Clause 59.—(ESTATE DUTY: GRADUATION OF CHARGE ON GIFTS, ETC.) (Hansard, 31 May 1960)

§ Mr. Denzil Freeth (Basingstoke)
I beg to move, in page 47, line 7, to leave out "in the third, fourth or last" and to insert: after the end of the first". It may be convenient also to discuss the Amendment in page 47, to leave out lines 11 to 16 and to insert:

(a) by twenty per cent. thereof, if the death take place in the second year,

(b) by forty per cent. thereof, if the death take place in the third year,

(c) by sixty per cent thereof, if the death take place in the fourth year,

(d) by eighty per cent. thereof, if the death take place in the fifth year.

§ The Deputy-Chairman
Yes, I think that that would be convenient to the Committee.

§ Mr. Freeth
I begin by congratulating my right hon. Friend the Chancellor of the Exchequer on having put subsection (1) of this Clause into the Bill. I note that the right hon. Member for Huyton (Mr. H. Wilson) and some of his hon. Friends have tabled an Amendment to delete subsection (1), but hon. Members on this side of the Committee will congratulate my right hon. Friend on having included it.
We are grateful to him for so doing, because to most of us it seems thoroughly unjust that one day less in the life of a man can mean that his heirs, to whom 1256 he has made gifts while he was still alive, might have to pay as much as 80 per cent. of the value of the gift compared with no tax at all. While I am grateful to my right hon. Friend for doing something to remove that anomaly, I wonder why he has chosen this way to effect his purpose and not the way that I propose in my second Amendment, the traditional way in which this proposal has been made in previous years by several of my hon. Friends.
A man may make a gift to his heirs for various reasons. He may dislike all taxation and therefore consider it reasonable to avoid paying any which he does not legally have to pay. He may believe that his heirs will spend the money better than the Government would spend it. It may be a desire to keep an estate or something of the sort intact. He may have various reasons for making the gift and some of them may be more laudable than others, but we cannot tax people on their intentions. One has to think in terms of how long before his death a person can make a gift to his heirs with out that gift being an obvious attempt to evade legitimate taxation.
Whatever the motive may be, the one thing which a man cannot do is to foretell or, with the exception of suicide, even arrange the date of his death. One can obviously quote the case of a man dying of cancer who makes a deathbed or near deathbed gift, but, equally, one can think of cases of a person, young and in good health, making a gift to those who might be his heirs and then being run over by a bus, as any of us might be, when crossing the street.
It is because death is by its very nature a matter if not of luck then of uncertain timing at any rate, that one cannot say that there is any particular merit in living any longer than anybody else. I do not believe that my right hon. Friend has chosen the best way to achieve his purpose. It is essential that we should establish some relation between the length of time a person lives after making a gift and the amount of taxation still to be paid on that gift. My right hon. Friend has now provided that there is no relief at all if death occurs in the second year after making the gift. In between the third and fourth years the relief is to be raised from 15 per cent. to 30 per cent., that is, it is to be doubled, and it is to 1257 be doubled again in the fifth year from 30 per cent. to 60 per cent.
Such differentials are not justified by the chance of whether one dies today or tomorrow. It is much fairer to have an arithmetic progression of taxation relief rather than a geometric progression. Attention has been focussed on the principle underlying the subsection by the extreme case of a person dying, say, four years and 364 days after making a gift, that gift under the law as it now stands being liable to taxation at the maximum rate.
My right hon. Friend's proposal would still leave a taxation payment of 40 per cent. of the tax, because relief would be given to only 60 per cent. of the tax. At the maximum rate of Estate Duty, that 40 per cent. could amount to no less than 32 per cent. of the value of the gift. Although that is obviously a much better state of affairs than that now ruling, it is a little unjust and it would be better if we could tail off a progressive reduction in taxation so that there was not so large a difference in the tax which one day's life could make.
It seems to me that the only fair way of granting relief to those unlucky enough to receive gifts from those who have ceased to live in the five years is to spread out the tax remission evenly over the whole of the five years in convenient periods and percentages. In my second Amendment I suggest twelvemonth periods. A difference of 20 per cent. every year of five years is fair and just, because life is uncertain and the date of our deaths is not chosen by ourselves. The Amendment ensures that the greatest amount of tax is paid, as it should be, on gifts made shortly before death in order that one can prevent tax evasion, but equally my Amendment would reduce to as small a percentage as was reasonable the amount of Estate Duty payable on a gift made some four years or more before the donor died.
I commend the Amendments to my right hon. Friend in the hope that he will agree that a gradual arithmetic progression is more suited to the facts of the case than a geometric progression going up in stages which are very large and which in the fifth year of a donor's life still leave a gift liable to tax of no less than 40 per cent. of the amount which would have been paid if the 1258 person had died within a few days of making the gift.

§ Mr. William Clark (Nottingham. South)
I hope that my right hon. Friend will admit the validity of reducing Estate Duty on a pro rata basis. As my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) said, there is an anomaly in that if the donor does not live the full period, the whole or part of the reduction is lost. However, I think that the anomaly remains even with my hon. Friend's Amendment and I should prefer the 15 per cent. reduction per year proposed by the Chancellor to be calculated on a calendar monthly basis. Why should it be that in the case of a man who lives for 364 days of the year there should be no reduction whereas, if he lives the extra day, there is a reduction of 15 per cent., 30 per cent., or whatever it may be?
7.30 p.m.
It may be that my hon. Friend's Amendment goes a little too far, in which case I wonder whether my right hon. Friend would consider a proposal that the first twenty months should not be exempt from relief but that every calendar month thereafter should earn a reduction in Estate Duty of 1½ per cent. This would alleviate the anomaly of the yearly rise in the rates. If the changes took place at each calendar month it should be quite easy to work, administratively, and would probably not cost the Revenue any more money.

Mr. Amory
The debate has shown that there is a considerable division of opinion in the Committee about the proper treatment of gifts inter vivos for Estate Duty purposes. My hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) considers that the proposal I have made does not go far enough in graduating the burden of the duty by reference to the length of time which has elapsed between the gift and the donor's death. On the other hand, hon. Members opposite probably take the view that no concession whatever should be made here.
I concede at once that in any code of death duties it is essential to establish some form of protection against the erosion of the yield of the duty by means of gifts inter vivos. There has always been protection of this kind in our Estate 1259 Duty law. The period for which the donor must survive if the gift is to escape Estate Duty has been increased over the years. The present danger period—if I may so call it—of five years has been in force since it was established by the Labour Government in 1946. Whether that is precisely the right length for the danger period is obviously a matter of opinion; at all events, neither the Clause nor my hon. Friend's Amendment has sought to reduce it
It is no part of my purpose, therefore, to dismantle the Revenue's defences in the matter of Estate Duty. On the other hand, there is no doubt that the present rule can give rise to considerable hardship, especially, as my hon. Friend has pointed out, where the death occurs very shortly before the five-year period has elapsed. We can all recall cases of this kind.
On a number of occasions it has been represented to me and to my predecessors that the charge for duty ought to be graduated in some way, within the danger period, by reference to the length of time elapsing between the making of the gift and the donor's death. I came to the conclusion that it is an anomaly in the present law that one day can make all the difference between the full charge of Estate Duty and complete exemption, and I therefore decided that some measure of graduation should be introduced into the charge.
The question was, what would be the best arrangement? My hon. Friend thinks that I have not gone far enough. He made a logical case for going the whole way once we have started on the process of graduation, and my hon. Friend the Member for Nottingham, South (Mr. W. Clark) has asked whether we could not have a more gradually defined process of graduation than even that suggested by my hon. Friend the Member for Basingstoke. I need hardly say that I considered those aspects thoroughly before deciding upon the proposals which are embodied in the Clause. I entirely appreciate the force of the argument, but as Chancellor of the Exchequer I have to look at the other side of the question, namely, the protection of the Revenue.
Weighing both sides of the argument—the need to ease the hardship that can 1260 arise under the present law and the need to protect the Revenue—I came to the conclusion that the best course was an intermediate one which was not too complicated but would pay due regard to both considerations. Under the Clause there is no relief on death for the first two years of the gift. I do not think that that is unreasonable. After that, the relief comes in gradually. In my view the relief, limited in this way, still leaves the Revenue sufficiently protected. At the same time, it goes a considerable way to meet the main anomalies and hardships that can arise under the present law.
I see the force of the points made by my hon. Friends, but I believe that the proposal I have made substantially meets the hardest cases, and it is a simple process of graduation. For the reasons I have given, I would not think it right to go the whole way with my hon. Friend the Member for Basingstoke. I believe that the intermediate position which the Clause takes up is a fair one and represents a reasonable compromise, which will put an end at any rate to a great deal of hardship which has been possible under the present law.

