§ 6.15 a.m.
§ Mr. MaxwellWhat about packing up now?
§ Mr. Peter Walker (Worcester)I beg to move, Amendment No. 658, in page 81, line 1, after "business", to insert:
whether mutual or proprietary".I am surprised to hear one or two hon. Members on the other side of the Committee say, "What about packing up now?" We realise that the Treasury Bench are getting very tired, but we hope that their supporters are not doing so also. We are pleased that, at this refreshing hour of the morning, we should be starting on this very important Clause, Clause 64—[HON. MEMBERS: "Speak 744 up."] We are about to discuss a Clause which affects almost every family in the country, a Clause concerning life assurance.I am pleased to see that the Chief Secretary is to reply to this Amendment, because I had connections with the insurance industry for 17 years, and I started in his constituency. I must confess, with some regret, that at that time, alas, each lunch hour I obtained my sandwiches and coffee from the Co-op restaurant, and thus, possibly, assisted him in his political career.
The Amendment is an important one in that, as at present worded, the Clause could be taken to refer particularly to proprietary companies. Under Section 425 of the Income Tax Act, 1952, there 745 is a specific reference to both proprietary and mutual business. As the Committee will be aware, there are in this country many life offices which work on a mutual basis, many of them life offices of a substantial size, and also some small ones like the Police Mutual, operating for specific interests. I am sure that it was the intention of the Government that mutual offices should be included in this Clause, and I hope therefore that the Chief Secretary will be able to accept the Amendment.
§ Mr. DiamondThe hon. Member for Worcester (Mr. Peter Walker)—who looks extraordinarily well as a result of his Co-op sandwiches and coffee—has moved the Amendment in tones loud and clear, and I am very grateful to him for that. He has drawn attention to the fact that, in the existing legislation, the words are "whether proprietary or mutual". He prefers "whether mutual or proprietary". Neither is necessary, but the Amendment does nothing but adorn the Bill, and if it gives the hon. Gentleman pleasure and satisfaction then, having regard to the fact that he used to live in Gloucester, I will be only too delighted to give it to him.
§ Amendment agreed to.
§ Mr. Peter WalkerI beg to move Amendment No. 659, in page 81, line 14, to leave out "deduction" and to insert:
relief in respect of management expenses given".I apologise for having spoken a little too loudly, but I thought there was need to waken up the Committee a little, and I am pleased that we are having at least that effect.Once again, this Amendment deals with what is more of a drafting point. There is some thought that the present word "deduction" could refer to something other than management expenses. I believe that it is the intention of the Government that it should refer to management expenses, and I hope—perhaps far reasons other than that I lived in Gloucester—that this Amendment will also be acceptable to the Chief Secretary.
§ Mr. DiamondWhat the hon. Gentleman describes is intended; it is included, so I am advised, not specifically but implicitly. Nevertheless, the words he has proposed do nothing but make the 746 already clear pellucidly clear, and on the grounds that the hon. Gentleman has had a good night's sleep and has come here fresh and cheerful—and we welcome the new mood he has brought with him—I am glad to give him this Amendment also.
§ Amendment agreed to.
§ Mr. DiamondI beg to move Amendment No. 341, in page 81, line 25 at the end to insert:
The reference in paragraph 2(1) of Schedule 6 to this Act to computing income or profits or gains or losses shall not be taken as applying to a computation of a company's income for purposes of this subsection.These words are sought to be added for the sake of clarity; they do nothing other than make clear what is the intention of the Clause. As I have already given the hon. Member two Amendments I thought that at least he might give me this one, but not only on those grounds—and I apologise for being facetious—but on the more solid grounds that were the word not there it might be thought, but wrongly, that because of the phrase "trading profits" capital gains which have not been taxed could be omitted and never be taxed at all. In order to avoid the possibility of its being alleged that capital gains are not to be taxed directly by the effect of certain words in the Clause, it is made clear, for the sake of certainty, that they do come into taxation once, not twice. I can give a longer description if the Committee would like it, but I hope that the Amendment will be acceptable.
§ Amendment agreed to.
§ Mr. Peter WalkerI beg to move Amendment No. 463, in page 82, line 4, to leave out "income" and to insert:
profits (as defined in section 42(4)(b))".I am pleased at the progress we are making on the Bill. We have so far had two Amendments accepted. When we noticed what a difficult time the Treasury Bench was having with all the numerous Amendments they have had put down to clarify the Bill we thought we should do something.This Amendment raises an important point, and applies particularly to overseas life funds administered by United Kingdom companies.
747 The Clause refers to Section 429 of the Income Tax Act, 1952, which provides special treatment for life companies administered for purely overseas policy holders. We presume that it is the intention of the Government that the provisions of the Clause should equally apply as in the Income Tax Act, 1952, and should apply not only to income but also to the chargeable gains that accrue. The purpose of the Amendment is to use the definition as in Clause 42(4,b) to include both income and chargeable gains. I presume that is the intention of the Government and I hope that they will also find the Amendment acceptable.
§ Mr. DiamondThe hon. Member has put the matter fairly but, to answer him, the Amendment goes a little wider than he intends. I think I could almost say that what he intends we intend too, but I do not want to be specfic about it. I will certainly undertake to bring in a suitable Amendment on the Report stage that I believe will really meet the point, if he will undertake to withdraw his Amendment.
§ Mr. WalkerIn view of that undertaking, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Peter WalkerI beg to move Amendment No. 657, in page 83, line 10, at the end to insert:
and except under section 58 hereof.This part of the Clause applies to treatment of franked income. Clause 58 lays out certain provisions regarding the treatment of franked income. We were concerned that the provisions of Clause 58 may not apply as far as this Clause is concerned and we therefore propose this Amendment.
