often referred to Mittelstandspolitik—the small and medium firms policy operated by the German Government. Government members seem to have read the top line of such policy provisions but have failed to read the bottom line. They fail to appreciate that small and medium enterprises in the West German economy thrive because of the intervention of the banking system and that it is through the supervisory board mechanism of the banks, aided by mechanisms such as the Reconstruction Loans Corporation and its successor agencies, by the State banks of the Lander, by intervention rather than the working of the market. That small and medium enterprises are given the finance to ride over not only difficult periods of innovation and entrepreneurship but also take-over or elimination tactics from other enterprises.

The West German policy also contains a strong cartel law, following the devastating experience of the concentration of capital in Germany in the 1930s, which effectively gave Hitler a self-made armaments industry for the Third Reich.

After that experience the Germans have been tougher in their cartel and competition policy than the United Kingdom. I speak with feeling in the matter, since I was a member of the Committee on the Competition Bill. The German Government have been tougher than the British Government are even prepared to consider being in assisting small and medium-sized enterprises.

In other economies which have succeeded in maintaining a fabric of small and medium enterprises, such as France, a range of mechanisms of State intervention not only assists small and medium firms to tackle unequal competition but ensures that a certain proportion of public spending, whether national, regional or local, goes to them. In France the role of the prefect—

The Deputy Chairman (Mr. Victor Goodhew)

Order. The hon. Gentleman is going a little wide of the clause that deals with the rates of capital transfer tax. I hope that the hon. Gentleman will address his remarks to the clause.

Mr. Holland

With respect, my remarks are central to the Government's justification for reducing the taxation on capital transfers. The effect should be that which Ministers and Opposition spokesmen have claimed it to be. They are totally misguided in their reasoning, and the measure will not have the economic effect anticipated. It is socially divisive and will further increase disparities of wealth within the economy while not compensated by the justification of economic success. That point is sufficiently well understood for us to register our protest at the metaphysics of the Government's economic policy and its false assumption that increasing disparities of wealth will result in the transmission of savings into investment.

I regard this as a divisive clause not only on moral grounds or on grounds of social justice, but for the extent to which it will contribute nothing to the promotion of investment.

I began by talking about the claims made by Conservative Members that the clause would create not only jobs but youth employment. The provision will do nothing to create youth employment and I expect it to do next to nothing to create jobs, for example, in the inner London area of Lambeth, Vauxhall that I represent. It is only by intervening in the economy with Government policies that are not necessarily left of Centre, and making at least an L-turn—if not a U-turn—in economic policy that the Government can avoid increasing the disparities in wealth as a result of this measure, and also contributing to a further increase in unemployment.

Mr. K. J. Woolmer (Batley and Morley)

Our debate today centres around a series of tax changes that give substantial benefit to those who have the greatest wealth in our society. Whether we agree or disagree about the merits of the proposal, that is what the clause does. We must remember what the Government have proposed in successive measures over the past two years to understand the balance of judgment about whether the clause is a useful or proper way to use such benefits as the Government can give at this time. I shall not dwell on the matter at length.

During the past two years, the Government have reduced unemployment benefits as a deliberate act of policy for the first time since the 1930s. They have failed to maintain the real value of personal tax allowances, thus bringing hundreds of thousands of low-paid people into the tax net for the first time, including many widows and women on their own in the 60 to 64 age group. They have abolished the 25p rate band, thus ensuring that people on low incomes of £50 a week pay a marginal rate of taxation of 38 per cent, including national insurance contributions. In the middle of the present depression, successive Conservative Budgets have talked about the need for even more austerity. It is in that context that we are asked to consider whether we should give large tax concessions to the richest people in our society. I shall dwell on that matter for a while, because it is the burden of the Government's proposals.

The Government say that we all have to suffer if there is to be an improvement. But it turns out that not all of us have to suffer; only those who do not have personal fortunes of hundreds of thousands, or millions of pounds. Why do we all have to suffer, except those who have personal fortunes of several hundred thousand pounds? They do not even have to suffer along with us; they have to be given largesse. I shall be interested to hear how the Minister can justify that.

People who have had incomes over the past couple of years of about £600 a week will have benefited in real terms by an improvement of about £40 a week as a result of Government policies. That improvement is almost as great as the amount that many families have to live on for a whole week—to pay for their food, heating, lighting or pay for any small entertainments, including drinking and smoking,. The amount of improvement for the richest in our society has been at least equal to the amount that some people have to live on for a week.

The clause introduces reduced rates and changes the personal fortune levels at which different rates of taxation apply to transfers of wealth and capital. We could be arguing about whether it is justified to have a wealth tax, or what we should do about the inequalities of wealth. However, that is not the issue before the Committee, and I shall try to explain why. As a result of the clause for most rich people the capital transfer tax will now be virtually a voluntary tax, or at least—as it is put so often in financial journals—a tax on the badly advised.

People who are on social security come to me and say they are being hounded by investigators, or they are elderly widows who cannot understand why they are taxed at 50p or 60p in the pound on a small private pension for which their husband paid while he was at work. Those are the kind of people who come to me. Yet the clause is a blatant proposal whereby people who are much better off will be able to escape taxation, even on their substantial wealth.

Whom do the changes effect? Is it the ordinary man or woman in the street? Or is it even the hard-working and highly paid manager or business man? I said on a previous occasion that I was—not astounded, because one should never be astounded—struck by a radio programme last week that made it clear that when financial people talk about the small saver they are talking about people with savings of £70,000. I said then that if those are small savings, I do not know anyone who has what would be regarded as a large amount of savings. But this clause does not even affect people whom the BBC described as small savers. It does not involve such small fry as people who have a mere £70,000. It affects people who have hundreds of thousands, or even millions of pounds.

My experience, and I are sure that it is shared by other hon. Members, is that people who are modestly paid do not resent other people being highly paid if it is a reward for hard work, the creation of jobs, and so on. Those are not the sort of people I am talking about. I am not talking about the small business man or the factory manager who has worked hard and who has the house on Nobs Hill where everyone would like to live but cannot afford to do so.

We are talking not about those who work hard and build up a decent, modest amount of wealth, but about something quite different—namely, the transfer of wealth from people with £100,000, £200,000 or £300,000 of wealth and capital. The subsections will enable that wealth to be transferred without taxation.

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Who will work harder as a result of the large tax handouts to the rich? It will not affect many people. I am at a loss to understand how someone with £500,000 will work harder because he pays less transfer tax. I presume that the recipient will not work harder, either. All logic says that if someone receives a large amount of wealth for nothing he will work less hard.

Treasury Ministers have said that a person earning £40 to £50 a week will not bother to work because he can obtain a little more from social security. That has been the basis for taxing supplementary benefits and for hitting the 2½ million unemployed. We have not heard a whimper of a suggestion that giving hundreds of thousands of pounds—or even modest tens of thousands of pounds—to people will result in their working less hard.