§ Mr. Denzil Freeth
Can my right hon. Friend make an estimate of how much my Amendment would cost the Revenue, as compared with the subsection as it now stands?

Mr. Amory
From the best calculation that we are able to make, it would cost twice as much as the proposal I have made. But it was not mainly on the ground of cost that I preferred the scheme that I have proposed. I do not think it unreasonable that there should be no abatement if the death occurs within the first two years, but after that the case for a reduction grows steadily stronger.

§ Mr. Roy Jenkins (Birmingham, Stechford)
I rise in the hope that I may be able to help the Committee to have the best possible debate within the shortest time. It is not the intention of my hon. Friends and myself to have an unduly extensive debate, and we thought it most convenient to put forward our points in the debate on the Question "That the Clause stand part of the Bill", rather than on the Amendment. I noticed that several hon. Members 1261 opposite rose to speak to the Amendment, and it occurred to me that if all Members on the Government side made their speeches now, while the Opposition Members made theirs on the Question "That the Clause stand part of the Bill", it would not provide the best form of debate and the best use of our time. I therefore thought that I would give notice that we propose to have a brief debate on the Question "That the Clause stand part of the Bill".

§ Viscount Hinchingbrooke (Dorset, South)
Since the Chancellor of the Exchequer enlarged upon the topic, and my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) went fairly wide in introducing his Amendment, I should like to deal with the matter comprehensively now, if it is permissible. In my opinion, Estate Duty is about the most iniquitious form of taxation that our society has inflicted upon it. It should be swept away by a Conservative Government with a majority as large as that which we now have. It is a completely indefensible tax, as I said in the Budget debate, because it was devised for a previous era, when we had massive unemployment, very low wages and great impoverishment—

§ The Temporary Chairman (Sir Norman Hulbert)
It would be more convenient if the noble Lord made that speech on the Question "That the Clause stand part of the Bill", unless he wishes to relate it specifically to the Amendment before the Committee.

§ Mr. Hirst
I should like to raise one point now, because I am not sure whether it would be convenient to do so in the debate on the Question, "That the Clause stand part of the Bill". It directly concerns the speech of my right hon. Friend. It is one thing for him to say that he does not want to dismantle the Revenue defences, but it is quite another to stand in favour of Estate Duty in principle, in respect of gifts inter vivos, to which the Amendment brings some abatement. It may be that he feels that this is all he can do this year, but I hope that it is not down in the record that he considers it represents fairness and justice, and that it is all that can ever be done in that regard. He should enlighten the Committee on that point.

§ Mr. Denzil Freeth
In view of my right hon. Friend not being able to accept my 1262 proposal—which still seems to be the most sensible and logical way of proceeding; in view of the fact that he has said that cost was not the main argument against it—which I should have thought would be a very powerful argument if one was going to go only halfway in any kind of tax remission; in view of the fact that, having brought in this principle, we may hope that in the future the Chancellor or his successor will be able to go further along the road down which we seek to entice him, and go the whole hog instead of this rather emasculated version of it, and in view of the fact that my right hon. Friend has at any rate been generous enough to accept the principle that we are putting forward, I beg to ask leave to withdraw the Amendment.

§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
I beg to move, in page 47, line 36, to leave out "and".
I think that it would be convenient if, together with this Amendment, I moved the Amendment in page 47, line 39, at end insert: and (v) any such dealing with a policy of life assurance as is referred to in subsection (3) of the last-mentioned section".

§ The Temporary Chairman
The hon. Baronet can move only one Amendment, but both can be discussed.

§ Sir H. d'Avigdor-Goldsmid
Then I suggest that our discussion should be concentrated on the second of the two Amendments, since the first would not be productive of much discussion. It is a very limited Amendment, dealing with what has hitherto been one of the most obscure branches of English taxation law, namely, the position of life insurance policies for Estate Duty purposes. If that law has been cleared up it is thanks to Section 34 of the Finance Act, 1959, to which the second Amendment refers.
The Clause gives a graduated relief to various forms of property passing on death, namely, gifts inter vivos, releases of life interest, purchases and various other matters. The object of the Amendment is to add a further property that passes on death, namely, life insurance policies. The effect of Section 34 of the Finance Act, 1959, is to make the law 1263 with regard to life insurance policies conform to that prevailing in respect of other property, and subsection (3) specifically provides that in the case of a life insurance policy which passes on death, being a policy in respect of which both the original donor, who is now dead, and the donee have paid premiums, the amount caught for Estate Duty is the proportion of the value of the policy at the death of the donor as the total of the premiums he has paid bears to the value of all the premiums paid.
That sounds a very obscure concept, but it is impossible to phrase complicated matters in an entirely simple fashion. Professor Einstein, who had a very fine brain, said that he could understand everything except the popular explanations of his own Theory of Relativity. I therefore ask the Committee to bear with me while I try to explain this complicated matter.
The insurance policy in question is one on the life of the donor on which he has paid premiums and which he has subsequently transferred to somebody else who is known as the donee, and the donee has then paid the premiums. It is now provided under Section 34 (3) of the Finance Act, 1959, that in the event of such a policy being caught for Estate Duty the amount of the policy so caught is that slice of the policy which corresponds to the amount of the premiums that the original donor paid compared with the total value of the policy. There is, therefore, a substantial element of the policy caught for Estate Duty.
Suppose, for the sake of argument, that the donor transfers to his heir a policy on which he has paid 20 premiums, his heir subsequently pays four premiums on it, and the donor then dies. The amount of the policy which is caught for tax is 20/24ths of the total, namely, the proportion of the premium paid by the original donor compared with the total amount of the premiums paid. That is what Section 34 (3) of the Finance Act, 1959, provides.
The object of the Amendment is to bring this slice of the insurance policy which is caught for duty within the ambit of the reliefs proposed by my right hon. Friend for, amongst other things, gifts inter vivos. The concept is 1264 fairly simple. Here is an insurance policy, some portion of which is caught for tax, yet it does not benefit in any way from the reliefs afforded under subsection (1), whereas landed property and stocks and shares which pass at the same time benefit from the special reliefs provided by this subsection. It would seem to be justice that the insurance policy, or that portion of it which is caught for tax, should enjoy the same reliefs as the other real property in the estate.

§ The Financial Secretary to the Treasury (Sir Edward Boyle)
As my hon. Friend said, this is a complicated matter, but I will endeavour to deal with it as shortly as I can.
The point is that Clause 59 gives a graduated relief from Estate Duty on property which is deemed to pass by virtue of a gift or any other relevant disposition or event. Subsection (2) defines the relevant disposition for the purpose of this Clause by reference to the statutory provision in each case imposing an Estate Duty charge on the property in question. As my hon. Friend pointed out, one such provision is Section 34 (2) of the Finance Act, 1959, which is specifically mentioned in subsection (2, a) (iv) of this Clause.
Under Section 34 (2) of last year's Finance Act, the premiums paid by the deceased under a policy of life assurance which are kept up for the benefit of another person are treated as a gift of the proportion of the policy. My hon. Friend's Amendment proposes to add a reference to Section 34 (3) of the 1959 Act which relates to "dealing with" policies, for example, assignments of policies. The answer is that Section 34 (3) does not impose any Estate Duty charge on the transactions in question. It is concerned only with their valuation; they were already liable to duty under Section 2 (1, c) of the Finance Act, 1894, the famous Harcourt Act, which was the foundation of our modern Estate Duty legislation. They therefore qualify for relief under the opening words of subsection (2, a), and for that reason their specific mention, as suggested by the Amendment, is unnecessary. I hope that with that assurance I may be able to persuade my hon. Friend to withdraw the Amendment.

§ Sir H. d'Avigdor-Goldsmid
If I understand my hon. Friend correctly, my Amendment, which is a complicated one, is unnecessary. I am therefore naturally very pleased to withdraw it. Therefore, I beg to ask leave to withdraw the Amendment.