§ Mr. DiamondThe hon. Member should have no anxiety about this. Clause 58 does apply and his Amendment is not necessary in order to achieve his purpose. I hope, therefore, that he will not feel disposed to press the Amendment.
§ Mr. WalkerOn that undertaking, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Peter WalkerI beg to move Amendment No. 686, in page 83, line 42, at the end to add: 748
(9) It is hereby declared that the investments of a company carrying on the business of life assurance made in connection with such business and held at 6th April 1965 for the purpose of such business (together with any substitution therefor) shall not be chargeable assets.I believe I am right in saying that it would be acceptable to the Chair to discuss at the same time Amendment No. 656, in page 83, line 42, at end add:(9) Notwithstanding anything hereinbefore contained the chargeable gains accruing to a company carrying on a life assurance business shall be to the extent that they are allocated or reserved to its policy holders be charged to tax at three-fifths of the rate of capital gains tax chargeable in the case of an individual without regard to the provisions of section 20 hereof.
§ Mr. WalkerThese are two major Amendments that we on this side of the Committee would like the Government to accept.
I stated at the beginning of our discussion on the Clause how important was this general concept of life assurance and what a great deal of attention the Committee should be giving to it. It is a staggering fact that in Britain at present there are in existence something like 123 million life policies, plus 5 million people who enjoy life cover in group schemes.
The important factor about this great life assurance industry in Britain is that it provides particularly for people with smaller incomes. It is a fact that 110 million policies in Britain are transacted by industrial life companies on a door-to-door, weekly collection, basis.
Unless these two Amendments are accepted, those people using life assurance as a medium of saving will be at a distinct disadvantage. If I may first refer to Amendment No. 686, the purpose of this is to see that all those funds at present invested by life offices will not in future be subject to Capital Gains Tax through the medium of the Corporation Tax.
6.30 a.m.
The reason for doing this is the very real and good one that when a life office enters into a contract on a life policy it is guaranteeing the payment of a certain amount of money in return for the 749 premiums which will be paid over the years, it has to enter the contract, and, no matter what happens in the meantime, at the end of the 20 or 30 years or at the end of the lifetime of the person concerned, that sum of money has to be paid. If life offices were subjected to violently fluctuating taxation, they would be unable to enter these normal forms of life contract.
This is why successive Governments, both Socialist and Conservative, have over the years agreed to a fixed rate of tax for life offices, which has not varied from Budget to Budget. It has been a fixed and agreed rate of taxation for many years. One can imagine the effect of suddenly introducing a new tax. Special provision is made to safeguard the existing rate of Income Tax on the income of the life funds, but no such provision is made in regard to the imposition of Capital Gains Tax.
This will have a very real and important effect upon the life offices. It must be remembered that these offices have decided upon their investment policy in the light of the contracts that they have entered into. They have decided, for example, to be very heavy investors in the long-term end of the gilt-edged market. The Chancellor will be well aware of the very important rôle which the life offices play in the gilt-edged market, particularly with long-dated stocks. They invest in that type of security because they want to be certain of securing a certain amount of money at the end of a period of years when the gilt-edged stocks come to maturity.
If a new tax is suddenly imposed on their investment pattern, it means that on the contracts into which they have already entered they will suddenly be subjected to a tax which was completely unexpected. They cannot alter the terms of their contracts. They cannot say to all those insured for a policy of £1,000, "The Government are imposing a Capital Gains Tax upon us. At the end of the 20 years when your policy matures we shall pay you only £950." The life offices have given the existing contracts on the basis of believing and understanding that there was not a Capital Gains Tax in existence.
Our Amendment is a somewhat modest one. To cover this point fully one would need an Amendment saying that the 750 future investment of premiums upon contracts already entered into should be exempted in the same way, but there would be very considerable administrative difficulties about doing that. Therefore, our suggestion is that all the funds invested in the life funds of the life offices at 6th April should in future not be chargeable assets. This would mean that the life offices would be able to complete their contracts without the incidence of this tax.
I ask the Committee to recognise what will happen if the Amendment is not accepted. Given the fact that the life offices cannot in any way change their present contracts into which they have entered with the policy holders, the only way they can make amends for the adverse effect of the tax is to ensure that new people taking up contracts pay additional premiums or have reduced benefits which will not only make up for the Capital Gains Tax which their premiums will have to meet over the years but also meet the interest cost upon the existing policy holders that they will sustain before their contracts come to fruition. If the Amendment is not accepted, they will be imposing on future policy holders a very unfair burden in regard to Capital Gains Tax.
Besides Amendment No. 686, we have a very important Amendment, No. 656, which, Sir Harry, you said could be discussed with the other—
§ The Temporary Chairman (Sir Harry Legge-Bourke)Order. I think it might help the Committee if I were to say that the Chairman of Ways and Means has agreed to allow Amendment No. 656 to be discussed, but only on the understanding that it would be amended so that the words "at a rate not exceeding" were inserted before the word "three-fifths".
§ Mr. WalkerThank you very much, Sir Harry. Those words will be perfectly acceptable to those of us who have sponsored this Amendment.
This Amendment seeks to ensure that the tax chargeable upon that part of the life fund which is allocated to the policy holders should be at the rate of three-fifths of the rate of the Capital Gains Tax chargeable to the individual. I suggest that the Committee will quickly see the 751 justice of the Amendment. As I have stated, the majority of policy holders in this country are people with small incomes. Those people, if they invested direct into the market other than through the media of life assurance, would pay at the maximum rate of Capital Gains Tax, at 30 per cent., but many of them would not pay any Capital Gains Tax at all.