Why are the large tax handouts going to the rich at this time? It is difficult to obtain figures for how many will be affected and how much it will cost. The Committee is owed an estimate from the Minister. At the very most, and I am being generous, the clause will benefit 20,000 of the 18 million or 19 million households in Britain, of which more than 2½ million are affected by the plague and curse of unemployment. Those 20,000 households have an average wealth of £500,000. I have produced my own estimates of who will benefit. Most people cannot conceive of that sort of wealth. Ordinary men and women, even well up the income scale, think of their wealth as their house—if they own it—bank, building society and post office accounts and life insurance. When talking about taxation of wealth before elections the Conservative Party says to the ordinary man and woman "Beware of the Labour Party which is after your wealth, to tax it." We are talking not about that sort of wealth but about the wealth that means land and company shares. We are talking not about the home and a modest building society account but about large amounts of money.

I do not question whether there is an argument for taxing wealth. I believe that there is. But at this time and with the country's economic problems I question whether such people should be given an additional benefit. I hope that the Minister will not respond to the argument whether there should be a wealth tax, but say why people with average holdings of wealth of £500,000 should be given, this year of all years, an additional tax handout.

Will the tax change result in a greater sense of fairness? I do not believe that anyone thinks that it is fair. Will it share out the misery of high unemployment and falling living standards? The clear answer is that it will not. How much will it cost? My hon. Friend the Member for Edinburgh, Central (Mr. Cook) tried valiantly to get the Minister to answer that question. I suspect that the Government are too ashamed to say how much it will cost. Are the Government giving as much to the wealthy as they are taking from the unemployed by cutting the real level of unemployment benefit? If, as I suspect, it is at least as much as that, what is the justification for cutting benefits and transferring that money to people whose fortunes are at least £500,000?

The Financial Times said on 14 March: By this change in the capital transfer tax Sir Geoffrey Howe has advanced boldly towards inequality. Why has the right hon. and learned Gentleman done that? What benefits will it bring to the economy? Will it result in more jobs for the unemployed? This legislation is typical of the hard-faced, socially-divisive policies of the Prime Minister and her Cabinet—policies that have resulted in deflation as well as 2½ million unemployed. At a time of the greatest misery and problems that we have seen in 50 years the Government are seeking to help their richest friends—those who need help least—when the real need is to create jobs for the mass of our people.

Mr. Austin Mitchell (Grimsby)

The clause touches on the nub of the political differences between the two major parties in the House. There is a major difference of attitude towards that gulf of wealth that scars British society. The Opposition believe that Britain is still overwhelmingly not only a class-divided society but one with sharp and deep divisions of wealth. They are as sharp and as deep as they are in the United States and, in some respects, in the South American banana republics.

A change in the major share of wealth held by the top 1 per cent. or 5 per cent. has been painfully slow during this century. Fortunes have been left largely undisturbed, despite all the propaganda, the complaints and the constant chorus of moans from the wealthy. It could be argued that one of the major industrial and commercial problems in Britain is the dominance of large fortunes, which has helped to encourage the "idiot-son" syndrome, inertia and the lack of initiative, stimulus and enterprise that comes from the inheritance of wealth.

Differences in wealth is a recurrent and dominant theme of twentieth century politics, as it was in the nineteenth century, when extension of the franchise was resisted on the grounds that it would open the way to greater equality and that the working classes would use their power to attack the distribution of wealth. It has become an even more important theme in the twentieth century. Those of us who have taken twentieth century history still have the image of Winston Churchill leading the crowds in singing: The land, the land, t'was God who gave the land, The land, the land, the ground on which we stand. Why should we be beggars with the ballot in our hand? God gave the land to the people. That was at the time of the people's Budget as opposed to the present top people's Budget.

These differences and distortions in wealth have been a recurring theme and represent a recurring failure for the parties of social change and progress. That is partly because the chief skill of the Conservative is to enlist the widows and orphans in the front line of the defence of wealth and privilege. Indeed, whenever there is an attack on wealth and privilege the Conservative Party attempts to interpose widows and orphans to protect the great fortunes that are its real interest and preoccupation.

There has been a recurring failure also because of the inadequacy of the means chosen to redistribute wealth. In the end death duty became virtually a voluntary tax. Capital transfer tax is better, but its effect is being whittled away at such a rapid rate that its effectiveness as a means of redistribution and making wealth pay its share of the burdens of the nation has been totally undermined.

It is fair to warn the Conservative Party that it is paving the way for an almost certain backlash against wealth. The Labour Party will deal with wealth. It will make wealth pay its share of the burdens of the nation. We shall attack wealth as the main source of inequality and social divisions. Measures such as this clause strengthen our determination in that respect.

Our specific objections are obvious and clear. This concession to wealth is being made at a time when the Government are reaching down to the pockets of the poor, the unemployed and the social security beneficiaries to help pay for the failure of their economic policies. This is not the time to introduce such concessions to wealth. Our second objection is the surreptitious way in which it is being done.

In his Budget Statement the Chancellor told us that in a year in which he could give no income tax relief he could not make major changes in capital taxation. However, that is exactly what the right hon. and learned Gentleman is doing by clause 88 and 89. He is making a major concession to the wealthy. The result of the clauses is that the wealthy man who is passing on an estate of £1 million or £2 million in the case of a business or farm, which is half rated will have his total, tax bill cut. If he passes it on in instalments over 20 years, the effect of the two concessions will be that the owner of that fortune of £1 million will have his tax bill reduced from £452,000 to £299,000.

In other words, at a time when the Government are taking money from social security beneficiaries, the unemployed and the poor, and when they have failed to increase the allowances, the wealthy man will have his tax bill reduced by one-third. That is a reduction in the contribution that wealth should make and which everyone in the House of Commons accepts is its social responsibility. The tax loss effect will be far more dramatic than the minuscule losses to the Exchequer that have been described by the Government.

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The concessions are socially unjust. The Government are acting surreptitiously. It is interesting that the Minister of State, that defender of wealth and privilege, is to reply. At a time when expenditure is being cut and when taxation of real incomes is being increased, an unusually powerful supporting case is required. Instead, we have been given a defender who is likely to advance the most trivial defence, and one that is based on self-interest. The hon. and learned. Gentleman devoted his previous incarnation to defending those interests.

There is no economic case for such large capital tax reductions going to a handful of the wealthiest. It is true that in the Economic Progress Report the Government have placed these concessions under the heading of "developing the small business sector". However, these concessions go well beyond that. Those who will benefit from them primarily are those who have the most. A business with a valuation of £4 million, for example, is pretty well big enough to be quoted on the Stock Exchange, but the concessions will mean that such a business will make a substantially reduced contribution.

