HC Deb 23 July 1919 vol 118 cc1473-86

The scale set out in the Third Schedule to this Act shall, in the case of persons dying after the commencement of this Act, be substituted for the scale set out in the First Schedule to the Finance Act, 1914, as the scale of rates of Estate Duty:

Provided that where an interest in expectancy within the meaning of Part I. of the Finance Act, 1894, in any property has, before the thirtieth day of April, nineteen hundred and nineteen, been bonâ, fide sold or mortgaged for full consideration in money or money's worth, then no other duty on that property shall be payable by the purchaser or mortgagee when the interest falls into possession than would have been payable if this Part of this Act had not passed, and in the case of a mortgage any higher duty payable by the mortgagor shall rank as a charge subsequent to that of the mortgagee.

Brigadier-General CROFT

I beg to move, to leave out Clause 26.

The question of Death Duties was not raised on the Committee stage. It is one which, I think, in view of the burdens of the War, has been considered by this House without paying sufficient attention to its ultimate effect. I think the Chancellor of the Exchequer has in this particular matter violated almost every canon of finance. The new Death Duties are of such an alarming character in their increase that they seem to me to be, first of all, a blow at security, which is always bad. Having gone as far as the right hon. Gentleman has gone, it would be very difficult indeed for a Labour Chancellor of the Exchequer, sitting in his place, not to point back and say, "Here is the right hon. Gentleman, described by some great newspaper magnates as a reactionary, who yet has imposed Death Duties mounting up to 30 or 40 per cent." The consequence is that all through this country the saving classes of the community, whose cause I desire to champion, do not know where they are, and the result will be that our financial system will not be as restful as it used to be in days gone by. In the second place, they must be regarded as a great blow at thrift. The right hon. Gentleman, on other Clauses, told us from time to time the imperative necessity for every individual in this country saving and not spending his money. Thirdly, I think I can point out that it would be a blow to the ultimate strength of the nation as a whole. Fourthly, I think the right hon. Gentleman himself, a very few years ago, would have stigmatised these new increases as socialistic in the highest degree. They are achieving in a roundabout way the results of methods and proposals which hon. Gentlemen who sit behind me describe as a levy on capital. Fifthly, I say it is a sop to that extreme section of the community which believes that all wealth is bad, and it is an encouragement to them to think that the Government is leaning in that direction.

What will be the result of these new Death Duties? The man who happens to be a waster and a profligate and of no use to the country goes scot-free; ho does not come into the Chancellor's net. If a man happens to be one who all his life has saved his money and put it back into his industry or his land, then the Chancellor of the Exchequer, after taxing him 50 percent. on his income all his life, comes along on his death and, in the case of a very successful person, takes from 30 percent. and 40 percent. of his estate. Let me give one brief instance. I happen to know the case of a man in Yorkshire who confessed, a year ago, that he was worth £1,100,000. He put all that money into his mills in Yorkshire. He pointed out to me that a very large proportion of that saving had gone into new factories and mills. He has two sons. When he dies the Chancellor of the Exchequer will seize something like £300,000 of the estate. The liquid capital in that business is not as much as £300,000, so it is evident that the two sons can carry on that business only if they are able to borrow a large sum of money for payment of the Death Duties. The result to the business must be disastrous. I suggest that the whole policy is very bad business. I am taking large figures, because they make the point clear. Take the case of an estate of £1,000,000 sterling. Such an estate pays £300,000. These large estates, which the Chancellor is penalising, are the very fortunes which, if the hen-roost were not robbed, would be yielding that great amount of revenue which he is only too pleased to take from such estates. Large estates are paying something like 50 percent. in Income Tax and Super-tax. Take the figure of £300,000 in the case of the man who dies worth £1,000,000, and at a moderate estimate allow a rate of interest of 6 per cent. It means that the loss of income to the Chancellor of the Exchequer from that confiscation would be £18,000 per annum. On the basis that 50 percent. would be paid in Income Tax and Super-tax on such a great fortune, the State would thus lose £9,000 a year, or in ten years, at compound interest, about £110,000. It is not necessary for me to enlarge on this argument in order to show that it will not be very long before the country will be actually poorer as a result of these raids, this taking of great blocks out of capital which is returning so much to the revenue at the moment. I think it must be regarded as a folly which in time will defeat its own object. It is also a very great encouragement, a dangerous encouragement, to those sections of the community which regard wealth as a crime. It is high time that we realised that the men who have saved largely are really the greatest benefactors this country has. It is no excuse, merely because we are suffering from the great difficulties of the War, that we should indulge in this kind of taxation, which no man could justify in peace time. Taxation is a very delicate instrument, and once you appear to be unjust you defeat the object you desire to attain. People will disperse their estates. I wonder if that is to be to the advantage of the country in the long run?