Large numbers of individuals insured with the industrial life offices have little or no income. Many of these policies are connected with children. Many are on the wives. They are essentially family policies, with families on small incomes. Therefore, these people, if they invest other than through the media of life assurance, will pay no Capital Gains Tax at all, or at least a low rate of Capital Gains Tax, and even if they were paying the standard rate of Income Tax they would only pay Capital Gains Tax at the rate of 27½ per cent. Yet because these people choose to save through the media of life assurance, they are indirectly going to have imposed upon them a rate of 35 per cent. Capital Gains Tax. If the rate of Corporation Tax should be increased to 40 per cent. that rate will go up to 40 per cent. too.
The Government will find it very difficult to defend a situation in which a person paying 1s. or 2s. a week on a life policy has imposed upon him a Capital Gains Tax of 35 per cent. or 40 per cent., whereas normally as individuals such persons would either pay no Capital Gains Tax at all or would pay at a much lower rate than this. Therefore, we have suggested the formula of three-fifths of the rate paid by the individual as our estimate of what the average rate would be for those persons who are policy holders.
The Treasury may have other statistics that will illustrate that the average rate of tax of the policy holders in this country is either higher or lower than the estimate that we give. We would find it acceptable to have a different figure than three-fifths inserted in the Amendment if statistically it could be shown that this figure is too high or too low. But we are endeavouring to show that basically those people who use life assurance as the media for saving will 752 pay a rate of Capital Gains Tax similar to what they will pay as individuals.
I must point out the hazards that the Government will face if they do not accept this Amendment. If they do not accept it by stating that in future the Capital Gains Tax on the life fund due to policy holders will be at the full rate of Corporation Tax, they will do one of two things. Either they will bring about a decline in the benefits of future life contracts, or they will increase premiums. Obviously neither of those things will be in the interests of the country.
We all know the main sort of benefits of life contracts. They are used particularly as far as pension provision is concerned. I do not think that any hon. Member wants those who provide for their pension by life assurance to have a higher rate of Capital Gains Tax imposed on them indirectly than they would if they invested as individuals. It provides for the emergency in the family; it provides for the sudden death; it provides for the widow and the children who are left. All Governments in the past have endeavoured to ensure by their taxation treatment of life assurance that life assurance is encouraged as a medium of saving and providing security in the family.
The Government, by their action in imposing Capital Gains Tax on these life funds at the full rate of Corporation Tax, are handicapping the benefits that these policies provide. I ask them to think of the very important r½le which the life assurance companies play in the provision of mortgages. About £800 million has been invested by British life offices for the direct provision of mortgages on private dwelling houses. It works out that about 2,000 houses in every constituency carry a mortgage provided by a life office. About another 2,500 homes in every constituency enjoy the security of what is called a mortgage protection policy which gives life cover for the repayment of a building society loan.
In future, if this capital gains structure persists, the premiums to be paid on those policies, either for direct mortgage repayment or for mortgage protection, will have to be increased. This will be another example of the Government adding to the already heavy burden of the person endeavouring to buy his home. They should already be distressed at the 753 heavy burden which they put on people endeavouring to buy a home of their own, but to add this further burden which must eventually lead to an increase in the cost of mortgage repayments through life assurance must strike people as being unfair and very unreasonable.
Also, the imposition of this tax at this high level will have a general adverse effect on the attractiveness of life assurance. This is a great medium of saving. The Chancellor of the Exchequer must be aware of this more than most people. Not only are Government stocks held so very substantially by the insurance companies, but many local authorities obtain their long-term finance from the life offices. A great degree of investment in industry takes place, and the President of the Board of Trade will say how willingly the insurance companies co-operated in providing long-term finance for British exporters. This must be a medium of saving which we wish to encourage.
We are not asking by these two Amendments that an extra concession should be given to life assurance. We are not asking for life assurance to be given mare favourable treatment than other forms of saving. We are asking, first, that in the case of those contracts already entered into by life offices the life offices shall be able to keep them because there will not be any change in the taxation of the investments already made; and, secondly, for future life contracts, we are asking that if the Government have to impose Capital Gains Tax it should be levied at a rate equivalent to the average rate applied to the individual and net a rate which will be at least double the average rate for the individual.
These Amendments are in the interests of the Chancellor of the Exchequer. They are certainly in the interests of important things like pension provision and house purchase and saving. I hope that the Government will have the good sense to accept both of them.
§ Mr. GrimondI feel that the life offices have made out a case which certainly requires an answer in connection with the matters raised by these Amendments. However. I have certain doubts and certain questions which I should like to ask the Government arising from these proposals.
754 As has been clearly explained, the effect of one Amendment will be to relieve funds held at 6th April from the incidence of the Capital Gains Tax. The argument for that is that the insurance companies enter into contracts which may run for a long time and which they cannot alter. I accept that, but I am not quite sure that all types of insurance policies will be affected in the same way. I appreciate that the profitability of certain types of policies will be affected, but it can also be argued that many types of investment will be affected by the Capital Gains Tax and some will become less profitable.
6.45 a.m.
I suppose that the Government will need to be convinced that there is a special reason for exempting life policies from this form of tax, which will have wide repercussions on every type of investment and saving. There is a case for saying that the insurance companies are in a different position from the ordinary commercial enterprise because they cannot take avoiding action, so to speak, as regards contracts already entered into. What would be the result on different types of policies of accepting the Amendment and what would be the net gain or loss involved?