§ Mr. Powell
I beg to move, in page 49, line 4, at the end to add: (6) Where in connection with a relevant disposition or event the trustees of a settlement have obtained from the Commissioners of Inland Revenue a certificate under subsection (3) of section forty-four of the Finance Act, 1950, or under that subsection as extended by subsection (7) of section twenty-eight of the Finance Act, 1958, the amount of such certificate shall be deemed to be reduced—

(a) at the end of the second year of the five-year period by fifteen per cent, thereof,

(b) at the end of the third year of the five-year period by a further fifteen per cent. thereof, and

(c) at the end of the fourth year of the five-year period by a further thirty per cent. thereof:
Provided that in a case where subsection (3) of this section applies, this subsection shall have effect with the substitution for each reference to the five-year period of a reference to the period of five years beginning with the time mentioned in paragraph (b) of that subsection. In the event of a settlement being terminated the case arises which is covered by subsection (2) and there is a relevant disposition or event. Consequently, for the five years following there is the penumbra of and the potential liability to Estate Duty on the value of the settled property. The relevant legislation places the liability for meeting that eventual Estate Duty on the trustees of the settlement, who accordingly either retain sufficient of the settled estate to meet it, if it has to be met, or else insure themselves against the liability by paying premiums.
In that case they can obtain from the Estate Duty Office a certificate of an amount which is then treated as the maximum for which they can be liable, and that certificate determines the amount which they either withhold from the estate, or which they insure. I am sure it will be agreed that if we are progressively reducing liability of the estate as the five years elapse it is right that the amount which the trustees 1266 retain in such a case, or insure themselves for, should also be progressively and pro rata reduced. The object of the Amendment is to effect such a reduction.
It would mean that as time went on those who were entitled to the distribution of the assets would be able to obtain them as the eventual liability in the event of a death during the five years declined. It may be argued that the trustees would know that as time went on their actual liability was falling. Nevertheless, they are under a statutory obligation which is limited only by the amount in the certificate, and if they are prudent they will tend, unless we alter the law, to withhold the full amount or to insure against the full liability. I therefore ask my hon. Friend to recognise this difficulty and to provide for the amount in the certificate to be deemed to fall as the eventual liability falls.

§ Sir E. Boyle
I think that it will be accepted by the Committee, whether hon. Members are in favour of the Clause or against it, that my hon. Friend is on an extremely good point, and I hope that I shall be able to meet the very fair point that he has raised.
Section 43 of the Finance Act, 1940, imposes Estate Duty on the death of a life tenant whose interest has been disposed of within five years of his death. To assist the trustees in knowing what their maximum liability shall be, and thus enable them to distribute the rest of the property, Section 44 (3) of the Finance Act, 1950, provides that they can obtain from the Commissioners of Inland Revenue a certificate of the probable amount due, and in that case their liability is definitely limited to that amount.
Under the provisions of the Clause, the duty chargeable will qualify for graduated relief according to the length of time that the life tenant lives after disposing of his interest. The trustees' liability will thus be reduced in the third, fourth and fifth years after that event and they will be then at liberty to distribute further property. The Amendment proposes, therefore, that the liability as stated in the certificate shall accordingly be reduced automatically after two, three and four years.
This is an entirely reasonable proposal in itself, and I can assure my hon. Friend 1267 that it is intended as a matter of Departmental practice in the Inland Revenue Department that where trustees ask for a revised certificate after the appropriate period they shall be given one, subject to due inquiries.
There are reasons why I think that it would be better to deal with this matter as Departmental practice rather than by the Amendment. One point which may be familiar to some hon. Members is that under present law trustees ask for a certificate at the time of the disposition. At the end of five years they can apply for an assurance that no duty is henceforward payable; but before it can be given the trustees have to make a declaration that, first, the life tenant has been excluded from any benefits throughout the last five years and, secondly, that no operations are in view by which he may secure such a benefit.
If an Amendment in this form were adopted, the property retained by the trustees would be automatically reduced over the five years without any assurance that the life tenant might not in the meantime obtain some benefit which would keep the full liability alive. In that case the Revenue would lose an important safeguard.
There is another point which applies to the person himself. The Amendment simply applies the percentage of the reduction to the amount of duty stated in the certificate. In some cases the effect of the Clause may be to give a larger reduction than this; the abatement of the value of the property may in some cases affect the rate of duty for the whole aggregate estate, and therefore bring it into a lower band.
From whichever point of view we look at it, whereas I agree that my hon. Friend is on a very good point, I think it will be accepted that it would be better to deal with this matter by the issue of revised certificates on application and as a matter of Departmental practice rather than by accepting the Amendment.

§ Mr. Powell
I appreciate my hon. Friend's willingness to meet this point, and I certainly see the force of the first of the two practical difficulties which he urged, namely, that of the clearance certificate at the end of the period of elapse. On the other hand, it seems to me that if we are to deal with this 1268 administratively, we place upon the trustees the rather futile operation of going to the Estate Duty Office three times, I think, during the period of five years in order to get a renewed certificate.
I wonder whether in withdrawing the Amendment—and I shall ask the Committee's leave to do so—I may ask my hon. Friend to consider whether the difficulties which he has urged cannot be met without the cumbrous machinery of a repeated application by the trustees to the Estate Duty Office for certification for something which he admits is happening automatically.

§ Sir E. Boyle
I will most certainly see how the Clause works out and I will undertake to my hon. Friend to keep an eye on its working. I will see whether there is any way whereby trustees will not be faced with the responsibility and difficulty of making too many unnecessary inquiries.

§ Mr. Hirst
I appreciate that my hon. Friend the Financial Secretary is trying to be helpful in this matter. I am a trustee and I have experienced this difficulty in getting a certificate. There is a very big time lag and tremendous delay, and it is tiresome for trustees if they have to go through this procedure. Surely my hon. Friend can find some way between now and Report to cover the very legitimate point made by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). If it is right and proper, under certain circumstances, as it is, for this responsibility to be mitigated—and quite clearly the intention is that it should be so mitigated—then the mitigation should be provided here too. I feel that this is a matter of principle. I am not happy about the present situation. We do not want to be awkward about this, but I am not happy to leave it in this airy-fairy way in which my hon. Friend has left it, if I may use that phrase.

§ Sir E. Boyle
I do not wish to leave it in any airy-fairy way. Frankly, I believe that it would be best to try to deal with this matter by Departmental practice rather than by an Amendment. My hon. Friend the Member for Shipley (Mr. Hirst) and I have known each other for many years. If he will forgive me for saying so, sometimes when I hear him talk about the Executive and 1269 bureaucracy I am reminded of Arthur Balfour's phrase: This is a singularly ill-contrived world but not quite as ill-contrived as all that. I believe that the Clause will work satisfactorily. Nevertheless, I will certainly watch its administration, and we will do what we can to mitigate inconvenience to trustees.

§ Mr. Hirst
Will my hon. Friend do this? I undertake to go through this procedure forthwith and to make the necessary application if I may send him the results of my researches.

§ Sir E. Boyle
I shall be glad to receive any letters which my hon. Friend likes to send me.

§ Mr. Powell
We shall be in this difficulty, that if my hon. Friend the Financial Secretary carries out, as I know he will, the undertaking to watch the administrative working of the Clause, we shall be under the necessity, should it prove inconvenient, to come back to Parliament and perhaps have a special Clause in a future Finance Bill for this purpose. As long as this Bill is before the House we are seized with this matter and can deal with it legislatively. In asking the leave of the Committee to withdraw the Amendment, which I shall do in a moment, I urge my hon. Friend to consider before Report whether all these difficulties cannot be met quite simply inside the Bill by some adjustment.
Having said that, I beg to ask leave to withdraw the Amendment.

§ The Temporary Chairman (Sir Norman Hulbert)
It might be for the convenience of the Committee if I reminded hon. Members that this Clause does not impose Estate Duty. It grades it, and therefore any discussion of Estate Duty in general would be out of order on this Question. I say that because I may have inadvertently misled the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) when I suggested that he should make his speech on this Question. I apologise.

§ Viscount Hinchingbrooke
I think that the best thing I can do, Sir Norman, is to proceed with my speech, and if 1270 you find it out of order, you will no doubt pull me up. I attempted to say a moment ago that I thought that death duties, whether graduated or ungraduated, are about the most iniquitous form of taxation which any society can have inflicted upon it. It seems to me to be absolutely out of alignment with our modern society. It was—

§ The Temporary Chairman
Order. What the hon. Member is saying may or may not be so, but we cannot discuss it in Committee on this Question.

§ Mr. Hirst
On a point of order. Several hon. Members, including myself, out of respect to the Chair, either ceased speaking or did not speak at all on this matter on the Amendment, when leave was given by yourself for the matter to be discussed later. It is a little difficult if we cannot now have a fairly reasonable rendering of the rules of Order. I do not want to make a point about this, except that we respected the Chair too highly to quarrel with the Ruling at the time. I do not pit myself against the Chair in matters of order, and I would not dream of doing so, but I think that we should have a little leniency now, even if you cannot allow much.

§ The Temporary Chairman
If the hon. Member had sought to make the type of speech he is now indicating during the discussion on the Amendment, he would have been out of order even more than he would be if he sought to make it on the Motion "That the Clause stand part of the Bill."

§ Mr. Hirst
Further to that point of order—

§ The Temporary Chairman
Order. If the hon. Member refers to Part V of the Bill relating to Estate Duty, he will see clearly that the description there in the margin of the Bill indicates that this Clause does not impose Estate Duty. Hon. Members will be well aware that the Committee can discuss on the Motion "That the Clause stand part of the Bill" only what is in the Clause.

