HC Deb 28 June 1938 vol 337 cc1835-43

(1) For the purpose of facilitating the prepayment of Estate Duty during the lifetime of the taxpayer the Treasury may issue to any person owning an estate on which Estate Duty is payable on his death, a certificate bearing interest at a rate not exceeding 3 per cent. per annum, in accordance with regulations made under this Section by the Treasury, on payment by such person of the amount specified in the certificate and, on the death of such person, surrender of the certificate to the Treasury shall be accepted as satisfaction of the Estate Duty payable on the estate to the extent of the amount specified in the certificate, plus the interest accruing thereon. Hereafter in this Section such certificate is referred to as an Estate Duty prepayment certificate, and such interest is referred to as accrued interest.

(2) Estate Duty prepayment certificates shall be issued in denominations of ten pounds, fifty pounds, one hundred pounds, and one thousand pounds, respectively, which certificates shall be registered and non-transferable: and the owner of an estate may obtain, on due payment, one or more Estate Duty prepayment certificates.

(3) The accrued interest shall not be assessable to Income Tax or Surtax.

(4) Estate Duty prepayment certificates may be redeemed at any time, after three months' notice, but no accrued interest shall be payable by the Treasury on their redemption.

(5) The amounts specified in the Estate Duty prepayment certificates held at the date of death, shall be included in the Estate Duty account along with the remainder of the estate of the deceased person, but the accrued interest shall not be included, and shall be free of all death duties.

(6) In any case in which the amounts specified in the Estate Duty prepayment certificates surrendered under this Section in satisfaction of Estate Duty exceed in the aggregate the amount of Estate Duty payable and any interest due thereon, the excess shall, on the application of the legal representative of the person on whose death the Estate Duty became payable, be repaid to such representative, but there shall be no payment on account of accrued interest.

(7) The Treasury may make regulations under this Section providing for the issue and registration of Estate Duty prepayment certificates for their redemption, for their acceptance on surrender in satisfaction of Estate Duty, and for other matters connected therewith.

(8) Every regulation made under this Section shall be laid before both Houses of Parliament as soon as may be after it is made, and shall have effect as if enacted in this Act: Provided that if an address is presented to His Majesty by either House within the next subsequent twenty-one days on which that House has sat next after the regulation is laid before it, praying that the regulation may be annulled, His Majesty may by Order in Council annul the regulation, but without prejudice to the validity of anything previously done thereunder.—[Sir I. Albery.]

Brought up, and read the First time.

9.42 p.m.

Sir I. Albery

I beg to move, "That the Clause be read a Second time."

This Clause follows on some remarks which I made during the Budget Debates. Taxation has reached a very high level in this country, and it seems to me that it is about time that in some directions we made it easier for the taxpayer to pay. This Clause has certain merits which should appeal to the Chancellor. It is not likely in any way to unbalance his Budget; on the contrary, it appears to me that he would, in all probability, receive a very considerable contribution over the next year or two, when conditions might well be a little difficult. That is one reason why it ought to appeal to the Chancellor. Another reason is that, so far as I can see, he is unlikely to be called upon to repay these sums. It is true that what he has received in prepayment of Estate Duty will not subsequently be due when the taxpayer dies and the duty on his estate has to be paid. On the other hand, the Chancellor will continue to receive prepayments which will more than compensate him for anything he will lose in that respect. So, from the point of view of the Chancellor, it appears to me to be a complete gain.

I should also like to look at it from the point of view of the general community. It is a well known fact that during the period of depression through which this country recently passed very great inconvenience and a good deal of dislocation was caused owing to the fact that estates had to pay heavy Estate Duty and had to be liquidated at a time when there was no market which could readily absorb the securities which had to be sold. In that respect I believe the acceptance of this Clause would present very great advantages. If the taxpayer is able, in a time of comparative prosperity, when quotations in the City are high, to sell a portion of his securities with a view to making arrangements for the eventual payment of Estate Duty, and put them into the kind of certificates suggested in this Clause, he will have conferred upon himself a considerable advantage—[An HON. MEMBER: "Hear, hear."] I will deal with that point in a moment—and he will have conferred upon the State some advantage, because he will have liquidated his estate when it could easily be liquidated, but without causing inconvenience and dislocation, instead of being compelled to liquidate it at an inconvenient moment.

