HC Deb 07 July 1965 vol 715 cc1693-715
Mr. Harold Lever

I beg to move Amendment No. 134, in page 18, line 37, to leave out "and" and to insert "but".

Mr. Deputy-Speaker

We can discuss with this, the hon. Member's Amendments No. 135, in page 18, line 38, leave out "applies in particular" and insert "does not apply", and Amendment No. 136, in page 19, leave out lines 1 to 5.

Mr. Lever

I confess that the Amendments have been somewhat lazily drafted because for the sake of simplicity I have knocked out some of the wording, which might be useful or not, in relation to matters which I do not propose to discuss. The substance of my Amendments is this. Clause 21(3) provides that when a person receives compensation for the loss of an asset destroyed or partially destroyed or when a person receives payment under an insurance policy in respect of an asset lost, damaged or destroyed those receipts of compensation whether by an insurance policy or otherwise should be deemed to be receipts exactly as if they had been received in the case of the ordinary disposal of the asset. The effect is this, that if one has a piece of furniture which one bought for, say, £1,000, and years later it becomes worth £10,000, and it catches fire and is totally destroyed, and one receives £10,000, its value under the insurance policy, one is said, or deemed for the purpose of the Bill, to have made a capital gain of £9,000. This will be taxable. In its original form the Bill had it taxable, as I understand it, and there was an end of it, but there was a Government Amendment to Schedule 8 and the effect of that will be that, if the asset is replaced one is relieved of the tax.

It is my submission that this Clause must be amended in the way I suggest and that the principle adopted by the Chancellor in the Bill at present is wrong. The first point I wish to bring to the attention of the House is that what it is proposed to tax is not a profit upon the realisation of an asset. I am going throughout to use the argument of the insurance policy because it is the strongest point I have to make, and I can make some comment on the other aspects afterwards. The argument is that when one receives money upon one's insurance policy in respect of the destruction or loss of the asset this is just the same as if one receives the money on the sale or disposal of the asset and it should be so treated for the purpose of capital gains.

The first thing that we have to ascertain is, has there been any capital gain when a man has his property destroyed and he receives payment under an insurance policy? Let us forget the insurance policy, and get down to the reality of the matter. If I have a valuable piece of furniture and it is destroyed by fire, or if I have a valuable piece of silver and it is stolen by a burglar and not recovered, I have not made any capital gain. I have simply lost the asset in question by theft or destruction. Thus, until the question of payment under an insurance policy comes into the picture, even the pedant persuasiveness of the Inland Revenue cannot allege that anything in the nature of a capital gain has occurred.

8.30 p.m.

I am bound to criticise the processes of thought behind the Clause, but I want to make it quite plain that I do not want to discourage or denigrate the zeal of the officials of the Inland Revenue. They have an unrewarding task to perform, and I recognise that they compare very favourably with those in other countries who have a similarly unrewarding task to carry out, but this professional zeal, although entirely admirable, must be subjected to the processes of more general logic than that which prevails in Somerset House. It is inevitable that a certain narrow professionalism of approach is bound to occur because of the zeal of those who discharge this difficult task of organising our revenue purposes, so if I criticise their logic it must not be supposed that I hold them responsible for the form in which the Clause is drafted. Still less do I attribute to Mr. Kaldor any of these processes of logic. I think that when history comes to be written he will emerge as a figure of moderation in the professionalism of Somerset House in that he lived most of his life outside this perhaps over-professional area.

To come back to my argument, the Clause proposes to tax as a profit something which, in fact, is a loss. Before the insurance payment comes into the picture, there is no capital gain in respect of the asset itself or the realisation of it. It therefore becomes clear that once we bring into account the insurance policy, the supposed, hypothetical, statutory or deemed gain is a capital gain arising out of the insurance policy. This is no more to do with the realisation of the asset than my bet on the favourite in the Derby, when that horse is good enough to win, has to do with the realisation of the horse or the capital gain on the horse.

The insurance policy, in the way that my bet is related to the horse, is related to the value of the asset, but were it not for our rules of insurance there would be nothing to stop a man insuring the same asset 10 times with 10 different companies, provided that they were prepared to pay up on the policy. It is not an inherent impossibility of so doing that makes a man not collect 10 times the value of the asset. It is simply that insurance companies find that when a man insures an asset for 10 times its value it is far more inflammable than it is supposed to be by the law of averages. But that is my argument, that a man might recover 10 times the value of the asset if the insurance companies were prepared to insure it for 10 times the premium.

It is not my right hon. Friend's intention to tax the capital gain on the asset, but rather the receipt of the money from the insurance of the asset. This is clear when one contrasts the position of a man who has insured his assets with that of a man who has not. Nobody suggests that a man who has lost his asset has made a capital gain, but it is suggested that it is a capital gain when he gets an insurance repayment in respect of the loss, which is different from getting the asset back.

One can show that it is the proceeds of insurance and not the proceeds of any realisation at all by showing what really happens, by showing what a man gets back when he pays the risk premiums. When a man insures his property against theft or fire, he joins a club of people exposed to this risk. They club together and pay a premium, and out of the pool premium those who are unlucky enough to catch fire at a mathematically disadvantageous time in relation to the odds about catching fire get compensated before those who are rather more fortunate in the sequence of inflammability.

Let us assume that it is 100 to 1 against a man's house catching fire and being destroyed. He pays a premium of 1 per cent., the assumption being that in 100 years the insurance company will break even, because his house will catch fire once in 100 years and that will be that. The difficulty is that if a person is unlucky it catches fire in the first year, whereas somebody else's house may not catch fire at all, or not until 99 years afterwards. What we do when we take out an insurance policy is to collect together and provide that out of the premiums that we pay those who are unlucky in the matter of their houses catching fire will get not only their own premiums but the premiums of those who are more fortunate enough in this respect, less expenses. That is the so-called capital gain which the Inland Revenue is to tax, under the mistaken notion that a man who receives money from an insurance policy is getting money from a capital gain on his asset.

