CHARGE ON GAINS FROM ACQUISITION AND DISPOSAL: LAPSE OF TIME RELIEF

HC Deb 21 May 1962 vol 660 cc141-80

1.In this schedule the word "year" means a period of twelve calendar months and also includes an incomplete year immediately before disposal.

2.A percentage of any gain accruing from the acquisition and disposal of a chargeable asset, being gains taxable under section nine of this Act, shall be disregarded for all the purposes of Chapter II of this Act other than the furnishing of information; and the percentage so disregarded is in that Chapter called "lapse of time relief".

3.The percentages to be so disregarded shall be those set out in the following Table: —

TABLE
Years between acquisition and disposal	Percentage where the disposal is of land	Percentage in any other case
1	Nil	Nil
2	Nil	12½
3	Nil	25
4	5	30
5	10	35
6	15	40
7	20	45
8	25	50
9and10	30	55
11to13	40	60
14to16	45	62½
17to20	50	65
21to25	55	67½
26to30	60	70
31to40	65	72½
41to100	70	75
over 100	75

Mr. Mitchison

Yes, Mr. Williams.

This is an Amendment that, although short, is of considerable substance. It leaves out subsection (2) and inserts: In respect of tax chargeable by virtue of this section there shall be allowed relief, called 'lapse of time relief ', in accordance with the provisions of the Schedule (Charge on gains from acquisition and disposal: lapse of time relief) to this Act. We therefore propose to leave out the limitation of time, which, in the view of the Government, converts what might be a capital gains tax into an effective speculative gains tax— to use their own language. We propose to have no time limit, but to have, instead, a gradual diminution of the charge, varying inversely with the length of time between acquisition and disposal.

I will deal with the two Schedules quite quickly. They are much the same in effect, but they are not quite identical. Our problem arose from the fact that we wanted to tax a gain which falls due at the end of a definite period, as nearly as we could with the effect of making tax chargeable at the full rate for a term of years, then at three-quarters of the rate. then at half the rate and then at one-quarter of the rate. That is what the first of the two Schedules does. It looks a little complicated, and I must admit that the second of the Schedules, which is an alternative, was put in because a number of my hon. Friends said that the first was choctaw— or whatever other word might be used. To me, it seems quite clear, as it does to my hon. Friend the Member for Sowerby (Mr. Houghton). We regard it as much simpler than many things in the Bill or in existing Income Tax legislation.

Put summarily, it amounts to this: we take the amount and divide it by four. We then go to paragraph 3 of the first of the Schedules, where we put the number four into the multiple, which is the full rate, then the number three into the multiple, which is the three-quarters rate, then the number two into the multiple, which is the half rate, and then the number one, which is the one-quarter rate. In that way we apply, as nearly as may be, to a gain falling in in a lump sum at the end of the period, the sort of treatment that would be given in respect of the tax at the full rate, then at three-quarters rate, then at half rate and then at one-quarter rate. That is being done to a lump sum of money, and it is, therefore, irrespective of changes in the level of the standard rate during the period in question.

If hon. Members like to work it out they will find that it is quite simple. At the end of the time it gets closer and closer to 25 per cent. without ever actually reaching it. Taxing 25 per cent. is not the same as the American tax of 25 per cent. What we are doing here is to levy not a tax of 25 per cent. but a tax on 25 per cent.— a much smaller figure.

The second of the Schedules moves in the same way, but the figures have been equalised to avoid complicated numbers, and they go in multiples of five and two-and-a-half, and finally reach a relief amounting to three-quarters, or a tax of one quarter.

I hope that I have made reasonably clear what is actually a slightly difficult thing to do. I can assure the Committee that the Schedules are intended to provide a tapering relief, varying in the case of land and other assets just as the Government's proposals vary, and, in effect, providing for a period of three years at full tax, which is the Government's period in respect of land, and one year instead of six months in respect of other assets. Then, since the land has had a longer period, the rise in relief is a little sharper than the rise in relief in respect of stocks and shares. We get two curves or series which are intended to produce a proper tapering result. I should be the last person to insist that this was necessarily the right form of giving a relief. The Schedules are intended only to show that it is quite easy to give this kind of relief, depending on the length of time between acquisition and disposal.

8.45 p.m.

I now turn to the substantive question that we have to consider, whether we wish to keep the Government's time limits. I still think that the simplest answer was contained in an article in the Evening Standard on the day on which the time limits appeared. The article suggested, "There is not much trouble to be anticipated from this tax. If you are dealing in stocks and shares, you have to wait for six months and a day, and no trouble will happen to you anyhow. But if you are so impatient that you cannot wait till then, here are three ways to avoid the tax. The first two are illegal, but you are unlikely to be discovered. The third one is legal."

I am not concerned with the merits of the methods of evasion suggested. They related largely to dealings in the Channel Islands, or the Isle of Man, or something like that. It does not much matter whether they happened to be thoroughly effective or not. But there is no doubt that a short-term kind of tax of this kind is almost certainly easy to avoid and certainly easy to get out of by waiting until the end of the short term— and the end is very short indeed. Therefore, as the Government were at pains to tell us, it is very carefully to be distinguished from a proper capital gains tax.

From our point of view the only point is that though, no doubt, one would have to go through all the voluminous provisions of this part of the Bill and the very complicated Ninth Schedule in some detail, it appears that, broadly speaking, a great deal of the machinery suitable for a speculative gains tax is also suitable for a proper capital gains tax. Therefore, the arguments which have been put forward so frequently about the impossibility of doing it seem to have lost some of their validity.

I have long suspected that there was not much behind them but prejudice, and here is a scheme, put forward by the Government. It will be said, "But you yourself have just been saying how easy it is to get round them." My answer is," That is as may be. But it is very much harder to get round a tax without time limits than to get round a tax which has these comparatively short time limits."

Later, we shall see how many holes the Government have left of which they are aware at the moment, or of which hon. Members opposite are aware, and stop them so far as we can. But I have no doubt whatever that the Government tax, as proposed, is open to a certain amount of criticism. All I can say is that any criticism which may be directed against us for impracticability falls against the Government with 'greater force because what they are proposing to do is something which is a great deal more difficult.

Therefore, I reject a great many of the arguments advanced, for instance, in the Report of the Royal Commission about the difficulty, the administrative difficulty — we are always told that— the general difficulty, every kind of difficulty, of producing a tax. Here it is. It may not fit exactly, I am not sure that it does; but it certainly shows that something of the sort can be done.

Now I come to the point of substance about this. It appals me that people go on so long objecting to a capital gains tax. I cannot see what is the difficulty about it, I mean the philosophical or the national difficulty. We who go about London or other parts of the country know of money being spent which could not be accounted for by what has been received by way of salaries and the like. We know that it comes very largely— surely this is a matter of common knowledge to hon. Members on both sides of the Committee — from people who have made gains by buying something or other and selling it at a profit, and not necessarily within six months or three years. Very often, they hold these things for a long time. What is happening is that, with the gradual change in our affairs going back over many centuries, the value of money is actually tending to fall and the value of assets of one kind or another has been tending to rise.

The man who gets his income from some kind of stocks and shares or from the rent of land and the like is using the advantage of his possessions in one way, but, if he sells them, he is equally using it in another way. If he chooses to have a thousand shares, and, instead of choosing the kind of shares which pay high dividends, deliberately chooses a share with a very much lower one, but with prospects of increasing in value, he can get his effective income by selling off ten shares in one year and ten in another until he acquires what he wants to live on at the standard of life he chooses.

If we take a perfectly innocent case, we all know that leaflets issued by any Government, newspaper articles, and so on, point out what an advantage it may be in certain circumstances to do this with National Savings Certificates. There is a very great deal to be said for buying a parcel of them and selling off five or ten certificates at a time as required. Of course, they are not subject to Income Tax anyhow, but is there any substantial difference between the man who buys a bond and gets interest on it and the man who buys a parcel of National Savings Certificates, which are bound to go up in value, and takes the advantage of that accretion by selling off packets from time to time?