Just now an hon. Member opposite said "Hear, hear," when I talked about some advantage to the taxpayer himself. I wish to explain that this Clause is not put forward with the primary object either of reducing tax liability or of making the actual tax payments of a taxpayer less. It is put forward in quite a different spirit. It is put forward because I believe it will assist the finances of the country. As regards the provision which I have put in the Clause, admittedly advantageous to the taxpayer, in the shape of interest which will accrue upon his prepayment of Estate Duty, free of tax, and not ultimately to be calculated for duty, I have put in what I believe will be a suggestion sufficiently attractive to induce a considerable amount of prepayment of Estate Duty, but I am not in any way tied to those conditions. If the Chancellor of the Exchequer believes that less favourable conditions would achieve the same object, I have nothing against it. Something had to be put in, and I put in what, in my judgment, was an advantage to the taxpayer, which would result in large amounts of prepayment, and a corresponding advantage to the Chancellor, and I believe also to the general community; but if it be the opinion of this Committee and of the Chancellor that some advantage less large, some lower rate of interest, would achieve the same object, I would not only willingly agree with that, but I should be equally glad. I only desired to put forward a Clause in a form in which it might be workable. It would be useless to propose a Clause of this kind, trying to induce the taxpayer to save money, to liquidate it at a time when it would be advantageous to the community, and to pay it over to the Chancellor, unless you could provide a sufficient inducement to make him do it. Therefore, it is a question of judgment and opinion, and it does not, in my view, remain a matter of any material importance in considering this Clause.

9.50 p.m.

Mr. Maitland

My hon. Friends and myself seem to have been particularly unfortunate in the Amendments which we have previously submitted, and I hope we may meet with better fortune on this occasion. May I say to hon. Members above the gangway who may be suspicious that this is not an attempt to evade taxation? If they will look at the marginal note, they will find that it deals with prepayment of Estate Duty, payment before the time when it would normally become payable. I think that, particularly in these days of very heavy taxation, it is a fundamental duty on the part of the Chancellor of the Exchequer to do whatever he can to ease the method of payment by which individual taxpayers have to meet their obligations to the State. I suppose that in any new tax which is proposed one of the conditions which appeals to a Chancellor in considering it is the ease with which it may be collected. This Clause in no way whatever deals with the question of liability for tax, but it does deal with a matter which is as important to the Chancellor of the Exchequer as it is to the taxpayer; it attempts to provide some means by which taxpayers may be enabled to meet their very heavy liabilities.

I am not suggesting that there should be any departure from the well-established principle, which is acknowledged on all sides, that of course the richest citizen must pay the highest tax. There can be no question on any side of the Committee but that it is the wealthy taxpayer who must pay the largest share of the nation's taxation, but that does not do away with the responsibility of this Committee to do whatever is possible to enable the most wealthy taxpayer to meet his obligations with the minimum of inconvenience to himself, and although this suggestion may appear to be novel, I hope it will not be refused on that ground. In these days, when taxation is so very heavy and when large taxpayers have to pay so much to the national revenue, every possible consideration should be given to the individual taxpayers in assisting to meet the very heavy demands which the State makes upon them. Therefore, I trust that this Clause will be considered from that point of view, and from that point of view alone. Its purpose is not to enable a taxpayer to get some benefit out of the Treasury, but to enable him so to make his arrangements that he may have the opportunity of making prepayments to the Treasury in such a way as will cause a minimum of inconvenience to his estate at the time when he has to leave this troubled world.

9.55 P.m.

The Attorney-General (Sir Donald Somervell)

My hon. Friend who moved the Clause, particularly, and my hon. Friend who supported it suggested that it might appeal to my right hon. Friend the Chancellor of the Exchequer. There are reasons which I shall put before the Committee, which, I think, will make the Committee see that there are also other reasons why my right hon. Friend would not like to see this proposition accepted. The Clause in essence is that a man may deposit a sum, for which he will receive a certificate bearing interest at a rate not exceeding 3 per cent. to be used for the discharge of Estate Duty. No Income Tax or Surtax will be paid by him on that accruing interest, and the accrued interest, when he dies, will not be subject to Estate Duty. It is in respect of large estates that what are called windfalls come to the Exchequer of this country particularly in the form of Estate Duty. It is worth while working out exactly how this particular provision would work.

I will take two examples. Take the case of a man who is able in good times to set money aside under the existing law so that there may be a sum to satisfy Estate Duty when he passes away and his children succeed to the property. Let me consider the ordinary case of the man who takes advantage of this scheme and the case of a man who has an income of £50,000 a year. It is in connection with these very large estates that Estate Duty is highest, and, therefore, it is those people who would be particularly exempted under the scheme of my hon. Friends. A man who has an income of £50,000 a year pays something like 135. in the £ Income Tax and Surtax. If you give him, for the purposes of the accumulation and payment of Death Duties, interest of 3 per cent. you will be giving him a rate equivalent to over 9 per cent. It is perfectly clear that he cannot spend it, but this is how it will affect the Revenue. By investing in one of these certificates he would get over 9 per cent. for the money he put down for the purpose of discharging liability for Estate Duty. It does not rest there, because the accrued interest, when he died, would not be liable to Estate Duty. That would be another 5o0 per cent. advantage which he would get over the man, who, under the law as it is to-day, may be doing exactly the same thing.

