§ Notwithstanding anything contained in any other Part of this Act, there shall be no tax chargeable in respect of a gain accruing on a disposal of an asset which is tangible, moveable property and which was acquired on or before 6th April 1965.—[Mr. Ridley.]
§ Brought up, and read the First time.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I beg to move, That the Clause be read a Second time.
We discussed the question of chattels in Committee, and, at 3 a.m. on the morning of 26th May, the Financial Secretary rose to speak and said that he hesitated to intervene when other hon. Members wished to speak. After his speech, the Patronage Secretary moved the Closure, and the matter was then disposed of, but, plainly, the whole question has not been properly discussed, even in the opinion of the Financial Secretary. The hon. and learned Gentleman was both intangible and immoveable on the subject, and my hon. Friends and I have, therefore, put down this new Clause to try to clarify a situation which many of us find extremely unsatisfactory.
We are not seeking total exemption for chattels, and we are not seeking to raise the limit from £1,000 to a reasonable figure. We are seeking to cut out the many defects which this tax has been shown to possess by removing the retrospective element in it which is so objectionable. This Clause would limit the charge to tax to chattels purchased after 6th April. If I go through the admitted defects of the Capital Gains Tax on 1524 chattels which the Financial Secretary has referred to and prove that this Clause effectively helps the position, I feel certain that the arguments will commend themselves to him. First, there is the question of evasion. The hon. and learned Gentleman admitted thatWe must recognise that in this tax on chattels there is plenty of scope for avoidance.Later, he said:I am sure that as the vast majority of our people are honest, the vast majority will make honest returns. There may be some evasion or escaping, but that is not a sufficient reason to exclude this field from the tax net altogether."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 469–472.]I find that a surprising statement. I have never heard of a Government relying upon the honesty of the taxpayer before. If that is the case, why do not the Government rely on the honesty of bond washers and dividend strippers? Why not rely on the honesty of us all to pay Income Tax and Surtax without having any enforcement machinery? If a tax is not enforceable, it is, by common consent, a bad tax.
Of course the Government do not rely upon the honesty of citizens, otherwise we should not have the "snooper's" Schedule 9. The Government intend to try to enforce this tax although, on their own admission, there is not really proof of evasion. I believe that widespread evasion of the tax will bring it into disrepute and therefore that it is better to have a tax which would be accepted as fair. This new Clause would, therefore, limit it to future operations.
That brings me to the second point where the hon. and learned Gentleman's argument was deplorably weak. He himself admitted that difficulties arose in this respect. I emphasise the arbitrariness of both the possible methods of valuing chattels for the purpose of the Capital Gains Tax—the retrospective valuation of the value on Budget day and the "straight line" method which is spelt out in the Schedule.
I think that all of us have a healthy dislike of retrospective valuation of any sort and it is to this that we principally object in the present proposals. How can one possibly say what the value of a thing was some 10 or maybe 20 years ago, which will be the problem when 1525 this tax comes to be administered? It is particularly difficult in the case of a work of art, because these things fluctuate so much and there can be no real knowledge as to what the value would be.
The only conceivable result of all this will be a certain amount of horse trading between the taxpayer and the Inland Revenue arriving at a compromise probably involving large sums of money. That will be a most unsatisfactory state of affairs. The letter in The Times yesterday from the Chairman of Sotheby's drew attention to this. He recalled the case of the Paris commode which the Government experts valued at £12,000 too low and objected that, owing to the difficulties of valuation, the owner could have been unjustly assessed for Capital Gains Tax on a notional gain of over £12,000. He concluded that retrospective valuation could not help being arbitrary to some extent and added:…I have no doubt that the tax could not be operated in practice without substantial injustices.That is also our conclusion.
I believe also that the "straight line" valuation method is a much more pernicious method than the hon. and learned Gentleman has been prepared to tell the House. Amendment No. 230, which has been selected for discussion later, will attempt to deal with the iniquities of this method of valuation. It will suffice at this stage if I briefly state what it is we object to, and perhaps we can have an opportunity for a fuller debate when we reach that Amendment.
Many works of art will have been given or inherited, perhaps free of duty, or purchased, so that no idea of their value remains, as much as 80 years ago. This will be the base value from which the gain is to be computed. That will mean that in order to compute the value, valuers will have to go back, perhaps as much as 80 years in extreme cases and certainly often 60 years, to see what was the value of a work of art or other chattel at that time. When family possessions have been handed down, there will often be no evidence of value and probably no insurance value.
