Clause 16—(AMENDMENTS OF CASE VII OF SCHEDULE D.)

HC Deb 24 May 1965 vol 713 cc40-199

4.0 p.m.

Mr. Peter Walker (Worcester)

I beg to move Amendment No. 256, in page 11, line 12, to leave out "twelve" and to insert "six".

This is the first of the Amendments dealing with the Capital Gains Tax. At this point it is appropriate to point out that, whereas hitherto we have been debating taxes which are well known to the Committee, we are now entering upon the general tax reforms proposed by the Chancellor, and, although capital gains taxes were introduced in 1962 and this is an adaptation of them, the radical changes are such that we must examine the Government's general attitude towards capital gains. Therefore, the Committee will expect to scrutinise the details of what is proposed in the light of the Government's new taxation approach.

The purpose of this Amendment is, basically, to return to the position as it was under the 1962 Act and to have the six-month period. It is surprising that, until this moment, there has been no explanation at all from the Chancellor or from any Treasury Minister of the reason for extending the period from six to twelve months. In the section of his Budget speech dealing with these matters, the Chancellor made no comment at all on why he was doing it. There was no explanation in the White Paper for extending the period from six to twelve months, and, as far as I know, there has been no explanation in any speech since by a Treasury or Government Minister.

We shall, therefore, have a great number of questions to ask about the reason for extending the period from six to twelve months, and, in putting our questions, we must reflect upon the reason for the proposals in regard to short-term gains embodied in the 1962 Act. The prime reason, of course, was to try to bring into the ambit of taxation those persons who were more or less trading either in securities or in land, and it was considered that the best and most convenient way of doing it was to introduce this tax applied with reference to a period of twelve months.

As regards land, the period under the 1962 Act was three years, but the party opposite is reducing that period now to twelve months. The basic reason for the three-year period was that such are the negotiations and legal aspects involved in the transfer of land that a longer period was necessary. On the other items covered by Clause 16, we must ask the Government to explain why they want the period to be twelve months. As regards Stock Exchange securities, all the main methods of obtaining short-term speculative gains are, of course, well covered by the six-months period. The element of staggering, which was one of the processes required to be caught by the 1962 Act, would be met by the six-month period. The use of the option market would be caught by the six-month period. The person trading in stocks and shares within the account would be caught by the six-month period.

The Government must make perfectly clear the reason why they propose an extension to twelve months. Is there any particular type of Stock Exchange transaction of a short-term nature or a trading nature which they consider not to be caught by the six-month period but which would be caught by the twelvemonth period?

As regards the inclusion in the short-term gains tax of chattels—a matter which we on this side of the Committee very much deplore—it is surely true that, if there is any buying and selling of chattels within the six-month period, this would be treated as a trading matter and would be taxed normally as a trading situation. Therefore, there is no need to include chattels in the short-term tax.

The further feature which we find surprising in connection with the extension of the period from six months to twelve months is that the Chancellor has now introduced a permanent Capital Gains Tax. All capital gains are to be caught by this permanent Capital Gains Tax. The Government side have to make out their case to show why a capital gain which takes place within twelve months should be taxed at a far higher penal rate than one which takes place in more than twelve months. This case has not been presented by the Government so far. It is a very vicious form of Capital Gains Tax in its range and rate. A person paying the standard rate of Income Tax will pay 41 per cent. Capital Gains Tax within the period, and a person paying the top rate of Surtax will be paying 91 per cent. Capital Gains Tax within the period.

There are many disadvantages in extending the period to twelve months. First, the Government's decision will hit the small man more than the wealthy person, because it is the small investor who is most likely, perhaps for domestic or other reasons, to have to sell within the twelve months. It is the small investor who may have to decide whether to get out within the twelve months and pay the 41 per cent. tax instead of the 30 per cent. tax rather than the larger investor who can afford to stay on in the security or the chattel until the twelve months is ended. In the second place, this is a complete reversal of the Government's position on the long-term tax. Under the short-term tax, the individual will pay 41 per cent. whereas the company will pay slightly less than that—35 per cent. this year and, in future years, 40 per cent.—whereas under the long-term tax the individual will pay 30 per cent. and the company 40 per cent. So in the short term the person operating as an individual will pay more taxation than the company, whereas in the long term the company will pay more than the individual. This is a contradiction in attitude which the Government side must explain fully.