He has got nothing in terms of his capital asset. It has been blown up, or burgled, or is in the hands of some robber who is far off. He is merely getting his own and others' premiums back. The Inland Revenue do not even allow, against the so-called profit, what a person has paid by way of premiums in respect of the chattel which is burnt or stolen, although that is the source of the fund from which the supposed capital gain comes. The Inland Revenue does not allow this, because if it did it would draw attention to the utter illogicality of taxing this so-called capital gain. It would then be clear that it was taxing the insurance receipts which originated in the premiums.

In insurance a person pays a sum against a hazard. He gets compensation for the loss that occurs in the event of that hazard occurring. It is the compensation that is then paid that is to be treated as a gain. Let us take the case of my house and its 100 to 1 chance of being burnt down. If I pay premiums for 100 years and it then burns down I come out exactly square. I get my compensation and I have paid an equivalent sum in premiums. But the Inland Revenue says, "You have made a capital gain amounting to the difference between what you have been paid and the original cost of the house", leaving out of account the fact that the whole of the compensation derives from my insurance premiums.

The Inland Revenue could put forward an arguable case if it said, "If you receive a capital sum from an insurance policy it looks exactly like money yol get from any receipt. Therefore, you are taxable on it." If a person buys a chattel for £1,000 and sells it for £10,000 he is assessed on his £9,000 capital gain. If he buys a chattel for £1,000 and it is burnt or stolen, and he collects £10,000 in insurance, the Inland Revenue says that he is £9,000 better off and that he must therefore pay Capital Gains Tax.

So far this argument, although not very reputable, in logic has a certain feasibility. But the moment that the Inland Revenue says, "You have a capital gain unless you replace the asset", it is departing from the original position.

Mr. Donald Chapman (Birmingham, Northfield)

My hon. Friend will have to take this argument into the realm of exempting from Capital Gains Tax every involuntary realisation.

Mr. Lever

I am not going to cover every involuntary realisation.

Mr. Chapman

My hon. Friend will have to.

Mr. Lever

My hon. Friend says that I will have to. That does not necessarily follow. If it is the purpose of the State to say that when a man dies and his asset passes on to somebody else, that somebody receives an asset and is therefore deemed to have gained by it, although that is not a very attractive argument, because of the rate of Estate Duty, it is not an unreasonable thing to say.

In that case the asset passes from one hand to another, but in the case that I am putting forward the asset has been blown up, destroyed, burgled or carried off overseas. In certain circumstances, one can, without illogicality, artificially deem an involuntary disposal to be a realisation. It is accepted, even in death, that it is an artificial deeming of disposal. There is no actual disposal there either. Some people would argue that it is unjust. It is a point of whether one thinks that a particular involuntary disposal is suitable to be regarded as a disposal or whether another one is. What is being taxed here is not the proceeds of the asset or the value of the asset. We are taxing the proceeds of a fund of which one becomes a beneficiary in the event of the loss of an asset. Since one is not allowed to set off the premiums against such receipt, it is quite wrong. It would be as if one taxed a man's betting profits but did not allow him to count the stake which he had laid in deciding how much profit he had made.

Mr. Gower

Does the hon. Gentleman consider that this proposition, the realisation of the receipt of insurance money, would be acceptable if allowance were made for the premiums paid?

Mr. Lever

I would not do so, because I am not in favour of taxing insurance policy proceeds. If I were, I would tax them in the manner that the hon. Member for Barry (Mr. Gower) indicates. Since neither I nor the Government are in favour of taxing insurance proceeds, I am not in favour of allowing that against it, because it is not relevant. The Government say that they are not taxing insurance proceeds but that they should be treated as proceeds of a realisation. The Government now propose to say, in a later Schedule, that if one replaces the asset, whatever that may mean, one will not be taxed. I do not know whether it is relevant to make more than a passing reference to the Schedule, but the point is that nobody knowns what "replacement of the asset" means. If I have an absolutely priceless painting, it is odd that, because it is irreplaceable, I should be taxed, because I cannot replace it in this manner.

The point which I seek to make is that when one starts with lack of logic, one ends with even greater lack of logic. The Government do not merely say that it is a disposal. They say that if the citizen suffers a fire or theft and collects his insurance policy he should pay a large sum of tax, but this should depend on whether he replaces the asset or not. I would ask my right hon. Friend, what business is it of his? When I have a fire and I lose an asset and am paid under my insurance policy, why should I buy a similar asset? Why not any asset I please with the money? What has it got to do with the Inland Revenue? How can one make taxability dependent on replacement of an asset?

The Inland Revenue is placed in the impossible position of saying to the citizen, "If you replace the asset I will not tax you; if you do not replace it I will tax you." This strange proceeding was justified in Committee by saying that it would be inequitable to do otherwise. That is only an assertion. We are given to understand that if one man who sells his assets can get £9,000 and is taxed and his neighbour has the good fortune to have a fire for which he is insured and pays no tax on the insurance policy, the gentleman who pays tax will suffer a paroxysm of envy at the man who had his house burned down or burgled. This is not an argument for introducing this tax.

I do not want to take too long on this—[Interruption.] This is a very important point and a very important principle. I can understand that it is exceedingly unpalatable to my hon. Friend that what I consider to be the misplaced pedantry of the Inland Revenue is, for the first time, brought under proper scrutiny in the House. In Committee the inadequate scrutiny devoted to this very important matter was lamentable. This matter of principle affects many citizens and will affect them for years to come.

8.45 p.m.

I make no apology, if the House will be tolerant, for enlarging upon this matter in some detail for the first time. Now that it has been indicated that I have been too long for the interest of the Treasury bench to be maintained, it is worth mentioning that these complicated tax provisions, which affect every citizen, are going through the House in a manner which means that they are not subjected to the proper scrutiny. They ought to have been discussed upstairs in a totally different manner. Hon. Members with whom I have discussed these matters have told me that they did not even know that what they now regard as a ludicrous provision of this kind had ever been passed through the Committee. It has not been adequately debated. As far as I can adequately debate it, it will be adequately debated now.