The gain is to be worked out on the basis of the sale price and to that gain is to be added a factor which takes account 1526 of the gain between 1945 and 1965. That works out in a complicated ratio the amount of the gain which is applicable to the taxpayer. The more the formula is studied, the more unfair it is seen to be. This, again, involves the unwholesome element of retrospective valuation and when the taxpayer is still alive at the age of 90, or has died at the age of 100, the retrospection could be over as much as 80 years. That in itself is a mammoth objection to the tax. In the new Clause we propose to cut out retrospective valuation by not including any chattel purchased before Budget day.
The third argument concerns the effect on the art market. The Financial Secretary admitted that if there were an alteration in the situation and the tax were seen to be affecting that trade, the matter could be considered for revision for another year. However, my hon. Friends made the point that it was only necessary for the French or the Germans or the Americans to reduce their own taxes and they could recover the predominant position which our art market now has, and it would then be too late. The damage would have been done.
I advise the Financial Secretary to put off the start of this tax by accepting the new Clause which will give us a few years before it begins to bite and before many transactions take place which will be chargeable to tax. Let us think very carefully before going into something which may do immense damage to a valuable export earning asset.
The fourth argument is that the Financial Secretary has admitted that the tax will yield very little if anything. He did not base his case on the yield and still does not base his case on the necessity for the tax to yield. His principle was based on the argument that it was necessary to create an atmosphere of social justice, as he called it. He said:As everybody knows, very substantial gains are made on some chattels. These attract a great deal of publicity and attention. If we were to exempt all chattels, and people were to hear and read of these gains being made and find that these are exempt from all charge, it would tend to bring the whole tax into disrepute."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 467.]There are several comments to make about that defence, which is terribly weak. First, it is akin to gambling when there is a satisfactory appreciation in the 1527 price of a picture or piece of furniture. Why tax this form of gain when we are not to tax gambling? This question has been posed before, but the Financial Secretary has not attempted to provide a convincing or logical answer to it. When one gets into this field of spectacular gains in works of art, one is alongside the same field as football pools, horse-racing or gaming wins, and I think it is unfair to administer the tax on one of those and leave the others to go more or less scot-free.
The next point is that the gain, in many cases, is due to the effects of inflation. By 1970, probably, the value of money will have halved since 1945. One will, therefore, be charging 30 per cent. on a gain where there has probably been no appreciation in real value at all, because the inflation since then will have eroded away the real value. Again, at these low levels, the tax becomes a tax on the inflationary increment in the value of a possession.
What I object to is that this is the argument of envy. I do not believe that we should encourage taxes which are based on envy and jealousy. Do other emoluments which attract envy get taxed? Hon. Members of this House have just put up their salaries. Is not this attracting envy from outside? Should not this be more heavily taxed? What about the Ministers sitting opposite who have just put up their salaries by a spectacular amount? Does not this bring the whole tax system into disrepute? I do not see that this argument holds water at all. I think that it is illogical to do great damage to the art market, and great damage to the nation's standing as a centre of collections, and as a market for works of art and chattels—to put all this on the State as part of a bargain which is already beginning to crumble.
The Financial Secretary tells us that social justice will mean that he will get wage restraint for the policy of his right hon. Friend, the First Secretary. Already a coach and horses has been driven through this Bill. Already the wages front is crumbling. Are we still to throw the art market on to the scrap heap although the other half of the bargain is not carried through? I believe that if we had achieved wage restraint, if we 1528 had had the other side of the bargain, anything would be acceptable to achieve it. But already organised labour has demonstrated that it does not give a fig for the Capital Gains Tax, and I do not think it is right to create a tax which can be avoided by the dishonest, with such admitted difficulties in administration and valuation that it could do great damage to the London art market, and which is partly a tax on inflation and partly a tax on gambling wins, when it yields nothing, or very little at all, and its primary objective has already fallen through. For these reasons, I urge the House to accept this new Clause, which will remove quite a lot of the defects in the Bill.
§ Sir C. Mott-Radclyffe
I can briefly reinforce the arguments put forward by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). The object of the Clause is to bring the application of the Capital Gains Tax, in terms of chattels, out of the realm of the hypothetical, into the realm of the practical. To value any chattel acquired since April, 1965, is a fairly easy operation. It also has the merit that the chattel was purchased with the knowledge that, if it was sold, Capital Gains Tax would arise. But to value anything acquired before April, 1965, may be 20, 30 or 40 years before, presents enormous difficulties.