Exactly the same thing may be done with stocks and shares, and in the case of land there could be the same kind of thing, but in a more complicated form. I suggest— and it was suggested by the minority Report of the Royal Commission on the Taxation of Profits and Income— that the distinction between income and capital for taxation purposes breaks down at this point. I simply appeal to the common sense of hon. Members about it. Is there any real difference? Take the case of people who nowadays are liable for a very high rate of taxation, and who, quite deliberately, put their money into something that is not affected by this particular Government tax, let us say, the pictures of the French Impressionist school. They buy a highly marketable Renoir, which, I understand, is the best thing to do. Whether he is the right artist to select or not, I leave to other hon. Members to decide. They do it deliberately, in order to sell at a profit in a few years' time. There is an element of gambling in it, of course, but in the long run they will make something out of it.

This is going on not merely over a short period, but decade after decade. It has been going on in this country ever since the Industrial Revolution, and, I believe, before it, and there has been a constant accretion in capital value which has benefited some members of the community to a very large extent indeed. London's ground landlords have not done too badly on the whole, and those who bought shares in a successful insurance company a little time ago have found that those shares are a good deal more valuable now than when they first bought them.

All we are saying is that here we are hunting round for taxable capacity. I am not talking about morals, but simply about taxable capacity. We are driven, as we saw on the last Clause, to get a few shillings or a pound or two out of people with very small incomes indeed. We are told that we cannot afford to do any more for them at present. We are driven equally in the same way to be very careful and calculating about reliefs that are given to a whole number of special cases. We are obliged to keep the standard level of Income Tax at a rather high figure and only to lower it just before General Elections.

With all this we never really reconsider what leaps to the eye— the fact that property, by and large, is going up in value, has been doing so for a very long time and looks certain to go on doing so. If that is not a taxable capacity, if it is not right to tax people who benefit from those accretions, what is the sense of our system of taxation? What kind of moral or philosophical consideration debars us from doing just this?

I looked, as other hon. Members have done, at the Report of the Royal Commission on the Taxation of Profits and Income. I am not in the least convinced by any of the arguments that were put forward by the majority in that case and I never have been convinced. I have the feeling, looking at it, that they could not get out of the trammels and shackles of a form of taxation that was introduced for income only, and very strictly for income only, under rather peculiar conditions in the middle of the Napoleonic Wars by William Pitt for temporary purposes. It is about time that we reconsidered the matter, and this Amendment seeks to do so.

I turn to one other point. It is absurd to say that this is impracticable when other countries do it. It does not always involve a revolution. The United States of America, to take one obvious instance, has been doing it for some time and is still doing it. I am not concerned with the details of the system. I am not even concerned with the extent to which the U.S.A. found difficulties in working it. The fact is that a great and civilised and very wealthy nation thinks it the right thing to do and goes on doing it. Surely that is a conclusive answer.

There remains the question of set-off of losses. I think that history, so far as we have seen it, and so far as we can judge of how it is likely to develop, shows us that there is a rise, that if we allow set-offs of losses we shall no doubt reduce the tax in any given year but that in the long run we shall do what we are seeking to do and we shall get for the community a taxation share— I am not talking of anything else— of profits accruing from year to year.

What we are really seeking to do is to tax not any individual or particular case, but the whole flood of increase in the value of property which we have seen flowing— with an ebb occasionally, but still flowing one way— in the direction of increase for decades now. I appeal to hon. Members not to allow themselves to be governed by political prejudices which they may have, not to think that there is anything immoral in seeking taxable capacity where common sense would lead us to expect to find it, not to believe that they are upsetting the universe and provoking a revolution or accomplishing the final death of a perishing Tory Party by accepting this Amendment, but just for once to clear their heads of all that and to imagine that they were starting with a clean slate but with the world around them as it is.

Could anybody in his senses refuse to tax capital gains in this country? Could they do so in justice, in equity to other taxpayers who have no chance of making these capital gains and see Mr. A and Mr. B getting away with it while they are merely Schedule E payers on their weekly salaries and can no more make taxable gains than they can climb to the moon? Surely, if there is any social justice in the matter we ought to do it.

I return to the main point. This is obvious taxable capacity which it is right, which it is socially just, and which it is most expedient in fairness to other taxpayers to tax. We ask for it to be taxed and not used as an excuse for the rather short-sighted and, we believe, wholly unworkable measure which the Government have introduced. I say that it is unworkable because it is so easy, having regard to the limit of time which we are now considering, to wait for six months and a day or three years and a day.

9.0 p.m.

Mr. John E. Talbot (Brierley Hill)

I do not suppose that my remarks will be acceptable to either side of the Committee. I shall put the point of view of the victim of the tax. In this combined debate, we are discussing two things which are perhaps a little inconsistent. We are discussing the shortening of the relevant period for the tax from three years to two and we are discussing a considerable extension of it to a period which, on my reading of the Schedules, seems to be 100 years. How anyone, even in the Inland Revenue, will keep his papers for that time I fail to understand. Solicitors and accountants will probably have changed four or five times during that period. However, apparently, one must treat it as a serious proposition because that is the way it appears on the Notice Paper.

In our discussion, we come up against the words "speculator" and "speculative". I suggest that we should consider what the meaning of these words is. The word "speculator" is derived from the Latin word "speculum", or mirror. A man looks in the mirror not for the sake of admiring his awn visage but to get the angle of reflection which a mirror gives him of a situation which cannot be seen with the naked eye. In other words, a speculator is a man who bases his judgment and conduct in some matter on a view of the future which he alone can see in his speculum, or mirror. According to what he sees he forms his judgment of what he will do.

Latterly, the word has acquired a pejorative significance. It has become without honour to make a profit in one's own country, and if that profit is made in the handling of real estate then the dishonour, apparently, is six times as great.

The matter is put before us as though this were a new case of Income Tax, Case VII, but it is, in fact, nothing of the sort. This is not a tax on income as such in the traditional view of English tax law. Income Tax is an annual impost on annual receipts. Hitherto, no Government have sought to impose as Income Tax a tax on something which, from the start, they have confessed is not income.

The Chancellor has said that he proposes to tax money not received as income but treated by the recipients as income. In his Budget speech he said: While the main function of any system of taxation must be to bring in revenue, it must also be designed to produce a feeling of broad equity of treatment between taxpayers. At present, it is pretty widely felt to be inequitable that those who supplement their incomes by speculative gains should escape tax "— not Income Tax, but "tax"— on those gains.… I tell the Committee frankly that it is on this account and not mainly for yield that I put forward this proposal."— [OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 979.] On that footing we have to face the tax as it is today. In other words, my right hon. and learned Friend is trying to tax as income something which is not income. He continued: For interests in land the charge will apply if the period from acquisition to disposal is three years or less.… This difference in period conforms to the reality of the situation. 'Short term' in relation to land is something quite different from 'short term' in relation to stocks and shares."— [OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 980–1.] I do not think that I would quarrel with that statement. It is obvious that, if six months is a reasonable period for stocks and shares, the average property transaction undertaken as speculation would take longer. But it would not take as long a period as three years

As an example of one of the things which will happen if the three-year limit is adhered to, let me give a simple case which has happened in my practice on many occasions. A man buys a house let to a tenant under the rent restriction Acts. For two years he receives the rent on which he is taxed under Schedule A, and if it is in excess of the Schedule A assessment he will pay under Schedule D as well. At the end of two years, the tenant, being moved to another part of the country, gives him notice to quit. At present, he will probably sell the house because there will be a difference between the investment price at which he purchased and the new price at which he can sell.