I shall concentrate on the effect that the concessions will have on farming. The effect of our economic development over the past few years has been to increase the value of agricultural land. There has been a skyrocketing increase in its value. That has happened partly because it has been a good investment and partly because it has become a tax fiddle. The prime cause has been Britain's entry to the European Economic Community. That organisation has provided a politically secure, unchangeable and largely politically unchallengeable way of devoting massive revenues and massive help to farming. It has made farming almost sacrosanct. The result has been a predictably rapid increase in the value of agricultural land and in the wealth of the farming community.

The common agricultural policy underpins a structure of high and rising agricultural prices, which are themselves the guarantee of high and rising agricultural land prices. The concessions contained in the clause will now help to encourage that process. It is a process that makes no economic sense when we bear in mind the amount of capital that has to be tied up in the land rather than in actual production.

The Government say that their aim is to help defend and preserve the private landlord. However, there is no economic case for treating agricultural landlords differently from other rentiers. Undoubtedly, too, we shall be told that the Government's purpose is to encourage new tenancies. Both these arguments are fallacious. An argument that might apply to the small business sector cannot be applied to agriculture because the supply of land and, therefore, of new businesses, is finite and diminishing. There will not be an increase in employment in agriculture. Indeed, there has been a long-term tendency to reduce the numbers employed in agriculture. The concessions will not lead to an increase in the number of new tenancies or to agricultural efficiency.

I see no necessity to protect and preserve the private landlord. That will not encourage new tenancies. If a private landlord sells his land, farming will still be continued by the tenant who is in possession and by his successors. If a private landlord is replaced by an institutional landlord, the tenants of an institution will be no less efficient than the tenants of a private landlord.

This measure really encourages and defends the private landlord and the private sector of agriculture. As tenancies become vacant, and as the land becomes freed from tenancies because tenancies decrease the value of the land, we shall be encouraging not the splitting-up o f old tenancies and the establishment of new tenancies but taking the land under the landlord's control and running that land under managers. That will lead to an appreciation in capital value and give landlords the direct benefit from agricultural production.

Who will benefit among the farmers? Because the benefits go mainly to the well-off, the indications are that they will go to the better-off farmers.

There are about 121,000 full-time farms in Britain, the average size of which is about 286 acres. The average value of that, including land and buildings, is just under £500,000. As a result of this measure, those average-sized farms will now effectively pay zero capital transfer tax. In other words, they will be taken out of capital transfer taxation.

It is misleading of the Economic Progress Report to talk about a reduction in the maximum rate of CTT from. 75 per cent. to 50 per cent. because the 50 per cent. rate is payable only on that part of the valuation over £2 million. The average effective maximum rate is 40 per cent., and that takes no account of the doubling in assets of farms and small businesses.

Therefore, the main beneficiaries will be the larger farmers, and it is worth emphasising that those larger farmers are not the most efficient. Indeed, economies of scale and efficiency can now be achieved by farms no bigger than the average size to which I have just referred: There is no argument on the ground of efficiency, economy or agricultural development, for encouraging the survival or concentration of large farms, yet that is precisely what this measure will do. It must do, because it concentrates relief on the better off sections of society.

The arguments for encouraging and retaining the private landlord are fallacious as is the argument for encouraging the larger farms—

Mr. Anthony Fell (Yarmouth)

Will the hon. Gentleman give way?

Mr. Mitchell

I would rather not. The hon. Gentleman will be pleased to know that I am bringing my remarks to a conclusion.

The clause does not encourage efficient agriculture. It does not benefit the section of that industry to which I have referred. At the same time, it makes a massive concession to the well-off at a time when the Government are digging deep into the pockets of the poor. As such, it reveals the Government's social priorities in a manifest and crude form.

Mr. Peter Rees

The hon. Member for Edinburgh, Central (Mr. Cooke), for whose intellect and eloquence I have a great regard, initiated this debate in a somewhat demagogic way, which set the tone for the speeches that followed. As a result, we have not had a profound or penetrating analysis of what is a complicated and unattractive tax.

The hon. Gentleman's speech to an extent detached itself from the clause and, indeed, from the facts of the case that he was allegedly arguing. It would probably have sounded better in the Grassmarket than it did in the Chamber.

I was sorry that the hon. Gentleman singled out one noble duke as an abstraction of all the forces of wealth and privilege that he wants to attack. It is always a little unfair to assail someone in the privileged environment of this Chamber, when he is not able to answer back directly. I know that the hon. Gentleman is quite capable of embarking on verbal fisticuffs with any opponent worthy of his steel. He should, therefore, do so with other hon. Members who can answer back, and we can then have a fair fight and distil the real arguments.

The main burden of the hon. Gentleman's speech and the interventions of his hon. Friends was that the Government were taking from the poor to give to the rich. Presumably because my thrust had gone home, the hon. Gentleman recalled my swift addition of the tax reliefs which the major Opposition amendments that we have already debated would cost. The figure was about £4½ billion. It was perfectly legitimate for me to press the Opposition on how they would have raised that money and supplemented the taxes that they were prepared to cut.

Let me reassure Labour Members. If we deleted clause 88, it would go very little distance towards supplementing the inevitable funds on which the Chancellor must lay his hands. The clause adjusts the rate of capital transfer tax on lifetime gifts. If hon. Members refer to the Red Book published at the time of the Budget, they will see that the cost for 1981–82 is £2 million and £4 million for subsequent years. That perhaps puts the debate in its true perspective—[Interruption.] If the hon. Member for Workington (Mr. Campbell-Savours) wishes to intervene, I shall willingly give way.

Mr. Campbell-Savours

Perhaps the hon. and learned Gentleman will tell us who directly benefits from these small amounts of money. Are they our constituents?

Mr. Rees

It is not for me to speculate on those who are fortunate enough to be represented in our debates by the hon. Gentleman. I do not know their individual circumstances, and it would be impertinent of me to try to find out. The hon. Gentleman must speak for them in whatever voice he can. I listened to him during our Committee proceedings last year. I do not know whether I shall have the pleasure again this year. If so, perhaps we can explore their circumstances and the adequacy of their representation in greater depth. For the moment, I should like to refer to the more general theme which goes back to the point made so forcefully by the hon. Member for Edinburgh, Central and perhaps somewhat less forcefully by other Labour Members.

I know that it is difficult for the hon. Member for Grimsby (Mr. Mitchell) to get enough support in our debates on these occasions. My heart has bled as time and again the hon. Gentleman has given us the benefit of his undoubtedly eloquent tongue, if slightly unoriginal views. Perhaps it was on that account that, before I had even uttered a word about the clause, the hon. Gentleman described my intervention as likely to be trivial and interesting. I must bear those criticisms with as much fortitude as I can muster. At any rate, the triviality and interest of the hon. Gentleman's intervention will best be judged by those who study our debates when they read the passages from Hansard.