In our view, this sort of period will spoil the mobility of capital within the market. It is a penal rate. It will affect and pervert the investment position. It will mean that an investor has an outside consideration to take into account which has nothing to do with the quality of the investment or other factors affecting the investment position. It will deter a certain type of investment. A person with certain funds available which may cease to become available over a period of twelve months will be kept out of the capital market altogether.

The next strong condemnation of the extension of the period arises from the poor international comparison. The United States of America has a different tax, short-term as opposed to long-term, but it is confined to six months. Other countries have no capital gains tax at all. As a result of this short-term tax lasting for twelve months, there will be various other factors having an adverse effect.

The Government must comment particularly on the position under Section 209 of the Companies Act, 1948, the Section under which persons holding 90 per cent. of the equity of a company may force those holding the other 10 per cent. to realise and sell their shares. There was an objection on this ground in relation to the six-month tax, and the Government at the time said that, in the majority of cases, it would be known at the time of purchase that there was a 90 per cent. position and that this Section of the Companies Act could be applied. I did not consider this a particularly strong argument, and it certainly could not be said that it would apply under the twelve-month tax arrangement. There will be a large number of shareholders involving companies resulting, perhaps, from a takeover bid in respect of which Section 209 of the 1948 Act will be applied during the twelve months against their will and, as a result, they will have to pay the more penal level of taxation rather than the normal level of Capital Gains Tax to be introduced in respect of the long-term.

What is to be the position as regards compulsory purchase orders? What is to happen to some one possessing a chattel, plant, machinery or buildings which come under the Section in this respect? The person subject to a compulsory purchase order will tend to delay the effect of the compulsory purchase order until the twelve-month period is ended. This will mean a great deal of unnecessary haggling with local authorities, whereas if the Government decided to limit it to six months the position would be in some way reduced, or if they decided not to have a short-term tax at all and simply have the purely long-term tax in operation, the position would be eliminated.

It is interesting to reflect on the debates in 1962 when various hon. Members opposite suggested that there was no justification for having a different short-term tax from the long-term tax. I thought that this was well put by the present Minister of Aviation who said: In my view, the distinction between short-term and long-term capital gains is a rather artificial one. I do not really like the American system of taxation. It is much better than what is proposed here, but it is not ideal because, in my view, one cannot draw any true distinction between a gain which is realised within six months and a gain realised over a longer period. It is better to tax the longer-term gain at some rate than not to tax it at all, but, even if one does tax it at some rate, the distinction is essentially an artificial one. … I said in my speech in the Budget debate that I thought that the rates of tax are to some extent too high. I should prefer rather lower rates of tax but more effective rates, without this entirely artificial distinction between very short-term gains and real gains."—[OFFICIAL REPORT, 22nd May, 1962; Vol. 660, c. 259–60.] I shall be interested to hear the Government's view upon the Minister of Aviation's expressed doubts as to the high level of the short-term tax in 1962, and why they intend not only to introduce a very high level of long-term tax but to continue for an even longer period this penal level of the short-term tax.

Then we have the further examination of the question in the Report of the Royal Commission on The Taxation of Profits and Income. This is particularly relevant and important to our discussion, because the Government's proposals for the Capital Gains Tax are almost identical to the Minority Report of the Royal Commission. The Minority Report, which prepared by their present adviser in the Treasury upon these taxation matters. The proposals in the Minority Report, under the signature of Professor Kaldor, are very similar to what the Government have brought into operation, with one exception, and that is the continuing application of the short-term gains tax. It is important for the Committee to realise that not only did the Majority Report of the Royal Commission come out against the Capital Gains Tax altogether, but the Minority Report, which came out in favour of a Capital Gains Tax, came out very strongly against the continuing of a short-term tax.

Paragraph 63 on page 375 of the Report of the Royal Commission makes the following very important comment upon a short-term gains tax: Subject to the above recommendation— That was the suggestion of a long-term Capital Gains Tax— that capital gains should not be liable to surtax we recommend that no distinction should be made between short- and long-term gains. Any such distinction is bound to be arbitrary and an invitation to tax avoidance. The distinction in the United States tax system makes it worth while for the taxpayer to realise short-term losses in less than six months and short-term gains in more than six months and has in many cases the effect that the taxpayer's liability is less than it would have been if short-term gains had been taxed at the long-term rate. We do not share the view that long-term gains have any inherent claim to more favourable treatment than short-term gains. We agree with the view expressed in the memorandum of the Board (paragraph 17) that 'looking at the matter purely as one of taxable capacity there may seem little justification for distinguishing between two gains of equal amount simply because in one case the asset was held for a longer period than in the other'. So we have the position that not only does the Majority Report of the Royal Commission come out against the tax but so does the Minority Report. The Chancellor has such little pride in the proposal that he gave no justification whatsoever for it in his Budget speech, and the only possible explanation left—