What will he do? He will keep the House empty for a while because it is far better to drop the income, and thereby drop the Income Tax, than to pay the tax on the realisation. Is that a good thing? Plainly not. In every social sense— I have heard a great deal about social justice this afternoon and I shall examine that presently— that house should be brought into use, whether let or sold, at once. But is it possible that it will be under the threat of a tax of this kind? In the purview of a sale and purchase of this type, it is the time when the asset is acquired which matters. The profit is in contemplation when the asset is acquired, not when it is sold. The man who buys his stocks for a six months' holding is contemplating a profit from the moment that he begins the operation. At six months and a day, as the hon. and learned Member for Kettering (Mr. Mitchison) said. he can take his profit and under the Government scheme is exempt from tax. Would it not be far better to shorten the range of the tax in order to avoid social damage of this sort? Of course, if the tax is lengthened, as the Amendment suggests, that is an attack on investment as such. Plainly that is not Government policy.

Mr. Mitchison

Why is that an attack on investment as such any more than it is an attack on weekly wages if they are taxed?

Mr. Talbot

I do not follow the connection between weekly wages and what we are discussing.

Mr. Mitchison

Let me make myself clear. The hon. Gentleman said that this was an attack on investment as such. Why is it an attack on investment as such by taxing any more than it is an attack on wages as such by taxing?

Mr. Talbot

Because hitherto it has not been the Government's policy to attack investment as such. A tax on the realisation of the profits of an investment designed to last over 100 years is plainly an attack on investment as such.

It was not long after this speech was made by the Chancellor that the usual commentary and explanation were issued. As right hon. and hon. Gentlemen opposite may not have heard about this, I will read the commentary issued by the Conservative Party Central Office in order that their appreciation of our attitude to the tax may be better understood. It is entitled, "Spreading the Tax Burden". It reads: While ruling out substantial tax reductions this year, the Chancellor has improved our tax system by widening the base and spreading the burden more fairly between different individuals and also between the different things we buy. Spreading the burden is the feature. Yet we are told that it is not imposed to raise revenue; it is imposed only, one might say, for social justice. How can the burden be spread if nothing is to be raised from the tax to help to spread the burden?

The quotation continues: It has been widely felt to be unfair that people who make quick speculative profits "— three years, of course, is only the day before yesterday— which are really in the nature of income— not really investing at all— should go tax free. The Budget makes these speculative gains taxable in the same way as any other income. That is not true, because any other income attracts earned income relief whereas this does not. The quotation continues: This is a major reform. The Socialists and Liberals say it does not go far enough. To tax all capital gains, however, might discourage genuine saving and investment and so slow down economic growth. Which of these pictures is the right picture? Are we expecting to get so much money from this tax that everybody will rush to bring their transactions within its ambit in order that we may spread the tax burden over other people, or is this just petty surrender to the agitation which the Opposition have engendered— a petty surrender to the Chancellor's commitment in July when, in order to get help from the Opposition for the pay pause, which has been consistently denied, he made this tentative offer which he has felt bound, in honour, to put on the Statute Book? This tax is a tax on investment and will not be productive, because people will adjust their affairs to avoid it, and they will even adjust their affairs to avoid the tax in the form which the Opposition propose.

This attempt to square the Opposition on the pay pause policy has failed, as all attempts at appeasement deserve to fail. For a temporary benefit which the Government have not in any case achieved, the commercial and professional community must suffer still more Inland Revenue acquisition and act as unpaid spies for the Revenue. There is one reason surely for the lack of support for the Government, who seem to delight in injuring their own supporters, for nearly all the persons affected by this tax in the normal way will be Government supporters.

How readily the Socialists accept the principle of the tax which the Government are seeking to introduce in this Clause and how they want to amend it to make it rougher and tougher. I say to them in conclusion, let us have no more talk of social justice. The spring of justice in this place is by no means as pure as that in the Strand, and when it goes through the muddy waters of expediency, as this tax is doing, it will have no value either as a solution to the public feeling which is alleged to exist or in any fiscal interests of the country.

9.15 p.m.

Mr. John Mackie (Enfield, East)

I wonder whether I should be in order, and if it would be for the convenience of the Committee, if I were to move the Amendments in my name and the names of some of my hon. Friends, in page 10, lines 29 and 31?

The Chairman

It would not be in accordance with practice for the hon. Member to move them now, but it is in order to discuss them, as was explained, I think, when the Amendment which is now before the Committee was called.

Mr. Mackie

I apologise that I did not hear that explained, Sir William.

I was interested in what was said by the hon. Member for Brierley Hill (Mr. Talbot). He thought that many Members on this side felt there was something wrong about making a profit. I do not think that most hon. Members on this side think that wrong. What we say is that it is wrong not to tax profits, which is a different thing altogether. I was delighted with the honesty of the way the hon. Member put his case, and he put his case from the Tory point of view with a vengeance. It is enlightening to see the exact, typical Tory view on this matter.

Along with my hon. Friends, I am not necessarily against the official Opposition Amendment which my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has moved, but we do feel that it is a rather complicated way of dealing with this matter. After all, we are rather keen to simplify taxation today, and not further to complicate it; many people find taxation difficult enough already to understand. Moreover, as the hon. Member for Brierley Hill said, over a hundred years the value of money can change. With my hon. Friends, I feel that a far simpler way of dealing with this question of taxing capital gains would be better.

That is why we have put down the Amendments I have just referred to, asking the Committee to alter the periods as set out in the Clause. I do not want to take up the time of the Committee by going into all the details and arguments. My hon. and learned Friend the Member for Kettering has done that already, and, no doubt, many other hon. Members can do it better than I, but I would just say that the period of three years is really not long enough for agricultural land or any other kind of land, and that six months is not long enough for shares or "any other case". We, suggest five years instead of six months. Those shorter periods certainly keep those concerned and the property inside the realm of speculation, and we should like to get outside the realm of speculation altogether. That is why we feel that a longer period is absolutely necessary and that we should make the time for land up to ten years. That would definitely take the matter out of speculation altogether.

Nobody will buy agricultural land, for instance, and sell it inside three years. I am sure that nobody interested in buying land for agricultural purposes will sell it in three years, so that that proposal for three years is ridiculous. I think that ten years is really a more likely period to take the matter out of speculation. As for land for building and that sort of development, it is obvious that by the time one has developed the land and got the buildings up and sold it, the three years will be over and one can take one's profit and get it free. We feel that that land should have a ten-year limit as well.

Indeed, one would think, on reading the Bill and the Government's proposals, that they were simply a sop. I think that the hon. Member for Brierley Hill was probably right in a way. These proposals are a sop, arranged so that the liability to tax can be got over. Ultimately, there will be little return from the tax as proposed. There is not much hardship involved in paying the tax as here proposed, with all the expenses allowed, and so on. As I said earlier to the hon. Member for Brierley Hill, we should like to see tax on the profits made.

As to the other cases, which mainly concern stocks and shares, I would commend hon. Members to read an article written by the Chairman of the Stock Exchange just about the time when this suggestion was first made. He said that what the Stock Exchange wanted was investors and not speculators. We want to see people invest their money if they so wish. They are not investing it if they are allowed to take the profit at the end of six months.

Mr. Charles Loughlin (Gloucestershire, West)

I appreciate the point of view which my hon. Friend is putting forward, but I cannot get clear in my mind what purpose there is in investing money through the Stock Exchange other than to obtain a profit, whether it be in six months, three years, or any other period of time. If one supports the system I cannot see how one can object to anybody exploiting the system in that way.

Mr. Mackie

My hon. Friend obviously has not invested large sums of money. One invests money and one receives a dividend in return, but one can speculate in stocks and shares and obtain an increased value. The speculator is the man who buys stocks and shares to obtain a rise in value over short periods, and the investor is the man who wants a dividend on his money over a long period. I hope that that is clear to my hon. Friend.

If the period in this case is only six months, it leaves it wide open to speculation. We see no reason why the period should not be five years. The reasons I have given are the main reasons for our suggesting a period of ten years for land and five years for stocks and shares. This suggestion, we believe, simplifies matters and does not go into the complicated situation which the Amendment moved officially by the Opposition Front Bench would involve.

