§ Amendments made: in page 29, line 3, leave out from "who" to "is" in line 5.
In line 7, leave out "so defined)" and insert:
defined in section twenty of this Act)".—[Mr. H. Brooke.]
§ Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.
§ Mr. E. C. Redhead (Walthamstow, West)
I intervene on this Clause only to draw renewed attention to what we on this side of the Committee, and, I think, some hon. Members on the other side, feel to be a continuing defect in the Clause. It is regrettable that the Chancellor has not found it possible to seize the opportunity of the concession provided in this Clause for an encouragement and incentive to the wider adoption of the principle of transferability or inter-availability of pension schemes. Some of my right hon. and hon. Friends tabled an Amendment designed to give effect to that view, but it has not been called, and it would not, therefore, be 270 proper for me to discuss that Amendment in detail.
I want to recall attention to what we regard as a lost opportunity in making this concession—a not inconsiderable concession and one which might well have been accompanied by a condition that, if not completely comprehensive—and I freely admit that the Amendment that was tabled would not have covered the whole field—would have been an incentive for the development of what is an increasingly urgent necessity in respect of pension schemes.
It is common ground that there has been a considerable extension of occupational pensions schemes. The Phillips Report refers to the fact that about one-third of the working population is now covered by such schemes. That being the case, it is obvious that schemes of that character are welcome to the individual as offering a greater measure of security. Similarly, they are advantageous to individual employers, for one can appreciate their desire, particularly in the skilled trades and in times of difficulty, to retain their skilled workers and seek to bind them to their employers by the 271 attractions of a pension scheme. But, when these pension schemes become rivetted and accepted as part and parcel of the hidden remuneration attached to the job, it becomes increasingly difficult to give effect to the real need for the mobility of labour, which is so constantly stressed today.
The provision, similarly, acts as a deterrent to the venturesome spirit who seeks to depart from one field of employment to another, making fuller use of his opportunities and talents for advancement elsewhere, and a deterrent to the occupational pension scheme, in the absence of any aspect of transferability, becomes increasingly imperative in the mind of the worker or professional man as he gets older. The result is that industry as a whole loses by reason of the rigid isolated pension scheme, however important and valuable it may be.
Tremendous emphasis is put today on the necessity for the mobility of labour, and I would emphasise that that aspect is no less important in the field of occupational pensions schemes than it is elsewhere. Indeed, if these schemes are rigid, isolated and without the feature of transferability, there are some large problems looming up in the shape of recruitment to the new industries, which will find themselves in increasing difficulties because of the difficulty of obtaining the requisite people.
The Phillips Committee expressed this danger and this need—and I quote from paragraph 247—in these words:… under present day conditions the national interest in its widest sense requires industry to respond rapidly to changes in demand and technological advances. The readjustment of manpower which will be entailed ought not to be impeded by any artificial restrictions arising out of pension arrangements. If the economy as well as the individual is to benefit from the free circulation of ideas and talent, it is particularly important that the technical and administrative staff in the higher posts should be able to change their employment without undue difficulty.That is the essence of its general review of this problem, and I imagine that few of us would wish to quarrel with that judgment of the Phillips Committee. The principle is one which has been commented upon by the National Advisory Committee on the employment of older men and women, which emphasised that it was one of tremendous importance and one that merited full examination.
272 The Phillips Committee went a little further in paragraph 318 of its Report, in which it said:The mobility of labour which is desirable if the economy is to remain progressive ought not to be restricted by the existence of occupational pension schemes. Many schemes already allow the retention of pension rights on a change of employment by granting a transfer value or a 'cold storage' pension. In our view, the time has not yet been reached when provision on these lines could properly be made a condition for tax relief;The argument that was the justification for that latter opinion, unfortunately, has not been susceptible to debate in this House, inasmuch as we have not had the opportunity to discuss the Report of the Phillips Committee. Indeed, I think there are arguments for it.
The important thing that I want to bring to notice is the emphasis the Phillips Committee gave to the importance of this principle. There has been a very considerable acceptance of the principle of the desirability of the inter-availability of pensions scheme by the Government themselves in the public services, and what seems to be good and proper in the area of the public services is, I believe, no less urgent and important in the field of industry. If anything can be done to encourage the adoption of this principle on a wider basis, that opportunity ought to be seized, and we can only regret that opportunity was not taken in granting this concession to make it a condition that there should be an acceptance of this obligation.