Mr. Harold Lever (Manchester, Cheetham)

The hon. Gentleman said earlier—I did not want to interrupt him until he had completed his argument—that the Royal Commission's Report, even the Minority Report, had come out against the continuation of the short-term tax. I speak from recollection, but surely the Report came out against having such a tax, not against continuing it, and the crime charged against the Government is precisely the crime which can be charged against the previous Government, namely, that they brought in such an abomination at all as the short-term Capital Gains Tax.

4.15 p.m.

Mr. Walker

Seeing that the hon. Member agrees that it is an abomination, I am sure that he will be in favour of the period being reduced to six months from 12 months.

The point of the Minority Report was that if one has a long-term tax there is no need for the short-term one and that it is wrong to have it. But the Government have decided not only to have the long-term one in accordance with the proposals of the Minority Report and not to get rid of the short-term one but to extend it for a longer period. So the Minority Report's proposals are completely violated by the Government in this provision.

The only excuse which can be given is that the Chancellor decided that this was a method of obtaining a more penal level of taxation from people making capital gains for at least 12 months. He did not particularly worry about the perversions it would make in the market, nor did he worry that it would make a bad international comparison. This is an important factor which should come out during all our debates. What has to be remembered these days is that the young business executive, the entrepreneur, the man of free enterprise, is trading in a world of very international trading conditions, and if we create a taxation system where taxation on enterprise in this country is far more penal than that in free enterprise countries abroad we shall have a drift of our more enterprising people to those countries. I believe that by this tax alone the Chancellor is imposing a thoroughly penal tax for 12 months without any justification at all.

The lack of justification for the tax is apparent. First of all, one has to justify, if one is to support it, that a person making a capital gain after 11 months is in some way different from one making a capital gain after 13 months. I know no one in this Committee who can justify that suggestion. One has to justify that one can tax a person at his levels of Income Tax and Surtax on his gains but not allow his losses against his Income Tax and Surtax payments. In equity, if the Chancellor is to persist with this 12 months' tax at the rates of Income Tax plus Surtax, he should also agree that losses should be set against income for the purpose of Income Tax and surtax. There is no equity in a position where one decides for 12 months to treat a certain type of gain as income but only for gains and not for losses. This is what the Chancellor is doing.

This proposal by the Chancellor, without any realistic justification, is yet another indication that the Government are not working upon the lines of trying to encourage the success of the free enterprise system but are showing their traditional dislike, disregard and general distrust of the whole free enterprise system.

Mr. Ivor Richard (Barons Court)

Can the hon. Gentleman explain one thing before he sits down? Why is it that the Conservative Party now feels that speculative deals in land—not only in assets—which take place over a period of six months and not three years, as in the previous Act, should be exempt from any kind of capital gains tax?

Mr. Walker

We advocated the three-year period, but if the Government have come to the conclusion that such a period is no longer needed to catch these particular transactions we are willing to support that conclusion. But our view at the time of the introduction of this provision was that a much longer period was needed in the case of land transactions, hence the three-year period. If the experience of the Inland Revenue on this point is that the three-year period is justifiable, we would be quite willing to continue with that period.

Mr. Harold Lever

Before the hon. Gentleman sits down, could he say whether the short-term Capital Gains Tax introduced by the last Government did or did not perpetuate the iniquity or inequity he complains about—namely, that losses could not be set off against Surtax and Income Tax whereas profits were?

Mr. Walker

Of course, the last Government did so. But what is happening now is that, whereas the original proposal was designed administratively to catch certain types of trading in securities which were thought to be going on at the time, and a six months' period did catch them, the Government are now extending the period to 12 months, not just to deal with that situation, but to deal with chattels and a far wider scope altogether. That is a very different proposition from the more limited tax introduced by the Conservatives in 1962.

