§ Question proposed, That the Clause stand part of the Bill.
§ Mr. Callaghan
We ought not to let this concession pass without acknowledging the assistance it will be to a number of small estates.
§ Mr. Norman Pannell (Liverpool, Kirkdale)
On a point of order, Sir William. I wish to speak on Clause 22.
§ The Chairman
The Question before the Committee is, That Clause 22 stand part of the Bill. The hon. Member will have every opportunity to speak.
§ Mr. Callaghan
I rose only because I thought that the Chairman was about to put the Question, as indeed he was. I did not see the hon. Member rise.
§ Mr. Pannell
I regret having to detain the Committee at this late hour, and I promise to be brief. This is a subject 589 on which I have spoken on several occasions. I welcome the concessions that appear in the Clause. I regard them as a belated recognition of the disadvantages that attaches to estates in the payment of Estate Duty by virtue of the fall in the value of money. The rates were fixed in 1949, and since then the £ has fallen in value from 20s. to 13s.—a drop of 35 per cent. The inflated values of the estates have attracted a higher rate of duty, which means that the Exchequer is collecting a far greater sum than was intended when the rates were originally fixed. That argument might also be said to apply to other forms of taxation, but there have been modifications and reductions in Income Tax in recent years, which have reduced the disadvantages due to inflation.
The raising of the exemption rate from £3,000 to £4,000 meets the difficulty that I have mentioned, because estates valued today at £4,000 would have had a value of £3,000 when the limit was raised to that level in 1954. Similarly, the case has been met in regard to estates valued between £4,000 and £6,000. I am concerned principally with estates valued up to £30,000. In most cases the Exchequer is attracting duty at a 50 per cent. higher level than it was when the rates were first fixed.
I will give an extreme example. An estate valued today at £15,000 would have had a value of £9,750 in 1949. Today it attracts duty at 8 per cent., whereas its value of £9,750 would have attracted duty of 4 per cent. in 1949. That means that the Exchequer is collecting 100 per cent. more in duty, in real terms, than it was when the rate was originally fixed.
An estate valued today at £30,000 attracts a rate of 18 per cent.; in 1949, at a value of £19,500, it would have attracted a rate of only 12 per cent. That means that the Exchequer is now extracting 50 per cent. more in duty, in real terms, than it was when the rate was fixed by my right hon. and learned Friend's Socialist predecessor. The disparity is not so great as the estates rise in value, and when we reach the estate valued at £75,000 we find that it now attracts a rate of 40 per cent., as against a rate of 31 per cent. in 1949, when its value would have been £48,750. The difference there is not 50 per cent., but only 25 per cent.
590 I enter my appeal on behalf of those estates of modest value. I recognise that nothing can be done in this Bill, but I ask my right hon. and learned Friend to consider the case carefully today and to see what he can do on the next occasion. These small estates cannot escape Estate Duty. They are not capable of the same evasion by reason of gifts inter vivos, for the very reason that a person cannot get much benefit from the reduction in duty unless he gives away the whole estate and leaves himself destitute.
The largest estates have suffered least in this respect—those valued at £50,000 and over. I ask my right hon and learned Friend to look into the case that I have put forward and see whether he cannot make more concessions next year, as a matter of simple justice, to those estates of a modest value, up to £30,000.
§ Mr. Callaghan
I think that "modest" is a relative term. What a strip-teaser would consider modest might not be considered modest in a convent. Whether it is modest or not depends on whether one is a millionaire property-owner or a pensioner from the Civil Service who has been hard hit by inflation over the last ten years. I should have some reservations about what the hon. Gentleman has to say.
I am wholeheartedly in favour of the general purpose of this Clause and I should like to acknowledge the concession which is made. It was well worth while. It is an astonishing thing that no alteration has been made in the exemptions since, I think, 1894, when Sir William Harcourt introduced Estate Duty in its present form, until the late Lord Dalton decided to give a small concession in 1946.
§ Mr. Callaghan
I did not know that. I always bow to the knowledge of the Financial Secretary in these matters.
§ Mr. Callaghan
Under a Liberal Government. Of course, the Limehouse Budget. That was when they were "fighting" Liberals.
Lord Dalton made a concession in 1946. I have been looking up the record 591 and I find that on that occasion speeches were made by the late Oliver Stanley and Brendan Bracken, my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall), Lord Dalton, and myself. We had a very interesting debate on that occasion.
I believe that there is something worth while in making this concession to the small estates which is obviously going to cost a little but not much. I believe that the Chancellor is not getting the revenue from the Estate Duty that he could get. I am quite astonished at the failure of revenue raised from Estate Duty and I want to ask the Chancellor whether he has gone into this matter when giving the concession, and if not whether he will do so.