The other proposal, as I understand it, refers to the future and attempts to equalise the incidence of the Capital Gains Tax on people who take out insurances with the liability which they might incur if it were simply a case of Capital Gains Tax being levied on them as individuals. This seems a perfectly fair proposal. Perhaps the wording of the Amendment is not to the Government's liking, but I see no reason why they should not accept it in principle. I will not go over again all the reasons why. All hon. Members must be anxious to encourage this type of saving and to see that people who enter it are not penalised, since richer people are perhaps able to find other ways of saving, without having to pay the Capital Gains Tax at such a high rate.
The life assurance companies say that, for the purpose of meeting their liabilities, they must keep investments under continuous review. A shift froth one type of investment to another might, in this process, result in a capital gain, but, 755 they say, this is not what is usually regarded as a realised gain. They are frightened because such gains will become subject to the Capital Gains Tax. I do not know how far their fears are justified. I hope that the Chief Secretary will deal with this issue, since the companies and others have expressed concern over it and I understand that representatives of the companies have been to the Treasury about it.
§ Mr. Harold LeverAlthough I have not given great study to this complicated Clause, as I understand the position, the insurance company and not the policy holder will pay the Capital Gains Tax on any realised capital gain. Does it not follow that the policy holder may get his policy gain, as it were, without directly or indirectly incurring even as much tax as hon. Gentlemen want him to pay?
There is then the question of new policy holders coming in and taking over investments from the insurance company, probably not realising that the investments were bought on behalf of the previous policy holders. Surely such a company would be able to pay out to its policy holders on the basis of the value of the assets held on their behalf because, in effect, there would be a transfer of assets without them coming within the ambit of the Capital Gains Tax. Would that not be the position? As I said, I have not had an opportunity to study the Clause. It would appear, however, that as long as new policy holders come in, then to the extent that they amount to at least the number being paid out, there would be little Capital Gains Tax to pay.
I suggest that hon. Gentlemen opposite are asking my right hon. Friend to make a so-called concession which would cost the policy holders a great deal of money. The right hon. Gentleman the Leader of the Liberal Party appeared to be supporting their request. To put it in another way, if the concession does not cost money, it means that the policy holder is getting a double concession: not only does he not pay Capital Gains Tax, very often, on the accretions to the value of the fund held on behalf of his policy but, by reason of a non-realisation within the meaning of the Bill, he has 756 the rate reduced for those occasions when there is some realisation.
§ Mr. Peter WalkerThe hon. Gentleman should realise that the life offices will in future have to make a reserve for contingent Capital Gains Tax in the life fund. This is a real problem, and it means that, in all responsibility, they cannot start paying out moneys or bringing in new people to inherit those moneys without there being a constant contingent position in the life funds.
§ Mr. LeverThe hon. Gentleman says that they will have to make a contingent reserve, but the amount of that reserve may be much less, or should be much less, than the full amount of the Capital Gains Tax.
However, as most hon. Members are aware, I am not greatly excited with pleasure at the prospect of the Capital Gains Tax and I do not regard it as the answer to every financial maiden's prayer, but I am going on the assumption that we are to have one. It seems to me that the argument that what is proposed here will penalise people with policies is not correct. On balance, it will provide a further inducement to small people to make their investments by way of life policies because they will be rather better off as far as Capital Gains Tax is concerned than by way of any other investment medium. But that is only my understanding on a brief reading of the Clause.
§ Mr. Hugh Jenkins (Putney) I support my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) and urge my right hon. Friend not to accept the two Amendments which were put to us in such moving terms by the hon. Member for Worcester (Mr. Peter Walker). At one point, as he painted a picture of the children and widows trooping in, I thought that a little soft music might be appropriate to induce the mood which the hon. Gentleman was trying to convey.
The life assurance organisations are not investment organisations only. Their business is life assurance. As the right hon. Member for Orkney and Shetland, (Mr. Grimond) reminded us, there are various sorts of policies, and life assurance companies have full opportunity to make an assessment in the light of the 757 Capital Gains Tax. Most policies, whether they are paid for weekly at the door or whether they are large-scale policies, are with-profits policies, and it is quite possible for the life offices to make such adjustments as may be necessary. At the end of the life of the policy, the application of the Capital Gains Tax will be very tiny. With policies at an early stage, there is plenty of time to make necessary adjustments.
The investment of their funds is only one source of profit for the life assurance companies. There are many others, such as cautious actuarial calculations, and so on. I hope, therefore, that my right hon. Friend will not feel it necessary to give any assurances in response to these Amendments. They would not have the suggested effect of putting life assurance companies into an equal position relative to other forms of investment. They would put them in a preferential position, which would be entirely unjustified.
§ Mr. DiamondThe two sides of the Committee are at one in wishing to encourage saving in all its forms, and, of course, one of the most accepted and reliable forms is life assurance. It is for this reason that life assurance has been recognised by the State as having a special place. It has always had a special method of calculating tax and a special limitation on the rate of tax which it suffers. It pays at a pegged rate. We are all at one on that. The hon. Member for Worcester (Mr. Peter Walker) was anxious to single out life insurance for more favourable treatment than other forms of savings, but he did not make the case at all. I agree with what my right hon. Friend the Chancellor said in his Budget speech:
Life assurance companies occupy an intermediate position between these two classes. The investment income of their life funds is subject to Income Tax, but their gains from the realisation of securities, in effect, largely go tax free. I do not think it is right that this situation should continue in the context of the. Capital Gains Tax which is to apply quite generally; and I therefore propose that the gains of life assurance companies, both short-term and long-term, should be brought within its scope."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710. c. 247.]The hon. Member opposite has not demonstrated why this form of saving, which is indirect saving, and not such a 758 pure form of saving as, for example unit or investment trusts, should receive special treatment. When a person pays a premium he is doing two things. Firstly, he is investing, and secondly he is paying for the cover against a risk.If—and God forbid—the hon. Gentleman were to die tomorrow, having invested for one year he would find a very different situation than if he had paid a premium for life cover for one year.