A provision of this kind would be extremely attractive if you had the good fortune to own large assets, but it would, in fact, be a very serious drain on the Revenue. When one talks about drains on the Revenue, as has been said more than once in the Debates in the course of the Committee stage, one wants always to realise that ultimately what one class of taxpayer saves will have to be collected from another class of taxpayer. This scheme would, I think, be taken advantage of on the whole by those who own large estates and consequently would be liable to high Estate Duty when they passed away, and that would necessarily mean so much less money coming into the Exchequer from such estates. That would be a loss that would have to be made up from other sources.

Mr. Maitland

My right hon. and learned Friend has taken the extreme case. How would this scheme work out in the case of a man with £5,000 or £10,000 who had a business which he was anxious to consider, and who desired to avail himself of a provision of this kind?

The Attorney-General

I could take many examples. In the case of those whose income amounts to iio£10,000 or £15,000, the Income Tax and Surtax would be at the rate of Hs. in the £. That is an all-over rate. Under this scheme you would be allowing such a person 3 per cent. free of Income Tax and Surtax. Under the present system he would receive from securities a gross sum of something like t£7, would pay us. Income Tax and Surtax, and would have £3 left. The reason, therefore, that my right hon. Friend cannot accept a Clause on these lines is that it would mean—though I appreciate that that is not the motive that those with large estates taking advantage of the scheme would pay very much less taxation, Income Tax, Surtax and Death Duties, than they would otherwise pay. There are certain advantages to the State in regard to people who will have to pay large sums as Death Duties making provision in good times so that they do not have to realise value, but there is nothing to prevent that under the existing law. Assume that a man with a certain fortune says "I want to provide that when I die, after paying all duties, my wife and family shall have V(£X net." There is nothing to prevent him so arranging his life so that year by year he could put aside, in War Loan or whatever it may be, such sum as was necessary. The proposed new Clause would give a preferential advantage to certain people, and it cannot be justified. Therefore, I would ask the Committee not to accept it.

10.5 p.m.

Sir I. Albery

In this case, also, I regret that I am unable to withdraw the proposed new Clause, because in so doing I should be admitting that the arguments advanced against it are convincing, and that is not in any sense my view. I stated carefully that the question of the rate of interest or the advantage that the taxpayer would get does not enter into the argument. I had to put down some figure. The right hon. and learned Gentleman in his reply has taken that figure, and no doubt statistics have been prepared for him on which he has spoken about a 9 per cent. advantage. I am unable to understand the calculation, but I do not stress the point, because it has no bearing on the matter. If that is the rate, then let it be reduced accordingly. The only object that I have in view is to achieve an advantage which, as I stated in moving the Clause, would give to the taxpayer simply a sufficient advantage to make him enter into the scheme. It is obvious that he is not going to prepay his tax if he does not get anything for doing it. I am sure that when the right hon. and learned Gentleman goes to his tailor if he pays cash he gets some advantage which is not obtained by the gentleman who does not pay cash. That is the ordinary commercial practice, and even Governments cannot get away from it. Even the Chancellor of the Exchequer cannot raise money without taking into account the time of payment and the rate of interest. Therefore, it is obvious that any taxpayer who is prepared to pay his tax in advance should get some advantage out of it.

The only argument of the right hon. and learned Gentleman that could be accepted would be if he had satisfactorily refuted what I said about the scheme and he showed that the advantages which I claimed for it would not exist, and if he also showed that inconveniences do not arise from time to time when Death Duty has to be paid on large estates in times of depression. If those statements were wrong, he would have had some justification for refusing the Clause, but, so far as I know, not one of those arguments that I put forward has been refuted. The whole substance of the right hon. Gentleman's argument has been a purely mathematical one. He says that the terms would give some advantage to the taxpayer who pays his tax before it is due. Does he think that any taxpayer is likely to pay his tax before it is due, unless the State gives him some advantage for doing it? I say that the matter is worthy of consideration. I never expected that the Clause would be accepted. We go very slow. The Chancellor of the Exchequer is a cautious man, but I submit that the question is worth reconsideration.

There is one last thing that I would say. What is the alternative that the taxpayer has at the present time? He usually has to take out insurance policies. Why should the taxpayer not settle his in- debtedness to the State on an ordinary commercial basis, with discount for cash? Why should he have to go to a third party and pay them a large profit in order to enable him to settle his indebtedness to the State? All that I am suggesting—and it ought to commend itself to hon. Members opposite—is to cut out the middleman and to allow the taxpayer to deal direct with the State, on a businesslike basis, instead of driving him to an insurance corporation, and making him pay them large profits for doing it. In the circumstances, I regret that I cannot withdraw the Clause.

Question, "That the Clause be read a Second time," put, and negatived.