HC Deb 02 July 1958 vol 590 cc1498-505

Subsection (2) of section thirty-eight of the Customs and Inland Revenue Act, 1881, as amended by subsection (1) of section eleven of the Customs and Inland Revenue Act, 1889, is hereby further amended as follows: Notwithstanding the provisions of the said section eleven the charge under the said section thirty-eight shall not extend to money received under a policy of assurance effected by any person dying on or after the ninth day of April, nineteen hundred and fifty-seven, on his life, if he shall have made no payment in or towards keeping up such policy during the five years immediately preceding his death".—[Major Hicks Beach.]

Brought up, and read the First time.

Major W. Hicks Beach (Cheltenham)

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

Let me say at the outset that this Clause is in exactly the same terms as a proposed new Clause moved by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) exactly a year ago. The purpose of it is exactly the same as it was then, namely, to overcome a decision in what is known as the Hodge case, made then in the court of first instance and since confirmed in the Court of Appeal.

I have here a full report of the case, and I should like to give the Committee a brief summary. Shortly, where a person took out a policy of insurance many years before his death, and assigned it five years before his death when it was fully paid up to another person—probably a member of his family—the lower court, and later the Court of Appeal, held this to be the position; that, in certain circumstances, where that person had made a contribution to the premium, the policy was liable for duty on the death of the donor, although it had been handed over to the donee more than five years earlier.

I shall not take up much of the time of the Committee, but I would like to refer to what was said by the then Financial Secretary to the Treasury, the hon. Member for Wolverhampton, South-West (Mr. Powell). He said, in his reply to the debate on this same Clause: The case of Hodge deceased in the High Court, to which my right hon. and learned Friend has referred, certainly discloses a position in the law which it is impossible to defend, that Estate Duty should be paid on a policy fully paid up more than five years before the relevant death by the person to whom it is assigned. It is the more difficult to defend that position in that if the policy were fully paid up before assignment then, although all the other circumstances were exactly the same, Estate Duty would not be payable. My right hon. Friend therefore recognises that this position at law calls for review. However, the law has not yet been settled"— it now has been settled— since the case to which my right hon. and learned Friend"— that is, my right hon. and learned Friend the Member for Kensington, South— referred has gone to Appeal. The Committee would agree that it is unwise to venture to set about amending the law until one knows what it is. On the other hand"— this is the important statement— I accept that the state of affairs disclosed, if it be confirmed on appeal, from the judgment of Mr. Justice Harman, calls for amendment."—[OFFICIAL REPORT, 3rd July, 1957; Vol. 572, c. 1163.] We could not have a more unequivocal statement than that. It was a statement that if the Court of Appeal confirmed the decision in the Hodge case, something would be done.

On Second Reading this year the Financial Secretary, in his usual honest and frank way, said: There is one last thing which, perhaps, I should say about Estate Duty, though it is something which is not in the Finance Bill rather than something which is. We know that many hon. Members have looked in the Finance Bill for some provision concerning life assurance policies, in view of the undertaking for review which my predecessor, the hon. Member for Wolverhampton, South-West (Mr. Powell), gave during the debate last year on a new Clause moved by my right hon. and learned Friend the Member for Kensington. South (Sir P. Spens)."[OFFICIAL REPORT, 12th May, 1958; Vol. 587, c. 49.] To give the facts briefly, what my hon. and learned Friend openly said was, "We are not introducing legislation to put right this gross injustice. What we propose to do is to give what the Revenue call an extra-statutory concession."

I think it would be useful if I quoted what the judges of the Court of Appeal said in this case. The Hodge case came before the Court of Appeal in the latter part of last year and the Master of the Rolls gave a long and detailed judgment which I will not quote but in which he said that as far as he understood the law he had to confirm the decision of the judge below. Lord Justice Romer said: I agree. This claim for duty appears to me to be wholly devoid of any merit at all, and it is quite shocking to think that this policy should be liable to estate duty as representing property which was deemed to pass on the death of the plaintiff's father. That is a fairly sweeping statement by a Lord of Appeal. I also want to quote Lord Justice Ormerod. He agreed, and said: The only thing which I think I need say is that I, too, share the sense of shock which my brothers obviously have felt at the thought that the moneys receivable under this policy should attract estate duty on the death of the assured. What is the position? We had a specific undertaking from the then Financial Secretary last year that if this decision were confirmed by the Court of Appeal, legislation would be introduced. He quite rightly said, "properly introduced". Now we are given by the Financial Secretary—and I do not criticise him personally—the mere undertaking that this matter will be put right by what the Revenue are pleased to describe as an extra-statutory concession.