§ Mr. Peter WalkerI do not think that that is a valid argument. The right hon. Gentleman is saying that there is an averaging out of actuarial calculations on the average span of life. But what happens is that a group of people share the risk dividend by paying for the risk which accumulates savings at a rate according to an actuarial table.
§ Mr. DiamondThere is an insurance element in it. It is not for me to say, nor am I competent to say, how a premium is dealt with; but a proportional amount is allocated to death cover. It certainly cannot be alleged that this form of saving should be preferred to other forms of saving. It might be said that there are other forms of saving which should be preferred. There is no reason why this should be preferred to unit or investment trusts.
The Amendment seeks to remove life assurances companies from the Capital Gains Tax; but, I am sorry, this is the kind of Amendment which the Government are not prepared to accept. It is quite clear that there is no double taxation. The policy holder is not to be taxed but the company will be, and it will certainly pay more tax than it has done hitherto. This is merely a fact which reflects the fact that there have been capital gains, and this is the answer to the right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond). Certainly switching will result in Capital Gains Tax being attracted. The fact is that capital gains have been made which so far have not borne tax and it would certainly be wrong to single out one form of capital gain and exempt it from the charge. I cannot offer the hon. Gentleman any encouragement as far as that Amendment is concerned.
759 7.0 a.m.
The other Amendment deals with the question of the rate, and attempts to look through the funds to the individual. I shall not impress the Committee if I say I would not accept that principle anyway, because the Committee is not impressed by arguments of tax purity. But I would say that one has to accept that a corporation should pay Capital Gains Tax as part of general income unless the contrary can be demonstrated. The contrary cannot be demonstrated here and it is wrong for the hon. Member for Worcester to say that if this benefit were received by an individual it would inevitably have a lower rate of tax. It would attract a different rate, more or less.
If a short-term capital gain—and there will be switches within 12 months in all forms of savings to meet circumstances—were received by an individual, it might attract Surtax or Income Tax at a much higher rate than the 35 per cent. that would be attracted here. It would be idle to conjecture which would be more likely for the individual. The hon. Gentleman is entitled to say that it would be more likely to be a long-term gain. I merely say that it may be one or the other. In terms of cost the Amendments would be reasonably costly, though perhaps not greatly so.
I was attracted by the argument of my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), but it will be difficult to demonstrate either that what he says is right or that what I say is right—namely, that Amendment No. 656 would cost the Revenue £7½ million and Amendment No. 688 would cost about £16 million—a total of £23½ million.
§ Mr. Harold LeverI realised that I was making a bad point and withdrew it. Right hon. and hon. Members opposite were asking for a double concession. I was wrong in suggesting that this proposal would work to reduce tax for the policy holder. I suggested it would not cost as much as before because, when the gain was realised when the policy was paid out, he was charged at 33⅓ per cent.
§ Mr. DiamondI realise that.
§ Mr. Peter WalkerPerhaps the Chief Secretary would explain the basis of his calculations as to cost and what period 760 they apply to. The rate of the tax has not been finally fixed yet but now he suddenly comes out with these two figures. The Government do not expect for 12 or 15 years to reach the estimate of the Capital Gains Tax that they made in the Budget but now say that these Amendments would cost £23½ million. When would they cost that?
§ Mr. DiamondI think there is some confusion here. This is Corporation Tax, paid by a company in respect of its capital gains. All capital gains or other kinds of gains are assessed on the company in one sum, and that is the Corporation Tax.
§ Mr. Peter WalkerOn what basis has the right hon. Gentleman been able to calculate the saving on capital gains over a 12–month period in investment with life assurance companies?
§ Mr. DiamondI can only say that I am not prepared to give my own certificate. I do not claim that I worked them out myself. I do not think I would have the ability to do so and it would not be appropriate to my responsibilities. What I can say is that I am advised by the Revenue, which goes to considerable lengths to try to give this information for every Amendment because the Committee generally likes to know what the cost of accepting Amendments would be. Its best estimate is the figure I have given for a full year in respect of Corporation Tax. The hon. Gentleman the Member for Worcester is quite right. The first year of Capital Gains Tax is estimated to produce only £12½ million all told.
There is one other point. I do not want it to be thought that we are not conscious of the case that a life assurance contract is a long-term contract. It is entered into on a variety of assumptions, one of which may have been, some time ago, that there was not going to be a tax payable in respect of capital gains. Nevertheless, it is not right to say that an insurance company looks solely to the kind of taxation which will have to be suffered in the years ahead. There are a number of things which affect it and the major thing the insurance company must look to is the estimated rate of interest over the years ahead, which is liable to fluctuation in a way which affects funds in a much more solid way 761 than the Capital Gains Tax on any capital gains that happen to be made from time to time. I do not want this to be taken out of perspective.
There are all sorts of terms which insurance companies entering into long-term contracts have to take into account. While it might be in a particular case, as a result of paying Capital Gains Tax, that a certain policy holder would receive a smaller pension than he might otherwise receive, this is something which is inevitable if a tax is to be spread fairly among all Her Majesty's subjects. I could not possibly accept these Amendments as they would prefer insurance as a form of saving to other forms of saving. I hope that the Committee will not feel it necessary to press them.