It is precisely these enormous practical difficulties which we believe the Government have totally under-estimated. I expect that the Financial Secretary has had his attention drawn to the Inland Revenue's memorandm, published 10 years ago, in the Report of the Royal Commission on the Taxation of Profits and Income. It contained some pungent observations. I will read one very short extract, dealing with the problem of ascertaining what is called the cost of acquisition. The memorandum said:To administer the tax efficiency would require continuous search of the national and local press and other periodicals to follow up any information as to sales of property of any kind not already returned for assessment. This would entail a vast amount of work and it might be extremely productive. On the other hand it might prove to be unremunerative. All such work … would call for a high degree of skill and intensive effort; and inquiries and negotiations would be delicate, difficult and long drawn out.1529 That summarises in pretty succinct form the problem which the hon. and learned Gentleman and his colleagues are trying to sort out.
Where are all these professional valuers to be found? When we asked this question during the Committee stage the Minister said that he did not know. He does not know how many extra valuation officers would be required to carry out the implications of the Capital Gains Tax Clauses.
§ Mr. Ramsden
I should like to give the Financial Secretary the opportunity to clear up a point. He told us during the Committee stage that he had some valuers in training, but in answer to a Parliamentary Question I put down later he said that there were none in training, and it would be useful to have an elucidation of the position.
§ Sir C. Mott-Radclyffe
That is a point I was coming to. One leading firm of art dealers in London will not allow members of its staff to purchase any picture unless they have had 15 years' training. That is the degree of expertise the firm thinks necessary to arrive at any accurate valuation at all.
No professional valuer, however skilled or experienced, could conceivably have forecast with any degree of accuracy the results of the sales of the Spencer Churchill collection of pictures a few months ago. I must say this to the Financial Secretary. His right hon. Friend the Minister of Housing and Local Government, when we were debating the Rent Bill the other day, really was much more frank about the problem of professional valuation officers than the Financial Secretary has been. If I recollect correctly, when we were discussing whether rent officers should or should not have professional qualifications in order to value property, the Minister of Housing and Local Government frankly admitted that it was impossible to find sufficient rent officers with the necessary professional qualifications.
The question to which we want an answer is where are these extra valuation officers to come from? Who is to train them, and does the Financial Secretary realise the extent to which expert knowledge will have to be applied in valuing every sort of chattel over an enormous range?
1530 The Financial Secretary continued, throughout the Committee stage, to take refuge behind the argument that this problem of valuation is not new because in Estate Duty much the same procedure has to be followed on every occasion. But with great respect, the Financial Secretary is not comparing like with like.
The problem of valuation for Estate Duty is quite unlike the problem that is going to arise in trying to value every single chattel sold for more than £1,000 in relation to what it might have been worth on Budget day or on the longer apportionment basis for this reason. The procedure for valuation for probate is well laid down. One is valuing the property of somebody on the date of his death, and, broadly speaking, the executors and the Estate Duty officials are trying to agree and there is rarely dispute except occasionally on one or two items.
When one is valuing chattels for the Capital Gains Tax, it is a totally different problem. One is not only valuing chattels on the date of a death; one is valuing them on the date of a death or sale in relation to what they might have been worth had they been sold on Budget day or perhaps very many years further back. It is a totally different problem of enormous magnitude. I ask the Financial Secretary to come clean and admit that he has no conception of the task upon which he has embarked, and to give the House some idea of how he proposes, purely on what I might call the nuts and bolts of the Capital Gains Tax in relation to chattels, to apply it with any degree of fairness, or whether he proposes to apply it simply on a hit and miss, rule of thumb basis which might be 100, 200 or 500 per cent. in error.
§ Mr. Robert Cooke (Bristol, West)
Even at this late hour, I feel bound to make a small contribution in support of the new Clause moved by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). I am happy to be able to do it in a somewhat quieter House than was the case on a previous occasion when we tried to ventilate the grievance of everyone interested in the future of works of art and the public enjoyment of them all over the country. On that occasion, in the early hours of the 1531 morning, I had a gang of some 60 members of the Government Party screaming abuse throughout my speech. Tonight, we have had one hon. Member shouting "Rubbish" at my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), though the hon. Member did not see fit to rise to his feet. No doubt he will later.
I am glad to support by hon. Friend on the new Clause he has moved. [Interruption.] Does the hon. Member wish to intervene?
§ Mr. Deputy-Speaker (Dr. Horace King)
The hon. Gentleman who is seeking to address the House will do better if he speaks to the new Clause.
§ Mr. Cooke
I am grateful for your guidance, Mr. Deputy Speaker. When one is continually interrupted from a sedentary position, one is liable to be drawn aside. I apologise, and address my remarks to you, Sir.
