HC Deb 17 December 1964 vol 704 cc709-16

Motion made, and Question proposed, That an humble Address be presented to Her Majesty, praying that, on the ratification by the Government of the Kingdom of Sweden of the Conventions set out in the Schedule to the Order entitled the Double Taxation Relief (Estate Duty) (Sweden) Order 1964, a draft of which was laid before this House on 27th November, an Order may be made in the form of that draft.—[Mr. MacDermot.]

10.14 p.m.

Mr. William Clark (Nottingham, South)

I do not think we should let this Order pass without asking the Government for an explanation of it. I am sure the Financial Secretary regrets as much as we do that the Rhodesian Order went through without debate, but, in courtesy to the House, the hon. And learned Gentleman should say something about this Order.

The previous Order, dealing with Rhodesia, was prepared by the last Government, and in that sense, of course, it appeals to us on this side. But this Order has been prepared under the present Government. Why have the Government thought it right to introduce an Order which only affects Sweden? Is it because of their feeling that Sweden is the sort of Socialist paradise which they continually tell us about?

I remind the House that our Estate Duty is very much higher than similar duty in Sweden. Our taxation is very much higher. In Sweden, the maximum in Income Tax is 65 per cent. compared with over 90 per cent. here. In the Chancellor of the Exchequer's statement on 8th December, in a reference to a capital gains tax—which has some connection, I am sure the House will agree, with Estate Duty—the right hon. Gentleman stated: For the purpose of the tax, realisation will include disposal, long lease, exchange, for- feiture and the transfer of ownership by gift or on death. Presumably that statement must be read in conjunction with this Order. What I cannot understand is why there is a certain amount of discrimination in the Order, since the White Paper also said: …any capital gains tax paid will be deductible from the amount of the estate for estate duty purposes…gains realised by non-residents from portfolio investments in the United Kingdom will be exempt."[OFFICIAL REPORT, 8th December, 1964; Vol. 703, c. 166–7.] Why is there this discrimination in favour of non-residents? I understand that this is the first measure of this type to be brought forward by the Government. Why, therefore, is this discrimination made in favour of Swedish nationals or people resident in Sweden? Does Sweden give us some preferential treatment?

I understand that, in Sweden, there is also a wealth or gift tax, whatever one likes to call it. Do we get the same facilities and the same alleviation of duty which we are to give the Swedes, according to the Chancellor's statement?

I would probably be out of order in speaking about the order relating to Rhodesia, which we have just approved, Mr. Deputy-Speaker, but I regret the speed with which Mr. Speaker put the Question on that Order. We are apparently to have a new form of taxation—a corporation tax—and it will particularly apply to Rhodesia because, if one gets a double taxation relief, then such relief is only of advantage to people living here provided the rate of overseas tax is 7s. or less. If the corporation tax is to be 35 per cent., presumably anyone with investments overseas who pays a rate in excess of 7s. in the £ will lose the difference between what he pays and the 7s.

When the next Budget comes along, shall we have to renegotiate these various double taxation agreements? If so, then it is a little precipitate of the Government to introduce both the Swedish and the Rhodesian Orders in such a hurry. Article 11(3) of the Swedish Order says that the Order will come into operation as soon as the Convention is signed by both parties, presumably the Swedish and British Governments. Can the Financial Secretary say when it is expected that the agreement will be ratified by both parties? Both Orders, but in particular the Swedish—

Mr. Deputy-Speaker (Dr. Horace King)

The hon. Gentleman has several times referred to the Order which the House has already passed. It is not in order for him to discuss it now and it was not in order for him to criticise my predecessor in the Chair for having put the Order to the House too speedily. If the hon. Gentleman neglected to take the opportunity afforded to him by Mr. Speaker to discuss that Order, that is his own misfortune

Mr. Clark

You know, Mr. Deputy-Speaker, as we all know, how extremely difficult it is to get up a corridor which is very crowded. I endeavoured to get here in time, but I was not successful. It was not a matter of being slow but of being frustrated, as we on this side of the House and the rest of the country have been frustrated by the Government ever since they came to office

Sir Harmer Nicholls (Peterborough)

On a point of order. Could not the previous Order be used for the purposes of comparison? It has now been accepted by the House, but could it not be used as a basis of comparison with the Order which we are now discussing?