I can illustrate the lack of logic of this provision by drawing attention to a situation of partial damage. I know that my hon. and learned Friend wishes to be brief, but I should like him to dwell on the point at length and to explain to the House the mathematical intricacies which face a man who suffers partial loss to an article which is damaged. What happens if he has a valuable painting, if a corner of it is burned but he wishes to retain the painting after it has been restored, which he does by means of part of the insurance company's payment? He receives a large sum in compensation for the damage to his assets. I shall not complain if my hon. and learned Friend explains this at length to the House. Indeed, I should be extremely amused and pleased to head the details of how partial compensation is to be deemed to be a partial realisation and how a man must spend the partial compensation in order to replace the asset which he still retains by a hypothetical asset which is no longer available. All this will cause me considerable pleasure. I shall listen with the greatest of patience and without intervention to anything which my hon. and learned Friend says on that subject.

I beg my hon. and learned Friend to have in mind the original purpose of the Capital Gains Tax—a purpose and motivation which I support without any hesitation or qualification. As has been said over and over again, we are trying to equalise the position as far as we can of those who pay every penny of tax under P.A.Y.E. and who have it automatically collected from their incomes and those who get tax-free capital gains. I heartily endorse the Chancellor's motivation in introducing a tax which recognises capital accretions and gains in assessing a man's fiscal strength and in assessing the burden which he ought to bear.

But what has that to do with this persistent pedantry, this obstinate defence of an untenable position, in order to pursue academic objectives which would be repugnant to the common sense of 999 men in every 1,000? Why must the House be troubled with this? Why cannot my hon. and learned Friend rise and say, "We have made a mistake"? The House is always very generous in such circumstances. He can admit that the Treasury Bench has been trapped in the tortuous logic and the labyrinthine ways which prevail at Somerset House, and which very properly prevail there in their efforts, with great zeal, propriety and devotion, to collect our taxes and to make the whole system work well. My hon. and learned Friend could add, "But it has all been a mistake. Let us drop it. Let us go back to the realities". I suspect that that would meet the approval of nine people out of ten who are in favour of a Capital Gains Tax.

Mr. MacDermot

I am sorry if I betrayed same impatience when listening to my hon. Friend. I always listen to him with pleasure when he deploys his arguments with such clarity once, twice and sometimes even the third time. However, when he deploys them for a greater number of times I tend to find them, even though adduced by my hon. Friend, slightly tedious. I should have learned my lesson by now and have realised that any betrayal of impatience on the part of a Treasury Minister tends to prolong rather than shorten the case being put. I promise not to do it again.

My hon. Friend concentrated on the point of a realisation on a loss through an insurance payment. However, his Amendments are much wider than that and, if accepted, would drive the traditional coach and horses through the Capital Gains Tax because they would eliminate liability on a part disposal of an asset. Without a provision for taxing gains on part disposals, the tax could be completely circumvented by people selling their assets piece by piece instead of by one transaction.

Mr. Harold Lever rose—

Mr. MacDermot

I trust that my hon. Friend will show a little of that patience which he urges Ministers to show.

Mr. Lever

I, too, regret if I betrayed some impatience, particularly since my hon. and learned Friend is always exceedingly courteous and helpful, as he has been throughout our discussion of the Bill. It might help if I say that I am not proposing to do anything of the sort he suggested. I did not even know that that would be the consequence of my suggestion. However, it might save the time of the House if I say that if my hon. and learned Friend concedes the insurance point I will not press the other matter.

Mr. MacDermot

I was coming to my hon. Friend's argument concerning insurance. He says that if there is a loss and a man is then paid out by his insurance company for that loss and chooses not to replace the asset and we tax any element of gain in the money the man gets we are taxing a loss. That is not right. We are not taxing a loss. If the man has a loss and is uninsured and, therefore, does not get any payment, then he suffers a loss and, of course, that capital loss he can set off against future gains. It is recognised for what it is and it is treated as such. If, however, he is insured—and the purpose of insurance is to provide against a loss in the circumstances covered by the policy; fire, accident or whatever it may be—then if he does not suffer a loss but realises the value of his asset and chooses not to replace it, what he has done is realised the value of his asset. If there is an element of capital gain in that decision it is right that he should be taxed for it.

Let us consider my hon. Friend's example. The figures do not matter. Assume that a valuable picture originally cost £1,000 and assume that it has appreciated in value to £10,000. Assume that it is not destroyed but that the man decides to sell it. He gets £10,000, makes a £9,000 gain and is taxed on it. Suppose, instead, that the picture is burgled—although we will come to burglary in a moment—or destroyed and he then is paid out £10,000 by his insurance company. He can decide, the choice is his, to do one of two things. Either he is content to take this opportunity to realise his gain, because that is what it is—he realises the capital value of his asset—or he decides to replace it, and we will consider the question of replacement when we come to the Schedule.

Assume that it is not a work of art but something that is completely, utterly and wholly replaceable. Then what he has done is to choose, of his own decision, not to replace the asset but to realise his gain.

Mr. Peter Walker

rose—

Mr. MacDermot

I hope that the House will allow me to complete my explanation.

We next come to my hon. Friend's argument, when he says, "But the gain the man has made there is not a realisation of his asset but the realisation of the premiums which he has paid—and you do not even propose to allow under the Bill the payment of those premiums in some way to be set off against the gain". Certainly not. The reason is that the premiums are a payment made by way of maintenance of his asset or maintenance of the value of it. [HON. MEMBERS: "Oh."] Of course they are. If the asset is held for a trade or business purpose, those premiums are allowed as an expenditure for purposes of Income Tax. That shows their true nature.

For purposes of a capital gains tax, if a man has invested in a building other than his own personal residence and he pays for the maintenance of it, those maintenance payments cannot be set off against the amount of his gain when he realises it by reselling the building. An insurance payment is rightly regarded by everyone as being of that nature. As the result of having taken out an insurance policy, what happens is that when an accident occurs or a fire occurs and he is paid the full value of his asset there has been an occasion of realisation.