§ Mr. Peter WalkerI must immediately sate my disappointment with the reply of the Chief Secretary and I must also emphasise to the Committee, before they decide on this, the damage that is being done in the Finance Bill to the life offices. The case made by the Chief Secretary was that the position of the life offices was not going to be any worse than any other form of saving. As he is well aware we have been opposed throughout to the attitude he has taken on this. On behalf of 123 million policy holders in this country, we strongly object to him saying that, because a life assurance company invests their savings on their behalf, he is going to impose upon them a 35 per cent. Long-term Capital Gains Tax. He is going to impose upon their funds, and we particularly worded this Amendment to apply strictly to the funds for the benefit of the policy holder. The Government have decided to impose this tax upon those people.
The figures are alarming. If the figures are correct, what the Chief Secretary has said is that for each year the policy holders pay their industrial life policies their profits will deteriorate as a result of the action of the Government. The hon. Gentleman the Member for Putney (Mr. Hugh Jenkins) mentioned this subject. He will be delighted to tell this to the policy holders of Putney.
§ Mr. Hugh JenkinsThe hon. Gentleman the Member for Worcester (Mr. Peter Walker) is setting up a proposition 762 in terms so grossly exaggerated as to be absolutely ludicrous. The impact of this upon the individual policy holder, particularly of the small type of policy, is going to be so infinitesimal that it will not be noticed.
§ Mr. WalkerThe hon. Member himself stated earlier that the way companies could adjust this was by adjusting their profits, and I was following the logic of his remarks.
If this were done, these Amendments working out, as they do, to £23½ million a year, if most of the policies were without profits, which they are not—then O.K., it would be £23½ million a year off the profits on those policies. That is the position the Government are pursuing.
I would remind the Committee that there has been a series of blows at the life offices throughout this Bill. First of all, the basis of valuation, calculating Capital Gains Tax from 5th April, is a basis which inflates the value of existing funds; Corporation Tax will result in lower dividends being paid to the life offices and this will have a very considerable impact on policies in the future; now Capital Gains Tax applied to the life offices in this way, applied at a rate above the rate applying to the individual, will cause hardship.
It is all very well for the Chief Secretary to say that he realises that life policies are generally long-term contracts, but there are variable contracts, and it is reasonable to vary, he says, the rate of Income Tax of life offices. All Governments have accepted the fact that it is unreasonable to vary the rate of Income Tax for life offices—to vary it above a certain level. Yet now the Government decide, not only to impose a level of Income Tax which is agreed to be paid, but also to impose another tax, Capital Gains Tax through Corporation Tax. The effect is exactly the same as not pegging Income Tax. The effect is to impose an unexpected extra burden of tax on life offices. This will affect, I regret to say, premiums, and the benefits of policy holders throughout the country, and those repaying mortgages through life assurance. For these reasons, I must ask my hon. Friends to divide the Committee.
§ Question put, That those words be there added:—
764§ The Committee divided: Ayes 131, Noes, 144.
765Division No. 183] | AYES | [7.12 a.m. |
Agnew, Commander Sir Peter | Glover, Sir Douglas | Monro, Hector |
Alison, Michael (Barkston Ash) | Glyn, Sir Richard | Morrison, Charles (Devizes) |
Allan, Robert (Paddington, S.) | Goodhew, Victor | Munro-Lucas-Tooth, Sir Hugh |
Allason, James (Hemel Hempstead) | Grant, Anthony | Murton, Oscar |
Anstruther-Gray, Rt. Hn. Sir W. | Gresham Cooke, R. | Neave, Airey |
Awdry, Daniel | Grieve, Percy | Noble, Rt. Hn. Michael |
Baker, W. H. K. | Griffiths, Peter (Smethwick) | Onslow, Cranley |
Barber, Rt. Hn. Anthony | Grimond, Rt. Hn. J. | Osborn, John (Hallam) |
Barlow, Sir John | Hall, John (Wycombe) | Page, R. Graham (Crosby) |
Batsford, Brian | Hall-Davis, A. G. F. | Peel, John |
Berry, Hn. Anthony | Hamilton, Marquess of (Fermanagh) | Percival, Ian |
Bessell, Peter | Hastings, Stephen | Peyton, John |
Bingham, R. M. | Hawkins, Paul | Pounder, Rafton |
Blaker, Peter | Heald, Rt. Hn. Sir Lionel | Powell, Rt. Hn. J. Enoch |
Box, Donald | Heath, Rt. Hn. Edward | Price, David (Eastleigh) |
Boyle, Rt. Hn. Sir Edward | Hendry, Forbes | Prior, J. M. L. |
Brinton, Sir Tatton | Higgins, Terence L. | Pym, Francis |
Brown, Sir Edward (Bath) | Hirst, Geoffrey | Redmayne, Rt. Hn. Sir Martin |
Bruce-Gardyne, J. | Hobson, Rt. Hn. Sir John | Ridley, Hn. Nicholas |
Buck, Antony | Hordern, Peter | Ridsdale, Julian |
Buxton, Ronald | Hornby, Richard | Roots, William |