Mr. Callaghan

As the only objection is that the "official" Amendment, as my hon. Friend calls it, is complicated, may I ask why he is such a half-hearted revolutionary in company with his hon. Friend the Member for Ashfield (Mr. Warbey)? Why does my hon. Friend want to stop at five years? If it is worth taxing, let it be taxed whenever it is realised.

Mr. Mackie

There are changes in the value of money over a period of years. We thought that periods of ten years for land and five years for stocks and shares would be reasonable and simple. Over a hundred there could be a fantastic change in the value of money. A proposal covering a period of time would be unfair to all concerned.

Mr. Callaghan

What is to prevent my hon. Friend, without a wishy-washy Amendment of the kind that my hon. Friend has in mind, supporting a proposition that the whole amount should be taxed at a decreasing figure? I am sorry to see that the red flag is at half-mast tonight.

Mr. Mackie

I see nothing wishy-washy in an Amendment which makes two categorical statements about periods of ten and five years.

Sir H. d'Avigdor-Goldsmid

I am sorry to be intervening in what appears to be a private squabble on the Opposition benches. I think that we have all enjoyed it and have been much enlightened. The purpose of my intervention is, first, to thank the hon. and learned Member for Kettering (Mr. Mitchison) for having been so kind as to put down a special crib in his revised addendum, because the original was not quite as translucid as perhaps it was meant to be. I thought that I detected in it the fine Italian hand of the hon. Member for Sowerby (Mr. Houghton).

What is the force of the Amendments which have been put forward with great vigour and eloquence from the benches opposite? The force of them is to freeze the situation as it exists today. It is to discourage any owner of property of any sort from taking any action whatsoever to improve his situation. It seems to me that it is really a case of trying to legislate for moral reasons. Moral reasons feature in all sorts of debates, but I do not think they ought to come too much into Finance Bill debates.

One sees the morality of the argument, and it is very strong. There are rich people and poor people, and more poor people than rich people; therefore, it is right that the rich people should give up more of what they have in order to make the poor better off. That is straight commonsense, and we see it.

But the Amendment is not designed to achieve that object. Indeed, it will produce exactly the opposite result. If, by some strange stroke, the Amendment is adopted, people who own land will do nothing at all with it. Thanks to the guidance which we have been given, they will know that the best thing is for them to do nothing with their land, for seventy-five years according to the Amendment of the hon. and learned Gentleman, or they will be liable for a special tax on what they have done.

Let us remember that by terms of the Bill which we have not yet reached the mere act of granting a lease of twenty-one years is itself a disposal. What the hon. and learned Gentleman's Amendment is arguing is that people who grant leases should be taxed on the granting of the lease although they will be paying tax on the rent as well.

The effect of this will be that the innate conservatism of the British character will be reinforced, and capital will become completely immovable. People will not bother to develop or take a dynamic view of things. A dynamic view is required here. In other debates we are always being urged to take a more dynamic view of things. Yet when we take a dynamic view we are presented with an Amendment like this, which is simply intended completely to freeze the situation. Is there any sense in it at all?

Mr. Callaghan

Is it really true?

Sir H. d'Avigdor-Goldsmid

No doubt that will be seen.

I think the logic of what I have said is clear. The Town and Country Planning Act, 1947, stopped any desire for development of the country and was one of the reasons why we were so slow in developing. One of the reasons for our present shortages is that we were so slow and did not take the opportunity that existed then because every owner of land was advised by legislation that it would be much better for him to stay quiet than initiate any action. That is exactly what the Amendment seeks to do, and I propose to vote against it.

Mr. Mitchison

Is there not a considerable difference? The development charge was intended to cover 100 per cent. of the accrual of value. It is a matter for argument now whether that was or was not going too far. But this is simply a case of Income Tax on accrued gains, and it is the Government who propose that Income Tax should be levied on the full amount at the beginning. We have deliberately taken care to whittle down that Income Tax with the lapse of time.

I suggest to the hon. Gentleman that the Amendment will not have the terrible effects that he supposes, because people will not have anywhere else to go. They have got to deal with the land. They will all be dealing with it in the same way. They will get a considerable profit out of it, just as people at present get profits assessable to Income Tax. The fact that Income Tax will be levied does not deter them from chasing the profits. Why should this proposal?

Sir H. d'Avigdor-Goldsmid

On the argument that I have heard from the hon. and learned Gentleman, there is, and tends to be, a natural increment of staying still. That is an argument which the hon. and learned Gentleman developed in his speech. Any sensible person should realise that if he does anything in the first eight years in the time that he holds the property— that is a long time, covering two or three Parliaments— the only relief that he will be granted from Income Tax or Surtax in respect of this proposal will be 25 per cent. A person will take that as a strong argument to sit tight and not initiate any activity; and if people do not initiate activity, very much less activity takes place. It all comes back to what I said earlier, that the object of the Amendment is to freeze the distribution of wealth in its present way, and if the hon. and learned Gentleman thinks that that is satisfactory, I do not.

9.30 p.m.

Mr. William Warbey (Ashfield)

The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) obviously takes a poorer view of the moral principles of the working people of this country than we do on this side of the Committee. He assumes that the only motive that moves people to invest their savings is to get an earned income in the form of rent, interest or profit and, in addition, a further unearned income by way of capital gain. He assumes that that is the only driving force which compels people who have the money at the moment to invest it in productive activities.

The truth, of course, is that we need a new definition of "investment". Hon. Members opposite are continually using the word to refer to something which is not investment at all. I would have thought that if investment had any meaning it meant that someone saves a part of his income and uses the money to provide capital for some new form of productive activity. I would have thought that was a reasonable definition. What we are talking about is not investment in that sense at all.

We are talking about people who engage in the buying or selling of shares or the buying or selling of land, which has nothing whatever to do with the encouragement of any form of productive activity. When Mr. A buys a block of shares on the Stock Exchange for £1,000 he adds nothing to the productive activities of this country. He makes no contribution. When he sells those shares he makes no contribution and the buyer of the shares makes no contribution. It is only when new capital is raised for the purchase of plant and equipment, the engaging of labour and so on in order to carry out some new economic development that the individual makes any contribution that can be distinguished by the name of investment. It does not surprise me that in these days people who put their weekly bets on football pools are described as investors. Now that the word has become used in that wide sense that form of investment is just as much a contribution to the wealth of the community as the form of investment with which we are dealing.

My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) tried to have a little fun at the expense of my hon. Friend the Member for Enfield, East (Mr. Mackie) who spoke to these two Amendments. I think that it is very agreeable that hon. Members on this side of the Committee should be able to talk as though they were the Government. It is a very good thing. It is a very healthy sign indeed that we should have so much confidence in the development of politics that we should already be able to talk as though we had the power to determine what will happen with regard to taxation.

I believe that that situation is coming very soon indeed and that then my hon. Friend the Member for Cardiff, South-East and my other right hon. and hon. Friends and I will be able to join in working out the most effective means of ensuring that this community wealth which is being taken away from the community at the present time in the form of untaxed capital gains is returned to the community for its proper disposal.

Unfortunately, at the moment we still have to deal with a Tory Government, and therefore we have to travel by different roads to achieve the same end. I will make a bargain with my hon. Friend the Member for Cardiff, South-East. If he will vote for our Amendment, we will vote for his. Indeed, I will go even further. I will offer to vote for his Amendment in any case.

We on this side of the Committee are agreed on our objective, which is a simple one. It is to convert this speculative gains tax proposed by the Government— which the Chancellor himself has admitted is unlikely to produce any substantial yield— into a tax which will realise what appeared to be the original intention of the Government. Whatever words the Chancellor may use now, the original impression given to us was that at long last, and after many years of discussion and hesitation, the Government had realised that social justice required that capital gain should be taxed. By these Amendments, we seek to ensure that that objective is reached.