I have some figures which illustrate the position. The increase in the revenue from Estate Duty at the end of the war until 1950 was £80 million. In 1945 the revenue from Estate Duty was £110 million and in 1950 it was £190 million, which represents an increase of £80 million from that source in five years. In the following ten years, from 1950 to 1960 the increase was from £190 million to £262 million; so that the increase in revenue from Estate Duty was £72 million in the last ten years and in the preceding five years it was £80 million. I think that there is something wrong. One has only to consider the degree of inflation which has taken place and the increase in share values which has taken place over the last decade, especially in the last four or five years, which must have inflated the value of estates by very substantial sums.
When the Chancellor is looking for revenue for worthwhile purposes it might be worth while the right hon. and learned Gentleman looking into the reasons for the flattening out in the increase of revenue from this source. I could advance a number of answers. One arises from the action of the Labour Party in 1949 which was designed for an entirely different purpose. I remember that at that time the late Sir Stafford Cripps introduced an Amendment to the Finance Bill in order to reduce the rate on agricultural land from 100 per cent. to, I believe, 55 per cent. His purpose was to help the farmer and those who owned land. But I do not think that 592 hon. Members opposite will disagree when I say that it has not been used for that purpose at all.
What has developed over the last ten years has been a number of short-term investments in land which were made by people in order to avoid death duties. The land was thereafter sold, when their heirs had had the benefit of the lower rate of duty, and this has had a most deleterious effect on the agricultural system.
It has put up the price of land quite unnecessarily and, as a result, has increased inflation. It has made it more difficult for farmers to farm their own land, and for men to get into farming. That has been the consequence of an Amendment designed for very useful social purposes. It has been misused by people wanting to evade or avoid—I am never quite sure which is the correct term—the payment of Estate Duty. That seems to be a fruitful field for investigation.
We all know the trouble that the Chancellor, and his predecessors, has had about gifts inter vivos, and the use of properties in the hands of discretionary trusts has been another contributory factor to the surprisingly slow growth of revenue from this source. Property settled in trust on a spouse also escapes Estate Duty and, increasingly every year, has, I believe, been used as a means of avoidance. That was not our intention. I do not know whether hon. Gentlemen would gladly connive at it now, but that was not the intention at the time. The only conclusion we can draw is that Estate Duty today is not yielding the revenue it was intended to yield because of evasion measures widely used over the last few years. I mention all this because I know that the Chancellor is always looking for sources of revenue.
There is another startling thing in this connection. In 1951 there were 203 deaths involving estates of a gross value of £200,000. Today, the number is only 269 such deaths. It is quite astonishing, when one considers the degree of inflation that has taken place over the last ten years, that the number of those estates should have increased by only 25 per cent.
593 What we suffer from is a great veil of statistical darkness. Nobody really knows enough about the facts here. A couple of students, Mr. Lyndall and Mr. Tipping, wrote a book some time ago in which they thought that the distribution of wealth was today less unequal than it was at the end of the war, and certainly less unequal than it was before the war. That was their preliminary conclusion. They thought it not very marked, and said that they had had to make a great number of unsubstantiated guesses to arrive at that conclusion.
Even so, their other conclusion was that the distribution of wealth is much more highly concentrated in the hands of a few here than it is in almost any other country of comparable character. They have reached the conclusion that 1 per cent. of the top people own 43 per cent. of the wealth. Even in the United States they conclude that 1 per cent. of the top people own only 24 per cent. of the wealth—
§ The Chairman
Order. I am sorry to interrupt the hon. Gentleman, but this Clause deals with small estates, and we seem to be straying to rather large estates.
§ Mr. Callaghan
That is quite true, Sir William. What I suggest would lead to the creation of more small estates, and if we could create more small estates it would be in line with what the Chancellor is seeking to do, because he seeks to relieve them. I thought that, generally speaking, we were all reaching the same conclusion by different roads, and would get to the same point in the end. However, Sir William, I know that I was stretching your tolerance to breaking point, and I have, broadly, made the points I wanted to make. We do not have enough information about what has been happening to Estate Duty in recent years or about the amount of avoidance that has taken place. But we can reasonably say that, in the absence of further statistical evidence, there has been a lot of avoidance, that the tax could yield more duty if it was properly applied and that it would be worth while if the Chancellor probed into the consequences of the tax to see whether it is fulfilling the purposes he and his predecessors intended when it was first placed on the Statute Book.
§ Mr. Millan
This is not the appropriate time, in view of your Ruling, Sir William, to have a general debate on Estate Duty, although that might be just as profitable to the Committee as the debate we had the other day on Clause 7 on the subject of Income Tax.
As my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) said, there is considerable dissatisfaction about the working of the Estate Duty and the apparently poor yield we get from it despite the apparently high rates that are applicable. We have exactly the same criticism to make of Estate Duty as was made of the Government's proposals regarding the speculative gains tax—that there is a very high rate of tax but that the yield from it is low because the tax is so framed as to be quite ineffective. It would be better to have a lower rate of tax—the amount is a matter of opinion—which would yield even the present amount than to retain a high rate into which the Government have allowed loopholes to be made, as has happened with the present Estate Duty legislation.