Mr. Harold Lever

Would my hon. and learned Friend deal with one point? Dealing with the instance I gave, he said he had received £10,000, just the same as the man who sold had received £10,000. Supposing his compassionate Aunt Mary learned of the uninsured loss of his asset and sent him a cheque for £10,000? Would that be equally a receipt which should be taxed under the Capital Gains Tax, and, if not, why not?

Mr. MacDermot

Because the payment from his beloved Aunt Mary is a gift free of tax which does not attract tax. He would still have suffered the loss, and he would still be able to set off the loss against his future gains. He has suffered the loss, and it is nothing whatever to do with the Revenue if at that moment his aunt decides to make him a present of £10,000.

I was asked to explain the position if he decides to replace the asset. If he replaces the asset, he does not escape liability to tax. He merely defers it. By virtue of replacing the asset, he replaces in the new asset the gain the old asset had already acquired. When he comes to dispose of the new asset, that will be the occasion of realisation and tax will be paid on the full gain that had already occurred in the old asset plus the additional gain in the new one.

Mr. Gower

There is one narrow point which comes out of the hon. and learned Gentleman's argument. If, for some reason, the man is unable to replace his asset within a short time, the very payment of the tax may make it impossible or diminish his ability to replace the asset in the longer term.

Mr. MacDermot

That is not the argument at the moment. The argument is whether moneys realised through an insurance policy are a realisation of the gain and are the subject of charge. That is why some criminally disposed people have been known to set fire to their houses to claim insurance money. They want to realise the value of their assets at the expense of insurance companies. That shows what the nature of the transaction is.

The same thing happens when a fire occurs involuntarily. It makes no difference to the fact that the man has realised his asset. He has suffered a pecuniary loss. He has lost his building, and he has acquired its capital value in money terms. If he decides to replace, there is no charge to tax, but if he decides to accept that realisation and pocket the gain, he does not thereby escape his liability to tax.

9.0 p.m.

Mr. J. Grimond (Orkney and Shetland)

I fear that long association with the Bill is in danger of driving the Financial Secretary crazy. He is out of this world. I really think that he may be in danger of serious physical injury. I want to see him going up to someone who has been bashed over the head by burglars and had all his silver stolen and saying to him, "I must congratulate you—you have disposed of your assets. This is splendid. You should make a contribution to the social services and welfare through the Capital Gains Tax." I suppose, on the same basis, a man whose factory has been burnt out is to be congratulated on having made a capital gain.

I must say something briefly in support of the hon. Member for Cheetham (Mr. Harold Lever), who has already enlivened our proceedings by the one very memorable statement that this will be the only country in the world in which death will in future be treated as a form of tax evasion. Principle has been the watchword of the party opposite. The principle now is that if one is lucky enough to be burgled, and injured in the process, it is the disposal of an asset and liable to Capital Gains Tax—

Mr. Harold Lever

The right hon. Gentleman will realise, of course, that the logic of all this is that to take precautions against burglary will also be a form of tax avoidance.

Mr. Grimond

Of course. When it suits the Treasury it has flexible views of principles. One of the principles of this tax is that one has to dispose of an asset, but a trust that does not dispose of assets still becomes liable to tax every ten years. This matter of principle, therefore, is very flexible, and the Treasury departs from it when it suits the Department to do so. The Treasury have said, "You cannot tax betting winnings because there is no asset," but if a man's factory is burnt out, or his picture is stolen, there is no asset.

This is not the first time we have had odd remarks. In Committee in the small hours of the morning the Minister without Portfolio said: On reflection, the hon. Member will see that it is not unfair … One has to take the rough with the smooth"— My Heavens, one does! To ensure a state of equity between those who have and those who have not insured, it must follow that if a person loses something either through his own negligence or otherwise and thereby receives a capital sum, he is in precisely the same position with regard to other comparable taxpayers as if he had sold it."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 482.] "Through the Looking Glass" has nothing like that.

Insurance is designed to put one in a similar position, if one's factory is burnt, or assets destroyed, as one would be in had one retained it. It is not an analogy to say that insurance is the same as a sale or a gift. I am not prepared to comment on the drafting of this Amendment. The hon. Member is a learned, legal man but his drafting has taken a rather broad sweep in the later stages of the Bill. We have throughout that Order Paper a scattering of short notes saying "Delete this" and "delete that". I am sure the Bill would have a very different shape if it were under the control of the hon. and learned Gentleman. But like him I am concerned with insurance and its liability to Capital Gains Tax.

I want to ask the Treasury Bench some questions. This is something that will matter to a lot of people—if I may have the attention of the Government spokesman. We are dealing here with people, we are not in the rarified atmosphere of some recess in the Inland Revenue. Someone will ultimately suffer severely. Perhaps I could have the attention of an hon. and learned Gentleman. I do not ask for both. Supposing the asset is underinsured—

Mr. MacDermot

I apologise to the right hon. Gentleman. I merely thought that his argument should be retailed to my right hon. Friend the Chief Secretary.

Mr. Grimond

At some other time, if you do not mind.

Mr. MacDermot

I had, perhaps mistakenly, thought that the right hon. Gentleman was not likely to improve on the quality of his first argument—

Mr. Grimond

Indeed I am. I am only just getting under way. You can take the Chief Secretary for a long holiday in August and tell him all the jokes in the Bill.

Mr. Deputy Speaker

Order. I am not going to take the Chief Secretary for a holiday.

Mr. Grimond

I am sorry. I very much appreciate that you, Mr. Deputy-Speaker, would be most unwilling to do that.

Look at the ordinary insurance policy. Suppose that a man is not fully insured and he loses an asset which, if he had sold it, might have been worth £12,000. He gets in insurance £8,000. If he had spent £4,000 when he bought the asset he would be chargeable for capital gain, whereas he now has a capital loss. Many people are under-insured.