The hon. Member for Brierley Hill (Mr. Talbot) has told us how the Government proposals will be evaded— how, by a little skilful adjustment, a person who engages in this form of money-making will be able to go on making money without having to suffer taxation on it. Indeed, he is not the only one who has told of how this can be evaded. A person who does this kind of thing explained— anonymously, for obvious reasons— how it would be done in an interview in the Observer on the 15th April. He was asked how the Chancellor's speculative gains tax would affect him and he replied Not very much. You see, although you get some very eccentric speculators— people, for example, who buy £10; 000 shares with only £1; 000 in the bank and hope like mad that the wretched things will go up within the account (sheer madness, I think)— most of us are not fools. If I buy a share today, and a lot of other speculators buy the same share, we're going to put the price up. Let's say we're coming up to our six months and that we're still holding on. The jobbers will be short of stock and they'll be putting up their prices still further to try to get someone to sell. Well, with any luck at all, we'll be over the six months and selling with as good a profit as we had any right to expect. That is how they are to do it.

We are proposing that there should be an attempt to have a really effective tax on capital gains. As my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has already pointed out, the most important capital gains and those which have the most serious effect on the community are not made in the short term. They are part of a long-term process. This kind of thing has been going on in this country for many years and is the main process by which we have created a state of affairs in which the majority of private wealth is concentrated in the hands of a tiny fraction of the community.

According to recent calculations, 45 per cent. of the private wealth of this country is owned by 2 per cent. of the population. Does anybody regard that as a healthy state of affairs?

Mr. Diamond

Yes.

Mr. Warbey

Apparently somebody does. I would have thought that there were few who thought it right that 45 per cent. of the wealth of the country should be owned by 2 per cent. of the population.

Mr. Diamond

My hon. Friend made that quite clear and went on to ask whether any part of the population accepted that. The answer is yes— that 2 per cent.

Mr. Warbey

I suppose that there will be some hon. Members opposite who belong to the 2 per cent, and even if they do not belong to it individually they represent those interests in the House of Commons and would not be here if they did not, because it is precisely that 2 per cent. of the population which makes the biggest contribution to the funds of the Tory Party.

This process of concentration in the hands of a few individuals has been accelerated during the past few years. It has been accelerated by the present Government and by deliberate Government policy. It has been accelerated by the encouragement by the Government of higher interest rates. One effect of that policy is that everybody is encouraged to expect a higher return on his capital however it is invested. If one finds that 2½ per cent. in the Post Office is no longer a reasonable return on one's savings——

The Chairman

Order. I am sorry to interrupt the hon. Member, but interest rates seem a little remote from these Amendments.

Mr. Warbey

I was merely trying to indicate how the situation had arisen in which there has been a large increase in non-taxable capital gains in recent years and how that process is likely to continue. That provides a reason for having this tax extended over a longer period. I was trying to show that this process has been encouraged by the Government as a result of which we can almost pinpoint the period when we had a sudden new intensification of this process of capital gains. It came after the increase in interest rates leading to this new expectation of a higher return on capital, so that people now automatically expect not only to get a 6 per cent. return in interest on their investment, but another 6 per cent. in the form of capital gains. This has become the normal expectation of people who invest their money.

Secondly, the Government have encouraged it by the introduction of the Rent Act.

9.45 p.m.

Mr. Peter Walker (Worcester)

Is the hon. Gentleman aware that if people demand a higher yield on their shares this results in share prices going down during that period? Last year during the period of high Bank Rates share values in this country dropped by £ 700 million.

Mr. Warbey

It is true that share values dropped during a period when profits were falling off. We know that under our present economy, as guided by this beneficent Government, it is not possible for business to be working at top speed all the time and making high profits all the time. There must be periods when profits fall off, and, therefore, we automatically have a time when share values fall.

Mr. Laurence Pavitt (Willesden, West)

Does this make any difference to my hon. Friend's argument? Even if share values drop by £ 700 million, it is quite easy to make short-term capital gains by going bear on the shares and buying them back at lower prices later.

Mr. Warbey

My hon. Friend knows more about these things than I do. His comments merely strengthen my case for lengthening the period to which the tax should be applied, because, although there may be short runs up and down in the kind of economy that we have, it is in the long run that there is this steady process of capital gains.

This has been one of the main reasons why we have seen the development of investment trusts. They are now openly advertising to the public not to secure a steady return on capital, but to secure capital gains. For example, in the Observer of 15th April an advertisement by First Provincial Reserves Unit Trust, headed, "1953 to 1962—£ 100 to £ 300", said: Investment in high class ordinary British shares has proved its merits over the last decade, and is exemplified in the record of First Provincial Reserves Unit Trust which has risen from 4/6d. per Unit on 13th April, 1953 to 14/— today. The next heading was "1962 onwards …?" and the public were invited to contribute to this investment trust to make capital gains, not to secure a yield on shares. That is the paint which is stressed nowadays.

This is the new atmosphere, the new psychological outlook, which has been induced in the wealthier sections of the community. The opinion held is that all someone has to do is to sit back and wait for his money to grow. How can we expect to have a dynamic economy which will compete with the economies of other countries when the wealthier people, those who should be the entrepreneur, are able to sit back and occasionally ring up their brokers to obtain an increase in their personal wealth? That is the atmosphere that prevails at the moment and that, quite apart from the question of social justice, provides an argument for an effective tax on capital gains.

By how much these gains have increased in recent years we do not know, because we have not sufficient statistics, but my estimate— based on what we know about the increase in the value of shares sold on the Stock Exchange and of the price of land, which has risen particularly rapidly in the last three years— is that in the years 1958-61 no less than £ 15,000 million was added to the private wealth of a comparatively small section of the community without the payment of one penny of tax. If that figure is excessive perhaps someone on the Treasury Bench will be able to give us more up-to-date and accurate information. That is the nearest estimate that I can make.

When nurses and teachers, railway workers and miners, and so on, are told that they cannot have more than a 2 per cent. increase in their income it is fantastic that a small section of the community can, by skilful management, still obtain increases in the value of their shares by investing in bank shares, property shares or finance company shares— which are still rising in value and which have risen fourfold in the last three-and-a-half years—and can in fact gain a hundred times as much wealth in a few days as a worker can by working a whole year. That situation must be remedied. It will not be remedied by the Government's proposals. That is why we want to make this tax really work.

Mr. F. P. Crowder

The hon. Member for Ashfield (Mr. Warbey) gave us a very interesting dissertation on investment, how far it went, and what it means. He then said something which will be of great interest to innumerable people. He said, "We have even got to the stage where a poor man who invests Is. or 2s. a week in the football pools is considered an investor." Quite apart from the view of his party, does he personally take the view that if a person, instead of ringing up his brokers, buys a postal order and makes a large capital gain overnight on the football pools, he falls within the ambit of a capital gains tax or speculation tax?

Mr. Warbey

Investors in football pools are already taxed.

Mr. Crowder

Let me put it another way. Let us suppose that a person invests 1s. and wins £ 175,000 tax-free on the football pools. Does the hon. Member take the view that that should be a capital gain, tax-free to that person, or that he should pay a capital gains tax, in fairness and equity to the rest of the community? That is what the people want to know, because there is a general feeling that the Labour Party is rather frightened about this. We want to know the answer. As the hon. Member has raised the question, he should have the courage to answer it.

Mr. Warbey

What I said was that they are taxed already. I think that is quite enough for the time being. But an individual who buys and sells land is not taxed when he buys it or when he sells it, except for Stamp Duty. I am asking that they should be taxed first.

Mr. Crowder

May I again ask the question? I thought it was fair to put it——

Hon. Members

Order.

The Chairman

Order. There seems to be some doubt about which hon. Member has the Floor. Mr. Crowder.

Mr. Crowder

I—

Mr. Loughlin

On a point of order, Sir William. The hon. Member for Ruislip— Norwood (Mr. Crowder) has now made two speeches and has been called a third time. May I have from you, Sir William, a Ruling on the matter? I appreciate that this is the Committee stage and that, therefore, hon. Members may speak more than once. But may we speak more than once simultaneously with someone else, or almost simultaneously?