I will give one more instance to show the extraordinary value of the wise man who saves his money and puts it back into his business. I know the case of a man who went into a small business and had £20,000 of capital. He developed a great business—it was quite a new business—and during the time he was engaged in it and up to the time of his death, he paid £790,000 in wages. If the right hon. Gentleman is going to continue this policy it can only have this effect. The tendency will be, in the first place, to disperse estates, and, in the second place, to avoid these Death Duties by starting companies in foreign countries in which men will get their children and grandchildren interested. I hope the right hon. Gentleman will reconsider the question. Since he-made his Budget speech we have heard that we are going to receive certain small indemnities, at any rate, sufficient to pay for the pensions in this country. Does not that put the right hon. Gentleman in a different position? If he insists on these Death Duties, which have passed the region of justice, I believe that in days to come he will find they will have disastrous effects on the commerce and industry of the country.

Mr. G. TERRELL

I beg to second the Amendment.

I think a great mistake is made in imagining that you can reach the employer or manufacturer by imposing these heavy taxes. In the case of a factory, what happens? It is not the owner of the factory who in the end is taxed; it is the goods. All the taxes are put on to the goods which are produced in that factory. So you start in a vicious circle, and you. get high cost of all commodities, which is the great trouble we have to face to-day. Income Tax, Excess Profits Tax, and these taxes ultimately find their way to the goods produced.

Sir F. BANBURY

My hon. friend left out one point, and that is that under this system the expenditure of the country is being defrayed out of the capital of the country. That is a very important point which hon. Members in the Labour party ought to consider. At a time when we desire all the capital we can get we are spending that capital in order to defray our annual expenditure. What is wrong in the individual must be wrong in the State. My right hon. Friend and I twenty-six years ago fought these Death Duties to the best of our then ability. I have not changed my opinion, and I hope my right hon. Friend has not changed his.

Mr. CHAMBERLAIN

I am free to acknowledge that a politician who does not change his mind in twenty-six years would not really be a very useful Member of this House. Seriously, does my right hon. Friend think that he or I could very usefully repeat the argument or renew the attitude which we adopted twenty-six years ago when our Budget was about £100.000,000, in days like the present when we spend £1,000,000,000, and more than that? I am afraid those good days have gone never to return.

Sir F. BANBURY

That does not touch the principle. The argument in those days was that it was not right to take a man's capital and spend it as revenue, and that principle remains.

8.0 p.m.