I would draw the attention of the Chancellor to the fact that he need have no apprehensions on the workers' side about the extension of this principle, for there is a considerable body of support among the trade unions for its wider application, which was approved by the Non-Manual Workers Committee of the Trade Union Congress.
The National Federation of Professional Workers, covering more than half a million black-coated workers, has repeatedly advocated it and made urgent representation for its expansion. So far, with private employers, it is largely a question of voluntary acceptance of the principle. If it is so imperative, as some of us believe, then it seems a pity to lose the opportunity of putting a little statutory encouragement, as could have 273 been done, in this Clause. I realise that there are difficulties attached to this principle, because of the various characters of the pension schemes, some contributory, some non-contributory, but I believe that if the inducement is there—and the inducement could have been provided in the Clause—many of those difficulties will be found to be by no means insuperable.
If the Chancellor's hesitation to meet the arguments advanced is for the same reason that the Phillips Committee refrained from making more positive proposals than it did, namely, a lack of comprehensive information about the present basis of the various schemes of occupational pensions, I urge the Government to take the opportunity, with their very much wider resources, of undertaking an examination to secure the requisite information, for, whatever be done in relation to the Finance Bill, it still remains an important issue which the Government ought to be tackling and expressing in a wider context.
If, in the course of that examination, the Chancellor feels that there are difficulties about it, as I freely acknowledge, I suggest that he direct his attention to the United States of America, Canada, Norway, Sweden, Holland, Belgium, and Denmark who, in this respect, I am advised, are well ahead of us in having met these difficulties and made provisions whereby the transferability principle is encouraged by statutory measures. I hope that the Government will think again about this broad principle, even though they have not found it possible, on this occasion, to give expression and encouragement to it in this Clause.
I want, briefly, to say how glad I am that we have support for this principle from my hon. Friend the Member for Walthamstow, West (Mr. Redhead), who has had very great experience in these matters. I am very anxious that this evening we should have at least a slightly more positive reply from the right hon. Gentleman than we had when we discussed this matter earlier. After all, on at least two subjects of major importance the Chancellor has said that although he was not able to act this year he would do so in the near future. He positively gave a date for pioneer industries and he also gave a pledge about 274 Entertainments Duty in more general, but nevertheless specific, terms.
When we previously discussed the matter, the Financial Secretary gave an undertaking in very much vaguer terms. He said there was to be a review, but he did not say, as I hope he will say this evening, that this principle will be an important part of that review and that it will be carried out, partly at least, with the intention of seeing, as my hon. Friend has suggested, how this principle can most effectively be put into practice. I hope that the right hon. Gentleman will be more specific about what is an extremely important principle and one which will become more and more important with the extension of private pensions schemes.
The issue would be of much less consequence if these schemes were to be found only among a few benevolent firms, but their number is increasing very rapidly, as Professor Titmuss pointed out, largely because of tax concessions, and they are increasing in scope largely because, in general, the taxpaying body is contributing so much for the persons who participate in the scheme. It is a matter of justice that where such schemes are being supported out of public funds through these tax remissions we should most seriously apply ourselves to this very important principle which we have already discussed. I hope that we shall get the kind of answer from the right hon. Gentleman for which I have asked.
§ Mr. Gordon Walker
I should like very strongly to support the case put by my hon. Friend the Member for Walthamstow, West (Mr. Redhead) and my hon. Friend the Member for Flint, East (Mrs. White), although I do not want to add to their argument, but to raise another matter. We have to face the question which they raised, or we will have a tied economy with people tied to their jobs in the way that serfs used to be tied to the land, and, of course, that is the last thing we want. We want a mobile and flexible economy.
The issue which I want to put before the right hon Gentleman replies to my hon. Friends—I hope favourably—has worried me since we last discussed this subject. I am thinking in particular of subsection 7 (b), which admits schemes under the Finance Act, 1921, and which allows them to be handled by insurance 275 companies and the insurance companies to have a tax-free build-up. When the Bill was first before us, my right hon. and hon. Friends and I supported this provision. It seemed quite sensible. Of course, it was a considerable concession to insurance companies.
Insurance companies will handle a great deal of business which they were not handling before, but that seemed all right because the 1921 Act schemes—the Section 379 schemes as they are called—did not have a tax-free lump sum. Therefore, it seemed to us sensible and to everybody's convenience to include them, but it is now beginning to enter my mind that maybe under these schemes which we admit in this Clause, allowing insurance companies to handle and get all the benefits of tax-free build-up, we do not exclude tax-free lump sums as much as I originally thought.