The Chairman

I appreciate the point raised by the hon. Member and I drew attention to that point a moment before. Mr. Crowder.

Mr. Crowder

If I may be allowed to continue with my speech—

Mr. Denis Howell (Birmingham, Small Heath)

The hon. Member has made two speeches already.

Mr. Crowder

Although I have the greatest respect for the sincerity and integrity of the hon. Member for Ashfield (Mr. Warbey), I 'thought it only right that we should be allowed to pursue the matter and to know what some hon. Members opposite think about this problem—

Mr. Callaghan rose—

Mr. Crowder

Ah, we are to hear from one of them.

Mr. Callaghan

The hon. Member for Ruislip— Northwood (Mr. Crowder) seems to be very free— having just arrived in the Chamber. I rise, Sir William, to ask whether we are discussing an Amendment in the name of hon. Members of the Opposition.

The Chairman

In fact, it is not only one Amendment in the name of the Opposition which we are discussing, but also another two Amendments in the names of other hon. Members of the Opposition and a further Amendment in the name of the hon. Member for Brierley Hill (Mr. Talbot) so that Amendments from both sides of the Committee are being discussed. I appreciate the point raised by the hon. Gentleman, that there is a danger of the debate straying from the Question in the Amendments that we are discussing, and I hope that the hon. Member for Ruislip — Northwood (Mr. Crowder) will bear that in mind.

Mr. Callaghan

Further to that point of order, Sir William. May I respectfully put it to you that this is a "red herring" which is being drawn across the Bill? Hon. Members opposite have no knowledge of the Amendments. They have neither a copy of the Bill nor of the Amendments before them. There is nothing in the Bill and nothing in the Amendments from either side of the Committee covering the point which the hon. Member for Ruislip— Northwood (Mr. Crowder) has attempted to raise three times. The Amendments go no further in the matter of securities or land that is charged than do the Government's proposals. We think that there is plenty of revenue to be derived from the Cottons and the Clores and the land speculators without riding off on this sort of rubbish.

Hon. Members: Oh.

The Chairman

Order. I have invited the hon. Member for Ruislip— Northwood to direct his remarks to the Amendments which we are discussing.

Mr. Crowder

I thought that it was the duty and the practice in this Chamber, when one followed another hon. Member, to take up with him certain aspects of his speech. When the point was made——

Mr. Callaghan rose—

Mr. Crowder

No, I am not giving way to the hon. Member.

When the point was made by the hon. Member for Ashfield (Mr. Warbey) there was no objection from hon. Members opposite, but now it is being taken up—

Mr. Warbey

On a point of order, Sir William. The hon. Member has referred to my speech. I suggest that I did my best to keep myself in order, and that the only chargeable assets to which I referred were those mentioned in the Bill, namely, shares, land and buildings.

The Chairman

Mr. Crowder.

Mr. Crowder

Let me say at once, Sir William, that I do not wish to intervene in the debate at any length. There are many other things to be discussed and, as the Committee has been good enough to allow me to make my point three times, I think that I may say without diffidence that we have won.

10.0 p.m.

Mr. Loughlin

I do not want to follow the hon. Member for Ruislip-Northwood (Mr. Crowder)— [HON. MEMBERS: "Of course not."] Wait for it— for fear of being out of order, but it is remarkable how, when hon. Gentlemen opposite are faced with a challenge to any of their vested interests, they scrabble around to try to find some avenue along which to proceed so that they can distract the attention of everybody from the issues that we are debating.

Here, we are dealing with only two point— with capital gains, as distinct from short-term gains, on investments in land and on buildings on land. The hon. Member for Brierley Hill (Mr. Talbot), who spoke and who has now left the Chamber, ought to have declared his interest, because, as I understand, he has as great an interest in this question of capital gains on land as any hon. Member of this Committee.

I see no reason why there should be any stultifying of the activity of people simply because they are subjected to tax. If it is true, as one hon. Member suggested, that if we impose a tax on capital gains, either on share speculators or land speculators, we shall stultify activity, then, in my view, that cuts across the whole of our taxation system. We have taxes at present, but the mere fact that we have taxes does not stultify activity. If the argument is to be that if we introduce a particular tax— and in this case the hon. Gentleman dealt with land— that will stultify activity in the use of land, I do not see the logic in that argument, unless we apply it equally to all other forms of industrial activity.

This gets a little bit beyond the limit. It exposes entirely the moral attitude of the people whom the party opposite represent—if it is true, but I do not think it is true. When the engineer is asked to work overtime, in other words, to increase his activity, in the same way as the owner of land would increase his activity by using the land, there is no suggestion that the overtime worked should be outside the normal taxation provisions. What is the hon. Gentleman arguing? Is he saying that additional activity on the part of an industrial worker should be subjected to taxation, but that additional activity on the part of a person who owns land should not be subjected to taxation?

There has been some argument by my hon. Friend the Member for Ashfield (Mr. Warbey) on the question of the yield of investments. So far as I can see, looking at the yields on capital invested in the last ten or twelve years, that has been a secondary consideration. The average yield on capital invested in normal industrial shares has, I believe— and perhaps some people more active on the Stock Exchange than I am myself could confirm this— been much less than the amount suggested in the case of giltedged securities, such as building societies.

But the question of yield is and has been secondary to the amount that can be obtained on the basis of capital gains. This matter of capital gains has been a racket and everybody knows it. Even the Chancellor of the Exchequer has now come to the conclusion that he can no longer allow the speculation and the gains that have been made through speculation without at least making a gesture to public opinion.

Here we have a situation which has been accepted in every sector of society as one of the biggest rackets in our civilised life. Even hon. Members opposite recognise that it affects their electoral fortunes, or misfortunes, almost as much as any issue. The Chancellor says that we cannot go so far as some revolutionary Governments can go; that we cannot, for instance, emulate the United States of America and apply a full capital gains tax because that would be too revolutionary, but we can have a short-term capital gains or speculation tax. In practice, the tax applies for six months, so that anyone who owns shares for six months and a day will escape completely the application of the tax.

The Chancellor wants to create the impression that he is against the form of speculation that has been practised on the Stock Exchange for a long time. He says to the people, "Here I am, trying to create social justice", but, at the same time, he does not want to offend the people who support the party of which he is a member. When we were discussing this matter in our debate on the Budget I said that the only people who would be caught by this tax would be the amateurs. That is perfectly true. In its present form the only people who will be caught by this tax, whether in respect of land for three years or shares for six months, will be the amateurs. All the professionals, including those on the Front Bench and the back benches below the Gangway opposite, will get away scot-free.

The Chancellor makes his gesture to public opinion and then safeguards these speculators against the possibility of being caught. He is a fake. The Chancellor's attitude is a fake. The whole issue is a fake. Unless the Amendment which has been moved by my hon. and learned Friend the Member for Kettering (Mr. Mitchison), or the Amendment in the name of my hon. Friend the Member for Ashfield (Mr. Warbey), is accepted, the people will be completely hoaxed and the position will be as it was before.

Sir Peter Roberts (Sheffield, Heeley)

The hon. Member for Gloucestershire, West (Mr. Loughlin) has said that he considers that the Chancellor is a fake. I cannot allow that to pass unchallenged. I am quite satisfied that my right hon. and learned Friend's proposals, within the term of six months which we are considering, and longer for land, will have the goad effect on the form of investment in the economy which it is meant to have. I assure the hon. Gentleman that, in my view, there is no fake about it. It will have a very beneficial effect on short-term fluctuations which, in my view, are not always good for our economy.

The hon. Member for Ashfield (Mr. Warbey) was, I thought, misleading the Committee when, in discussing the amount of capital gains over a period of years, he said that the total was £15,000 million. I agree that if one adds up the values of securities over that period the total may come to some such figure, but the Committee must remember that these gains appear only when there is a sale. As I understood it, the argument was that, if all the land and securities were sold, that amount of wealth would accrue to a certain number of people. I assure the hon. Member for Ashfield that, if a mass selling of that kind were to take place, the wealth would disappear overnight because there would be no purchasers.

