§ Sir John Mellor (Sutton Coldfield)
I beg to move, in line 5, at the end, to add:but this provision shall not apply in the ease of any gifts made before the said date.Under the recent law, a gift must have been made more than three years before the death of the donor in order to escape Estate Duty. Under this Resolution, the gift would have to be made more than five years before the death of the donor in order to escape Estate Duty. While I deplore the increase in this period, if this period is to be extended by effect being given to this Resolution, I do not think it ought to be permitted to operate in any sense retrospectively. The Resolution relates to persons dying on or after 10th April this year, but, nonetheless, it will affect gifts which have been made in the past. The purpose of my Amendment is to exclude from its operation gifts made before the date of the recent Budget. I think that it would inflict injustice if such gifts were not excluded.
May I give an example of the kind of thing I have in mind? Supposing that four years ago a man made a gift to a relative, he was quite entitled to assume during the past year that that gift would not be assessed to Estate Duty. During that time, when he quite reasonably acted under that assumption, he may well have made other dispositions of property. In the event of his death during the next year the gift which I have mentioned would become assessable for Estate Duty, and that might upset, to a very large measure, the computations upon which he had based his various dispositions. That is only one example. To take the broad view, I submit that if the law is to be changed in this way, although I deplore it, then it should not have any retrospective effect.
§ Mr. Hollis (Devizes)
I beg to second the Amendment.
2824 The point is a small but clear and important one. The general principle about retrospective legislation is that all Governments have at times indulged in it, both in financial and other matters, but it is in itself highly undesirable, and only to be justified if there is some absolutely overriding necessity to compel it, a necessity which does not seem here to be at all present. My hon. Friend has made quite clear what is the difficulty with which people will be faced if this Amendment is rejected. It is that supposing that Mr. Gold had made a gift of money to Mr. Flake in December, 1942, he would, as he was entitled to do under the law, have waited in a condition of ill-concealed anxiety until December, 1945, and if, when that time came, he had found Mr. Flake still in vigorous and offensive health, he would have then been entitled to think that Estate Duty would not be charged. Now, so long as Mr. Flake survives until 10th April, 1946, he has to wait another two years in this state of anxiety. That is the inconvenience.
Let me put it quite seriously in the form in which this inconvenience will be felt. When' I was at Oxford I derived great profit from reading a work about public finance by the Chancellor. I learned from it many things to my advantage. One thing which I had previously not known, and which I have since discovered to be true, was contained in an ingenious argument in which the Chancellor maintained that Estate Duties, in fact, as the world now is, are not taxes on capital to nearly so great an extent as is commonly imagined. The reason they are not, according to his argument, is that people to such a large extent insure against them, and, therefore, they are substantially paid by the insurance companies, and the Chancellor thinks that an admirable plan. Apparently he thinks it is bad citizenship to hedge against the price of cotton but that it is good citizenship to hedge against the death of one's great aunt. These insurance policies, in the case of Mr. Gold, would be taken on Mr. Flake's life to December, 1945, and would, therefore, have run out. But supposing Mr. Flake should be so inconsiderate as to die between 10th April, 1946, and December, 1947, Estate Duty would have to be paid, and there would be no insurance 2825 to help to pay it. That is a practical and perfectly clear point.
This could only be justified if one took the line that giftsinter vivos were as a general rule either immoral or undesirable and were, in fact, either a ramp or a racket. I think nobody could seriously take that line again, least of all the Chancellor, for another most ingenious argument which I learned from the Chancellor was in the same book. The Chancellor is arguing that equality of income is a desirable thing and makes the highly original and ingenious point, quite clearly true when one thinks of it, but not one I have come across in the works of any other economist. It is that inequalities of income are not merely between class and class and profession and profession but one of the greatest inequalities of society is the inequality of income between the old and the young. In his book the Chancellor says:The heavy inheritance tax further tends slightly to reduce the inequality of incomes by stimulating giftsinter vivos from the old to the young.Therefore, so far from gifts being discouraged, they are things to be encouraged. It is quite true he puts his point and raises the question in the cautious language in which it is proper to raise a question to which no one knows the answer. But it is his conclusion that on the whole they tend towards the greater equalisation of income. Therefore, for that further reason I would commend my hon. Friend's Amendment to the Chancellor's attention. In this book there are other observations with which I myself could not agree quite so wholeheartedly as those to which I have referred. It seems to me he makes some rather unqualifiedly harsh judgments on the whole system of inheritances which makes me the more filled with admiration and delight to find that he has, in spite of these judgments, been the first Chancellor to propose a diminution and extension in some cases of Estate Duty. It is a wonderful conversion. There has been no conversion so wonderful since the time of St. Paul—though I am bound to say, in the case of the right hon. Gentleman, he got to Damascus first, and was converted afterwards. He found that the more convenient arrangement. Nevertheless, I would appeal to him to support my hon. 2826 Friend's Amendment. I appeal to the Chancellor to base his Budget in this respect, at any rate, upon the financial principles of Professor Dalton.
§ Mr. Donovan (Leicester, East)
I wish to make one or two comments on the two speeches to which we have just listened. Surely, the word "retrospective" is being misunderstood. "Retrospective imposition of the tax" I understand to mean that somebody, who is living tomorrow, will be liable to Estate Duty tomorrow, because we pass this Resolution. We are not saying anyone who is living tomorrow shall be deemed to be dead. The second point is that the hon. Member for Sutton Coldfield (Sir J. Mellor) gave us the instance of the testator who may have made his gift four years ago, who for the last year has considered that gift would be immune from Estate Duty when he died. Tomorrow, he will find that something has happened to upset everything that he has done in regard to this disposition of his estate in his will. The implication, of course, is that his estate will have to bear the Estate Duty, but that is not so. There may be cases of aggregation, but nobody can say what the effect will be. Actually, this Amendment will not affect testators, because they have never had to pay the duty. One donee is liable.