Mr. Deputy-Speaker

I do not think that the hon. Member for Nottingham, South (Mr. William Clark) is attempting to do that

Mr. Clark

Perhaps I shall be able to do so later.

Speaking purely on the Swedish Order, it is fair to say that the whole of our tax system at the moment, Income Tax, corporation tax, Estate Duty, capital gains tax—and I think that the Financial Secretary will agree that Estate Duty and capital gains tax are fairly well bound up together, in view of the statement of the Chancellor of the Exchequer on 8th December—is in such a state of flux that nobody knows what the eventual result will be. It is all very well for the Financial Secretary to smile but I can assure him from my personal knowledge and from that of several of my hon. Friends that his hilarity is not shared by those who pay attention to these matters.

I am sure, and, if he were frank, the Financial Secretary would agree, that many people are extremely uncertain about the future tax position in this country. This Order, presumably like the Rhodesian one with which I am comparing it, is only provisional. The Rhodesian Order was drawn up by the last Administration and in that sense appeals to us. The Swedish Order is new. What the Government must realise is that their next Budget must bring into question all our agreements of this kind, whether with Sweden, Rhodesia, Canada, or any other country.

The reason is simply that many of our double taxation agreements—it would be out of order to go into them—give preferential treatment in one country in respect of the tax which a resident has to bear compared with that which a foreigner can enjoy—if one can enjoy a tax. For instance, the Chief Secretary will agree that the Withholding Tax in the United States of America at the moment is at the rate of 30 per cent. for—

Mr. Deputy-Speaker

I must again ask the hon. Gentleman to restrain himself and confine himself to the Statutory Instrument before the House.

Mr. Clark

What I was trying to do was to prove that the Swedish Order, and any other double taxation Order which comes before the House between now and the next Budget—

Mr. Deputy-Speaker

We are not concerned with any other Order which may come before the House. We are concerned only with this one.

Mr. Clark

Speaking on the Swedish Order—

The Chief Secretary to the Treasury (Mr. John Diamond)

Hear, hear.

Mr. Clark

I am delighted that the Chief Secretary is paying attention to this. I think he will agree with me that the Swedish Order must be renegotiated if the tax structure of this country changes as a result of the next Budget. All our agreements, including the Swedish Order, must be renegotiated because, whether it be for Income Tax or Estate Duty—the Swedish Order deals only with Estate Duty—the imposition of a projected capital gains tax, tied up with our Estate Duty, is not mentioned in the Swedish Order. One of the articles in the Swedish Order says that there would be an exchange of information between the two contracting parties, Sweden and the United Kingdom.

Another question which I should like to ask the Financial Secretary is: was there any discussion with Sweden in view of the fact that this Statutory Instrument was in abeyance? Was there an exchange of information between the two countries as to the eventual result and the effect of the proposed capital gains tax which the Chancellor of the Exchequer intends to introduce next April?

If the Financial Secretary answers those questions to our satisfaction, I am sure that, without going into any other double taxation relief, we on this side will be very happy

Sir Harmar Nicholls

We should like to be assured, if possible, that we are getting from Sweden as good as we are giving under this Order. If the Financial Secretary could give attention to that matter, I should be happy.

10.27 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

The hon. Member for Nottingham, South (Mr. William Clark) is labouring under a misapprehension, namely, that it was we who negotiated this agreement with the Swedish Government. It was in fact done by the Conservative Government and the Convention was signed the day before polling day—on 14th October. He should look there for any information which he wants as to the foreknowledge that was given by those negotiating on behalf of Her Majesty with the Swedes about the forthcoming capital gains tax, which was a prominent plank of the Labour Party in the election campaign. It may well be that those conducting the negotiations, realising that there would be a change of Government, warned the Swedish Government of the shape of things to come, just as some people in the City advised investors before polling day of what the consequences of a capital gains tax would be. The hon. Member said that people are terribly worried about this uncertainty. I sometimes wonder whether it is the uncertainty of what faces them which worries them or the certainty.

Let me turn to the Order and answer the hon. Gentleman's questions. He asked me to explain what the Order did, and I will seek shortly to do that. The Motion seeks approval for this Convention, and it arises in this way. As the hon. Gentleman said, this agreement is to replace the Convention which was contained in the 1961 Order. That was limited in scope because at that time agreements with countries such as Sweden whose death duties are different in character from ours had to be made under Section 77 of the Finance Act, 1948. That could provide only for the adoption of a situs code for determining the situation of the property for death duty purposes. The use of such a code reduces but does not entirely eliminate double taxation.