Carlisle, Mark | Hunt, John (Bromley) | Scott-Hopkins, James |
Carr, Rt. Hn. Robert | Jenkin, Patrick (Woodford) | Sharples, Richard |
Channon, H. P. G. | Johnston, Russell (Inverness) | Shepherd, William |
Chataway, Christopher | Kerr, Sir Hamilton (Cambridge) | Sinclair, Sir George |
Chichester-Clark, R. | Kershaw, Anthony | Smith, Dudley (Br'ntf'd & Chiswick) |
Clark, William (Nottingham, S.) | King, Evelyn (Dorset, S.) | Studholme, Sir Henry |
Cordle, John | Kirk, Peter | Summers, Sir Spencer |
Corfield, F. V. | Langford-Holt, Sir John | Taylor, Edward M. (G'gow, Cathcart) |
Crawley, Aidan | Lloyd, Rt.Hn. Geoffrey(Sut'nC'dfield) | Taylor, Frank (Moss Side) |
Curran, Charles | Longbottom, Charles | Turton, Rt. Hn. R. H. |
Dalkeith, Earl of | Longden, Gilbert | van Straubenzee, W. R. |
Davies, Dr. Wyndham (Perry Barr) | Lubbock, Eric | Walder, David (High Peak) |
Dean, Paul | MacArthur, Ian | Walker, Peter (Worcester) |
Deedes, Rt. Hn. W. F. | Mackie, George Y. (C'ness & S'land) | Ward, Dame Irene |
Eden, Sir John | McLaren, Martin | Webster, David |
Elliott, R. W. (N'c'tle-upon-Tyne, N.) | Maclean, Sir Fitzroy | Whitelaw, William |
Emery, Peter | Macleod, Rt. Hn. Iain | Wilson, Geoffrey (Truro) |
Errington, Sir Eric | Marples, Rt. Hn. Ernest | Wise, A. R. |
Eyre, Reginald | Mathew, Robert | Yates, William (The Wrekin) |
Fell, Anthony | Maude, Angus | Younger, Hn. George |
Fletcher-Cooke, Charles (Darwen) | Mawby, Ray | |
Fraser, Rt. Hn. Hugh (St'fford & Stone) | Maxwell-Hyslop, R. J. | TELLERS FOR THE NOES: |
Gilmour, Ian (Norfolk, Central) | Maydon, Lt.-Cmdr. S. L. C. | Mr. Ian Fraser and |
Gilmour, Sir John (East Fife) | Mitchell, David | Mr. Jasper More. |
NOES | ||
Allaun, Frank (Salford, E.) | Davies, Ifor (Gower) | Hamling, William (Woolwich, W.) |
Alldritt, Walter | Dell, Edmund | Hannan, William |
Allen, Scholefield (Crewe) | Diamond, John | Harper, Joseph |
Armstrong, Ernest | Dodds, Norman | Hattersley, Roy |
Atkinson, Norman | Doig, Peter | Hazell, Bert |
Baxter, William | Driberg, Tom | Heffer, Eric S. |
Bence, Cyril | Duffy, Dr. A. E. P. | Herbison, Rt. Hn. Margaret |
Benn, Rt. Hn. Anthony Wedgwood | Dunn, James A. | Hobden, Dennis (Brighton, K'town) |
Bennett, J. (Glasgow, Bridgeton) | Dunnett, Jack | Horner, John |
Binns, John | Edelman, Maurice | Howie, W. |
Bishop, E. S. | Edwards, Robert (Bilston) | Hughes, Emrys (S. Ayrshire) |
Blenkinsop, Arthur | English, Michael | Irving, Sydney (Dartford) |
Boston, T. G. | Evans, Albert (Islington, S.W.) | Jeger, Mrs. Lena (H'b'n&St.P'cras, S.) |
Bradley, Tom | Fitch, Alan (Wigan) | Jenkins, Hugh (Putney) |
Bray, Dr. Jeremy | Fletcher, Sir Eric (Islington, E.) | Johnson, Carol (Lewisham, S.) |
Brown, Hugh D. (Glasgow, Provan) | Fletcher, Raymond (Ilkeston) | Johnson, James (K'ston-on-Hull, W.) |
Brown, R. W. (Shoreditch & Fbury) | Floud, Bernard | Jones, J. Idwal (Wrexham) |
Buchanan, Richard | Foley, Maurice | Jones, T. W. (Merioneth) |
Butler, Herbert (Hackney, C.) | Foot, Michael (Ebbw Vale) | Kelley, Richard |
Butler, Mrs. Joyce (Wood Green) | Freeson, Reginald | Kerr, Mrs. Anne (R'ter & Chatham) |
Callaghan, Rt. Hn. James | Garrett, W. E. | Ledger, Ron |
Carmichael, Neil | Garrow, A. | Lee, Rt. Hn. Frederick (Newton) |
Coleman, Donald | George, Lady Megan Lloyd | Lever, Harold (Cheetham) |
Conlan, Bernard | Gourlay, Harry | Lipton, Marcus |
Corbet, Mrs. Freda | Gregory, Arnold | Loughlin, Charles |
Crawshaw, Richard | Grey, Charles | Mabon, Dr. J. Dickson |
Cullen, Mrs. Alice | Griffiths, Will (M'Chester, Exchange) | McBride, Neil |
Dalyell, Tam | Hamilton, James (Bothwell) | McCann, J. |
Davies, G. Elfed (Rhondda, E.) | Hamilton, William (West Fife) | MacDermot, Niall |
McGuire, Michael | Oram, Albert E. (E. Ham, S.) | Steele, Thomas (Dunbartonshire, W.) |
McInnes, James | Orbach, Maurice | Strauss, Rt. Hn. G. R. (Vauxhall) |
Mackenzie, Cregor (Rutherglen) | Palmer, Arthur | Thomson, George (Dundee, E.) |
Mackie, John (Enfield, E.) | Pannell, Rt. Hn. Charles | Tuck, Raphael |
MacMillan, Malcolm | Parkin, B. T. | Varley, Eric G. |
Mahon, Peter (Preston, S.) | Pentland, Norman | Wainwright, Edwin |
Mahon, Siman (Bootle) | Prentice, R. E. | Walden, Brian (All Saints) |
Manuel, Archie | Pursey, Cmdr. Harry | Wallace, George |
Mapp, Charles | Rees, Merlyn | Watkins, Tudor |
Mason, Roy | Reynolds, G. W. | Whitlock, William |
Maxwell, Robert | Richard, Ivor | Wilkins, W. A. |
Mayhew, Christopher | Robertson, John (Paisley) | Williams, Mrs. Shirley (Hitchin) |
Mellish, Robert | Sheldon, Robert | Woodburn, Rt. Hn. A. |
Mendelson, J. J. | Shore, Peter (Stepney) | Woof, Robert |
Miller, Dr. M. S. | Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.) | Wyatt, Woodrow |
Morris, Alfred (Wythenshawe) | Silkin, John (Deptford) | Yates, Victor (Ladywood) |
Mulley, Rt. Hn. Frederick (SheffieldPk) | Silverman, Julius (Aston) | Zilliacus, K. |
Murray, Albert | Skeffington, Arthur | |
Norwood, Christopher | Small, William | TELLERS FOR THE NOES: |
O'Malley, Brian | Snow, Julian | Mr. George Lawson and |
Mrs. Harriet Slater. |
§ Clause, as amended, ordered to stand part of the Bill.