Mr. CHAMBERLAIN

I doubt whether my right hon. Friend can find that argument in any speech of mine twenty-six years ago. It is very rash to say what is and what is not in a speech of twenty-six years ago, but I speak with some confidence on the point because I do not think I ever spoke on the Budget twenty-six years ago. I will, however, come to that argument later. The hon. Member for Chippenham (Mr. Terrell) carried his argument very much further. He said that all taxes were bad, because all taxes raise prices. Perhaps all taxes are bad. Perhaps it Would be a very good thing not to have them; but clearly we cannot do without them. As to my hon. and gallant Friend, the Mover of the Amendment, he made out a more serious case, as was his duty. I have had the advantage of having seen my hon. and gallant Friend's arguments in print in a newspaper, and that enables me more clearly to follow his calculations. They are curious. My hon. and gallant Friend says that I propose to derive from the increased Death Duties a sum of £10,000,000 which, he goes on to say, I might borrow. My hon. and gallant Friend is labouring under a serious illusion if he thinks that the State can borrow unlimited sums, even at 5 percent. The hon. and gallant Gentleman also stated in that article that the present taxation amounted to £10,000,000 on large estates, and when he says that if that capital were left in the hands of the present owners it would produce £4,000,000, he estimates that all incomes are taxed at the highest rate.

Brigadier-General CROFT

I quite see the right hon. Gentleman's point, and that is why I based my argument entirely on the income arising from £300,000, which is confiscated.

Mr. CHAMBERLAIN

It would not be fair perhaps to press my hon. and gallant Friend unduly on the statement, but I assume that his calculations were accurately made out in his speech. in the first place, for the purposes of his argument, he assumes that in the case of the whole of the £10,000,000 taken in Death Duties if the income from that sum had passed to the heirs it would all be assessable to Income Tax at the highest rate. That does not follow. It does not all come from estates which are assessable at the highest rate of Income Tax. I am afraid that my hon. and gallant Friend's calculation is, even now, over sanguine. With regard to provision for the payment of Death Duties, if people have made provision on the old scale by insurance or putting sums aside and suddenly find themselves confronted with a new charge when they are advanced in years, that, of course, alters the position for thorn, and their calculations are upset. But then those people had an unrivalled opportunity of providing for their Death Duties within the last few weeks owing to the terms of the Loan, and I do not think they have a great deal to complain of now in that respect. I come to the point raised by my right hon. Friend the Member for the City and endorsed by the hon. and gallant Gentleman opposite, namely, that we are taking capital and treating it as income. I am not quite convinced by that argument, and in any case I do not think it has great force at the present moment. The total amount which we expect to receive from Death Duties is, I think, £40,000,000. That is a very big sum no doubt, and calculated as a charge on the property passing in any one year it is a very big sum, but that £40,000,000 is less than the sum we require for our Sinking Fund. Even if that sum be not devoted to the cancellation of debt, a sum equivalent will be so employed, and as long as we spend it in reduction of debt or whenever we spend on the reduction of debt as large a sum as we get from Death Duties, the argument used by the right hon. Member for the City fails to have any force. My hon. and gallant Friend regards me as setting a very dangerous precedent, which will be quoted hereafter by some person, I suppose even more dangerous than myself. We cannot protect ourselves against that, and we can only do the best in the circumstances with which we are confronted. I do not think the proportion which I am taking in Death Duties is an undue proportion, and, as I ventured to say in my Budget Statement, I regard these duties as, in some sense, an insurance for the security of property.