Certainly one welcomes the attempt being made in the Clause, because estates not exceeding £4,000 are quite small with the value of money what it is, and no one would seriously object to them being excluded from Estate Duty altogether. I should have thought that the saving to the Revenue in administrative costs would probably compensate for any loss in this band of income.
Whatever adjustments we may make at the lower rates, the basic criticism still remains. My hon. Friend the Member for Cardiff, South-East mentioned some of the devices by which Estate Duty can be avoided. There is a long catalogue of them and I imagine that any solicitor or taxation accountant could advise a wealthy client how to frustrate the tax effectively. That is a very unhealthy situation.
Regarding gifts inter vivos, far from tightening up on these the Government have—they did so two years ago, I think—loosened the provisions so that gifts made in the third, fourth and fifth year before death bear a lower rate of duty than they had previously done. That was a step in the wrong direction, for I believe that we should have a gifts tax. Actually, once one accepts the 595 principle of taxing gifts inter vivos there is nothing logically against the principle of having a gifts tax.
I see, Sir William, that your glances towards me are meant to indicate that I am straying from the point. Since I am in danger of getting out of order, I will only add that it would be useful to debate Estate Duty in full. Unfortunately, we do not often get an opportunity to discuss this matter. At least we shall have these remarks on the record. Estate Duty raises wide issues and needs to be dealt with in detail. It has been described on many occasions as being almost to mean a voluntary tax and, that being so, it is a scandalous piece of our taxation system. The Government ought to take this matter in hand. I might say that it would be one of the first things to be introduced in a Finance Bill by a Labour Government.
§ Sir E. Boyle
I should welcome a full-scale debate on Estate Duty at an appropriate time but must content myself tonight with a few comments on this Clause of the Bill. If the hon. Member for Cardiff. South-East (Mr. Callaghan) wants to know more about the Finance Bill of 1909 I can only suggest that he has his hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) behind him and he is better informed about this than perhaps any of us, as anyone who has read the book, "Mr. Balfour's Poodle" will know.
This Clause merits, I think, a little attention. For one thing, this is the first occasion since Estate Duty was introduced in 1894 that estates between £3,000 and £4,000 have been exempt from this duty. It will free an additional 18,000 estates from duty each year. But we also have to consider what the Clause does for estates above the limit. A further 20,000 in the £4,000 to £6,000 range will benefit from the reduction. Raising the limit from £3,000 to £4,000 will mean that 23 per cent. of all the estates at present paying duty, or likely to pay duty, will be exempted, while something like another 26 per cent. will benefit, thanks to the reduction in rates in the £4,000 to £6,000 range. This is quite considerable.
I certainly regard this as one of the more valuable Clauses in this Bill from the point of view of the ordinary tax- 596 payer, but I cannot answer at length all the points which have been raised by hon. Members. Perhaps I may make one or two comments generally about the Clause. The cost of this relief will be about £1 million this year, and £1,750,000 in a full year.
It will not have escaped the attention of hon. Members that we are making provision in another Clause of the Bill for tightening up on Estate Duty. I must not anticipate future Clauses, but later on in this part of the Bill it will be seen that we are making full provision to cover this Clause now before us, and more, and that seems to me to represent a very reasonable exchange.
The hon. Member for Cardiff, South-East also said that he would like to see more done for what he called the small estates. I do not think we should underrate the benefits which many millions of small property owners have derived from what we have done over the past ten years. Not only have we now more house owners, but also many more people owning tangible property of various kinds. I am talking only of small estates. Ten years ago, something like half of our population, so it was estimated, owned property to the value of £100 or below. I am quite sure that that figure is out of date today. There has been a very large increase in the ownership of property by people of modest means over the last ten years. It was before then that the late Lord Dalton took action on this duty and we should not under-rate the fact that his Budget which substantially increased Estate Duty was presented as long as sixteen years, or almost a full generation, ago. So that the effect of his higher rates are now making themselves felt. But I will say no more now on that or I shall be out of order.
§ Mr. Callaghan
I wish only to interrupt to say that the late Lord Dalton's name ought to be remembered. His reputation suffers unfairly in a number of matters but we feel that, where credit is due, it should be paid. The Financial Secretary makes a modest boast that he is relieving 23 per cent. of the smallest estates—the smallest in the context in which we are speaking—from Estate Duty, but in the Budget of sixteen years ago my late right hon. Friend took 150,000 estates out of duty altogether.
597 11.15 p.m.
I note what the Financial Secretary said about the help that has been given to small estates in the last ten years. I do not want to bore the Committee with personal experiences. I will merely say that it so happens that twelve years ago I borrowed some money in order to buy a house and I paid 3¾ per cent. for it. Today I am having to pay 7 per cent. for it, and on the same capital sum instead of paying about £125 I am paying about £225. I am not very grateful to the Financial Secretary for the help that he has given. In addition, I have had substantial rerating, and many other benefits are conferred upon me and the society which has "never had it so good."
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.