§ Sir Kenneth Pickthorn (Carlton)
Surely, Sir Norman, what is in the margin has no effect whatever on the problem. It has no validity of presence whatever. I should not dare to accuse the Chair of being wide, but certainly 1271 the rest of the Committee have been rather of one mind—no doubt it was unintentional—that it was made plain to us that there could be some debate on the main Question, and that it would be more convenient for the Chair and for the Committee if that occurred on the Motion "That the Clause stand part of the Bill". I have no ambition to participate, but there are those hon. Members who think it their duty to do so, and I respectfully suggest that hon. Members who have sat here all day have been more unfortunate than such "mugs" generally are.

§ Mr. Roy Jenkins
Surely this Clause is designed to reduce the incidence of Estate Duty in certain cases. Surely it is impossible to discuss in what way a tax should be reduced unless we can state our attitude whether or not the tax is desirable. I should have hoped that within reasonable limits we might be able to conduct the debate reasonably widely.

§ The Temporary Chairman
Of course, the Committee can discuss the mitigation of the tax. We cannot discuss the general imposition of Estate Duty.

§ Mr. Hirst
When the question came up and my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) mentioned something, you, Sir Norman, said that it was a point of principle which could not be discussed on the Amendment before the Committee, but that a point of principle could be discussed only on the Motion "That the Clause stand part of the Bill." The hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) has indicated that this, of course, is a principle which is involved, and we cannot discuss an Amendment without dealing with the principle. I must ask you, Sir Norman, to try to see our point of view, because the frame of the circumstances has been set by you. I was not in the slightest intending to make the kind of speech you suggested that I might be going to make—you have not even heard what speech I was going to make. I was not going to discuss the question of principle, because the question did not arise.

§ Mr. Gordon Walker (Smethwick)
If we are to argue about whether a tax should be mitigated, surely we can argue 1272 that it should be mitigated still further, and one has to say something about the nature of the tax in order to argue that.

§ The Temporary Chairman
The right hon. Gentleman cannot discuss whether a tax should be mitigated still further, because that point is not in the Clause.

§ Mr. Gordon Walker
Surely we can argue that it has not been mitigated enough. The degree of mitigation is in the Clause and one can argue whether it is correct.

§ The Temporary Chairman
As I hope I made clear, the right hon. Gentleman can discuss the degree of mitigation, whether to make it more or less, but on this Question the Committee cannot discuss the whole question of the tax.

§ Viscount Hinchingbrooke
I will try to relate what I have to say to graduation, mitigation and matters of that kind.
One graduation was introduced by Lord Dalton, as he now is, in, I think, 1946, when he increased the period of years over which death duty applies from three to five. I wish to know from the Chancellor, now that we have a large majority on this side of the Committee, why the five-year period has not been reduced to three. Why cannot we have a graduation of years downwards as well as amounts or percentages? I hope that my hon. Friend, who I am sure shares my feelings in this matter, will tell me why it is that the Treasury is still dominated by the radical liberalism of 66 years ago and is still putting forward every year to successive Tory Chancellors sterile schemes for the imposition of death duties, and whether we are to get graduation, mitigation and reductions to the point where we get rid of the tax. That is the first question.
In his supreme cynicism, Lord Dalton also at the time introduced another graduation. He provided that the first £5,000 of capital, I think it was, should be exempt from tax. In other words, he said that for a graduated class of our society this was an iniquitous tax and should not apply at all. He accepted on behalf of the Socialist Party, and put through on their behalf, the political doctrine that, so far as a wide ranging category of our society was 1273 concerned, this tax should not be imposed. In other words, it was not a noble and fine and splendid political thing to do to have this tax on that section of society. But, because of his class prejudices, he allowed the graduation to rise up in a very swift geometrical scale until it involved the higher ranks of persons—

§ Mr. Douglas Jay (Batter, North)
May I ask the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) whether he is arguing that the exemption limit should be put back from £5,000 to £1,000?

§ Viscount Hinchingbrooke
No, I am arguing for the reverse, for an indication on the part of a Conservative Chancellor of the Exchequer that this £5,000 exemption should be stepped up; that there should be mitigations against the operation of the tax in favour of an increasing element of our society—

§ Viscount Hinchingbrooke
Just one moment—that £5,000 should be put up to £10,000 or £25,000 this year, with a view to putting it up to £50,000 or £100,000 next year, and by that means, by a process of graduation and mitigation of the tax undertaken during the lifetime of this Conservative Government, we should arrive at a situation where death duty no longer applies—but that is a point I do not seek to make, in view of the Ruling which has been given, because to do so would be out of order.
There is another differentiation and mitigation which we really ought to discuss. That is the difference between this tax as applied to a single person and a small group of persons governing estates or businesses and the wider-ranging categories in our commercial life, the great public companies and the private companies, provided that they are not controlled by more than a certain number of persons and other firms; the collective money-making activities in this country—the estate managing activities in this country—which are exempt altogether from death duties.
I want to know whether a Conservative Chancellor is capable of telling me the moral of all this. Why do we have to impose death duties, in particular periods as the generations fall, on individuals, 1274 whether they manage very large properties or no properties at all, whereas whenever individuals collectivise into great businesses they are exempt from tax altogether? The property duty is exactly the same regarding estate property. The people employed there and the people who derive their livelihood are the same. The process of maintaining wealth is the same whether landed, business or whatever it may be—

§ The Temporary Chairman
Order. The noble Lord is straying once again.

§ Viscount Hinchingbrooke
I am trying to put in a plea for the same application of the business method of mitigation of death duty to the single person or family, as the case may be, who may own or manage a large concern in toto, as to a public big company.
I was shocked to hear the Chancellor just now, in referring to the Amendment, which is very relevant to this Clause and can be discussed on this Question, say that he thought the arguments on one side of the Committee and the other were nicely balanced and moderately put, but obviously, hon. Members opposite would not like it and, in view of that, the Chancellor would take a midway position and just carry on with what he has now got in the Clause. If the Chancellor's view of society is simply that on the Committee stage of the Finance Bill there should be an equalising of treatment between one side of the Committee and the other, that is not what the electors sent him back to this House to do after the last General Election, or what the great, massive ranks of Conservative supporters behind him intended him to do. What we intended my right hon. Friend to do—and any future Chancellor—on this matter of mitigation of tax and graduation of tax, and on the whole subject of death duties, is what Lord Dalton and the large majority in the party opposite did in 1946—stifle opposition in the Lobbies, and get proper Conservative reform.

Mr. H. Wilson
Would the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) make clear—it is a fascinating argument, and we are as tired as he is of the Chancellor taking the middle line—

§ Mr. Gerald Nabarro (Kidderminster)
Are you?

Mr. Wilson
Yes, indeed. We are as tired as the hon. Members behind the Chancellor. Is the noble Lord telling us that the Chancellor fought the election and that the noble Lord fought the election—

§ The Temporary Chairman
Order. The right hon. Gentleman cannot discuss this matter on the Question before the Committee.

Mr. Wilson
On a point of order, Sir Norman. The noble Lord suggested that the Government should take certain action—stifling us in the Lobbies, and things of that kind. On the particular argument which was adduced and which you did not stop him using, he said that they fought the election on the principle of the progressive elimination of death duties. Surely I am entitled to ask whether he or the Chancellor or any other hon. Member opposite put that to the electors at the time?

§ Mr. Anthony Crosland (Grimsby)
We have listened to an extremely moving appeal by the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) on behalf of the massive ranks of those who pay large amounts of death duty. There are today about 10,000 people in the whole country who would make up these massive ranks and vote for his policy. I do not propose to follow the general argument of the noble Lord on Estate Duty. If he really believes that, then his attitude is wholly inappropriate to the circumstances of 1960.
I wish to refer to the effect of this Clause and what it can do. In introducing it, the Chancellor said the object was to make Estate Duty more equitable. He pointed out—this has been pointed out more than once—that it is inequitable that one day should make all the difference between paying perhaps 80 per cent. of the estate in duty and paying nothing. It seems to me that this must be conceded. It is inequitable that one day should make all the difference.
Having said that, there are two possible methods of dealing with the inequity. One is the method which the Chancellor has adopted in this Clause, namely, introducing an element of graduation. But there is an alternative method of eliminating this inequity, which is not the introduction of an 1276 element of graduation but, on the contrary, to bring all gifts, whenever made, under Estate Duty. It seems to me that it is our job to decide which of these two methods, the Chancellor's method of graduation or our method, which is to introduce a "gifts tax", is right to deal with the inequity which we all concede exists.
It is clear, and conceded by everyone, I think, that gifts inter vivos are very widely used as a method of deliberately avoiding Estate Duty. In a particularly childish speech during the Budget debate, the President of the Board of Trade said that he had never heard that gifts inter vivos were used for avoiding death duty, and he told a funny story about if he gave pocket money to his son, and so on. But it is common knowledge to everyone that gifts inter vivos are widely used as a deliberate method of avoiding the payment of Estate Duty.
8.15 p.m.
It is not merely a matter of common knowledge, one can produce conclusive evidence that this is so. The conclusive evidence is that the yield from Estate Duty during the last decade has not risen commensurately, or anything like commensurately, with the rise in capital values which, after all, are the basis on which the duty is assessed. In fact, the yield of death duties should, in logic, not merely rise proportionately with the rise in capital values. It should rise much more than proportionately, because it is a tax of which the marginal rates are higher than the average rates. The yield from death duties, however, is not rising even proportionately. Let us compare two things—the yield from death duties as given in Table 100 of the most recent Report of the Commissioners of Inland Revenue, on the one hand, with the market valuation of securities quoted on the Stock Exchange, on the other hand.
From 1949 to 1956 the yield of Estate Duty rose by precisely zero. During that time the market valuation of quoted securities rose by 27 per cent. In the whole period from 1949 to 1959 the yield of Estate Duty rose by 12 per cent. The market value of quoted securities rose by 47 per cent. That is an absolutely absurd discrepancy. Quoted securities, on the average, make up about 50 per cent. of the assets which are assessed for 1277 death duty purposes. If one takes assets other than quoted securities, which are mainly land or property, it cannot be argued that they have risen in value less than quoted securities. Therefore, there is an absurd discrepancy here.
I will make one other comparison between the yield from death duty, on the one hand, and the amount of investment income which is assessable for Surtax, on the other hand.