Lord HUGH CECIL

I confess I think that the arguments addressed to the House by my hon. and gallant Friend (Brigadier-General Croft) go really to show that the Death Duties are a bad way of levying large sums from the subject, and that they are now obsolete since it has been found practicable to introduce a system of Super-tax. When these duties were first introduced it was the accepted doctrine that a Super-tax was impossible. It was supposed it could not be levied, and it was thought desirable to have some system by which taxation would fall more heavily on the more rich and less heavily on the less rich. Accordingly we adopted the system of Death Duties, but since the Super-tax has been found practicable it is the far better tax of the two. My right hon. Friend does not quite agree that you are levying on your capital, and necessarily that is a matter largely of contention. But it is quite plain if you levy so large a portion, whether at death or at any other time, that the person who comes next into possession of that capital cannot make good the loss, or will not make good the loss during his lifetime, that then your tax is gradually wasting away a portion of the capital, and that it is not taken, as it should be, out of the surplusage of the country. As a matter of fact, this tax is diminishing great landed estates, and they are a visible form of wealth. If a man succeeds to an estate, and owing to these duties cannot save in his lifetime, so that he dies as rich as his father, then it is quite plain that the country has consumed by taxation so much of that wealth as he has not restored. I should have thought that this tax was really obsolete since the Super-tax was invented, so far as income bearing property goes. You might have a Death Duty levied on non-income-bearing property, but I apprehend that that would be a relatively small matter from the revenue point of view. The great mass of the property is income-bearing, and so far as taxing property goes you have solved the problem by the Super-tax. I cannot conceive what you want with Death Duties, and why you cannot tax very rich people on incomes instead of taxing them on the body of the property. I do suggest that this is a point worthy of further consideration. I think it unfair on the face of it that you should have a permanent tax which may be as much as 30 percent. or 40 percent. When you get to those figures you are approaching, if you have not passed, the boundary, which is so very undefinable, that distinguishes the confiscation of property from taxation. I think it is clear that you can carry taxation to such a point that you do really destroy the right of property altogether, and people who deny the right of property think that that is a wise method of procedure.

But the objection to it is that if you destroy property, even the property of the very limited class of very rich people, you unsettle the whole fabric of property, and nobody feels quite safe. You begin with the millionaire, you go down to the next richest man, and so on, downwards, the same argument being applied consecutively to each class of victims as they come in turn, and to own property merely means to be a sheep gathered in the flock of slaughter waiting the day of sacrifice. Therefore it really is dangerous to put on such high rates of taxation, and in my view it is immoral to carry taxation so high unless it can be shown to be a merely temporary purpose brought about by the War, because it may be said the War would have destroyed everything, and therefore you are entitled to ask for any sacrifice, however heavy. But Death Duties, I apprehend, are not levied for a temporary purpose. They are levied, if not permanently, at any rate for a long period of years, and in that case I think so large a proportion ought not to be taken. If our country differs advantageously from France, for example, in having local initiative, and the capacity for local leadership, that really arises from the fact of having many rich people among us. Nothing is more unsound than to suppose that a man of moderate wealth is more useful as a citizen than a man of great wealth, and I think experience shows the opposite to be the truth—that a very rich man is more useful to the com- munity than a moderately rich man. I am considering whether you should tax the moderately rich or the very rich, and I am sure that a system of taxation that seeks to destroy the very rich man, the millionaire or the super-millionaire, is profoundly unwise. You destroy the individual initiative, which is such a great safeguard to liberty and against a wooden bureaucracy and looking to the State to do everything, and which really makes our local public life so entirely different from the local public life of France, for example, and I suppose many other countries; but as I have lived in France from a boy very considerably, and have observed the enormous contrast between the local life of France and the local life of England, I give that as an example. If you destroy that very good element you do an ill-service to the community. Therefore, I am sorry that Death Duties are persisted in, and that they should be raised to such figures as to represent an attack upon the very rich people, who are, I believe, a very valuable element in the community.