As the right hon Gentleman knows, the insurance companies have been bringing a good deal of pressure to bear on the ground that Section 386 schemes should be brought within the ambit of the Clause as well, because otherwise there would be a massive switch from one to the other. In the course of arguing for that case they are giving me some alarm—and, I hope, giving the right hon. Gentleman some alarm, because he must have come across the arguments which they are deploying. Their argument is that it is silly to keep out Section 386 schemes on the ground that they will allow tax-free lump sums, because, if one is sufficiently skilful, one can have tax-free lump sums with Section 379 schemes. If that is the case, we are admitting tax-free lump sums which are meant to be excluded from the Clause.
Well-informed insurance companies dealing with this say that a number of such funds—that is funds which we are admitting in this Clause, 1921 Act funds, for instance—can and do pay lump sums which are tax free if they are skilfully managed and if there is what is called "tax manoeuvre". I believe—at any rate these people ought to know, and they say so in support of their case—that it is possible for the trustees of these funds which we are admitting under this Clause to reinsure their funds with insurance companies, and for the insurance companies then to pay those pensions tax 276 free, but set them off against their own annuity funds. In other words, both the insurance companies and the funds themselves gain at the general taxpayers' expense.
If it is true that by tax manoeuvre or manipulation it is possible to pay tax-free lump sums under either Section 379 or Section 388 schemes, we are very much more doubtful about the merits of subsection (7, b) than we were in Committee. I hope that the right hon. Gentleman can assure us that the arguments deployed by some insurance companies in support of their case are false, because if they are true the situation is extremely alarming. It means that by admitting section 379 schemes we are creating a yawning gap, which should attract the appetite of the right hon. Gentleman. Everyone will support him in any endeavour he may make to stop up that gap, if it does exist.
I hope that he can assure me that these insurance companies' arguments, with which he must be familiar—I am sure that these companies have been to him—are not true, or that, if they are true, he will do something about the question either now or in the next Finance Bill.
Major W. Hicks Beach (Cheltenham)
I apologise to the right hon. Member for Smethwick (Mr. Gordon Walker) for not being here when he made his speech. I had an engagement elsewhere.
I should declare my interest in this matter. I am a director of an insurance company. Those who are interested in the insurance business are very disappointed that the Financial Secretary has not thought fit to take more notice of the remarks we made in Committee concerning the great alarm with which we regarded the position of Section 379 and Section 388 schemes. The advice which I have received from many responsible people in the insurance world is that, if the Clause goes forward as it is now drawn, there will be a big switch over from Section 388 schemes to Section 379 schemes. In the long run, we say that the switch over will mean no tax saving for the Government and a vast amount of unnecessary work, in the re-submission of claims, for the Treasury and the insurance world.
We accept the view of the Government, which has been put forward on several occasions, that there should be no tax- 277 free build-up for a tax-free distribution by way of death benefit or any other form of benefit, upon retirement or otherwise. We accept it, but we do not agree with it, because it is contrary to the Millard Tucker recommendations.
During the Committee stage, we tried to impress upon the Government our view that Section 388 schemes should be allowed to have a tax-free build-up in relation to the annuity side of their pension schemes. That seems to us to be a reasonable suggestion. It would certainly assist a vast number of employees and others who are eligible for pensions, and I am very disappointed that the Government have not taken more cognisance of the very strong representations made to them by many insurance organisations and life offices concerned with Section 388 schemes.
In the next Finance Bill the Government will probably have to bring in an Amendment to deal with the situation. It is a great pity they have not done so in this Bill. People who have experience of the insurance business are quite certain that the Clause will be largely unworkable, will create a vast amount of work for the Revenue, and do a great deal of damage to many pension and insurance schemes which, after all, are for the benefit of employees. The Government should have given much more careful thought to what was said on this matter in Committee.
§ 7.15 p.m.
§ Mr. H. Brooke
The fact that it was necessary to make two small consequential Amendments to the Clause has opened the way to a debate which has ranged over much of the ground that we covered at about 1 a.m. on 13th June. Few new points have been raised upon this occasion. The difference is that we are now discussing the question at a very much more auspicious time of day. The hon. Member for Walthamstow, West (Mr. Redhead) took up the point which was raised on 13th June by the hon. Member for Flint, East (Mrs. White), and once more called attention to the recommendation of the Phillips Committee that provision for transfer should be made a condition of approval of superannuation funds.