§ The Temporary Chairman
Order. The hon. Gentleman is getting rather far away from the Clause.

§ Mr. Crosland
With great respect, Sir Norman, I do not think I am getting very far away from the Clause, because what we are discussing is whether to extend the concession under the system of gifts inter vivos. I am arguing very strongly against so extending the concession, on the ground that gifts inter vivos have led to a degree of avoidance which has made Estate Duty something of a farce. Therefore, this point is essential to my argument.
The yield from Estate Duty between 1949 and 1957 rose by 3 per cent., as compared with a rise in the amount of investment income assessable for Surtax of 50 per cent. This, again, is an absurd discrepancy, remembering that the yield from Estate Duty should rise not merely proportionately with what is happening to the value of privately-owned capital. It should rise more than proportionately, because the marginal rate of tax is higher than the average rate of tax.
It is clear, on the basis of the figures of the yield of death duty, that we have now reached the position when the tax is a farce. This has been said before. It is purely a voluntary tax, only paid by people who, by some quirk of psychology or because they have not got round to using accountants, or whatever it may be, choose to pay it.
What is the solution to this position? In my view—it is probably the view of most hon. Members on this side—the only solution to this position is the opposite to the solution of the Chancellor of the Exchequer. It is not to extend the concession of gifts inter vivos, but, on the contrary, to bring in a tax on gifts and to assimilate gifts completely under an inheritance tax. This would not be a new principle. A gifts tax 1278 exists in the United States, Sweden, and in many other countries.
My view is that, if we introduced such a tax, we should combine it with a reform of inheritance taxes so that they became legacy duties and not Estate Duties. That is obviously a point for discussion. This is the logical solution to the difficulty which we are discussing, namely, the inequity of a single day making the whole difference. Instead of adopting this direction of change, the Chancellor of the Exchequer is doing the opposite and still further extending the possibility of avoidance by using the method of gifts inter vivos.
It is curious that on this, at least, the whole of the party opposite is united, the whole way from the Chancellor of the Exchequer to the noble Lord the Member for Dorset, South, in wishing in varying degrees to weaken the effect of Estate Duty, because that is what the Clause does. Any weakening of the effect of Estate Duty is, in practice, inconsistent with those ideals which, at any rate on platforms at election time, are constantly put forward by the party opposite.

§ Mr. Nabarro
Not by me.

§ Mr. Crosland
I will mention two ideals which are quite inconsistent with the desire to weaken the effect of Estate Duties. One is the ideal of a property-owning democracy.

§ Mr. Nabarro
No.

§ The Temporary Chairman
If the hon. Gentleman reads the Clause, he will appreciate that it has nothing to do with a property-owning democracy. I must ask him to keep his remarks within the Clause.

§ Mr. Crosland
Sir Norman, I shall certainly try to keep my remarks within the Clause and say this only. The effect of a Clause such as this which weakens the impact of death duties is not to diffuse property, as should happen if we are to have a property-owning democracy, but, on the contrary, to encourage the concentration of property, and this is what I thought was inconsistent. Again, I do not know how hon. Members opposite think that the kind of concentration of inherited capital which is encouraged by a weakening of death duties is consistent with the Opportunity State, with everyone starting equal, with equal chances of going up the ladder.
1279 It is absolutely clear that the Clause is a further step in weakening the general impact of death duties. It will encourage a greater concentration of capital. It will discourage the diffusion of property. It will discourage the equilisation of opportunities for all citizens in the country. It is, therefore, a Clause strongly to be resisted.

§ Mr. Stevens
One aspect of the speech of the hon. Member for Grimsby (Mr. Crosland) interested and, indeed, surprised me. I seem to remember during the General Election campaign not so long ago a claim being made that certain national expenditure would be met without any increase in taxation. Yet the hon. Member for Grimsby has very definitely suggested increased taxation. Am I wrong?

§ Mr. Crosland
Yes. We are not discussing in this Clause whether taxation should be increased or decreased. That is not what the Clause deals with. What we are discussing is whether a particular loophole, as we think, should be opened up in Estate Duty.

§ Mr. Stevens
I find it hard to believe that the elimination of the five-year period at present existing and the imposition of a gifts tax will not increase taxation. If the hon. Gentleman thinks that it is not increased taxation, it is no wonder that he has been on the losing side for so long.

Mr. H. Wilson
What we said related to the rate of Income Tax, but I should be out of order if I developed that. I can tell the hon. Member, because I probably spoke as much on this subject as anyone, that we said categorically that we would tighten up death duties, make them effective and get rid of the avoidance which has been going on all this time.

§ Mr. Stevens
The conversion of gifts inter vivos into a tax upon gifts is not my idea of tightening up. It is the imposition of a brand new tax. We did not hear much about it last October.
I felt a great deal of sympathy with what my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) said on two counts—first, the difficulty of keeping within order on this Clause and. secondly, the feeling that, though 1280 one is grateful to my right hon. Friend the Chancellor of the Exchequer for what he has done—better half a loaf than no bread, as my noble Friend will agree—none the less it has not gone far enough. One had felt that on this occasion more could have been done, because I cannot imagine any less inflationary reduction of tax than a reduction of death duties in one form or another, and this, indeed, is one form of reduction. I am sorry that my right hon. Friend is not able to go further. I sympathise, too, with the Amendment moved by my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth), the effect of which would have been to increase this improvement in our system of death duties.
I do not want to detain the Committee on matters of principle. I want to raise one point which is important and which may have been overlooked. Settlements come under the general category of gifts inter vivos and are subject to the concessionary treatment of this Clause, namely, the reduction of 15 per cent., 40 per cent. and 60 per cent. in the third, fourth and fifth years. But a number of settlements at present existing and settlements to be created in future provide that the income from trust funds shall be accumulated for five years or the life of the settlor, whichever is the less. I am not clear that the Clause as at present drafted extends the 15 per cent., 40 per cent. and 60 per cent. concessions to the accumulated income of such voluntary settlements. I shall be glad to hear what my hon. Friend the Financial Secretary has to say about that. I think that accumulated income does not reap the benefit of the Clause. If that is so, some Amendment should be introduced between now and Report.

§ Mr. Douglas Johnston (Paisley)
In an earlier intervention the Chancellor of the Exchequer said that it was no part of his policy to dismantle the Revenue's defences against avoidance of Estate Duty. The task of dismantling the Revenue's defences in the case of larger estates has already been done by the legal profession, to which I belong. There is no doubt that no one, except an eccentric or a person who is badly advised, need now pay any Estate Duty. All that this provision does is to put the procrastinator, the person who delays in making the necessary arrangements, in 1281 a rather better position that he would be if the Clause were not carried.
The effect of the Clause is simply to allow the man who delays making the necessary arrangements to make them at a somewhat later date. There is no doubt whatever that those with larger estates—I have in mind estates of £100,000 upwards—can make such arrangements by inter vivos gifts, by gifts in consideration of marriage, and so on, and that which they give away will never attract death duty.
Not only will it not attract death duty in the present generation, but it will not attract death duty in the future because of the habit of conveyancers and settlors now of settling all gifts under discretionary trusts that are carried from one generation to another, with the result that in future we will never have any passing on death. This Clause will simply make that rather easier, although, when I say that, I should mention one exception.
It is rather easier to carry on this avoidance of tax in England than it is in Scotland. On that, I have been in correspondence with the Chancellor, but I shall not worry the House with the details as it is a rather difficult matter. I suggest that if we are not to avoid this dismantling of the Revenue defences against the avoidance of Estate Duty, the Chancellor should, first, not press this Clause and, secondly, he should have a thorough examination made by a committee of the standing of the Radcliffe Committee into the whole subject of Estate Duty.