I pay the hon. Member for Edinburgh, Central the courtesy of trying to treat seriously the case that he made, which was that this Budget deprived the poor and gave handouts to the rich. Perhaps we can establish a common basis for the concepts that we deploy. I should tell the hon. Member for Batley and Morley (Mr. Woolmer) that there have been no handouts to the rich. There has been some shading of the burdens imposed on them—[HON. MEMBERS: "Oh."] I am glad that I stir Labour Members to some merriment. So far, their interventions have been of a peculiarly lugubrious if irrelevant kind. I am always flattered to cause some merriment when I intervene. Perhaps that is why the hon. Member for Grimsby described my interventions as trivial and interesting.

As I was saying, the cost of the Opposition's amendments so far is well in excess of £4 billion. The cost of the clause would be £2 million in the current year and £4 million in subsequent years. That, I believe, is not a very large sum to pay to introduce a small measure of balance into this tax. I will come to the general philosophical concepts, because one point that I would make to the hon. Member for Edinburgh, Central—he cannot have missed it by inadvertence because he is usually so assiduous and penetrating in his comments—is that there has been precious little revalorisation of the rate bands since capital transfer tax was introduced by his right hon. Friend the Member for Leeds, East (Mr. Healey) in 1975.

6.30 pm

Let me remind the House. I will take it from the top end of the scale—because it would be tedious to go through all the bands—and indicate what their true figures would be if they had been revalorised to take account of inflation since March 1975. The top rate of 75 per cent. was brought in in March 1975 at £2 million. If that had been revalorised it would have been £4,569,600, and so on, all down the scale. I can say to the Committee, blushing perhaps as I do it, that in fact the relief that we are offering in the clause for the Committee to consider is probably less—in fact, far less—than is required to bring the burdens of capital transfer tax down to what they were on lifetime transfers in March 1975. That gives perhaps a slightly different perspective to our debate on this point.

The debate was broadened out a little, on to the questions of concentrations of wealth, and inequality. We had a highly academic disquisition on the effectiveness of the range of tax measures that have been introduced in this and previous Budgets by the hon. Member for Vauxhall (Mr. Holland).

Dr. Jeremy Bray (Motherwell and Wishaw)

Will the right hon. and learned Member give way?

Mr. Rees

Of course.

Dr. Bray

On the interesting comparison of the indexing of the capital transfer tax bands with those that are provided for here, would the right hon. and learned Gentleman not agree that when a new tax is introduced it is, on the whole, wise to introduce it at somewhat lower rate than is the intention to apply it eventually? Therefore we cannot compare the initial bands or rates with those that the introducers would have hoped we would have reached by this time?

Mr. Rees

That was a fascinating intervention. I do not know whether we are to understand from the hon. Member that the idea was to introduce the tax at a modest rate and then for his right hon. Friends to turn the screw ever more assiduously year by year, that the country was forced to endure a Labour Administration. The cat is now really let out of the bag. This is evidently what we would have to expect if the country were ever ill-judged enough to return an Administration that took its colour from the hon. Gentleman. I have endeavoured to extract from the right hon. Member for Stepney and Poplar (Mr. Shore) whether a future Labour Administration would be prepared to introduce a wealth tax. He was obstinately silent, but obviously he would get a little encouragement and assistance from his hon. Friends, who clearly would encourage him to introduce a wealth tax. So now we know that the real burdens of all the taxes on capital would be increased by a subsequent Labour Administration.

Let us get the present tax into perspective. I have looked back with a certain amount of nostalgia to the debates in 1974–75. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) took part, as did the right hon. Members for Dudley, East (Dr. Gilbert) and Heywood and Royton (Mr. Barnett). I think it was the latter right hon. Gentleman in particular who commended this tax to us as being in the interests of fairness—to unite the country, to make the sacrifices that are going to be imposed on people by a Labour Administration. That is one way of looking at the tax. There are, however, certain side effects that were perhaps not adequately canvassed, at least from the Benches opposite, during the debate this afternoon.

In the course of our debates in 1974–75 a sort of dim comprehension was finally achieved by the then Government Benches of perhaps what they were embarked on, and rather hurriedly, in the month of February 1975, the right hon. Member for Ashton-under-Lyne suddenly introduced, more than half-way through the Committee stage, a measure designed to lower the rates on lifetime transfers. It was commended to the then Committee by the right hon. Member for Heywood and Royton specifically on the basis that it would help small businesses and small farms. Also, I think it was implicit that it would encourage the mobility of property between the generations.

It was realised that perhaps it was not in the long-term interests of agriculture or business and, therefore, of jobs that property should be held on to by one generation to the point of death; so a lower series of rates were introduced, but only up to a specific level.

As I said, we wanted to build on that principle. We feel, too, that small businesses and farms should be encouraged, that the mobility of property between generations should be encouraged. Taking account of the increase in the real burden of capital transfer tax over the intervening six years, I think that the new rates that are to be found in schedule 11 go a certain distance, but perhaps not quite far enough. Indeed, some of my hon. Friends will say that there is more to be done, and if they do I will readily concede, because the issue here was very clearly put to the electorate.

I know that Opposition Members attach a tremendous importance to manifesto commitments, and they would not want a Conservative Administration to go back on the manifesto commitments on which they were elected, just as I know that Labour Members would not want to go back on the manifesto commitments on which they were elected in 1974–75. Let me remind them, because they may not have quite the same recollection of the Conservative manifesto as I do. It states, on page 14: We reject Labour's plan for a Wealth Tax. We shall deal with the most damaging features of the Capital Transfer and Capital Gains Taxes, and propose a simpler and less oppressive system of capital taxation in the longer term. I say at once that after only two years we have not entirely achieved our objectives. We have a certain distance to go, and I know that I shall carry my right hon. and hon. Friends with me in this, but this is a very modest measure indeed. As I have said, the cost is clearly set out in the Red Book, but it was studiously ignored by practically every hon. Member who intervened in this debate from the Opposition Benches. Since they were disposed to argue the case in general terms, let me first deal with the hon. Member for Vauxhall. As I said he has a remarkable and characteristic academic disposition, and no doubt he sounded very well in the University of Sussex, in which I know he was a distinguished luminary at one time. He claims that the clause is divisive. That it may be in his own mind, but I do not believe that it is to the country as a whole.

The hon. Member encouraged us to demonstrate that there would be promotion of investments and the creation of jobs. He is putting it in positive terms. I should like to put it in negative terms. Does the Committee feel that if there is a steady leach of capital from small businesses and farms, generation by generation, it will create new industrial activity and new jobs? What is this steady drip, drip, drip of capital from the entrepreneurial sector to the State going to do for jobs? What is it going to do for the health of British industry, or British agriculture?

Mr. Stuart Holland

Since the Minister posed the question, would he, in return, like to tell the House that an issue such as tax relief on stock appreciation, where the relief in the corporate sector as a whole has actually been as high as total net manufacturing investment in this country, is a purely academic matter? Is that his definition of "academic"? Secondly, in relation to the further part of his question, is he claiming inversely that an impact on wealth and wealth creation for those whose investment constitutes one-twentieth of the industrial investment in this country is itself significant? He is in danger, from his arguments, of excusing the illegitimacy of his reasoning on the basis that it is very small.