I thought that I was quite definite in what I said to the hon. Lady upon that 278 previous occasion. This is not the right way to tackle the question. We are dealing here with the self-employed, and only in one small respect is it necessary to slop over, as it were, into the question of pension funds for the benefit of employees. On behalf of my right hon. Friend the Chancellor, I have said that considerable work has to be done upon that other question. Recommendations set out in black and white must be further examined, and it may well be that some clearing up of the law upon that large subject will have to be done by Parliament in some future year.
There was some question that I was not forthcoming upon the matter, or that the Government were trying to pigeonhole it. On the contrary, the Government are not overlooking its importance. I indicated—and I believe that it is common ground among Members on both sides of the Committee—that this would be the wrong place in which to tackle the question. Moreover, the Amendment put down in our earlier proceedings and again today would deal only with funds that reinsure their liabilities with life insurance companies. It would not touch other funds or pension schemes which are not operated by means of trust funds. I am sure that the prospective movers of the Amendment realise that.
If we are going to grapple with this question, it would be quite wrong to put a special condition upon one rather narrow category of pension scheme while leaving the other categories alone.
I admit the force of what the right hon. Member is saying, but may we nevertheless have from him a declaration that the Government regard transferability as desirable in itself, even though the details of working it out may take some time?
§ Mr. Brooke
There is no question whatever that provisions to assist the mobility of labour are good things in themselves but, as I said on the previous occasion, when we tackle this matter we have to bear in mind the fact that there is an alternative method, which is much more widely adopted at the present time than transferability of pension rights, namely, the cold storage pension system, by which the pension that a man has earned up to the date of his leaving a 279 certain firm, is kept in cold storage until he reaches retirement age. It is more use than the transferability provisions now being canvassed, if the employer to whom he is going has no pension scheme to which his rights could be transferred. But that is our approach to the matter. We recognise the importance of this, and I have made plain that in the future Parliament is likely to have to spend time on the law relating to pensions schemes for employees.
The right hon. Member for Smethwick (Mr. Gordon Walker) asked me about subsection (7) of the Clause, because it had come to his attention that there might be means whereby insurance companies could drive a coach and four through what Parliament thought it was doing. I can give him an absolute assurance that, so far as I am any judge of the matter, the fund approved under Section 379 cannot possibly pay lump sums. Of course, it is quite possible to have a Section 388 scheme as well, and a 388 scheme can pay a lump sum. But the Clause, as we have drafted it, will, we think, effectively safeguard against the kind of thing happening which he is envisaging. Certainly, we shall watch carefully to see that it does, but we cannot perceive loopholes through which malpractices might arise.
The right hon. Gentleman appears to be thinking of cases where the trustees of funds deliberately try to get round the intention of the law. These matters are extremely complicated, and I should be willing to discuss and examine the question further. I am ready to go so far as to say that, if any flaw is discovered here, we should be prepared on a future occasion to examine carefully whether that loophole should be closed. But we believe that the law is flawless in that respect.
My hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) referred to the substantial question, which he very properly raised during the Committee stage debates, of whether there was likely to be a large-scale switch over from the Section 388 schemes to the Section 379 schemes. There is a difference of opinion between my hon. and gallant friend and his friends and the Government on this matter. I hope that he will not press the phrase, which I think he 280 used, that the Financial Secretary appears to have taken all this very lightly. The Financial Secretary has given careful attention to this since we discussed the Clause before. I have discussed it personally with the Chancellor and with our advisers.
Major Hicks Beach
I do not suggest that the right hon. Gentleman took this lightly, but I do say that he said that all his advice has been contrary to what is thought by those people knowledgeable in matters of insurance, and I wonder whether he would tell us who have been his advisers.
§ Mr. Brooke
Not all those people knowledgeable in insurance matters share the views of my hon. and gallant Friend. We think that we have drafted the Bill rightly. The hon. and gallant Gentleman disagrees, and I understand that it will not be possible for him to move a Clause which he has put down for Report stage, because, technically, it is out of order. I can but add, as I was saying a few minutes ago, that the Government will carefully and meticulously study the law relating to pension schemes for employees. There may be changes which it will be necessary for my right hon. Friend to bring forward upon a future occasion.