§ Mr. Hirst
The hon. Member for Grimsby (Mr. Crosland), in a rather amusing, knock-about turn, referred to the interest of hon. Members on this side of the Committee in the great number of Estate Duty payers. He referred to the whole 10,000 of them, but he should check his figures. I have in front of me the Inland Revenue Report for the year ended 31st March, 1959, which shows that, for the one year alone, 67,000 such estates were involved. That, of course, is not the sum total of interests in the matter, because all legatees have a profound interest in these estates, and that probably brings the figure to a quarter of a million or more—

§ Mr. Crosland
I was certainly not trying to mislead the Committee. I know that the total number in that year was 66,000-odd, but I think I am right in saying that the number assessed for Estate Duty is contained in a figure of 15,000—that is, the large estate leavers. The great bulk of the 66,000 left estates of from £5,000 to £10,000.

§ Mr. Hirst
I anticipated that reply. A table on the next page of this Report, shows the number to be 15,000, and the net value of the estates amounts to over £300 million, upon which Estate Duty—admittedly at a low level—was levied. A sum of £300 million in any one year besides attracting Estate Duty covers a vast number or people and interests. However, I do not want to labour the point particuarly; I only mention it as a fact.
I am profoundly disappointed that my right hon. Friend the Chancellor is not present for the discussion of this very important Clause. There may be some explanation of his absence, and I should be glad to have it, but I think it rather discourteous of him. He seems to imagine that just because he has made some graduation—as my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) said, better half a loaf than no bread at all—that all is right, but this is nothing like right. This is a rather small, dry dinner bun.
I repeat that I do not think it at all courteous of my right hon. Friend to be absent from the discussion of this extremely important Clause, whatever the circumstances may be. If there is a Cabinet meeting, he should have been excused attendance from it. I am not prepared to accept any excuse, except illness, for his absence. I do not mean any discourtesy to my hon. Friend the Financial Secretary, whom I respect very highly, but this is a very important Clause, and the fact that the Committee is discussing the Question, "That the Clause stand part of the Bill" has been on the indicators for a long time now. It is very discourteous of my right hon. Friend and we are all very sorry that he should have thought this matter to be of small account.
I accept at once as a matter of principle that the whole question of Estate Duty is a scandal. It is true that my 1283 right hon. Friend has introduced graduations, but those graduations are only graduations of what is a scandal. There is no case or reason for this duty. It represents money taken in lump sums out of capital and spent as income—but I will not pursue that point any further. Bearing in mind that the Conservative Party has been in power for about nine years and that this is the only really serious endeavour—and I use that phrase out of courtesy—to lower or to mitigate the burden on inter vivos gifts, it is a shocking business and nothing to be proud of.
Obviously, I could not vote against the Clause. It is a mitigation and, as such, I accept it, but I must confess that I was shocked by the language used by the Chancellor in reply to one or two earlier remarks. He indicated quite clearly, in defending a whole range of this duty, that he felt that here he had done something fair, that that was the end of it, and that there was no likelihood of any further mitigation, even of this character, in a subsequent year. Such a thought as further mitigation did not seem to be in his mind at all. This is a shocking business. I am very sorry to hear reports that he is about to retire. He has done a lot of good work, but, if those reports are true, I can only say that in this case I shall regret the manner of his passing from political life.

§ Mr. Diamond
The speeches of hon Members opposite have allegedly been concerned with mitigation of Estate Duty on inter vivos gifts. Nevertheless, they have made it clear that they are not concerned with mitigation but are interested only in one thing—the reduction of Estate Duty. They want the reduction of Estate Duty.

§ Mr. Hirst
Quite right.

§ Mr. Diamond
That is perfectly fair. Hon. Members opposite look at the matter in that way. I must say that I have been astonished to sense the depth of feeling expressed about it. They obviously put it high on the list of priorities, without any suggestion of what revenue is to take its place in order to provide for the services which have been voted.
I am astonished at what hon. Members say, because I should have thought that 1284 the one duty which would be most acceptable would be Estate Duty or a gift tax. It is a duty levied in these circumstances. A person receives something for which he has done no work, no "sweat", no preparation—a pure gift, a gift from the gods—and, when he is in that position, he is glad to say, "I do not mind if I have to pay 10 per cent. If I get 90 per cent. or 80 per cent. or even 70 per cent. of it, it is all something for nothing".
I should have thought that hon. Members opposite would have much preferred a real and effective Estate Duty rather than have their endeavours in their everyday lives taxed much too highly, as they say they are, and rather than have the productive effort on which the wealth of the country depends lessened on that account, as they regularly say that it is. To come here and complain about Estate Duty—that is all that has been said—and yet to give no indication of what is to take its place is to make no adequate contribution to the debate.
On the very narrow point of the apparent anomaly, it is, of course, anomalous that 365 days should make all the difference as compared with 364. But whose fault is that? It is the fault of those who try to produce a system under which certain gifts only bear duty. If, as my hon. Friend the Member for Grimsby (Mr. Crosland) said, we had a proper tax structure under which all gifts bore duty and, as a result, Estate Duty was much reduced and, possibly, other taxes were much reduced, as would inevitably be the case if one were gathering the same amount of revenue, then the anomaly would not arise at all.
To deal with it on an even narrower basis, if one argues that there is an anomaly here with regard to the five-year period and gifts inter vivos and one wants to spread the incidence of the high tax, why not extend it to six and seven years? Why not say: up to five years, 100 per cent. duty; six years, 50 per cent. duty; seven years 25 per cent. duty; and eight years, no duty at all? That is an alternative and equally logical way of dealing with the narrow difficulty which is alleged to exist. But, of course, that is totally unacceptable to hon. Members opposite because they are 1285 concerned with one thing only, that they themselves and those they represent should not be called upon to put their hands in their pockets, even if it is the pocket of a dead man.

§ Sir H. d'Avigdor-Goldsmid
The hon. Member for Gloucester (Mr. Diamond) has made many interventions in the course of our debates, but I think that that was one of his less fruitful ones. In this case, he has not done the homework which he usually does. Since you, Sir William, considered his speech to be in order, it is not for me to suggest that it was not, but as this Clause deals with Estate Duty and the hon. Gentleman taunted us for not suggesting other revenue-raising schemes, it would, I opine, be difficult to remain in order if one tried to accept that invitation.
I wish to return to the Clause, and I shall not depart, I hope, from the narrow ambit of the Clause in the least. The Clause grants a mitigation of Estate Duty in respect of certain property passing on death. It gives mitigation in respect of gifts inter vivos, releases of life interests and purchases of reversions. There are other properties passing on death to which it does not give relief, and, with great respect, I suggest that it must be my right hon. Friend's intention that all property passing on death should receive these mitigations if the time factor allows.
I am particularly emboldened to say this in favour of a certain small matter to which I wish to draw attention, because there is involved in it a class of property which owes its statutory existence, as it were, to the Finance Act, 1940. It was first recognised in the Finance Act, 1940. The 1940 Act was subsequently amended in 1946 so that the period after which such gifts should cease to be liable for duty was increased from three years to five years; in other words, the three-year period, as we call it, was extended to five years. Now, when considering these mitigations, I have not seen anything in the Bill to suggest that these are included.
I regret very much boring the Committee with technical matters which I see no way of expressing except in technical terms. I shall try to avoid repeating myself and try to convey the gist of my argument.
1286 The object of Section 46 of the Finance Act, 1940, was to place a person who enjoyed a substantial proportion of a company's income in the form of benefits on the same footing as regards Estate Duty as if he were the absolute owner of a corresponding proportion of the company's assets. Section 48 of the same Act provides that, even where the deceased has surrendered such benefits, his estate still gets caught for Estate Duty on the benefits he has surrendered if five years have not elapsed between the date of the surrender and his death. Where Section 46 applies, duty is payable on a slice of the assets of the company equivalent to the proportion which the total amount of the benefits derived by the deceased from the company during the five years preceding his death bears to the total income of the company during the same period.
I should explain that "benefits" is a very wide term, including not only benefits that the deceased actually got or was entitled to have from the company, but even benefits which he could have been entitled to have by an exercise of any power which he possessed when alive.
Under the Clause we are now discussing, we thought it right to mitigate the harshness of the five-year rule, with all the consequences it may bring to the taxpayer if he fails by a day or a few days to live for five years after making his deed of gift. We have agreed that this clemency shall apply to the various categories I have mentioned. I suggest that it is reasonable that similar treatment should be meted out to a surrender of benefits such as that to which Sections 46 to 68 of the Finance Act, 1940, refer.
This is a complicated matter to explain, but I believe that the case in equity is apparent and, if my hon. Friend will study the facts, I believe he will realise that this is a case which should be brought within the ambit of the Bill.