What about the average clause in an insurance policy? What about policies which insure the contents of a whole building and limit the claims on any one asset to a proportion of the total insured by the policy? There is not liability to Capital Gains Tax on assets of under £1,000, but suppose that anyone is liable to certain gains on an asset on which an average clause has to be taken into account. Maybe later in discussion on the Bill we shall have a chance to go into this. The difficulties are enormous and so far have not been appreciated by the Government Front Bench.

It has been suggested to me that if instead of taking the policy one disposes of the policy one will not be liable. I do not know whether that is so, but it is suggested that one could dispose of a policy and take the cash and then be liable to Capital Gains Tax. This is a peculiar situation.

Mr. MacDermot

By "dispose of the policy", does the right hon. Member mean assign the rights under the policy? Is he envisaging assigning for a consideration or not for a consideration?

Mr. Grimond

Dispose for cash. It is seriously suggested that if the policy is disposed of by the insured for a cash sum there is no disposal of an asset for the purpose of this Bill. It would be worth while for the Government to look into this. It is a criminal offence to burn down a house. Does the Financial Secretary seriously suggest that arson would break out all over the country if insurance policies were not liable to the Capital Gains Tax. This is out of this world. The idea that the whole of London will wake up one morning in flames unless Capital Gains Tax is imposed on insurance policies is the most extraordinary thing I have heard in the House of Commons.

Mr. MacDermot

Will the right hon. Member give way?

Mr. Grimond

I will give way in a moment. Of course people cheat in all sorts of ways, as the Financial Secretary knows or he would not be in employment as a barrister. Is it a serious proposition that if you do not impose this tax arson will break out? I ask you!

Mr. MacDermot

I wondered who the right hon. Member was asking, whether he was asking Mr. Deputy-Speaker. Who does he suggest deployed an argument to the effect that if there was not a liability to Capital Gains Tax there would be arson? If he thinks that is what I said, I urge him to read HANSARD tomorrow.

Mr. Grimond

I am relieved that this is not an attempt to stop tax evasion. I am pleased to hear the Financial Secretary does not think that people will not begin slashing pictures, putting their silver spoons down drains, and burning houses to evade tax. I am glad to have established that point. I cannot believe that any great damage will have been done to the general principle of taxing capital gains if people who suffer the unfortunate disaster of having a fire or a burglary are exempted from Capital Gains Tax on an insurance policy designed to cover just that eventuality. I very much hope that in the name of common sense, ordinary business prudence, humanity and everything else that the House will accept this proposal.

Mr. Peter Walker

May I add a few words in support of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and the right hon. Gentleman the Leader of the Liberal Party? There have been few debates in which we have heard such complete nonsense from the Treasury Bench as we have heard this evening on this issue. It is a remarkable thing that the Treasury Bench, which throughout the proceedings on the Bill has argued that certain things should be kept separate on principle, has completely failed to separate the insurance aspect of this from the asset.

I ask hon. Members to consider the case of someone who has paid a premium of £1 on an asset worth £1,000. Within a week the asset is destroyed and £1,000 is paid out. It could be argued that in fact there has been a £999 profit on the insurance premium and that perhaps could be taxed. If it was taxed, all the premiums would have to be set against it. However, that would be one logical argument. To say that the capital gain on the asset is to be taxed, a gain which arises not because of the asset being destroyed but because of the insurance policy being in existence, is nonsense. What should be done logically is to say that, although perhaps there has been a capital gain as a result of the existence of the insurance policy, there has been a capital loss as a result of the asset being destroyed. The policy is paid out, but the asset has gone. Therefore, the whole loss of the asset in its entirety should be set off against the money received from the insurance company. On that basis, there cannot possibly be any capital gain on the insurance policy.

Mr. MacDermot

If this argument is right, when there is the sale of an article the loss of the article should be set off against the gain from the purchase price.

Mr. Walker

I am staggered at the Financial Secretary's attitude. The proceeds received from the sale are not as a result of money provided by the person who has paid it year after year in order to pay out on that sale. The equivalent would be if I were to sell the Financial Secretary an article for £1,000 and I paid him £100 for 10 years and he then paid me the £1,000. He would argue, on his logic, that this was myself acquiring £1,000 upon which I should be taxed, whereas I should have given him the £1,000 which he would be paying to me. The joint premiums paid by all the people holding policies provide the thousands of £s which are paid out. The Financial Secretary has produced no argument on this. He is completely

wrong, and I think he is now beginning to realise that he is wrong. He should accept the Amendments.

Mr. Robert Maxwell (Buckingham)

I rise to support, unusually, the hon. Member for Worcester (Mr. Peter Walker). This is the first time I have done so in these debates. I hope that my hon. and learned Friend the Financial Secretary will recognise that a person receiving money under an insurance policy in respect of an asset which is lost merely by virtue of an accident should receive that money as income from an insurance policy and it should not be treated as a capital gain. I hope that my hon. and learned Friend will give in on this issue, because it is a matter of equity and justice.

Mr. Deputy-Speaker

The Question is—

Mr. Harold Lever

I beg to ask leave—

Hon. Members

No.

Mr. Harold Lever

On a point of order. Am I entitled to speak again on the Amendment?

Mr. Deputy-Speaker

Only by leave of the House.

Hon. Members

No.

Question put, That "and" stand part of the Bill:—

The House divided: Ayes 275, Noes 271.