Mr. Rees

I suspected that it was a mistake to give way to the hon. Gentleman, because he obviously does not live in the real world where investment and entrepreneurial decisions have to be taken. If he is a little concerned about the consequences of stock relief—though I suspect, Mr. Speaker, that you will rule me out of order if I go too far down that path—I must remind him that it was the devastating results of the new system of corporation tax, the advance corporation tax and the advance corporation tax surcharge introduced by his right hon. Friend the Member for Leeds, East, that devasted British industry. As a small measure of relief to revive it the right hon. Gentleman compelled to introduce the first measure of stock relief, which we are now refining and improving in the Bill.

I am straying a little far from the general principles underlying the clause that I am commending to the Committee.

Capital transfer tax forces out into the open, in the sharpest possible form, the differences of policy and principle that divide the two main parties. For Opposition Members, the redistribution of wealth means a redistribution from individuals to Government. It means a process of slow and steady confiscation. I remind the Committee that, with the doubtful exception of Denmark, Britain collects a higher proportion of its taxes from taxes on capital than does any other country of the European Community. These comparisons are always a little difficult to draw, but that is the conclusion to be reached.

For the Conservative Party, to which I am proud to belong, redistribution of wealth is a totally reverse process. It means giving the main mass of our fellow countrymen a chance to acquire a larger stake in the assets of this country. I instance particularly the sale of council houses, which has been fought so bitterly by the Opposition Benches. That is what we mean by the distribution of wealth—by contrast with the process of confiscation, rather thinly disguised, which has been introduced by every successive Labour Government.

Mr. Soley

Is the hon. and learned Gentleman really trying to fool the House into believing that the money that he has taken off the lower-income people by increasing taxes is not in some way in direct contradiction to the money that he is giving back to people who already have very large amounts of wealth? Would not that be redistribution, effectively, if we did it properly?

Mr. Rees

I endeavoured to demonstrate, at an earlier stage—clearly the hon. Gentleman has not taken the point—that there is absolutely no correlation between the reliefs that we are now debating and any other of the direct or indirect taxes which the hon. Gentleman asserts have the effect of imposing heavier burdens on the less well-off sections of our community. The hon. Gentleman who spent a great deal of time on this point, has failed to observe that the higher rate bands of income tax were not revalorised last year, nor have they been revalorised this year. I think that he had better have a closer look at the impact of the measures that were introduced by my right hon. and learned Friend the Chancellor in his Budget.

There are some fundamental principles that divide the two sides of the Committee. Our principles were clearly explained to the electorate in our manifesto and in our election campaign, and they were overwhelmingly endorsed in May 1979 by the electorate.

We believe that capital is usually—not always, but usually—more productive in private hands. We believe that private capital provides areas of independence of the State which deserve to be encouraged. We believe that a capitalist system—even a mixed economy such as this country enjoys at present—depends on continuing sources of private capital.

For those reasons I commend the clause to the Committee. I am sure that my hon. Friends will give it the massive support that it deserves.

Mr. Cook

The Minister taxed me at the outset with having singled out the Duke of Westminster. I say straight away that it was no part of my case to offer any personal offence to the Duke of Westminster. Indeed, as I recollect my speech, I did not offer any comment on the duke's character, opinions or personal behaviour. The only observation that I offered about the duke is that he is a very wealthy man. I do not think that the duke, even if he were in this Chamber and able to reply to the debate, would seek to deny that he is a very wealthy man.

I entirely concede to the Minister that one could have singled out any of the other 14 dukes. I think that the fact that we have 15 extremely wealthy dukes still living in the midst of our country puts perhaps a different dimension on the Minister's inveighing against confiscatory capital taxation.

I am well aware that in singling out the dukes I am following a long parliamentary tradition. I seem to remember that Lloyd George said something about dukes and fishermen. That was said at a time when he was obliged to go to the country in an election over death duties. I rather suspect that Lloyd George might have been taken aback, were he able to be with us today, to discover that some 70 years after the introduction of those death duties—which were denounced at the time as confiscatory, and were denounced in exactly the same terms, as shifting wealth from the private individual to the State—so little has changed that we can still single out any one of the 15 dukes as an example of outstanding concentration of wealth and as an example of the gross inequality of wealth in our society, examples which have survived those 70 years of that confiscatory taxation, which we are told today must be reduced.

6.45 pm

The Minister said that this was a complicated and unattractive tax. I can understand why those who come within its ambit find it unattractive. But the Committee must concern itself not with whether it is attractive or unattractive to those who are abliged to pay. Those who are obliged to pay any tax, by the nature of things, tend to find it unattractive. What we have to consider is whether it yields revenue without doing damage to the economy, and whether that revenue is achieved administratively simply. It is notorious that in many cases capital taxation achieves a significant yield of revenue proportionate to the effort that has to be put into it by the Treasury and the Inland Revenue to collect that tax. In that perspective, far from being unattractive and complicated, it is a simple and attractive tax—although I entirely concede that there are those who pay it, and there are those hired by those who pay it, who go out of their way to make the collection of it as complicated and as unattractive as possible.

The Minister was not so crude as to suggest that the purpose of this clause and the schedule attached to it is to cut the rates of tax. If I got his words rightly, he said that its purpose is to "adjust" the rates. There is a certain consistency about the adjustment that is imposed by the schedule. The adjustment in every case is in a downward direction. All those tax rates which are adjusted by the schedule are adjusted in order to make them less.

I therefore do not resile from the description that we have used in the course of the debate that this is not an adjustment but a cut. It is not, as the Minister suggested, a shading by relief of burdens imposed on them—the "them" in this case being the rich—or the introduction of "a small measure of balance". If I understood the drift of the Minister's speech aright, he was suggesting that the shading by relief and the small measure of balance were equivalent to revalorisation of this tax to bring it into line with the changes in inflation since 1975.

As my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) indicated when he intervened, in 1975 the rates which were set in 1975 represented for those with a capital of less than £300,000 a lower rate of taxation than the death duty which they replaced. One understands the reason why that was the case, because it was accompanied by the abolition of the exemption period. Nevertheless, the fact remains that in 1975 the rates then introduced were lower than the rates which prevailed before 1975.

We are therefore back with the familiar question: what do we take as our base year? If we take our base year as 1975, the Minister has a point. The rates have not been amended for the higher rates since 1975. But they were adjusted in 1975. If we take another base year, we get a different picture. Let us leave that cavil to one side. Let us take 1975 as our base rate. Since 1975 there have been a number of changes in the rates. There were a number of changes in the rates for the lower bands even while the Labour Government were in office. But the most remarkable change to the lower band was the change that was introduced by the Minister himself in last year's Finance Bill, when he doubled the exemption figure to £50,000.