§ Mr. HeathI beg to move,
That the Chairman do report Progress and ask leave to sit again.Hon. Members on this side of the Committee are prepared to carry on examining with the utmost care and seriousness every one of the propositions—[Interruption.] With great respect, the Under-Secretary of State for Scotland has not been here, and does not know—
§ The Under-Secretary of State for Scotland (Dr. J. Dickson Mabon)Will the right hon. Gentleman withdraw? I have been in the Chamber the whole time.
§ Mr. HeathIf the hon. Member says that he has been in the Chamber the whole time I accept it. I have been here for the greater part of the time. I move this Motion in order to ask the Chancellor what his intentions are. The Committee has now been sitting for nearly 16 hours, and during that time it has made considerable progress. This is not the best way in which the Committee should consider a Finance Bill. As the Government are unable to provide the Committee with the time to examine this Bill during the normal hours of sitting of the House, it is necessary for the Committee to sit throughout the night and for as long as 16 hours. If the Government are unable to provide time at the normal time of day, I suggest that the Committee will have to go on sitting continually like this, and the country will be able to realise the ghastly mess into which the Government have got themselves—[HON. MEMBERS: "Oh."]—so 766 that they have to ask the Committee to go on sitting at this time.
The result, of course, has been showing itself in the effect that we saw yesterday afternoon, when we started these debates. We later had a better period, but, during the night, we had a recurrence of this unpleasant phenomenon. It would be of value to the Committee if we could avoid this, which we wish to do, and that is another reason that the Committee should continue its business at a proper hour. In order that the Chancellor may indicate how long he wants the Committee to go on sitting before the next day's business begins, I move this Motion and invite the Chancellor to state his intentions.
§ Mr. CallaghanThe right hon. Member for Bexley (Mr. Heath) says that we have made progress. This is true. Though I should not like to hold an inquest on the proceedings of the last 16 hours, because I do not think that it would be very profitable, I think that we could make a little more progress. However, I am anxious to set a term to it, because a very important Bill will be debated this afternoon—the Highland Development (Scotland) Bill—which I think should be discussed, and I should like hon. Members to have some rest before then. Looking to the future progress, there are two very important Amendments which I think should be taken. One is in the name of the right hon. Member for Orkney and Shetlands (Mr. Grimond), No. 650, in Clause 66, page 85, line 46, to leave out from "1952" to the end of Clause and to add
the building society shall not be liable to pay corporation tax on its profits".767 The other, No. 356, in Clause 69, page 89, line 33, to leave out "fifteen" and to insert "twenty-five" is in the name of the hon. Member for Woking—
§ Mr. CallaghanI do not know whether or not the hon. Member is inviting us to go and get our breakfast.
I think that we should take these two Amendments. They are the only two substantive Amendments which are in dispute, because those on Clause 66 are by arrangement with the building societies. If the Committee found it agreeable to accept such an arrangement, I would suggest that, as the others are to give effect to undertakings which I gave on behalf of the close companies, we could finish—because these would be the only two Amendments—at the end of Clause 71, and that we then start on Clause 72 on Monday. That would enable the right hon. Gentleman to start in at a very early date on his major Amendment about 60 or 40 per cent. for the purpose of distribution. If that would commend itself to the Committee, we could then make some reasonably rapid progress and feel that we had done a good day's work.
§ Mr. HeathI thank the Chancellor for indicating his intentions. I can see the disappointment on his supporters' faces that he has not maintained his original intention—which one of his hon. Friends shouted to me just now—of getting to Clause 74. The Chancellor has shown a much greater sensitivity to the wishes of the Committee in not asking it to reach Clause 74. He has suggested that we should get as far as Clause 71. I should point out to the Chancellor that both the Amendment of the right hon. Member the leader of the Liberal Party, Amendment No. 650, and that in the name of my hon. Friend the Member for Woking-ham (Mr. van Straubenzee) are important Amendments. They will require considerable debate. I would suggest to the Committee that we should now try to make further progress and deal with these two important Amendments and see whether it is possible to make the further progress for which the Chancellor has asked towards Clause 71.
Therefore, I beg to ask leave to withdraw the Motion.
§ Motion, by leave, withdrawn.