Division No. 242.] AYES [9.14 p.m.
Abse, Leo Brown, Hugh D. (Glasgow, Provan) Driberg, Tom
Albu, Austen Buchan, Norman (Renfrewshire, W.) Duffy, Dr. A. E. P.
Allaun, Frank (Salford, E.) Buchanan, Richard Dunn, James A.
Alldritt, Walter Butler, Herbert (Hackney, C.) Dunnett, Jack
Atkinson, Norman Butler, Mrs. Joyce (Wood Green) Edelman, Maurice
Bacon, Miss Alice Callaghan, Rt. Hn. James Edwards, Robert (Bilston)
Bagier, Gordon A. T. Carmichael, Neil English, Michael
Barnett, Joel Chapman, Donald Ennals, David
Baxter, William Coleman, Donald Ensor, David
Bence, Cyril Conlan, Bernard Evans, Albert (Islington, S. W.)
Bennett, J. (Glasgow, Bridgeton) Corbet, Mrs. Freda Evans, Ioan (Birmingham, Yardley)
Binns, John Craddock, George (Bradford, S.) Fernyhough, E.
Bishop, E. S. Crawshaw, Richard Finch, Harold (Bedwellty)
Blackburn, F. Crosland, Rt. Hn. Anthony Fitch, Alan (Wigan)
Blenkinsop, Arthur Crossman, Rt. Hn. R. H. S. Fletcher, Sir Eric (Islington, E.)
Boardman, H. Dalyell, Tam Fletcher, Ted (Darlington)
Boston, T. G. Darling, George Fletcher, Raymond (Ilkeston)
Bottomley, Rt. Hn. Arthur Davies, Ifor (Gower) Floud, Bernard
Bowden, Rt. Hn. H. W. (Leics S. W.) Davies, S. O. (Merthyr) Foley, Maurice
Boyden, James Delargy, Hugh Foot, Michael (Ebbw Vale)
Braddock, Mrs. E. M. Dell, Edmund Ford, Ben
Bradley, Tom Dempsey, James Fraser, Rt. Hn. Tom (Hamilton)
Bray, Dr. Jeremy Diamond, Rt. Hn. John Freeson, Reginald
Broughton, Dr. A. D. D. Dodds, Norman Galpern, Sir Myer
Brown, Rt. Hn. George (Belper) Doig, Peter Garrett, W. E.
George, Lady Megan Lloyd MacDermot, Niall Robinson, Rt. Hn. K. (St. Pancras, N.)
Ginsburg, David McGuire, Michael Rodgers, William (Stockton)
Greenwood, Rt. Hn. Anthony Mclnnes, James Rogers, George (Kensington, N.)
Gregory, Arnold McKay, Mrs. Margaret Rose, Paul B.
Grey, Charles Mackenzie, Gregor (Rutherglen) Ross, Rt. Hn. William
Griffiths, David (Rother Valley) McLeavy, Frank Rowland, Christopher
Griffiths, Rt. Hn. James (Llanelly) Mahon, Peter (Preston, S.) Sheldon, Robert
Griffiths, Will (M'chester, Exchange) Mahon, Simon (Bootle) Shinwell, Rt. Hn. E.
Gunter, Rt. Hn. R. J. Mallalieu, J. P. W. (Huddersfield, E.) Shore, Peter (Stepney)
Hale, Leslie Manuel, Archie Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)
Hamilton, James (Bothwell) Mapp, Charles Short, Mrs. Renée (W'hampton, N. E.)
Hamilton, William (West Fife) Marsh, Richard Silkin, John (Deptford)
Hamling, William (Woolwich, W.) Mason, Roy Silkin, S. C. (Camberwell, Dulwich)
Hannan, William Maxwell, Robert Silverman, Julius (Aston)
Harrison, Walter (Wakefield) Mayhew, Christopher Silverman, Sydney (Nelson)
Hart, Mrs. Judith Mellish, Robert Skeffington, Arthur
Hattersley, Roy Mendelson, J. J. Slater, Mrs. Harriet (Stoke, N.)
Hazell, Bert Mikardo, Ian Small, William
Healey, Rt. Hn. Denis Millan, Bruce Snow, Julian
Heffer, Eric S. Miller, Dr. M. S. Soskice, Rt. Hn. Sir Frank
Henderson, Rt. Hn. Arthur Milne, Edward (Blyth) Spriggs, Leslie
Herbison, Rt. Hn. Margaret Molloy, William Steele, Thomas (Dunbartonshire, W.)
Hobden, Dennis (Brighton, K'town) Monslow, Walter Stewart, Rt. Hn. Michael
Holman, Percy Morris, Alfred (Wythenshawe) Stonehouse, John
Horner, John Morris, Charles (Openshaw) Stones, William
Houghton, Rt. Hn. Douglas Morris, John (Aberavon) Strauss, Rt. Hn. G. R. (Vauxhall)
Howarth, Harry (Wellingborough) Mulley, Rt. Hn. Frederick (Sheffield Pk) Swain, Thomas
Howarth, Robert L. (Bolton, E.) Murray, Albert Swingler, Stephen
Howell, Denis (Small Heath) Neal, Harold Symonds, J. B.
Howie, W. Newens, Stan Taverne, Dick
Hoy, James Noel-Baker, Francis (Swindon) Taylor, Bernard (Mansfield)
Hughes, Cledwyn (Anglesey) Noel-Baker, Rt. Hn. Philip (Derby, S.) Thomas, George (Cardiff, W.)
Hughes, Emrys (S. Ayrshire) Norwood, Christopher Thomas, Iorwerth (Rhondda, W.)
Hughes, Hector (Aberdeen, N.) Oakes, Gordon Thomson, George (Dundee, E.)
Hunter, Adam (Dunfermline) Ogden, Eric Thornton, Ernest
Hunter, A. E. (Feltham) O'Malley, Brian Tinn, James
Hynd, H. (Accrington) Oram, Albert E. (E. Ham, S.) Tomney, Frank
Irving, Sydney (Dartford) Orbach, Maurice Tuck, Raphael
Jackson, Colin Orme, Stanley Urwin, T. W.
Janner, Sir Barnett Oswald, Thomas Varley, Eric G.