In 1975, anyone with a capital of £50,000 carrying out a capital transfer was liable to a capital taxation of 15 per cent. They are now liable to capital taxation of nil. Of course, that does not simply benefit those who have a capital of £50,000 which they are transferring. It benefits everybody who is transferring any sum greater than £50,000 who, to that extent, has the amount of the capital he is transferring exempt from taxation. In other words, even the Duke of Westminster benefits from this doubling of the exemption level, because he has that proportion of the capital that is transferred which is exempt from the charged tax.

There has been a significant change in the lower bands. Let us consider the higher bands. If I understood the Minister's plea to our understanding and sympathy for those caught in the higher bands of this tax, the case is that inflation has doubled since 1975 and it will therefore be unreasonable to leave them with the same tax imposition that was imposed in 1975. If I caught the Minister's drift aright, £1 million today is equivalent to £½ million in 1975. Let us examine that view.

Until this Bill, the rate that was imposed in 1975 until this date on a £1 million transfer was 70 per cent. Anybody carrying out a capital transfer of £1 million would pay taxation of 70 per cent. The Minister suggested that that sum was now equivalent to £ ½ million. I therefore presume it will be appropriate to adjust the rate of tax on £1 million to the level that prevailed on £ ½ million in 1975. That would be appropriate revalorisation. In 1975 the rate of tax that obtained for capital in excess of £ ½ million was 65 per cent. Therefore, following the Minister's logic, he would be perfectly entitled to argue for a shading by relief, or a small measure of balance, by reducing the rate of tax on capital of £1 million from 70 per cent. to 65 per cent. which was the rate imposed on capital of £ ½ million in 1975.

What has the Minister done? He has asked the Committee to cut the rate of tax from 70 per cent. to 45 per cent. a drop of 25 per cent. As I pointed out in my opening speech, for those in the highest rate band the rate is cut from 75 per cent. to 50 per cent. for those who transfer £2 million, that is equivalent to a saving of £445,000. That is not a shading by relief; that is not a small measure. of balance. It is a remarkably generous piece of largesse. Whether we describe it as handout or not, I shall not argue. I am quite happy to leave aside the term "handout". But £445,000 is not a shading by relief. If whoever inherited £445,000 were to live for 10 years at £1,000 per week, he would not exhaust the sum when the 10 years were over, when he could, on a further tranche of £2 million, make further saving under this provision of £445,000.

If the Minister genuinely believes that the case for this small measure of balance is a readjustment of the table to revalorise the levels in the light of inflation, he should have adjusted the figures for the fortunes in the first and second columns of the table, not reducing the rates of taxation that obtained in the third column.

The Minister reminded us that there was a manifesto commitment by the Conservative Party to reduce the oppressive level of capital taxation. I say to the Minister—who I understand has ministerial responsibility for capital taxation—that he has been much more strikingly successful in carrying out that manifesto commitment than his colleagues have in carrying out the parallel manifesto commitment to reduce the burden of income tax. In his two years he has, on his own calculation, removed two-thirds of the individuals who were subject to capital taxation and in this measure he drastically reduces the amount of tax that would be required to be paid by the remaining one-third. Although we compliment him on his achievement in reducing the burden of capital taxation and the number of those eligible to pay it and removing from it the great majority of those who were liable before, it does not mean that we are out of order to draw the contrast between that achievement and the retreat of his colleagues over the issue of income taxation.

One of my hon. Friends attempted to intervene to make the link between the increase in income taxation which we witness in this Bill and the cut in taxation we witness in this clause. The Minister said that there was no relation between the two. With respect, there is a relation between the two. It is not sufficient simply to submit that the increase in income tax affects the low-paid and poor who will come in at the end whereas the cuts in capital taxation benefit the rich who were never particularly bothered about the tax threshold in the first place. There is a relationship, and an obvious contrast between the two.

I did not seek to suggest in my opening speech that if we threw out this clause we could afford to increase the tax threshold. Plainly, we would not release anything like the money required to increase the tax threshold. But the fact remains that we have been told that the Government cannot afford to raise the tax threshold by any amount, let alone fully revalorise, or to reintroduce the reduced rate band, or to forgo the manifesto commitment to tax the unemployed and the striker. Plainly, if we were to throw out this clause, it would not be possible to release the sum of money the Treasury needs to do any of these things, but against that background of refusal to assist the low-paid, of insisting on taxing the unemployed, to bring in a measure which provides additional relief, albeit a shading by relief, to the extremely wealthy and to all 15 dukes—not just the Duke of Westminster—is an insult to those who, it is said, cannot expect any relief in the tax system this year. I believe that the Committee should spare them that insult and should vote against clause 88.

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

The Committee divided: Ayes 189, Noes 134.