By Section 29 of the Finance Act, 1962, we are authorised to make a comprehensive agreement of a credit type with any country which has a death duty, whatever form it takes. The major difference between the proposed new Swedish agreement and the old one, therefore, is that the new agreement includes provision for each country to grant a credit against its own duty for duty charged by the other country on the same property in cases where double taxation is not otherwise eliminated under the terms of the agreement.

The hon. Member asked why this is confined to Sweden. The reason is that when the 1962 legislation became effective, the Swedes asked us for a comprehensive death duty agreement to replace the limited 1961 agreement. The Order is the result of those negotiations

Mr. Stratton Mills (Belfast, North)

The Financial Secretary will appreciate that it is extremely difficult to follow this closely-reasoned argument. Can he give an example of the position under the situs situation as against what will now be the current situation?

Mr. MacDermot

I can give the hon. Member a great deal of technical detail if he wants it. I do not know how much the House wishes me to go into details of that kind. An example which would meet the point raised by the hon. Member is that a liability for death duty in both countries normally arises because property is regarded by British law as situated in Great Britain and by Swedish law as situated in Sweden and both countries, therefore, charge duty regardless of the domicile of the deceased person. Article IV of the Order provides an agreed code of rules for determining the situation of the various types of property.

Again, if a person domiciled in Great Britain had property situated in Sweden, or vice versa, where double taxation still arises, for that reason Article VI provides for the country of domicile to allow a credit against duty for the duty charged in the other country

Mr. Stratton Mills

I understand that to be the position following the Order. In the example given by the hon. and learned Gentleman, what would have been the position before the Order?

Mr. MacDermot

The position before the Order was that we were limited to the situs code.

The hon. Member for Peterborough (Sir Harmar Nicholls) asked whether there was full reciprocity under the agreement. I assure him that there is. The hon. Member for Nottingham, South, asked what would be the position when the capital gains tax is introduced in the next Budget. I cannot give a firm answer to that until the full details of those provisions are known. I am advised that it may well be that no further agreement will be required. If, however, any further agreement is required, it probably would merely take the form of a fairly short supplementary agreement.

There is, I believe, a form of capital gains tax in Sweden, although it is different in character from the one the nature of which my right hon. Friend the Chancellor of the Exchequer announced recently. I think that in Sweden death is not treated as a realisation. Obviously, therefore, for this purpose there will be differences. Sweden is, however, one of the many countries which have had a capital gains tax of one form or another for some time.

The hon. Member for Nottingham, South, also asked me to comment on the fact that our Estate Duty is much higher than the Swedish. I am sure that it will not have escaped his attention that there has bean a Socialist Government in Sweden for over 30 years; and no doubt, when the present Government have been in power for a like period, he will find that the Estate Duty will have been suitably lowered.

Mr. William Clark

Would not the Financial Secretary agree that if to our Estate Duty is to be added a capital gains tax, although our Estate Duty at present runs at 80 per cent., the duty may be deducted but it is deducted from the total estate and not from duty? Will he comment on this?

Sir Harmar Nicholls

In answering that question, can the hon. and learned Gentleman give an assurance that as in Sweden, if the Socialist Government continue here, it will be a private enterprise Socialist Government, as Sweden's is?

Mr. MacDermot

The hon. Member knows that we are committed to a mixed economy in which we want to see a thriving private sector and a thriving public sector. The answer to the hon. Member's question is as contained in the statement made by my right hon. Friend the other day—any capital gains tax paid will be deductible from the amount of the estate for Estate Duty purposes.

Mr. William Clark

Surely, this is a little different from deducting capital gains tax from the actual Estate Duty. To deduct it just from the estate does not give the taxpayer the same relief as deducting capital gains tax from the Estate Duty.

Question put and agreed to.

Resolved, That an humble Address be presented to Her Majesty, praying that, on the ratification by the Government of the Kingdom of Sweden of the Conventions set out in the Schedule to the Order entitled the Double Taxation Relief (Estate Duty) (Sweden) Order 1964, a draft of which was laid before this House on 27th November, an Order may be made in the form of that draft.

To he presented by Privy Councillors or Members of Her Majesty's Household.