Jay, Rt. Hn. Douglas Owen, Will Wainwright, Edwin
Jeger, Mrs. Lena (H'b'n & St. P'cras, S.) Walden, Brian (All Saints)
Jenkins, Hugh (Putney) Page, Derek (King's Lynn) Walker, Harold (Doncaster)
Johnson, Carol (Lewisham, S.) Paget, R. T. Wallace, George
Johnson, James (K'ston-on-Hull, W.) Palmer, Arthur Watkins, Tudor
Jones, Dan (Burnley) Pannell, Rt. Hn. Charles Weitzman, David
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.) Pargiter, G. A. Wells, William (Walsall, N.)
Jones, J. Idwal (Wrexham) Park, Trevor (Derbyshire, S. E.) White, Mrs. Eirene
Jones, T. W. (Merioneth) Parkin, B. T. Whitlock, William
Kelley, Richard Pavitt, Laurence Wigg, Rt. Hn. George
Kenyon, Clifford Pearson, Arthur (Pontypridd) Wilkins, W. A.
Kerr, Mrs. Anne (R'ter & Chatham) Peart, Rt. Hn. Fred Willey, Rt. Hn. Frederick
Kerr, Dr. David (W'worth, Central) Pentland, Norman Williams, Alan (Swansea, W.)
Lawson, George Perry, Ernest G. Williams, Clifford (Abertillery)
Leadbitter, Ted Popplewell, Ernest Williams, Mrs. Shirley (Hitchin)
Ledger, Ron Prentice, R. E. Williams, W. T. (Warrington)
Lee, Rt. Hn. Frederick (Newton) Price, J. T. (Westhoughton) Willis, George (Edinburgh, E.)
Lee, Miss Jennie (Cannock) Probert, Arthur Wilson, Rt. Hn. Harold (Huyton)
Lever, Harold (Cheetham) Pursey, Cmdr. Harry Wilson, William (Coventry, S.)
Lever, L. M. (Ardwick) Randall, Harry Winterbottom, R. E.
Lewis, Arthur (West Ham, N.) Rankin, John Woodburn, Rt. Hn. A.
Lewis, Ron (Carlisle) Redhead, Edward Woof, Robert
Lipton, Marcus Rees, Merlyn Wyatt, Woodrow
Loughlin, Charles Rhodes, Geoffrey Yates, Victor (Ladywood)
Mabon, Dr. J. Dickson Richard, Ivor Zilliacus, K.
McBride, Neil Roberts, Albert (Normanton)
McCann, J. Roberts, Goronwy (Caernarvon) TELLERS FOR THE AYES:
MacColl, James Robertson, John (Paisley) Mr. Gourlay and Mr. Harper.
NOES
Agnew, Commander Sir Peter Batsford, Brian Boyd-Carpenter, Rt. Hn. J.
Alison, Michael (Barkston Ash) Bell, Ronald Boyle, Rt. Hn. Sir Edward
Allan, Robert (Paddington, S.) Bennett, Sir Frederic (Torquay) Braine, Bernard
Allason, James (Hemel Hempstead) Berkeley, Humphry Brewis, John
Amery, Rt. Hon. Julian Berry, Hn. Anthony Brinton, Sir Tatton
Anstruther-Gray, Rt. Hn. Sir W. Biffen, John Brooke, Rt. Hn. Henry
Astor, John Biggs-Davison, John Brown, Sir Edward (Bath)
Atkins, Humphrey Birch, Rt. Hn. Nigel Bruce-Gardyne, J.
Awdry, Daniel Black, Sir Cyril Bryan, Paul
Baker, W. H. K. Blaker, Peter Buchanan-Smith, Alick
Balniel, Lord Bossom, Hn. Clive Buck, Antony
Barber, Rt. Hn. Anthony Bowen, Roderic (Cardigan) Bullus, Sir Eric
Barlow, Sir John Box, Donald Burden, F. A.
Butcher, Sir Herbert Hay, John Page, John (Harrow, W.)
Buxton, Ronald Heald, Rt. Hn. Sir Lionel Page, R. Graham (Crosby)
Campbell, Gordon Heath, Rt. Hn. Edward Pearson, Sir Frank (Clitheroe)
Carlisle, Mark Hendry, Forbes Peel, John
Carr, Rt. Hn. Robert Higgins, Terence L. Percival, Ian
Cary, Sir Robert Hill, J. E. B. (S. Norfolk) Peyton, John
Channon, H. P. G. Hirst, Geoffrey Pickthorn, Rt. Hn. Sir Kenneth
Chataway, Christopher Hobson, Rt. Hn. Sir John Pike, Miss Mervyn
Chichester-Clark, R. Hooson, H. E. Pitt, Dame Edith
Clark, Henry (Antrim, N.) Hopkins, Alan Pounder, Rafton
Clark, William (Nottingham, S.) Hordern, Peter Powell, Rt. Hn. J. Enoch
Clarke, Brig. Terence (Portsmth, W.) Hornby, Richard Price, David (Eastleigh)
Cole, Norman Hornsby-Smith, Rt. Hn. Dame P. Prior, J. M. L.
Cooke, Robert Hunt, John (Bromley) Pym, Francis
Cooper, A. E. Hutchison, Michael Clark Quennell, Miss J. M.
Cooper-Key, Sir Neill Iremonger, T. L. Ramsden, Rt. Hn. James
Cordle, John Irvine, Bryant Godman (Rye) Redmayne, Rt. Hn. Sir Martin
Corfield, F. V. Jenkin, Patrick (Woodford) Rees-Davies, W. R.
Costain, A. P. Jennings, J. C. Renton, Rt. Hn. Sir David
Courtney, Cdr. Anthony Jones, Arthur (Northants, S.) Ridley, Hn. Nicholas
Craddock, Sir Beresford (Spelthorne) Jopling, Michael Ridsdale, Julian
Crawley, Aidan Joseph, Rt. Hn. Sir Keith Roberts, Sir Peter (Heeley)
Crosthwaite-Eyre, Col. Sir Oliver Kaberry, Sir Donald Rodgers, Sir John (Sevenoaks)
Crowder, F. P. Kerby, Capt. Henry Roots, William
Cunningham, Sir Knox Kerr, Sir Hamilton (Cambridge) Royle, Anthony