Division 178]	[4.27 pm
AYES
Alton, David	Miscampbell, Norman
Ancram, Michael	Morrison, Hon C. (Devizes)
Atkins, Robert(Preston N)	Myles, David
Baker, Nicholas (N Dorset)	Needham, Richard
Benyon, Thomas (A'don)	Owen, Rt Hon Dr David
Benyon, W. (Buckingham)	Parris, Matthew
Best, Keith	Patten, Christopher (Bath)
Blackburn, John	Prentice, Rt Hon Reg
Bottomley, Peter (W'wich W)	Price, Sir David (Eastleigh)
Bradley, Tom	Rathbone, Tim
Brocklebank-Fowler, C.	Roper, John
Colvin, Michael	St. John-Stevas, Rt Hon N.
Crouch, David	Sandelson, Neville
Dempsey, James	Shersby, Michael
Dorrell, Stephen	Smith, Cyril (Rochdale)
Ellis, Tom (Wrexham)	Squire, Robin
Fisher, Sir Nigel	Steel, Rt Hon David
Fletcher-Cooke, Sir Charles	Temple-Morris, Peter
Fox, Marcus	Thornton, Malcolm
Freud, Clement	Viggers, Peter
Grimond, Rt Hon J.	Wainwright, R.(Colne V)
Heddle, John	Waldegrave, Hon William
Howells, Geraint	Watson, John
Hunt, John (Ravensbourne)	Weetch, Ken
Johnston, Russell (Inverness)	Wigley, Dafydd
Kilfedder, James A.	Wilkinson, John
Kimball, Marcus	Wilson, Gordon (Dundee E)
Knox, David	Wolfson, Mark
Lennox-Boyd, Hon Mark
Lewis, Kenneth (Rutland)	Tellers for the Ayes:
Lyell, Nicholas	Mr. Tim Renton and Sir Brandon Rhys Williams.
Lyons, Edward (Bradfd W)
Maclennan, Robert
NOES
Alexander, Richard	Lloyd, Peter (Fareham)
Allaun, Frank	Lofthouse, Geoffrey
Arnold, Tom	McElhone, Frank
Ashton, Joe	McNair-Wilson, M. (N'bury)
Atkinson, N.(H'gey,)	McNair-Wilson, P. (New F'st)
Bagier, Gordon AT.	McQuarrie, Albert
Barnett, Rt Hon Joel (H'wd)	McWilliam, John
Bevan, David Gilroy	Marks, Kenneth
Biggs-Davison, John	Marland, Paul
Braine, Sir Bernard	Marlow, Tony
Brotherton, Michael	Marshall, Dr Edmund (Goole)
Brown, Michael(Brigg & Sc'n)	Marshall, Jim (Leicester S)
Budgen, Nick	Mawby, Ray
Callaghan, Jim (Midd't'n & P)	Mawhinney, Dr Brian
Campbell-Savours, Dale	Maxton, John
Canavan, Dennis	Meacher, Michael
Carlisle, Kenneth (Lincoln)	Mikardo, Ian
Clark, Hon A. (Plym'th, S'n)	Millan, Rt Hon Bruce
Clark, Dr David (S Shields)	Mills, Iain (Meriden)
Clark, Sir W. (Croydon S)	Moate, Roger
Clegg, Sir Walter	Molyneaux, James
Cockeram, Eric	Morris, Rt Hon A. (W'shawe)
Cocks, Rt Hon M. (B'stol S)	Morton, George
Concannon, Rt Hon J. D.	Neale, Gerrard
Costain, Sir Albert	Nelson, Anthony
Cranborne, Viscount	Neubert, Michael
Cryer, Bob	O'Halloran, Michael
Cunliffe, Lawrence	O'Neill, Martin
Cunningham, Dr J. (W'h'n)	Page, Rt Hon Sir G. (Crosby)
Dalyell, Tam	Parry, Robert
Davis, T. (B'ham, Stechf'd)	Powell, Rt Hon J.E. (S Down)
Deakins, Eric	Radice, Giles
Dean, Joseph (Leeds West)	Richardson, Jo
Dewar, Donald	Roberts, Allan (Bootle)
Dixon, Donald	Roberts, Gwilym (Cannock)
Dobson, Frank	Robertson, George
Dormand, Jack	Robinson, G. (Coventry NW)
Dover, Denshore	Royle, Sir Anthony
Eastham, Ken	Sheldon, Rt Hon R.
Elliott, Sir William	Shepherd, Colin (Hereford)
Evans, John (Newton)	Skeet, T. H. H.
Fell, Anthony	Spearing, Nigel
Fletcher, Ted (Darlington)	Spriggs, Leslie
Fookes, Miss Janet	Stanbrook, Ivor
Foot, Rt Hon Michael	Stoddart, David
Freeson, Rt Hon Reginald	Stokes, John
Gardiner, George (Reigate)	Strang, Gavin
Garel-Jones, Tristan	Straw, Jack
Garrett, John (Norwich S)	Taylor, Teddy (S'end E)
Graham, Ted	Thomas, Rt Hon Peter
Grant, George (Morpeth)	Thorne, Stan (Preston South)
Grylls, Michael	Tilley, John
Hamilton, Hon A.	Tinn, James
Hamilton, James (Bothwell)	Wainwright, E.(Dearne V)
Hamilton, W. W. (C'tral Fife)	Walker, B. (Perth)
Harrison, Rt Hon Walter	Waller, Gary
Higgins, Rt Hon Terence L.	Wells, John (Maidstone)
Holland, Philip (Carlton)	White, Frank R.
Homewood, William	Whitehead, Phillip
Hooley, Frank	Wickenden, Keith
Huckfield, Les	Willey, Rt Hon Frederick
Hughes, Robert (Aberdeen N)	Williams, D.(Montgomery)
Hughes, Roy (Newport)	Winnick, David
Jay, Rt Hon Douglas	Winterton, Nicholas
John, Brynmor	Woodall, Alec
Kaufman, Rt Hon Gerald	Woolmer, Kenneth
Kinnock, Neil
Kitson, Sir Timothy	Tellers for the Noes:
Lamond, James	Mr. K. Harvey Proctor and Mr. Bob Dunn.
Leadbitter, Ted
Leighton, Ronald

Division No. 179]	[6.58 pm
AYES
Alexander, Richard	Ancram, Michael
Alison, Michael	Arnold, Tom

Aspinwall, Jack	Hunt, John (Ravensbourne)
Atkins, Robert(Presfon N)	Hurd, Hon Douglas
Baker, Nicholas (N Dorset)	Jenkin, Rt Hon Patrick
Banks, Robert	Johnson Smith, Geoffrey
Bell, Sir Ronald	Jopling, Rt Hon Michael
Bendall, Vivian	Kaberry, Sir Donald
Benyon, Thomas (A'don)	Kimball, Marcus
Berry, Hon Anthony	King, Rt Hon Tom
Best, Keith	Kitson, Sir Timothy
Bevan, David Gilroy	Lee, John
Biffen, Rt Hon John	Le Marchant, Spencer
Biggs-Davison, John	Lennox-Boyd, Hon Mark
Blackburn, John	Lewis, Kenneth (Rutland)
Boscawen, Hon Robert	Lloyd, Peter (Fareham)
Bottomley, Peter (W'wich W)	Luce, Richard
Bowden, Andrew	Lyell, Nicholas
Braine, Sir Bernard	Macfarlane, Neil
Brinton, Tim	MacGregor, John
Brittan, Leon	Macmillan, Rt Hon M.
Brown, Michael(Brigg & Sc'n)	McNair-Wilson, M. (N'bury)
Browne, John (Winchester)	Major, John
Bruce-Gardyne, John	Marlow, Tony
Budgen, Nick	Marshall, Michael (Arundel)
Bulmer, Esmond	Mates, Michael
Cadbury, Jocelyn	Mather, Carol
Carlisle, John (Luton West)	Maude, Rt Hon Sir Angus
Carlisle, Kenneth (Lincoln)	Mawby, Ray
Carlisle, Rt Hon M. (R'c'n)	Maxwell-Hyslop, Robin
Chalker, Mrs. Lynda	Mellor, David
Chapman, Sydney	Miller, Hal (B'grove)
Clark, Hon A. (Plym'th, S'n)	Mills, Iain (Meriden)
Clark, Sir W. (Croydon S)	Mills, Peter (West Devon)
Clarke, Kenneth (Rushcliffe)	Morgan, Geraint
Clegg, Sir Walter	Murphy, Christopher
Cockeram, Eric	Myles, David
Colvin, Michael	Neale, Gerrard
Cope, John	Needham, Richard
Costain, Sir Albert	Nelson, Anthony
Cranborne, Viscount	Newton, Tony
Critchley, Julian	Normanton, Tom
Crouch, David	Onslow, Cranley
Dean, Paul (North Somerset)	Page, Richard (SW Herts)
Dorrell, Stephen	Patten, John (Oxford)
Dover, Denshore	Percival, Sir Ian
du Cann, Rt Hon Edward	Powell, Rt Hon J.E. (S Down)
Dunn, Robert (Dartford)	Prentice, Rt Hon Reg
Dykes, Hugh	Price, Sir David (Eastleigh)
Eggar, Tim	Proctor, K. Harvey
Fairbairn, Nicholas	Pym, Rt Hon Francis
Fairgrieve, Russell	Raison, Timothy
Faith, Mrs Sheila	Rathbone, Tim
Farr, John	Rees, Peter (Dover and Deal)
Fell, Anthony	Renton, Tim
Fenner, Mrs Peggy	Rhodes James, Robert
Fisher, Sir Nigel	Rhys Williams, Sir Brandon
Fletcher-Cooke, Sir Charles	Ridley, Hon Nicholas
Fookes, Miss Janet	Ridsdale, Sir Julian
Fowler, Rt Hon Norman	Rifkind, Malcolm
Galbraith, Hon T. G. D.	Rossi, Hugh
Gardiner, George (Reigate)	Royle, Sir Anthony
Garel-Jones, Tristan	Sainsbury, Hon Timothy
Goodlad, Alastair	St. John-Stevas, Rt Hon N.
Gow, Ian	Shaw, Giles (Pudsey)
Gray, Hamish	Shelton, William (Streatham)
Greenway, Harry	Shepherd, Colin (Hereford)
Griffiths, E.(B'y St. Edm'ds)	Shepherd, Richard
Griffiths, Peter Portsm'th N)	Shersby, Michael
Grylls, Michael	Sims, Roger
Gummer, John Selwyn	Skeet, T. H. H.
Hamilton, Hon A.	Speed, Keith
Hannam, John	Speller, Tony
Haselhurst, Alan	Spicer, Jim (West Dorset)
Hawksley, Warren	Sproat, Iain
Hayhoe, Barney	Stanbrook, Ivor
Heddle, John	Stevens, Martin
Henderson, Barry	Stokes, John
Holland, Philip (Carlton)	Stradling Thomas, J.
Hordern, Peter	Taylor, Teddy (S'end E)
Howell, Rt Hon D. (G'ldf'd)	Tebbit, Norman
Hunt, David (Wirral)	Thomas, Rt Hon Peter