I strongly suggest to those people who are thinking of changing over, or advising their clients to change over without delay from Section 388 schemes to Section 379 schemes, to bear in mind the words which I used the other day and which I use again now: that the law relating to these pension schemes is not necessarily going to remain as it is indefinitely. If they are too hasty in switching, they may find that in fact they have made a mistake against their own interests.
I cannot make any forecast. I cannot say what form any future Bill presented to this House may take. But I ask them to bear in mind that there is a greater element of uncertainty in the future state of the law on this matter than perhaps they may have realised when some people spoke with such assurance of the likelihood and indeed the great interest and great advantage to employers of switching over on a large scale.
At this stage, neither my hon. and gallant Friend nor I can prove which of us is right. Experience will show that, and one or other of us may have to climb 281 down. But I must advise him that the Chancellor does not see his way to amend this Clause further. I hope that he will let it rest that there is a genuine difference of opinion between us, each of us very sincerely holding the view that we do.
§ Mr. Frederick Gough (Horsham)
I wish to add a word to what has been said by my right hon. Friend. I have stated to this Committee before that I have an interest in this matter, as I am actively engaged in this type of business. I have also expressed my view, which is the same as that of my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach). There has been a great deal of concern in the professional insurance world about the fact that Section 388 schemes were not to receive the same benefit, but I am sure that everyone will be greatly relieved by the remarks which have just been made by my right hon. Friend.
I wish to add these few points about Section 388 schemes if it is in order to do so. There are a large number of them and most apply to small firms and to lower paid employees. It is for that reason that those responsible have been so concerned, and I can assure my right hon. Friend that up to the very moment when he made his statement it was the intention of those responsible for this business of pensions schemes to seek ways and means whereby they could have transferred the non-commutable portion of such schemes into schemes which would have received the benefits now being given. I think and hope that what my right hon. Friend has now said will at least allay the suspicion of such people, and I am sure that they will be prepared to be patient for a year or so.
I should like to add my plea to him to bear in mind that in this Section he will be dealing with a far greater number of pensions schemes than in the one with which he is now dealing, and that he will be referring to schemes which mainly provide pensions for the lower salary and wage grades in the country.
§ 7.30 p.m.
§ Mr. Mitchison
I have been listening with wonder and amazement to what has been going on. I must dissociate myself from what I regard as a rash and hazardous charge; I should think it most unlikely that the Financial Secretary ever 282 took anything lightly, certainly, I hope, not this Clause.
I feel that in this as in other respects we always benefit from the full and impressive weight of his intellect on these matters. Personally, I have not that sort of intellect, and I am a little encouraged to see that even the minority of the Millard Tucker Committee, when considering this matter, suggested a much simpler solution by increasing the relief on ordinary life insurance premiums. I do not know whether the hon. and gallant Member for Cheltenham (Major Hicks Beach) and the hon. Member for Horsham (Mr. Gough) voted against that simple solution when we made it the other night; perhaps they supported us and I did not notice them.
One of the reasons given by the minority members of the Millard Tucker Committee was thatit would avoid the enormous administrative complexities inseparable from the recommendations—those being more or less the recommendations which we are considering. They stated thatit would also obviate the risk of the extensive re-writing of existing assurance contacts which these recommendations, if adopted, might entail.
§ Mr. Gough
I think that the hon. and learned Member misses the very point I made, which is that the majority of these schemes under Section 388 deal with people in lower income groups who would not benefit from Income Tax relief on life insurance policies. I know about the "top hat" schemes, but they represent a small section, and I am going back 20 or even 30 years. In my opinion, these schemes deal largely with people in the lower income groups, about whom I am particularly concerned.
§ The Temporary Chairman (Mr. H. Hynd)
Order. This debate is going rather wide of the Clause. I hope that hon. Members will confine their remarks to what is in the Clause.
§ Mr. Mitchison
With great respect, Mr. Hynd, in this matter I am following in the footsteps of the Financial Secretary, who read his hon. Friends a rather stiff lecture about not rewriting existing assurance contracts because if they did there was always the possibility of the Treasury changing the law, and for once life insurance companies might almost make a loss 283 if they did not follow his advice. Perhaps it was not as bad as that; let me reassure the hon. Member for Horsham that the companies will probably struggle through, as they usually do.