Curran, Charles Kilfedder, James A. St. John-Stevas, Norman
Currie, G. B. H. Kimball, Marcus Sandys, Rt. Hn. D.
Dalkeith, Earl of King, Evelyn (Dorset, S.) Scott-Hopkins, James
Dance, James Kirk, Peter Sharples, Richard
Davies, Dr. Wyndham (Perry Barr) Kitson, Timothy Sinclair, Sir George
d'Avigdor-Goldsmid, Sir Henry Lagden, Godfrey Smith, Dudley (Br'ntf'd & Chiswick)
Dean, Paul Lambton, Viscount Smyth, Rt. Hn. Brig. Sir John
Digby, Simon Wingfield Lancaster, Col. C. G. Soames, Rt. Hn. Christopher
Dodds-Parker, Douglas Langford-Holt, Sir John Spearman, Sir Alexander
Doughty, Charles Legge-Bourke, Sir Harry Speir, Sir Rupert
Drayson, G. B. Lewis, Kenneth (Rutland) Stainton, Keith
du Cann, Rt. Hn. Edward Litchfield, Capt. John Stanley, Hn. Richard
Eden, Sir John Lloyd, Ian (P'tsm'th, Langstone) Steel, David (Roxburgh)
Elliot, Capt. Walter (Carshalton) Lloyd, Rt. Hn. Selwyn (Wirral) Stodart, Anthony
Emery, Peter Longden, Gilbert Studholme, Sir Henry
Eyre, Reginald Loveys, Walter H. Talbot, John E.
Farr, John Lubbock, Eric Taylor, Sir Charles (Eastbourne)
Fell, Anthony McAdden, Sir Stephen Taylor, Edward M. (G'gow, Cathcart)
Fisher, Nigel MacArthur, Ian Teeling, Sir William
Fletcher-Cooke, Charles (Darwen) Mackenzie, Alasdair (Ross & Crom'ty) Temple, John M.
Fletcher-Cooke, Sir John (S'pton) McLaren, Martin Thatcher, Mrs. Margaret
Foster, Sir John Maclean, Sir Fitzroy Thomas, Sir Leslie (Canterbury)
Fraser, Rt. Hn. Hugh (St'fford & Stone) Macleod, Rt. Hn. Iain Thompson, Sir Richard (Croydon, S.)
Fraser, Ian (Plymouth, Sutton) McMaster, Stanley Tiley, Arthur (Bradford, W.)
Galbraith, Hn. T. G. D. McNair-Wilson, Patrick Tilney, John (Wavertree)
Gammans, Lady Maginnis, John E. Turton, Rt. Hn. R. H.
Gibson-Watt, David Maitland, Sir John van Straubenzee, W. R.
Giles, Rear-Admiral Morgan Marples, Rt. Hn. Ernest Vaughan-Morgan, Rt. Hn. Sir John
Gilmour, Ian (Norfolk, Central) Marten, Neil Vickers, Dame Joan
Gilmour, Sir John (East Fife) Mathew, Robert Walder, David (High Peak)
Glover, Sir Douglas Maude, Angus Walker, Peter (Worcester)
Godber, Rt. Hn. J. B. Maudling, Rt. Hn. Reginald Walker-Smith, Rt. Hn. Sir Derek
Goodhart, Philip Mawby, Ray Wall, Patrick
Gower, Raymond Maxwell-Hyslop, R. J. Walters, Dennis
Grant, Anthony Maydon, Lt.-Cmdr. S. L. C. Ward, Dame Irene
Grant-Ferris, R. Meyer, Sir Anthony Weatherill, Bernard
Gresham Cooke, R. Mills, Peter (Torrington) Webster, David
Grieve, Percy Mills, Stratton (Belfast, N.) Wells, John (Maidstone)
Griffiths, Eldon (Bury St. Edmunds) Miscampbell, Norman Whitelaw, William
Griffiths, Peter (Smethwick) Mitchell, David Williams, Sir Rolf Dudley (Exeter)
Grimond, Rt. Hn. J. Monro, Hector Wills, Sir Gerald (Bridgwater)
Gurden, Harold More, Jasper Wilson, Geoffrey (Truro)
Hall, John (Wycombe) Morrison, Charles (Devizes) Wise, A. R.
Hall-Davis, A. G. F. Mott-Radclyffe, Sir Charles Wolrige-Gordon, Patrick
Hamilton, Marquess of (Fermanagh) Munro-Lucas-Tooth, Sir Hugh Wood, Rt. Hn. Richard
Hamilton, M. (Salisbury) Murton, Oscar Woodhouse, Hn. Christopher
Harris, Frederic (Croydon, N. W.) Neave, Airey Wylie, N. R.
Harris, Reader (Heston) Nicholson, Sir Godfrey Yates, William (The Wrekin)
Harrison, Brian (Maldon) Noble, Rt. Hn. Michael Younger, Hn. George
Harvey, Sir Arthur Vere (Macclesf'd) Nugent, Rt. Hn. Sir Richard
Harvey, John (Walthamstow, E.) Onslow, Cranley TELLERS FOR THE NOES:
Harvie Anderson, Miss Orr, Capt. L. P. S. Mr. R. W. Elliott and
Hastings, Stephen Osborn, John (Hallam) Mr. Geoffrey Johnson Smith.
Hawkins, Paul Osborne, Sir Cyril (Louth)
Mr. MacDermot

I beg to move Amendment No. 27, in page 18, line 41, at the beginning to insert "loss".

In Committee, the hon. and learned Member for Northwich (Sir J. Foster) raised the question, as a drafting point, whether the Clause covered burglary. We have looked into the matter and, to put it beyond doubt, we propose this Amendment to insert the word "loss", which will cover loss by burglary.

Amendment agreed to.

Further Amendments made: In page 19, line 27, after "trustee", insert: or for any person who would be so entitled but for being an infant or other person under disability".

In page 19, line 27, after "persons," insert: who are or would be".—[Mr. MacDermot.]