The merit of new Clause 41 is that it excludes chattels bought or inherited before Budget day, 1965, and it therefore removes any element of retrospection. Although the gains made—or losses, for that matter—were not taxed before that day, there was the vexed question of a valuation which might have been made years before and which had to be proved. The person concerned had a right to opt for that method of valuation, and the merit of our new Clause is that it avoids the arbitrary cutting of the line which has to be drawn on the time and value formula set out in the Bill. It would make the whole procedure much more straightforward, as well as removing the element of retrospection which we find wholly unacceptable.
Having said that in favour of the new Clause, I must say that I see it very much as an attempt at a temporary relief and an avoidance of the onset of what we regard as an iniquitous tax because of its effect upon the public enjoyment of the arts and because it encourages the hiding away from public view of works of art for fear that they should be caught. As my hon. Friend the Member for Windsor said, the art market will be severely damaged, and the possibility of works of art being lent or even given to museums and galleries will be reduced. It is even 1532 more iniquitous because of the motive behind it.
One of the arguments which were used by the Financial Secretary was the view that to exempt chattels altogether would bring the tax into disrepute. I ask, with whom? With the baying Left wing of the party opposite? Certainly the country does not want this tax.
§ Mr. Cooke
The baying Left wing are already at work. This aspect of the Capital Gains Tax is not wanted by the country. If it is necessary at all, our new Clause would go some way to make the tax workable. Above all, if we are to have taxes, they should be workable.
We have heard that the chances of getting a reasonable yield from this tax are fairly slim. Acceptance of our new Clause might at least make it more realistic. In that sense, therefore, we are helping the Government. We must, however, hope that it will not be long before we see the whole clumsy apparatus swept away and Britain once again become the free centre of the international art market of the world.
It is ironic that the party who shouted so loud about the need to help the arts should for squalid political reasons persist in taxes which will destroy them. The whole arts policy of the Government is a farce. We always knew that from the moment—
§ Mr. Cooke
I apologise, Mr. Deputy-Speaker, if I have been carried away into going beyond the new Clause. The point which we make is that although we regard this as an utterly iniquitous tax, our new Clause would at least make it workable, so that in that respect we are being realistic.
The point of the new Clause would be that the Treasury influence on the arts would be to some degree lessened. We in this party always suspected that as soon as the Treasury lost anything to do with the arts, as soon the arts were taken away from the Treasury and put elsewhere and the Treasury was able to act independently, they would have a pretty poor do, and that is what they are getting now.
§ Mr. MacDermot
I should, perhaps, intervene because we have reached the position that all the arguments which are being adduced to the House are either repetitive or out of order. That is nothing new in these debates on chattels. We had 2¼ hours on this subject on the occasion, to which the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) referred, when the Closure was moved. What the hon. Member omitted to tell the House was that immediately afterwards we started another debate on the same topic in which all the arguments were repeated for another hour. That was the occasion when the hon. Member complained that I was not listening and I assured him that as soon as he addressed a new argument to the Committee I should be delighted to open my eyes but that meanwhile I was following every word of his with the utmost attention.
The hon. Member began by saying that the new Clause would remove the retrospective element which is so objectionable. There is no retrospective element in the Capital Gains Tax. It applies only as from Budget day and there is no taxation of any pre-Budget day gains. I say no more about that argument.
The hon. Member then proceeded to raise the main argument which is adduced in support of the new Clause, and which was argued further by his hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), concerning the alleged valuation difficulties. The hon. Member claimed that his new Clause would cut off what he calls retrospective valuation, by which he means valuation of a chattel at a past date. In most cases, of course, for this purpose valuation will be as at Budget day.
The hon. Member is quite wrong in his claim that if we accepted the new Clause it would cut out all retrospective valuation. As he has pointed out, the need to value at a past date arises where a person has acquired a chattel other than by purchase, if for example he has done so by gift or inheritance, so that there is no firm base-date purchase price on which to work; and, therefore, one must proceed to a valuation. We would still be confronted with exactly the same problem if we accepted the new Clause.
The hon. Member proposed that the Capital Gains Tax should apply only to assets acquired after Budget day. In the 1534 case of assets acquired after Budget day by gift or inheritance, there would still be the same problem of what the hon. Member calls retrospective valuation. All that that would do would be to eliminate part of the requirement for that kind of valuation, namely, all chattels held on Budget day.