Mr. A. SHORT

The Noble Lord interests and charms the House with his academic speeches, but I think he fails at times to convince the House. I did not rise to reply to his speech, but rather to refer to the interesting speeches that were delivered in moving and seconding this Clause. It was very interesting for the House to learn from the hon. Member (Mr. G. Terrell), who is a supporter of Tariff Reform, that all taxes on commodities are paid by the consumer. That is an acknowledgment, I venture to think, which we find most interesting and a most remarkable admission, but I want to call attention to the extraordinary statement made by the hon. and gallant Member for Bournemouth (Brigadier-General Croft). This is the second time that this statement to which I am calling attention has been made in this House during discussions on the Budget. The hon. and gallant Member told us that if this taxation went on there would only be one thing to happen, and that would be that the capitalists, the wealthy people of this country, would take their capital abroad. This appears to me to be something in the nature of adoption, so far as the hon. and gallant Member is concerned, of the policy of direct action. When the miners of this country, for instance, withdraw their labour power, creating some measure of chaos and anarchy in society and leading to enormous disturbance and to some suffering, then the hon. and gallant Member, this great Leader of the National party, immediately rises and condemns them wholesale, but for the employing classes, for the capitalists, for wealthy men, to take their capital abroad, leaving the people of this country to starve and to suffer in a state of unemployment, that is something which appeals to him and which he justifies. If the hon. and gallant Member represents the opinion of the employing class in this country—I hope he does not—it is a remarkable demonstration of their patriotism. We have just emerged from a terrific contest. Tommy Atkins has been facing unknown terrors, going over the top, facing hell for a bob a day—[An HON. MEMBERS: "So have his officers!"]—and so have his officers. He has been promised a new social order, and we are told that if this taxation is continued, taxation which is going to assist us to face our financial commitments and to reconstruct and rebuild the shattered fabric of society, if this continues we are told that the wealthy people of this country will take their capital abroad. I can only hope that the hon. and gallant Member does not represent the opinions even of the wealthy classes of this country, but I can only regard such a statement as a. justification and an encouragement of the policy of direct action in this country by those who represent labour and by those who, as a result of their labour, produce the wealth which hitherto has passed into the coffers of the people for whom the hon. and gallant Member appears to speak.

Brigadier-General CROFT

I will say one word in reply to the hon. Member who has just sat down. Hitherto the argument has always been advanced by the Labour party that it is desirable that capital should be invested abroad to every possible extent, and I am interested to hear that he is now converted and that he does not think it desirable. The Labour party always used to agree upon that policy in the past, and a very fundamental change has come about. I do not intend to press this Amendment to a Division. I can only say that I extremely regret that the Chancellor of the Exchequer is not able to make some concession on this matter.

Amendment, by leave, withdrawn.

Lord H. CECIL

I beg to move, at the end, to insert the words Provided that the value of the estate referred to in the scale shall be the value of the property passing at the death of the deceased to any one person, and if an estate shall be divided and shall pass to more persons than one each part of the estate so passing shall for the purpose of fixing the rate of estate duty be deemed to be the whole estate of the deceased. This is an Amendment intended to remove the principle of aggregation from the method of assessing Death Duties. As the law now stands, an estate is charged at a certain rate, and the rate is fixed in respect to the total value of the estate left by the testator. It seems to me that if you have graduation at all, and certainly if you have this heavy graduation, the rate ought to be fixed not on the property left by the testator, but on the property received by each heir. That is to say, if a man leaves £1,000,000 among five children, the reasonable thing is that each should pay on the scale of £200,000, instead of on the scale of £1,000,000. Take the case of two brothers, one with five children and the other with one child. The inequality of the present system will at once be seen. If each of them leaves £1,000,000, the five children receive £200.000 each and pay on the same scale as their cousin who receives £1,000,000. That seems to me plainly unjust. I know my hon. Friend will say that the tax is supposed to be levied on what the testator leaves. One might as well say that this House is erected on the theory that the world is flat, and not that the world is round. You may set up a theory, but it does not alter the fact. The fact is that the tax is levied on the heir, and not on the testator. It is paid by the heir, and the heir feels the weight of it. That is realised in the fact that you have graduation at all. If the tax were levied, not on a person but on a body, graduation would be an absurdity. Sacrifice can only, be felt by a person, and the only person, therefore, who is a proper subject for graduation is the heir. If you have graduation, which I think is a reasonable and just principle, in levying the tax. then you ought to make the graduation strictly conform with the capacity of the taxpayer to pay the tax. and I suggest that the fair and equitable thing is that the heir should pay on what he receives.