Mr. Warbey

In other words, the hon. Gentleman is saying that it is all quite artificial; the whole thing is just an inflated balloon which has no relation to real values?

Sir P. Roberts

No. I was saying that the wealth does not accrue until some sale or transaction takes place. I am sure that the Committee was not misled, but I feel that it is quite misleading to suggest that there was any such accrual of wealth to anyone. It is only buying and selling which matters. I do not accept the figures which the hon. Gentleman gave. As he said, they were guesswork. Although, no doubt, a large figure can be shown on paper, it is misleading to suggest that there has been any such accrual of wealth in fact.

I am satisfied that the period of time which the Government have proposed, and which the Amendments are designed to alter, is such that there will be a real effect on transactions of this kind. I believe that the tax will bring in some revenue to the Exchequer— I am not sure how much— and it will have the effect of damping down speculative short-term gains, which is a correct and beneficial thing to do.

Mr. Loughlin

How many professional speculators would fail to hold their shares for six months and a day to escape the tax rather than get rid of them within the six months?

Sir P. Roberts

I am not discussing the speculator who has money to invest. I am talking about the man who borrows money or who wants to carry over for a fortnight or so on somebody else's money and who tries to buy and sell on a margin. That is the problem which the Chancellor is trying to cover. I do not believe that the investments of what I call the six-months man will be very much affected. He does not invest in order to sell at the end of five months and five days or hold on a bit longer. He has to put up the money to do it. What we are trying to do is to stop the inflationary trend caused by speculative investors, the people who have not got the money but who do it on somebody else's credit.

10.15 p.m.

Mr. Diamond

It is clear from what the hon. Member for Sheffield, Heeley (Sir P. Roberts) has said that, like the Chancellor of the Exchequer, he does not think that the purpose of the Clause is to produce revenue. He thinks that the beneficial purpose of the Clause is to damp down undesirable short-term speculation.

Be that as it may, what we are discussing is whether the Clause as drawn is likely to produce any revenue. The hon. Gentleman says, quite clearly, that it will not because the man who has to borrow the money for short-term speculation will not borrow it, because it would not be worth his while. The man who invests for about six months will hold his investment for six months plus, because he would not have to repay the lender of the money. It seems that the hon. Gentleman agrees with me. There is no dispute about this.

The Amendment is most valuable because it highlights the difference in the philosophical outlook of the two sides of the Committee. We are discussing not the problem of how a particular tax should be collected or assesed, but the philosophical attitude to whether there should or should not be gains of a capital nature brought into the Inland Revenue tax net.

Let us consider the philosophy of hon. Members opposite, because I do not think that it has been entirely accurately stated in some speeches. In my view, it is not the case that the Government are admitting the principle of a capital gains tax, however short-term the capital gains may be. What they are saying, quite rightly, is that under our existing tax system if a person enters into a transaction with a view to making a profit he should pay tax on that profit. If he enters into a transaction involving investment, stocks and shares or anything of that kind with a view to making a profit, that is a taxable transaction and he is taxed on the profit under the existing law.

The hon. Member for Brierley Hill (Mr. Talbot), who let many oats out of many bags, let a very important cat out of a bag when he claimed that the person who bought and sold should not be taxed on his sale because he was contemplating a profit at the time that he bought and, therefore, is already taxable.

The Inland Revenue is faced with this difficulty: how can it tell what is in a man's mind? How can it tell whether a man invests with a view to making a profit, or with a view to investment pure and simple? It therefore says, "We have had a lot of trouble with this. There have been many borderline oases. We shall make the position clear. Anyone who sells within six months will, from now, be deemed to have had in his mind at the time that he entered into the transaction the desire to make a profit and, therefore, is clearly taxable." The present position is not clear. There is the possibility of argument, with the Inland Revenue saying, "You had this in your mind" and the taxpayer saying, "No, I did not."

All that the Government are doing is closing a possible loop-hole in the existing tax legislation, and it would be wrong to say that they are accepting in any sense the philosophy of a capital gains tax, however short-term the gains. That is on one side of the Chamber. Let me say what is on our side of the Chamber. We believe that where money is coming in, from whatever source, increasing one's capacity to spend, there is an appropriate medium for taxation.

Mr. W. R. Rees-Davies (Isle of Thanet) rose—

Mr. Diamond

I will give way in a moment to the hon. Gentleman, because I am in no hurry to go home, but I hope that he will allow me to explain the philosophy a little further so that he need not anticipate some points which I make. I shall not run away from anything, I hope.

I was saying that that is the case for extending the base of taxation. I am saying that where money accrues, no matter whether it is salary or investment income or investment profits, that is an appropriate medium for taxation, because there is more money for one's pocket and more money to spend. It is, therefore, appropriate that it should con- tribute to the general welfare which is provided out of general taxation.

There are four solid criteria under which it can easily be demonstrated that the Government are mistaken in refusing to accept our view on capital gains. Let me go through them one by one. The first is that people are willing to pay, and this is a relevant criterion in dealing with taxation. If hon. Members opposite disagree with this, they are mistaken. Let us take the man who invests and, no matter what kind of investment it is, finds on the realisation of his investment that he has made a profit. Never mind the circumstances. I am not using any phrases such as "rackets".

I am making it clear that there is a transaction in which one gets more out of it than one has put into it— and never mind the circumstance in which it arises. It may have been done for speculation, or it may have been done, for example, by the trustees of the miners' funds as a wise investment. The fact remains that at the end of the day there is a larger sum than at the start of the day.

The man who invests, and then finds that more money is coming out of the investment than he put in, is in a frame of mind at that point in time to say, "I put in £100, I drew out £150 and I have a surplus of £50. I do not mind in the slightest if the Government take a portion of that and use it for the general tax fund and, I hope, reduce Income Tax accordingly. Why should I be assessed at high rates of Income Tax on the sweat of my brow and not pay when I have a turn up for the book which cost me very little effort?" I have used a phrase which I would not normally use in Parliamentary language. I say, for the first criterion, that this is money which the taxpayer would be willing to pay— and anybody who tries to collect tax knows that that is a relevant criterion.

Mr. Rees-Davies

May I intervene at this point, because it is a very important matter of philosophy between the two sides of the Committee. Is the view which the hon. Member is expressing the view of the majority of hon. Members on his side of the Committee— that whether it be pools, whether it be gaming, whether it be pictures, whether it be antiques, [whether it 'be personalty, or whether it be realty, it is his opinion that a capital gains tax ought to cover the real gain— I wish that the hon. Member for Gloucestershire, West (Mr. Loughlin) would not talk to the hon. Member for Gloucester (Mr. Diamond) in the middle of a question which I am trying to put to him. I have waited a long time for his attention. I have had to listen to twenty dreary minutes of the hon. Member, which I did with great patience and without intervention.

Mr. Callaghan

On a point of order. The hon. Member for the Isle of Thanet (Mr. Rees-Davies) was not in the Chamber when your predecessor in the Chair, Sir Robert, said the point he is now seeking to raise was irrelevant because it was outside the purpose both of the Government's proposals and of the Opposition Amendment. It is becoming a rather tedious waste of time when hon. Members opposite who have not been in the Chamber come in one after another, pop up to make a point, and, like the hon. Member for Ruislip-Northwood (Mr. Crowder), push off again. We have not seen that hon. Member since he raised it. This sort of thing is intolerable.

The Deputy-Chairman

The hon. Member for Gloucester (Mr. Diamond), who has the Floor. gave way, and I think that the hon. Member for the Isle of Thanet (Mr. Rees-Davies) was asking a question. I must confess I have found it of great length, and I was wondering when it was coming to an end, but as the point arose out of the speech of the hon. Member who has the Floor I think that it is in order. I should like to say that when an hon. Member gives way it really is an abuse of custom if an hon. Member who wishes to ask him a question takes too much time over asking the question.