This is not good enough. It is certainly not proper for any Conservative Party to rule by extra-statutory concession, which is merely government by decree. In the first place, it gives the Revenue too much power. After all, the taxpayer is entitled to be protected just as much as the Revenue. I do not criticise the officials of the Estate Duty Office with whom I have had many negotiations; in fact, my own father was a civil servant——

Mr. Mitchison

Do I understand the hon. and gallant Gentleman and the Conservative Party to want all existing statutory concessions abolished?

Major Hicks Beach

Certainly not, but there are too many of them. I do not know if the hon. and learned Gentleman knows the number. If I may say so, the hon. and learned Gentleman, being a member of the legal profession, should realise that it is essential to have extra-statutory concessions in some cases, but they should be in due course incorporated in the law of the country, because it is not fair to the taxpayer that extra-statutory concessions should be left as a bargaining power in the hands of the Revenue. I should have thought that that would have had the support of all hon. Members, and I am surprised that the hon. and learned Gentleman should suggest that they should be abolished. Perhaps he believes in government by decree.

Mr. Mitchison

I have never made any such suggestion.

Major Hicks Beach

This gives the Revenue much too much power. We are told by the Financial Secretary, for whom I have the greatest respect, that they have not had time to review the law so far as this case is affected. The Revenue had a year to consider this matter. It is not particularly complicated, and if the Revenue cannot produce an answer, I would with all respect suggest that it calls on private enterprise and accepts my new Clause.

The Solicitor-General (Sir Harry Hylton-Foster)

The intention was and is to amend the law in so far as it governs a case to which my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) referred. I think I am more sympathetic to what he was saying about extra-statutory concessions than is the hon. and learned Member for Kettering (Mr. Mitchison). The taxpayer, I suppose, is entitled to say, "I want better security than a mere extra-statutory concession."

Mr. Mitchison

I made an inquiry. I expressed no opinion.

The Solicitor-General

I am very glad to understand that the hon. and learned Gentleman is more sympathetic to my view than he appeared to be, but it seems an odd way to describe it as giving power to the Revenue, because this concession is a subtraction from that power as it stands.

On the basis that it is reasonable not to legislate on this topic this year, I am rather surprised that my hon, and gallant Friend is not a bit happier about the concession, because on the face of it, it it is an extremely generous one. It is more generous than his proposed new Clause. I do not want to weary the Committee by repeating it, and I will not, but it does not mean that policies given to a beneficiary absolutely and indefeasibly during an assured's lifetime outside the five years will be exempt from duty.

It is better for the taxpayer than this proposed Clause because the Clause would impose total liability in respect of the policy if even one premium had been paid within the five years, whereas under the concession all that would become liable would be the appropriate proportion corresponding with the premiums paid within the five years. It is not unreasonable to follow what is a longstanding usage where one is contemplating comprehensive legislation, and to use the means of an extra-statutory concession to get rid of the anomaly while one is preparing the comprehensive legislation.

12.15 a.m.

There is one matter on which I quarrel with my hon. and gallant Friend, and that is his description of what my hon. and learned Friend the Financial Secretary said on Second Reading about our activities. He did not say that we were examining the law relating to this case only. No doubt, the particular case is relatively simple and straightforward. The problem involved in the Estate Duty treatment of policies not forming part of the deceased's estate is extremely complicated and varied, and one cannot set about a review of it without examining the matter in its much wider aspects. The present review undertaken by the Revenue is not concerned only with settled policies. It has to go into many other matters dealing with things like life policies which provide annuities, and, indeed, the whole subject of the Estate Duty treatment of superannuation benefits and purchased annuities.