The scale is admitted by the Government to be exceedingly heavy. I say it is very unjust and unreasonable that when you are levying taxes of such extreme weight you should levy them on people who do not really receive the money to the amount on which they are assessed. The case, of course, may be very hard indeed on persons who are left a comparatively small portion of a large estate, and the only answer made to that is that the testator can free a small portion by throwing the Estate Duty upon the main residuary heir, which is very unfair to him, as he is already taxed up to the hilt on the theory that he receives the whole property. If a portion is given to somebody else, it is very unfair he should be taxed on that which he does not receive. You cannot make it just in any way unless you adopt my Amendment, and then the tax is really levied on the person at the scale for the amount received by the person who pays the tax. The graduation really corresponds to the capacity of the taxpayer to pay the tax. I believe if the Government accepted the Amendment they would lose a great deal of revenue but gain credit for a great deal of justice.

Brigadier-General CROFT

I should like to give one instance in order to try to bring this matter home. I am perfectly certain that some day the hon. Gentleman who interrupted me just Low will like to see this principle of Death Duties extended to property of all kinds. Supposing by his wisdom and thrift he manages to save, let us say. £500 during his life. I think he must see at once, and I think everybody must realise, that it would be far more equitable, if he had several children to whom he left that fortune, that they should only be taxed according to the amount of money which each was left rather than under the present system. Clearly, if a man, the only child, inherits a fortune, there is far less reason why he should be permitted to retain the whole, once you admit the principle of Death Duties, than in the case of many children. I hope the hon. Gentleman has been instructed by the Chancellor of the Exchequer to accept this Amendment, because it seems to be eminently fair and wise, and one which would very largely meet many of the hard cases which I indicated on the last Amendment

Mr. BALDWIN

I do not think I need detain the House many minutes on this Amendment. I will try to put before the House what my own views are on this subject. I am not a trained lawyer, and I may not be precise in my definition. I am not a dialectician; perhaps my arguments will be futile. After all, these are Death Duties, and the principle of Death Duties that has been accepted since their inception has been the principle of aggregation. My Noble Friend wishes to convert the Death Duties into acquisition duties to be paid by the living on such a scale as may be graduated according to the income of the living person. The fact is that in Death Duties—I will put it in my own plain language—we are really taxing the corpse. It is the last service the deceased man pays to his country to have taken from the estate he has saved up in his life whatever the Government of his country thinks that estate ought to contribute, and what is left is divided amongst those who inherit.

Lord H. CECIL

How can a corpse bear a sacrifice; and, if so, what becomes of the principle of graduation 1

Mr. BALDWIN

That is vicarious, I admit I do not think my contention. is wrong, that all those who inherit are in a very fortunate position, and, as far as the practical part of this question goes, I am sure my Noble Friend, and my hon. and gallant Friend who seconded the Amendment would not expect, even if such a change were thought desirable, and were sanctioned by the House, that practicable effect could be given to it at the present stage of our proceedings. It is impossible, I admit, to make even the roughest estimate of what the loss to the Exchequer would be of assessing on any other principle than that of aggregation; but I do not think it would be an unfair assumption that half the Death Duties would disappear, and if half the Death Duties disappeared, or anything like that, the problem would immediately arise, From what source would that enormous amount of income to the country be made good? The matter really is a very simple one of principle between us. This principle of aggregation was part of the original form of the Death Duties. An inquiry was held twenty years ago by a very strong Committee, consisting of Lord Haldane, Lord Finlay, Sir Henry Primrose and the right hon. Member for Chelmsford. They were to investigate the incidence, and see if they could suggest any means by which, without surrendering the principle of aggregation, they might lighten the incidence, and they found themselves unable to make any practical suggestions to that end which would have made the incidence lighter to the beneficiaries. In those circumstances, my instructions are not to accept this Amendment, and, with very great regret, I must decline to agree to the Amendment.

Lord H. CECIL

I will not put the House to further trouble in respect to this Amendment. I desired to point out how unjust the Death Duties really are, and, if possible, to induce the Government to appoint a Committee to inquire into them, and see whether they really ought to be an important part of our system of accumulating revenue as they now are; and, if so, whether the methods could not be improved upon.

Amendment, by leave, withdrawn.