§ The Solicitor-General
We, on this side of the House, listened very carefully to the two very impressive speeches in which this Amendment was moved and seconded, and also to the speech of my hon. Friend on this side. We shall consider these arguments on the Committee stage of the Finance Bill. What the hon. Member for Sutton Coldfield (Sir J. Mellor) is really proposing is that the five-year period, if I may so describe it—the five years that have got to elapse between the gift and death in order to relieve the gift of Estate Duty—should run as from the date which he mentioned in his Amendment that is to say, the five years, as it were, should start from now. In support of that argument, he quoted an example which is really not in consonance with his own proposition, because he quoted the example of the covenant of four years ago. We feel that no case has been made out, or can be made out, for saying that the five years should run from now into the future, which would be the case if the Resolution only applied to gifts 2827 as made from now on. What we shall consider while drafting the Finance Bill is whether we can make any concession in regard to the sort of things that have been instanced in regard to gifts made four years ago. I make it clear that we do not give any sort of undertaking in that connection, but we will consider it and will bear in mind the arguments which the hon. Member has adduced, and, upon that assurance, I would invite him, with the leave of the House, to withdraw his Amendment.
§ Colonel Ropner (Barkston Ash)
I think it is difficult to argue this matter from individual cases. Quite obviously, one cannot say that a man who made a gift three or four years ago is going to die during the next four years; equally obviously, there are going to be cases of hardship in that men who are still living today, will die. I think the Chancellor will do well to give rather wider consideration to the matter than the Solicitor-General has indicated, as this matter cannot be argued from individual cases, and I think the suggestions made by my hon. Friend should receive consideration between now and the next stage.
§ Mr. Peake
My hon. Friend moved his Amendment extremely well, and the House was much impressed by the two speeches made in support, but, on the terms of the Resolution, what the Government propose to do here compares very unfavourably with what they are doing on the Resolution which we have recently been discussing dealing with seven-year covenants. Under the seven-year covenant Resolution, all arrangements made previous to the date of the Budget will stand. Under this Resolution, as drawn, arrangements entered into as long as nearly five years ago may be upset, unless some Amendment is made.
I draw the attention of the Chancellor and of the Solicitor-General to the terms of the Finance Act, 1909. In the year 1909, the period for giftsinter vivos, which had been fixed at one year when Estate Duty was instituted in 1894, was extended to three years, but a Subsection was put into the Finance Bill saying that this extension should not apply to gifts made before 30th April, 1908. That is to say, all gifts made more than one year before the date of the Budget of that year were liable to Estate Duty. I, there- 2828 fore, suggest to the Chancellor that, on the Committee stage of the Finance Bill, he should accept an Amendment which will protect arrangements entered into more than three years before the date of the current Budget. There is a precise precedent for doing tins in the Finance Act of 1909, and I hope the Chancellor will see his way to give us an assurance that that precedent will be followed.
§ Mr. Dalton
We shall have a look at it.
§ Sir J. Mellor
In view of what the Solicitor-General has said, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
§ Mr. Keeling (Twickenham)
When he introduced this proposal, the Chancellor did not say one single word in explanation of the reason for it. Perhaps the reason in the case of giftsinter vivos to private persons is obvious, but it is not obvious why the Chancellor should propose to extend the period in the case of gifts to a charity from one year to two. The reason for having a period at all is, no doubt, to 'prevent death-bed transfers to a charity from being free of death duties. But after all, one does not normally lie on one's death bed for over a year, and I cannot see why this period should be increased in the case of charities from one to two years. The reason for having a shorter period for charities than for individuals is, surely, to encourage transfers to charities, but the result of increasing the period from one year to two will be to discourage such transfers to charities. Is that the object of the Chancellor, and, if not, what is the object?
§ The Solicitor-General
It is felt that it would be in consonance with the provision which extends the three years into five in the case of individuals, and would be in accord with that and with the extra revenue which that would produce, to prolong the period in the case of charities analagous to that. The object is really to prevent gifts made shortly before death from depriving the Revenue of income which it should enjoy.
§ Mr. Keeling
Is not that sufficiently covered by the existing period of one year?
§ The Solicitor-General
It is a question of degree. It has differed from time to time, and the feeling of the Government is that the periods which have hitherto obtained, of three and one years, respectively, are inadequate and result in the Exchequer losing a certain amount of revenue from Estate Duty. The reason, therefore, is one of degree. One has to try and assess what is the proper period, having regard to all the circumstances, to fix as the time beyond which gifts made shall not escape Estate Duty in the event of the testator dying within the allotted period. It is for that reason that it was thought that the two periods, not only the one, should be prolonged, and an appropriate addition was made in the case of trusts, having regard to the increase in the length of time which was decided upon in the case of gifts to individuals.
§ Mr. Assheton
The Solicitor-General seems to be furnished with the weakest brief I have ever known. When it comes to the Finance Bill, we should like to pursue this matter of the charities. I am not referring to the earlier part of the discussion, on which I understand the right hon. Gentleman has made a concession.