All I am saying for the moment—and I make no comments on the merits of the matter—is that I have every possible sympathy with the minority members of the Millard Tucker Committee when they refer tothe enormous administrative complexitiesand consider as possible anextensive rewriting of existing assurance contracts.I am engaged in mildly teasing the hon. and gallant Member for Cheltenham and the hon. Member for Horsham, because I did not see them in the Labour Party Lobby the other day when the much simpler alternative was proposed.
A second point which I desire to make relates to the question of transferability. It appears to be generally agreed now that there ought to be transferability. I should have thought that that was fairly obvious and I should not have thought we needed even the Phillips Committee, although that Report adds much weight to the point. What puzzles me is this: I entirely agree that in the Finance Bill as it stands we cannot deal with the whole question. Of course, if there were provisions which would enable us to do so, no doubt such an astute and intelligent Opposition as we always are would have put down Amendments to cover the whole shooting match.
All we could do was to put down an Amendment to what the Government had put down about this type of contract—reinsuring with an insurance company. I take a very simple point about it. The poor life insurance companies, the people who will be in such difficulties, an impoverished lot as we all know—those who are doing annuities business—are now to get some benefit out of Clause 22. They may not like it, but they are supposed to be getting some benefit or another.
When that was being done it was not altogether unreasonable, I should have thought, to impose a condition the necessity for which I understand the right hon. Gentleman is prepared to admit. I do not mean the taxation necessity; I mean the social necessity. If, of course, the right hon. Gentleman wants to make 284 a larger and more comprehensive scheme later, no doubt he can alter any concession he has made here in order to tailor it in with what I may vulgarly call the whole shooting match—and all will be well. After all, mere complication is no objection to a Finance Bill or we should hardly ever have one, except about very simple things. Surely the opportunity could have been taken when making this concession——
§ The Temporary Chairman
Order. We must discuss now only whether or not we want to accept Clause 22 as it stands.
§ Mr. Mitchison
With great respect, it is with relevance to that point that I pointed out one omission from Clause 22.
§ The Temporary Chairman
It is not in order to point out omissions. We can discuss only what is in the Clause now. and whether we accept it or not.
§ Mr. Mitchison
With great respect, I thoroughly realise that, but if I may say so, I cannot treat the Clause as perfect. I notice that it is deficient in one matter; and I am calling attention to that deficiency. I hope I have done so. Others besides myself have called attention to it. The question is whether we take it in the imperfect form or whether we wait for perfection.
Mr. J. T. Price
I apologise for intervening for a few moments, particularly because I was unavoidably prevented from hearing all the remarks of the Financial Secretary. The remarks which I did hear seemed very prudent about the danger of any reckless chopping and changing at this stage, when legislation is in a tentative and experimental form.
If I am in order—and I hope I am—I want to draw attention to a more serious anomaly than that to which the hon. Member for Horsham (Mr. Gough) drew attention. Whereas, under this legislation, it is proposed to give the self-employed person the advantage of complete relief on all his contributions in assessing his liability to taxation, there is a very large class of contributing members who are covered by insurance company schemes, not under Section 38 but under Section 225.
I speak more particularly of many thousands of workers in industrial funds who do not, under existing legislation, obtain a full remision of tax liability.
§ The Temporary Chairman
Order. It is not in order to discuss that, because it is not in the Clause, and we can discuss only what is in the Clause.
I expected your rebuke, Mr. Hynd, but, with the greatest respect to the Chair, it makes it very difficult to consider this Clause and what is in it in its right perspective, on Report stage—not Third Reading——
I plead guilty to error. Perhaps I may be excused, as, like others, I sometimes have to leave the Chamber to eat.
Nevertheless, without making an elaborate case, I would point out that we are coming to a class of new entrants who will be able to buy annuity insurance from insurance companies or enter into schemes which are administered for groups of people who will be in a relatively better position than many thousands of people in existing schemes. I commend to the Treasury a close review and investigation of that situation, even if we cannot deal with it now in a formal sense.
§ Mr. Gordon Walker
A good deal of the argument which we have been having has turned on the question raised by the hon. and gallant Gentleman the Member for Cheltenham (Major Hicks Beach) and the hon. Member for Horsham (Mr. Gough), that if this Clause stands part of the Bill in its present form there will be a great switch from insurance schemes under Section 379 to those under Section 388. The right hon. Gentleman, in meeting this charge amongst other arguments deployed the one that it would be unwise of anyone to switch in this way because he and his right hon. Friend the Chancellor had it in mind, in effect, to bring Section 388 schemes within the scope of this Clause at a future time.