Thompson, Donald	Warren, Kenneth
Thorne, Neil (Ilord South)	Watson, John
Thornton, Malcolm	Wells, John (Maidstone)
Townend, John (Bridlington)	Wells, Bowen
Townsend, Cyril D, (B'heath)	Wheeler, John
Trippier, David	Whitney, Raymond
Viggers, Peter	Wickenden, Keith
Waddington, David	Williams, D.(Montgomery)
Wainwright, R.(Colne V)	Wolfson, Mark
Wakeham, John	Younger, Rt Hon George
Waldegrave, Hon William
Walker, B. (Perth)	Tellers for the Ayes:
Walker-Smith, Rt Hon Sir D.	Mr. Peter Brooke and Lord James Douglas-Hamilton.
Waller, Gary
Ward, John

NOES
Allaun, Frank	Hughes, Robert (Aberdeen N)
Alton, David	Jay, Rt Hon Douglas
Archer, Rt Hon Peter	John, Brynmor
Ashton, Joe	Johnston, Russell (Inverness)
Atkinson, N.(H'gey,)	Jones, Barry (East Flint)
Bennett, Andrew(St'kp't N)	Kaufman, Rt Hon Gerald
Best, Keith	Kerr, Russell
Boothroyd, Miss Betty	Kilfedder, James A.
Bray, Dr Jeremy	Lamond, James
Brocklebank-Fowler, C.	Leighton, Ronald
Brown, Hugh D. (Provan)	Lofthouse, Geoffrey
Buchan, Norman	Lyon, Alexander (York)
Callaghan, Rt Hon J.	Lyons, Edward (Bradf'd W)
Callaghan, Jim (Midd't'n & P)	McCartney, Hugh
Campbell-Savours, Dale	McElhone, Frank
Canavan, Dennis	McKay, Alien (Penistone)
Cartwright, John	McNally, Thomas
Clark, Dr David (S Shields)	Marshall, Dr Edmund (Goole)
Cocks, Rt Hon M. (B'stol S)	Martin, M(G'gow S'burn)
Concannon, Rt Hon J. D.	Mason, Rt Hon Roy
Cook, Robin F.	Millan, Rt Hon Bruce
Craigen, J. M.	Mitchell, Austin (Grimsby)
Cryer, Bob	Morris, Rt Hon A. (W'shawe)
Cunliffe, Lawrence	Morris, Rt Hon C. (O'shaw)
Davidson, Arthur	Morris, Rt Hon J. (Aberavon)
Davis, T. (B'ham, Stechf'd)	Morton, George
Deakins, Eric	Newens, Stanley
Dean, Joseph (Leeds West)	O'Neill, Martin
Dempsey, James	Orme, Rt Hon Stanley
Dewar, Donald	Owen, Rt Hon Dr David
Dixon, Donald	Parry, Robert
Dormand, Jack	Penhaligon, David
Douglas, Dick	Prescott, John
Dubs, Alfred	Price, C. (Lewisham W)
Duffy, A. E. P.	Radice, Giles
Dunlop, John	Richardson, Jo
Dunwoody, Hon Mrs G.	Roberts, Ernest (Hackney N)
Eadie, Alex	Robertson, George
Eastham, Ken	Roper, John
Ellis, Tom (Wrexham)	Rowlands, Ted
English, Michael	Sever, John
Ewing, Harry	Sheerman, Barry
Faulds, Andrew	Sheldon, Rt Hon R.
Fitt, Gerard	Shore, Rt Hon Peter
Fletcher, Ted (Darlington)	Silverman, Julius
Ford, Ben	Skinner, Dennis
Foster, Derek	Smith, Cyril (Rochdale)
Foulkes, George	Smith, Rt Hon J. (N Lanark)
Freud, Clement	Soley, Clive
Ginsburg, David	Spearing, Nigel
Graham, Ted	Spriggs, Leslie
Grant, George (Morpeth)	Steel, Rt Hon David
Grimond, Rt Hon J.	Stewart, Rt Hon D. (W Isles)
Hamilton, W. W. (C'tral Fife)	Stoddart, David
Harrison, Rt Hon Walter	Straw, Jack
Hattersley, Rt Hon Roy	Thorne, Stan (Preston South)
Haynes, Frank	Tilley, John
Heffer, Eric S.	Tinn, James
Holland, S. (L'b'th, Vauxh'll)	Wainwright, E.(Dearne V)
Homewood, William	Wainwright, R.(Colne V)
Hooley, Frank	Weetch, Ken
Howells, Geraint	Welsh, Michael
Huckfield, Les	White, Frank R.

Whitlock, William	Wrigglesworth, Ian
Wigley, Dafydd	Young, David (Bolton E)
Willey, Rt Hon Frederick
Wilson, Gordon (Dundee E)	Tellers for the Noes:
Winnick, David	Mr. James Hamilton and Mr. Donald Coleman.
Woolmer, Kenneth

Question accordingly agreed to.

Clause 88 ordered to stand part of the Bill.