Major W. Hicks Beach (Cheltenham)
I certainly welcome this Clause because it is going to a limited extent towards accepting the new Clause which I put down in the Finance Bill last year. The purpose of that Clause was to reduce what we call the inter vivos period from five years to three years. It was a. simple point as I made clear. I put the, point to the Committee, I hope quite fairly, from a practical point of view. 1287 Some hon. Members not concerned with practical matters are apt to talk from the economic point of view and not the practical point of view. It was my view then that from a practical point of view the proper period, if we are to have Estate Duty, which I personally do not approve Of—[HON. MEMBERS: "Oh".] I am on record on many occasions as having said that I did not approve of Estate Duty. It is a thoroughly unsound tax. I am surprised that the hon. Member for Gloucester (Mr. Diamond) believes in Estate Duty. What are we doing by having Estate Duty? We are accepting capital and using it as income. The qualifications of the hon. Member for Gloucester as an accountant are very high, but I am sure he will appreciate that it is a very unsound thing from a financial point of view.

§ The Deputy-Chairman (Major Sir William Anstruther-Gray)
I am afraid that the Committee is in danger of getting rather wide of the comparatively narrow point included in the Question.

Major Hicks Beach
I thoroughly accept your reprimand, Sir William, and I apologise for what I have said.
8.45 p.m.
I think that I would be in order in dealing with the observations of the hon. and learned Member for Paisley (Mr. D. Johnston), for whose legal knowledge I have the greatest possible respect, concerning discretionary trusts and Estate Duty. He is a Scottish lawyer and I am an English lawyer, but seriously to suggest that it is possible to create a discretionary trust which goes on for ever is unrealistic. [Interruption.] The hon. Member for Gloucester is not a lawyer. If he knew a little more about the law, he would realise that there is such a thing as the law of perpetuity. The Clause is a practical attempt to try to get the present legal position of gifts inter vivos on a fair basis.
I was interested to read some of the observations of the hon. and learned Member for Kettering (Mr. Mitchison) on this matter. He made an extremely sensible observation, as usual. In commenting on what I said on the new Clause which I proposed in the Finance Bill last year, which, in practice, has 1288 been adopted by the Government, the hon. and learned Gentleman said: Let me tell the hon. and gallant Gentleman of one rather personal sympathy. I have always understood that the present provisions of Estate Duty are thought to result in putting grandfathers into refrigerators when they reach an advanced age and a certain state of decrepitude."—[OFFICIAL REPORT, 15th June, 1959; Vol. 607, c. 79.] If that is the view of hon. Members opposite as to how the law of Estate Duty should operate, it is high time that it was changed.
I would not be in order if I were to stray beyond this Clause. I think that it is a step forward in the right direction. It is an attempt to get the whole law of Estate Duty on a proper and fair basis. I hope that the Government will regard this as only one stepping stone towards a thorough reorganisation of the whole law of Estate Duty.

§ Sir E. Boyle
We have spent nearly an hour on the Question, "That the Clause stand part of the Bill," and it may be that the Committee feels that the time has now come to take a decision on it.
I think that we have had a very agreeable debate. [HON. MEMBERS: "Agreeable?"] Well, agreeable to listen to. The Committee can congratulate itself on having kept the Clause in sight for a fair proportion of the time. I am sure that hon. Members would like to express their indebtedness to you, Sir William, and to your colleagues for the indulgence which, at odd minutes, you have shown.
Before I come to the wider aspects of the Clause which have been discussed, I should like to reply to two of my hon. Friends who have raised particular points. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) raised a highly technical point. I have taken due note of it. I will not attempt to deal with it at length—I do not think the Committee would wish me to do so—but if it is thought that an Amendment should be tabled on Report to deal with the matter, we shall certainly consider tabling one. My hon. Friend was on a very fair point.
My hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) raised a point about settlements which include provisions for accumulating the income 1289 for five years. His speech was not totally dissociated from an Amendment on the Notice Paper which did not catch your eye, Sir William, but none the less, I understand that the point with which my hon. Friend was concerned was that in the case of settlements made before Budget Day with provisions for accumulations for five years the charge under Section 1 of the 1894, Finance Act, should be waived and the settlement be liable only under section 2 (1, c) of that Act. The point is a fair one, but the proposal as I understand it tonight goes rather beyond the scope of the Clause, which is not designed to affect the basic liability to duty. I will certainly take note of the point, but it goes rather beyond the scope of the Clause as drafted.
My hon. Friend the Member for Shipley (Mr. Hirst) asked why my right hon. Friend the Chancellor of the Exchequer was not present. Whatever criticisms can be made of my right hon. Friend concerning the Bill, nobody can say that in comparison with any Chancellor he has not spent a reasonable amount of time listening to the debates. If he is not present now, it is because he has been present throughout the whole of the debate on Part III of the Bill and he has one or two important Amendments to which to reply from both sides of the Committee when we reach the last section of the Bill in, I hope, a fairly short time.
My noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) thought that the proposal contained in the Clause was somewhat mealy-mouthed, and he complained that my right hon. Friend was adopting what he described as a midway position. I have a terrible confession to make to my noble Friend. I am myself the son of a Gladstonian Radical. Perhaps, however, one should look at the Clause in the context of the Budget and the Finance Bill as a whole. We are dealing this year with a Budget and a Finance Bill designed to exercise a moderate restraint on demand. It is against that background that one must consider how great was the concession that my right hon. Friend could afford this year in respect of Estate Duty. He is not giving much away in the Budget as a whole. He has been forced to take back slightly more in taxation than he is 1290 conceding. Therefore, this was as big a concession as my right hon. Friend felt able to afford this year in this part of the field.
I do not believe that a proposal is a bad one because it can be assailed from two points of view. On the one hand, it is fairly widely felt throughout the country, not only among members of my own party, that if we have a five-year rule, it is inequitable and anomalous that one day should make all the difference between paying no duty at all and payment of duty at 100 per cent. On the other hand, I see no reason why the estate should not at least have a considerable premium in the person concerned living the full five years. A system of graduation by, say, geometrical progression after the first two years is a perfectly reasonable and sensible halfway proposal. I would say to my noble Friend that there is nothing totally wrong in having on this side of the Committee some belief in the idea of The Middle Way.

§ Viscount Hinchingbrooke
That is at least thirty years old and we are wondering whether it has any applicability at the present time.

§ Sir E. Boyle
It is much less than thirty years since I last read that work, and there is much of its doctrine which I still find acceptable. My noble Friend must bear with the fact that I have been always a rather violently moderate man in my own opinions.
Finally, I should like to say a word in reply to hon. Members opposite who have taken part in the debate. We do not believe that the Clause will wreck the position of the Inland Revenue. On the contrary, it is the virtue of my right hon. Friend's proposal that it will, at one and the same time, remove an anomaly to which many people have drawn attention and leave an adequate safeguard for the Inland Revenue.
I cannot accept the argument of the hon. Member for Grimsby (Mr. Crosland) that what we are doing in this Clause is in any way inconsistent with the idea of an opportunity State or the idea of wider diffusion of property. When we discuss any Clause of this kind, we come to a point where, on opposite sides of the Committee, we start from rather different judgments of value. I cannot, however, 1291 feel that the Clause and this proposal are inconsistent with the positive objectives, which are widely felt, I believe, in the Committee as a whole, concerning the kind of Britain that we wish to see in the future. This is a modest proposal designed simply to moderate an inequity which has long been felt and to which attention has often been drawn. It is in that spirit that I commend this proposal to the Committee and ask the Committee to approve it.

§ Mr. Roy Jenkins
The debate, as the Financial Secretary told us, may have taken more than an hour, but nevertheless it has been very well worth while. It has been a debate in which, apart from the Financial Secretary himself, we have seen the modern Conservative Party at its best. We had the hon. and gallant Member for Cheltenham (Major Hicks Beach), with his broad human sympathies tinged, as he constantly reminded us, by deep but unspecified practical experience.

Major Hicks Beach
I have been working on this all my life.