§ Mr. H. Brooke
I did not say anything of that character. I said that there would have to be a general review of this legislation. I could not forecast how it would turn out, but I said that it might be necessary to amend the law in some respects. I did not intimate any particular respects.
§ Mr. Gordon Walker
I think that the right hon. Gentleman must have meant that it was to be amended in such a way as to meet the charges made by his hon. Friends, otherwise what he said was entirely irrelevant to their remarks. He said that he did not recommend anyone to switch, certainly on a massive scale, because he hoped that those thinking of it would bear in mind what he was about to say. That must relate to a switch, and the things in the future must, I think, be designed to reduce the difference existing now between Section 388 and Section 379 schemes. If not, I do not know what he meant.
I hope, however, that the right hon. Gentleman will bear in mind that we would be bitterly opposed to giving to Section 388 schemes this sort of benefit if they continued to pay tax-free lump sums or anything like that. We would be very strongly against that, and against anything that opened the door to the danger of tax avoidance; all the more so because I was not very satisfied with the answer which the right hon. Gentleman gave to me about tax avoidance under the Clause as it now exists—without altering a word of it or mentioning anything not in it.
There is evidence that the Clause as it exists has some loopholes in it, and some of the interests, and the hon. and gallant Member for Cheltenham and the hon. Member for Horsham mentioned the interest they had—have been putting forward arguments which do, in effect, say that it is no good limiting it to these Section 379 schemes, because one can, in fact, do in these schemes all those things such as paying tax-free lump sums that it is said cannot be done.
Some of the interests say that this applies in particular to partially unapproved schemes. It seems to be those that open the gap. The right hon. Gentleman said he would look into this. As I understand, it is the partially unapproved schemes which, if skilfully managed, can have a tax-free build-up—the partially unapproved schemes which certainly are not intended under the 1952 Act to be able to have a tax-free build-up but which, skilfully managed, can accumulate gross, as the term is. The benefit under this Clause will, therefore, accrue to insurance companies.
The danger even goes so far as this, as I understand. It is the Section 379 287 schemes which offer the greater opportunities for tax manoeuvre, owing to the method of funding. That is very startling. It seems to me that the arguments now being advanced to support a case with which I have a great deal of sympathy have gone so far that they really make us on this side very doubtful indeed whether we still support subsection (7, b), because if these loopholes that allow insurance companies in under the Section 379 schemes exist then we really have let something into this Bill that we should not have let in.
I hope that when the Chancellor considers what he is to do about Section 388 schemes he will give very serious attention to the possibility of loopholes now existing in his own Finance Bill and will, indeed, give priority to stopping such loopholes before beginning to try to stop switches——
§ 7.45 p.m.
§ Mr. Gough
I am sure that the right hon. Gentleman will forgive me, but, for the record, I should like to correct one thing which he has said. I do not think that my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) and I were drawing attention to any loophole. We were merely drawing attention to the normal human factor that when someone finds that there is a better type of contract to be obtained, he merely ceases one contract—or that portion of it which is non-commutable—and goes to another. There is no loophole in that.
§ Mr. Gordon Walker
I was not referring to that. I quite agree with the hon. Member that there is danger of a switch. How far it goes I do not know, nor would I call that an improper thing to do. What I say is that, in arguing for bringing in Section 388 schemes, certain insurance interests have gone so far that they are now proving that Section 379 schemes do not have the merits which we thought they had, but that, in fact, they allow tax-free lump sums to be paid out or a tax-free build-up if skilfully managed.
That is a most disturbing thing. I did not say that either hon. Gentleman said that, but that some of the interests with which they are openly and freely associated have been saying that Section 379 schemes do not stop tax-free lump sums as we thought they did. It is extraordinary that, in their trying to prove that 288 Section 388 schemes should come in we discover these horrible things, which none of us on this side suspected, about Section 379 schemes. It really opens out a field of tax avoidance of a sort which, while obviously not illegal, does defeat the clear intention of the original 1952 Act—and, indeed, of the 1921 Act.
That should be stopped, because it really does not go on all fours with the previous Clauses of Part III of the Bill that we have now passed. If they have not come to his notice perhaps I could pass on to the right hon. Gentleman some of the arguments that have been given, so that he will know where and what to look for.
§ Clause, as amended, ordered to stand part of the Bill.