As my hon. and learned Friend said on Second Reading, we have not yet got satisfactory answers to all the many complicated problems, and it seemed wiser not to legislate piecemeal, by taking out one little fraction of it, before we were prepared to legislate for the whole. That is why the device was adapted, in order to bridge the gap and ensure that there should be no continuation of the hardship involved until the more comprehensive legislation is ready.

I am bound to point out what seems to me to be a fatal objection to accepting the new Clause, namely, that it would operate in some cases to impose a charge of Estate Duty retrospectively. I am sure that that is not what my hon. and gallant Friend wants to do. I ought to explain why I say that so as to make the point good to him.

Let us suppose that a policy is settled on the spouse of the assured for her life; that is quite common form. If, as now, duty is payable on the death of the assured, the policy would be exempt on the death of the life tenant spouse on the principle of the provisions which exempt property which has already borne duty on the death of the spouse to die first. But, of course, if, under the new Clause, the policy were to be exempt on the death of the assured, then it would become liable to duty on the death of the life tenant spouse, and the claim might well be larger because the rate might be greater owing to aggregation of other property and so on.

The matter is not negligible, because the 9th April, 1957, was a very long time ago, and, no doubt, more than one pair of spouses have died in succession since then. I submit to the Committee that, on that ground alone, it would not be right to accept the new Clause.

Major Hicks Beach

I am extremely grateful for the observations of my right hon. and learned Friend. I cannot, I am afraid, accept his interpretation of my new Clause, but what I do accept with gratitude is his statement that there will be a review of the whole subject of Estate Duty, presumably in the immediate future. If I am lucky enough to be in the same place in a year's time, I shall certainly hold him to his promise. It is high time that there was a thorough review of the whole subject of Estate Duty. In the circumstances, I beg to ask leave to withdraw the Motion.

Motion and Clause by leave withdrawn.

Mr. H. Wilson

I beg to move, That the Chairman do report Progress and ask leave to sit again.

I will make it quite plain that I have no intention of pursuing this matter to the ultimate and I am prepared to withdraw the Motion when we have had a brief discussion about the future course of business tonight. We gave the Chancellor an undertaking that we were prepared to facilitate the passage of this Finance Bill by the end of this sitting, whatever time that will be. There is certainly no suggestion on our part that there should be an variation of that undertaking, or that the debate be postponed to another day.

It should be said at this stage, however, that we look like sitting until very late indeed if all these Clauses on the Paper, most of which, I understand, are likely to be selected, are to be debated as fully as we have been debating them up to this point. We were rather late last night, and we always have this solicitude for the Chancellor's health and welfare which is the mark of all responsible Oppositions.

We are prepared, if it is going to help, to withdraw or to abstain from moving our official Opposition Amendments in the hope that we might bring them back at a later stage of the Bill. I know that there could not be any guarantee that they would be selected, but I wanted to make this offer now, because otherwise we shall get a very late sitting and I am not sure that we are now at a stage of the evening when the Committee is necessarily at his best to discuss some of these complicated points. I hope that if we take this step we might find a similar willingness by hon. Members opposite to help facilitate the Chancellor's job and enable him to get to bed at a reasonable time.

Mr. Amory

I am grateful to the right hon. Gentleman the Member for Huyton (Mr. Wilson) for raising this point. We had a formidable programme in front of us today. Progress has been a little disappointing, and I am sure that we must now go on and finish our work. I am grateful for the right hon. Gentleman's solicitude for my health. I assure him that I think it is just good enough to enable me to get through the night, if necessary, and complete this work. If hon. Members opposite and Members on this side of the Committee find it possible to help by not moving any of their new Clauses, that would lighten the burden. Whether they would be called if they put them down again on Report stage is not for us to decide. It is in the hands of the Chair.

I hope the right hon. Gentleman will agree that we should go on and finish our work.

Mr. Wilson

I want to make it quite clear that when I expressed solicitude for the Chancellor's health it was not the usual Opposition gambit of saying that the Chancellor looks tired and that we should adjourn until tomorrow. I am a little worried, however, about the Patronage Secretary, who sometimes gets a little bad tempered at about this time. He did so last night. But we have undertaken to facilitate this Bill going through tonight. In view of the Chancellor's statement, and having been able on this Motion to make it clear where we stand, I would beg to ask leave to withdraw the Motion.

Motion, by leave, withdrawn.