§ Mr. Jenkins
With so little result as far as the Committee is concerned, if that is the case.
We had the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) with his forward-looking political and sociological thought, and all the time we had the hon. and gallant Member for Knutsford (Lieut.-Colonel Bromley-Davenport), though not actually speaking—and we regretted that—but in the form of expressions either of approval or disapproval giving us the results of his mature consideration of these matters. I thought that the only hon. Member opposite who marred this picture of the modern Tory Party was the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) who, while being as usual extremely disdainful about the logic and lucidity of everyone else's speech, was to me just as incomprehensible as he always is.
I want for a moment to go back to the speech of the noble Lord the hon. Member for Dorset, South. In the early part of his remarks he returned to a theme which I have heard him develop on a great number of occasions. This was that any tax, but in particular this tax, was a tax designed by radical liberals of great iniquity to deal with the condi- 1292 tions of a slum-unemployment society. This is a fine, ringing phrase the exact meaning of which no doubt, had the rules of order been looser, the noble Lord would have explained to us more fully. But this is a point which the noble Lord has made on many previous occasions in relation to all forms of taxation that we have ever debated in this Committee. I have never heard him explain it or tell the Committee what he thought was suitable to meet conditions when we have advanced from a slum society.
The noble Lord also advanced the extraordinary argument that because Lord Dalton, when he was Chancellor of the Exchequer, had put up the exemption limit for Estate Duty to £5,000, presumably thinking that it was a good thing for large numbers of people with small estates not to pay duty, it must follow that it would be a good thing for Estate Duty not to be charged on anybody. This seems to me an extraordinary principle, because I cannot see why it should have more application to Estate Duty than to Income Tax, and I do not know whether the noble Lord has been against raising the exemption limit or abolishing Income Tax as a whole. One or the other seems clearly to follow from the noble Lord's propositions, and I hope that he does not regard arguments as being merely radical-liberal iniquity.
To apply myself, in reply to the noble Lord, to a question which my hon. Friend the Member for Grimsby (Mr. Crosland) dealt with to some extent—why we on this side of the Committee are not in favour of excessive mitigation of Estate Duty—I have no desire to be vindictive to any taxpayer or owner of any large estate, but I must point out that there is a strong natural tendency in any advanced society, and I suspect in any form of society, for property, without measures to the contrary, to be concentrated in fewer and fewer hands. The natural order of things without taxation is for property to become steadily more concentrated and, indeed, we are in a position today—

§ Sir K. Pickthorn
It is not true. That has no relation to fact.

§ Mr. Jenkins
It certainly bears relation to any advanced modern industrial society, and I know of no example where the contrary is true.
1293 9.0 p.m.
Let us consider the present position. This is not a subject about which we have very up-to-date statistics, but the latest statistics indicate that 1 per cent. of the population still owns not far short of one-half of the total private property in the country, probably slightly less than half now, and perhaps about 40 per cent. That is after sixty-six years of death duties. It is after a decade of death duties with a maximum rate of 80 per cent. and after two decades of death duties with a maximum rate of 60 per cent. Can hon. Members opposite imagine what the distribution of property would be if during that period there had been no death duties and nothing working against the natural tendencies? I find it very difficult to imagine it, but I am sure that it would have been a situation completely inconsistent with anything which could possibly be called a property-owning democracy.
As will have emerged from what I have said so far, the Clause does not command the support of the Opposition and we shall divide against it. The argument in its favour is that to some extent it reduces the lottery element in the operation of death duties, and in general and in principle the Opposition are not in favour of encouraging what might be called the lottery element in any aspect of our taxation system. Indeed, we would like to get rid of the element of pure chance in which one pays tax if one is unlucky and one does not pay it if one is lucky. We would like to get rid of that to a much greater extent than is done by the Clause but not, as is now proposed, at the expense of the Revenue and at the expense of having a system of death duties less effective than that now obtaining.

§ Viscount Hinchingbrooke
In that case, why did the Opposition not give us their views on the subject? It would have been perfectly possible to have drawn up a finely graduated Clause leaving the revenue at 85 or 90 percent. of what it now is.

§ Mr. Jenkins
I was about to give not merely the noble Lord but the whole Committee precisely my views on that point. If the noble Lord will pay attention for a little longer, he will find that I hope to explain exactly what our attitude is.
1294 In principle, there is clearly no argument for saying that if a man dies four years and eleven months after making over his property to his heir, full death duties should be paid, while if he dies five years and one month after doing so, no duty should be paid.

§ Mr. Nabarro
Coming on.

§ Mr. Jenkins
If the Chancellor wished merely to deal with that problem without loss to the Revenue and did not wish to make a concession reducing the yield of death duties, which, as my hon. Friend the Member for Grimsby pointed out, is already strikingly low in relation to what has happened to capital appreciation, the way to have done it would have been to taper off on both sides of the five-year limit, so that he would have balanced a concession which costs the Revenue a good deal by making good the difference the other way.
There is no magic in the five-year period, which operates in an extremely undesirable way; but the way in which to have done it would have been to make a concession downwards below five years and upwards beyond five years. Substantial concessions in death duties are already made, about agricultural land, for instance, and another small concession is being made in Clause 60.
As my hon. Friend the Member for Grimsby has pointed out, the results of concessions have been in the extremely disappointing yield of Estate Duty. Death duties are now one of the most dishonest aspects of our taxation system. By "dishonest" I do not mean the word in this context as in the case of dividend stripping, bond washing, or the other things which we have been discussing. This is not something which encourages deliberate dishonesty by taxpayers. I mean that it is intellectually the most dishonest aspect of our tax system, because the Government pretend that we have extremely heavy rates of death duties, rising to 80 per cent. on estates of more than £1 million, while they countenance—more than countenance, encourage—a system in which fewer and fewer people pay those duties.
It is clearly the case that there is no reason why a man who trusts his children and who can look forward, and who lives a reasonable span of life, should pay any death duties worth speaking of, 1295 however much his estate may be. I cannot understand how it can be argued by the noble Lord, who is muttering—I am not sure whether he is arguing—or by the Government that this is what one can call an honest taxation system in which there are very high rates which happen to fall on a small number of people, when they encourage—and this is what the concession does—an increasing number of people to avoid those taxes by making over their estates at the appropriate date. If the Government take the view that the present rates are too high, they would be far more honest if they brought forward a proposal to reduce them.

§ Mr. Nabarro
Next time.

§ Mr. Jenkins
I do not say that we would support them, but it would be clear-cut, honest and understandable, and preferable to having a Chancellor-assisted honeycombing of the tax base, which seems to be an entirely undesirable and indefensible system.
What should be done to have a sensible system of taxation through Estate Duty? I would think there was no doubt—as my hon. Friend the Member for Grimsby suggested—that if we taxed transfers of property, as hon. Members on this side strongly believe we should, the tax should apply to all large gifts inter vivos at whatever stage in a man's life they are made. That is the only sensible system. We could do it at rates which appeared reasonable, bearing in mind the fact that we have an effective system of taxation, and not a mockery.

§ Mr. Nabarro
The hon. Member suggests that we should tax gifts inter vivos at any stage in the life of a man or woman. What happens when a man wants to get married and gives his girl friend a ring worth £1,000? Will the hon. Member tax that? Will he try to tax me when I give my wife a silver wedding gift, or something of that kind? That is a gift inter vivos

§ The Deputy-Chairman
I hope that the hon. Member will not be tempted to go too far in reply to that question. The Clause deals with the graduation of charges and not with the principle, and it would be easy for the Committee 1296 to be led away into discussing the principle, which would not be in order.

§ Mr. Jenkins
I do not propose to be tempted too far by the hon. Member for Kidderminster (Mr. Nabarro).

§ Mr. Nabarro
Just answer me.

§ Mr. Jenkins
I hope that the hon. Member will not get over-excited about my failure to answer him. There is no difference between the position which will exist in relation to a tax on gifts inter vivos applied throughout a man's life and that which exists now in respect of the last five years of anyone's life. Nobody has ever suggested that in the last five years of his life a man is prevented from giving Christmas presents or any other sort of present.

§ Mr. Jenkins
When the hon. Member for Kidderminster gets an answer he must not pretend that he has asked an entirely different question simply because he does not like that answer. The position in respect of gifts would be exactly the same as it now is in the last five years of a man's life. If the hon. Member for Kidderminster would think for a moment, instead of shouting, he would realise that the rule in no way operates so as to prevent someone giving reasonable gifts, provided he is not clearly making a deliberate attempt to transfer property in order to escape duty.

Hon. Members
Sit down.

§ Mr. Jenkins
The hon. Member for Kidderminster gets increasingly excited. It is no good his gazing down the Chamber like Lord Kitchener looking over the ramparts of Khartoum.

§ Mr. Jenkins
If I am inhibited from giving way again it is because I am conscious that we are brushing the frontiers of order in this discussion, and I do not want to be led beyond them by the hon. Member for Kidderminster or anybody else. But I have no doubt that a general tax on gifts inter vivos, at a rate which appeared reasonable within an effective system, and with the tax levied, if possible, as a legacy duty 1297 —in other words, on the individual who received it; the donee rather than the donor—and progressing according to how much legacy had been received, would be a far more effective approach to this problem than anything we have so far achieved.
I have indicated our general lines of approach, and it would be out of order to develop them. I repeat that we cannot support the Clause. We do not think that it ends the lottery which rather disfigures the operation of Estate Duty at