Mr. Rees-Davies

I had two interventions in the course of trying to put my short question, Sir Robert, and the hon. Member for Cardiff, South-East (Mr. Callaghan) made his intervention solely to try to put me off my stride by what he knew was not a point of order at all— and nor is it.

Hon. Members

Oh.

The Deputy-Chairman

I listened to the point of order, too, and I did not rule it out as a point of order. The hon. Member for the Isle of Thanet should withdrawn that remark as a reflection on the Chair.

Mr. Rees-Davies

I will withdraw any remark which may be out of order. Perhaps we may get now to the real point of the debate which a great many hon. Members on this side would like to come to, and that is, where does the Labour Party stand in relation to a capital gains tax? Do hon. Members opposite want a full-blooded capital gains tax or do they not— on everything, or nothing? Let us have a straight answer.

Mr. Diamond

I had got the hon. Member's question and there was no need for him to go into details. The straight answer, so far as I am concerned — and I am speaking from below the Gangway— is that I want a full-blooded capital gains tax. As to the machinery — because the hon. Member was asking a detailed question as to the machinery — if he had been good enough to wait till I had explained the philosophy of the thing he would have found that I am only too glad to come to the machinery on any detailed point— antiques, pictures, jewellery. It has all been thought of, and I have answers on all of them, if hon. Members are interested.

I was on the first criterion. The Government are widely mistaken in not having a capital gains tax such as is generally accepted in many civilised countries with institutions comparable to our own. The second criterion is that of public opinion. This is where the use of the phrase "racket" comes in. It is obvious that the public as a whole regard the capital gains tax with a malevolent eye, because they escape taxation — [Interruption.] The hon. Member for Exeter (Mr. Dudley Williams) must think that it is a Friday afternoon. He thinks that he is here to shout from his seat about other Members' Bills.

Mr. Dudley Williams (Exeter)

Would the hon. Member give an honest answer?

Mr. Diamond

I shall be courteous and give way as many times as hon. Members want, but I do not propose to give way to anybody who accuses me of dishonesty. I do not know what the bawling by ignorant Members on the other side of the Committee— who have not even bothered to come in to listen to the debate— is about. I have already given way, while I am trying to set out four relevant criteria on which the philosophy of a capital gains tax ought to be accepted.

If the hon. Member will be good enough to listen to this, I shall then be very interested in dealing with as many detailed points as hon. Members care to address to me. I have considered all of them— all I can imagine hon. Members are likely to ask me. I shall be glad to answer any one of them on the detailed questions of machinery, but they are detailed questions of machinery and not relevant to the general philosophic question: should there or should there not be a tax on capital gains?

The second point I want to put in terms of the philosophical approach, the second criterion, is on the question of what is the public attitude to capital gains at the moment. I say that the public attitude is poisoned and that unrest and dissatisfaction are caused because these capital gains, which are available by and large only to those with money, are seen to be drawn by one section of the community only, and escape taxation. If these were to be taxed there would be a good deal of lessening of the heat.

The hon. Member for Brierley Hill spoke about supporters. He is quite wrong, unless he is talking about those who write out cheques. Those who write out cheques to the Conservative Party will not like our Amendment, but I tell the hon. Member that those who support the Conservative Party generally by their votes, as opposed to their cheques, are quite prepared to accept the general justice of the proposition that people who make capital gains should pay tax on them just as much as, if not more than those people who earn money by the sweat of their brow, sometimes in dirty jobs or in responsible ones in the professions or wherever it may be, pay tax.

As for the second criterion, there is very good reason for accepting a capital gains tax such as is widely practised elsewhere in the world. The third criterion with regard to this tax, which we seek to widen enormously, is on the ground of complexity. The Income Tax Acts are complicated enough already without our deliberately endeavouring to increase their complexity. We have here not an ordinary capital gains tax such as other countries have. We have a kind of capital gains tax machinery and then we have to cut it in half and say it will catch only certain transactions. And the complexity of making it catch those transactions and leave out others is such that we have provisions much more complex than would be the case if we had a straightforward capital gains tax which would catch all capital gains no matter when they accrued, no matter what the nature of the transaction, and no matter how long the time between buying and selling.

Finally, in terms of avoidance, everybody who drafts a tax Act wants to see that the loopholes are not broad and wide enough for everybody to escape through them. This is a piece of machinery where the holes are so great that one can see nothing but holes. One cannot see the texture itself. Everybody recognises that the Government's proposal will produce no revenue at all. As has been admitted from the benches opposite, for the ordinary man who deals within six months or so, it cannot possibly make any difference in ninety-nine cases out of a hundred whether he holds out for six months and a day as opposed to six months. It is ridiculous that a tax should be drawn on this basis. And anybody who sets his mind to it, will have the same answer on the three-year basis.

This proposal merely blazes the road for tax avoidance. It marks the ground and says," This area is taxable. Do not step here. Keep off the grass." If it tells a man where he must not step, it means that he knows exactly where he can step. Because of all these criteria there is a complete difference in philosophical approach between the two sides of the Committee. We on this side of the Committee are right in saying that there is a good case for taxing capital gains. We are right in saying that the public would accept it. We are right in saying that the public would not resent so much what is going on if there were a tax on capital gains. We are right in saying that this would free it from some of its complexities. We are right in saying that this would avoid some of the machinery for tax avoidance which exists here.

For all these reasons— I will come back to any detailed question that any hon. Member now wants to ask me— I think that the Amendment moved by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) which sets out the philosophical difference more acutely than that of my hon. Friend the Member for Enfield, East (Mr. Mackie), should be accepted and that we should press it as strongly as we can.

Mr. Callaghan

I beg to move,

That the Chairman do report Progress and ask leave to sit again.

We have made good progress today, although not as much as the Government would like in terms of business completed. But I move the Motion on the ground that the batch of Amendments and new Clause that we are on represent probably the meat of the Bill.

This is obviously a very contentious matter; not that anyone would shrink from that, but it will obviously take us a very long time. My proposal to the Government is that if such a Motion is acceptable, we should now adjourn and make a fresh start again tomorrow and try to break the back of this matter, as I think we shall do, then. That is because, as I say, this group represents the real meat of the Bill, and it would be a pity to try to curtail the debate when perhaps by spending more time on this we may be able to spend less time on other more important matters.

The Chief Secretary to the Treasury and Paymaster-General (Mr. Henry Brooke)

The hon. Member for Cardiff, South-East (Mr. Callaghan) puts me in some slight difficulty because of an ambiguity. He said that this group of Amendments would take a long time. A moment later he said that he was desirous of making reasonable progress. I hope that the two remarks really can be reconciled. The Government have no desire to ask the Committee to sit very late tonight. I observed that there were two or three other hon. Members who wished to speak.

I also bear in mind what the hon. Gentleman said at the conclusion of our first day's proceedings, that it was the desire of the Opposition to deal with the Bill in a sensible, constructive and positive way, and, I take it, to make reasonable progress. It would be a pity if we fell badly behindhand by continuing this group of Amendments, important as they are, indefinitely. If I have put the right interpretation on the hon. Member's words, I should be prepared to advise the Committee to accept the Motion.

Mr. Callaghan

There is no stratagem in this at all. I myself believe that if we contain ourselves within the normal Parliamentary day as far as we can we make good progress. It is within that circumference that I am endeavouring to work as far as possible. It will not be universally possible, but I think it is now, and I believe that we should be able to make quite substantial progress tomorrow. After this group of Amendments comes a group which I think the Committee will agree is of much lesser importance. It is purely on that basis that I move the Motion.

Mr. Brooke

It is not for me to say which are the important and which the unimportant Amendments, but I agree that there is a good deal to be said for concluding the debate on this group of Amendments tomorrow at a reasonable hour. On that understanding, I for my part would advise the Committee to accept the Motion.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.

BUSINESS OF THE HOUSE

Proceedings of the Committee of Ways and Means exempted, at this day's Sitting, from the provisions of Standing Order No. 1 (Sittings of the House).— [Mr. H. Brooke.]