I repeat again the main answer given to this point during the Committee stage, which is that the fears which have been expressed on this point are grossly exaggerated, because it is assumed that every chattel worth more than £1,000—and we are not talking of any others—will have to be valued, but where there is a requirement to get the value of the article on Budget day for the purposes of obtaining the post-Budget day gain, then in the vast majority of cases it will be in the interests of the taxpayer to accept and to adopt the time apportionment basis. In those cases where there has been a pre-Budget day sale price to work on, the taxpayer in the vast majority of cases will be only too content to adopt the straight line basis because it will operate to his benefit.
If he does not, then it would probably be because he has had expert advice that the true valuation is lower. Then, he would opt for the valuation and tender his valuation to the Inland Revenue and the matter would be dealt with in the same way as these matters are dealt with for the purposes of estate duty. The object there, the hon. Gentleman says, is to reach agreement; but the same applies in the Capital Gains assessment. Both parties will want to reach agreement, and if a valuation is tendered by a reputable expert dealer, the greatest weight will be given to it by those who handle these matters from the Revenue point of view.
I was asked a number of hypothetical questions about where we shall recruit all the expert art valuers; but this is not dealt with by expert art valuers for the Revenue, and there is no contradiction as has been said about our answers. I was asked different questions. First, I was asked what additional staff would be employed by the Inland Revenue and what steps the Government was taking to gain that staff. I have already said that there are persons in training, but they are in training to be members of the Revenue valuation staff. Then, the 1535 hon. Member put down a question for written answer which was directed specifically to art experts in training. I can tell him there are none. This is not the way these matters are dealt with.
§ Mr. Robert Cooke
Could the Financial Secretary answer this one straight question? Is it not the fact that the time apportionment formula could only act to advantage if the work of art appreciated in a steady and wholly uniform fashion throughout the whole of its existence?
§ Mr. MacDermot
Let us assume that the article was bought for £1,000 ten years ago; to be precise 10 years before Budget day. Let us then assume that it was disposed of two years after Budget day for £20,000 and assume that the real appreciation in the value of that article took place in the last two years before it was sold again, because suddenly, if it is a painting, that artist came into vogue and the price of his pictures appreciated very considerably in those two post-Budget years. There would have been a very large post-Budget day gain, but, by adopting the time apportionment system, he would have to pay tax on only one-sixth of the gain over the 12 years when, perhaps, about three-quarters of it had taken place in the last two years.
§ 12.30 a.m.
§ Mr. MacDermot
I will not give way again. The hon. Gentleman asked for a straight answer to a straight question. He has had it.
The final argument which I address against the new Clause is that it would give a quite unwarranted preference to moveable as against immoveable assets. It is proposed to exclude completely from liability to charge any moveable asset which has been acquired by the taxpayer before Budget day which is in his ownership at the time of Budget day. This does not apply to land: it is not suggested that it should apply to land. The new Clause is confined solely to moveables. The purpose of Capital Gains Tax is to apply a comprehensive tax to all assets of the kind falling within charge and to make it applicable to gains as from Budget day. There is no reason 1536 in equity or justice to single out chattels for different treatment from immoveable property.
The only argument put forward in support of the new Clause is that our proposals produce some unworkable administrative problem for the Inland Revenue. I can assure the House that, if that was the view of the Inland Revenue, we would feel it our duty to make it plain to the House.
The hon. Member for Windsor referred to some evidence given before a Royal Commission 10 years ago. Whatever views may have been expressed then, I assure the House, as I assured the Committee, that the Revenue is satisfied that the proposals in the Bill are workable and that we have received no advice to the contrary.
§ Mr. John Hall
I yield to no one in the House in my admiration for the Financial Secretary's great skill in giving a semblance of reason to an unreasonable case. He appeared to answer some of the arguments advanced so powerfully by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), who deployed an extremely good case in support of the new Clause. The hon. and learned Gentleman managed to skate over some of the points put by my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), especially when my hon. Friend drew attention to the anxieties expressed by the Inland Revenue. The hon. and learned Gentleman treated this with a certain amount of disregard. He rode off the difficult question of the recruitment of valuers and the difficulty of valuation, which are very real points which will produce many difficulties.
The Financial Secretary knows as well as anybody in the House that of all the provisions in the Bill these are among the most chaotic, confused and ill thought out. It is clear that they will not work. Nevertheless, we have had a considerable debate on this subject both in Committee and today. The point of view of my hon. Friends has been fully deployed. We believe that the provisions are likely to be unjust and, what is more, unworkable. However, we still have a fair amount to do, and therefore I would not advise my hon. Friends to divide on this issue, if only for the reason that we 1537 believe that these provisions are unworkable. They will break down and will not operate effectively, if only because of the absence of skilled and suitable personnel to make them operate.
§ Question put and negatived.