Mr. Lever

Will the hon. Gentleman answer the question I put and not one I did not put? He made out the case that there was great inequity in charging certain profits to Income Tax and Surtax whereas losses incurred in the same activity could not be set off. He claimed that this evidenced a malicious, spiteful and class-conscious frame of mind by the Chancellor. In order that I may judge the fairness, justice and intelligence of that charge, I want to know whether, when the Conservative Government brought in a short-term Capital Gains Tax, they, too, charged certain profits but did not allow for any losses in the same activity to be set off for relief against Surtax and Income Tax.

Mr. Walker

That proposal was confined to particular transactions—primarily securities and land—and was designed to catch certain elements. In this case, different considerations apply. The moment the Government extend the period to twelve months, they show that they intend to retain permanently differential rates of tax and widen the whole scope of the tax.

Mr. Lever

Before the hon. Gentleman sits down—

The Chairman

Order, I think that the hon. Member for Worcester (Mr. Peter Walker) has really sat down this time. Mr. Harold Lever.

Mr. Harold Lever

I only intervene because of the interesting attack made on this tax. It is right to begin by saying that I am not in favour of any Capital Gains Tax, short or long. [HON. MEMBERS: "Hear, hear."] I was, in fact, very much in favour of the idea my right hon. Friend the Chancellor of the Exchequer put before the election and which he openly stated—namely, a wealth tax. Perhaps that will not arouse so many cheers from hon. Members opposite.

It seems, however, that the general opinion of the country is that the wealth tax would be a just but not practicable tax whereas the Capital Gains Tax is unjust but practicable. It seems, therefore, that we are to have a tax which is practicable but which no one thinks just in place of a tax which everyone thinks would be just but which—although I am not convinced of this—would be impracticable.

However, rather than see this situation, which has been ignored for so long, continue any longer, I am prepared to support this proposal in the absence of an alternative which no one supports but which nevertheless one hopes to see being substituted one day for the unjust and illogical Capital Gains Tax. A tax on wealth would reflect the measure of the ability of the person to pay. It is utterly ludicrous—

The Chairman

Order. These remarks must serve as the introduction. The hon. Gentleman must now come to the Amendment.

Mr. Lever

I want now to come to the point that was made by the hon. Member for Worcester (Mr. Peter Walker), Dr. King. I want to push this home. We must, first, bear in mind that the concept of a short-term Capital Gains Tax did not, alas, originate with the Labour Party. It originated on the Conservative benches and in a Conservative Government. It is right hon. and hon. Gentlemen opposite who have accepted the principle that there is no more suitable way and no more practicable way of taxing capital gains than to introduce a Capital Gains Tax—in particular, a short-term Capital Gains Tax. It is hideous hypocrisy for any hon. Member opposite to attack my right hon. Friend so strongly on this issue when none of them spoke or quoted against the short term capital gains tax imposed by their own Government.

Sir Tatton Brinton (Kidderminster)

Am I wrong in thinking that the tax introduced in 1962 was always referred to by the present Chancellor of the Exchequer as a "speculative gains tax"? Quite obviously, there is a difference.

Mr. Lever

The difference is merely one of description. The difference of impact is nil. The cheque sent by the person paying up can be endorsed as either a capital gain or a speculative gain without objection. It is a matter of aesthetic choice rather than substantive difference. Hon. Members opposite may fairly hold the view that a short term capital gains tax is desirable or undesirable. It is not open to them to charge my right hon. Friend with some kind of class spite or anti-business position because he is doing precisely what was done by their own Government.

In particular, the hon. Member for Worcester pressed upon the Committee the argument that it will be unjust, illogical and evidence of unfairness of mind if the Government charge short-term gains to Surtax and Income Tax in the case of the individual but will not allow those same individuals redemption in Surtax and Income Tax if they make losses in the same activity.

Mr. Eric Lubbock (Orpington)

Case VII losses can be offset against Case VII gains but not against the rest of one's income.

Mr. Lever

That is correct. It was the same under the old tax and the same will apply in this form, as I understand it, although I have not given the matter close study. I am open to correction. I understand that the previous tax applied to Income Tax and Surtax in the case of the individual any short-term gain that he made. The Opposition submits that it is unjust that one can be made liable for Surtax and Income Tax on capital gains whereas if one makes short-term capital losses one cannot get relief against Surtax and Income Tax. I agree that it is unjust and I wish that it were not done. If there were the slightest hope of it being accepted by anyone, I would urge on my right hon. Friend that he should in fairness make losses on such activity available to Surtax and Income Tax as well as the gains.

I am very concerned here about the desirability of honest argument. It was a Conservative Government who brought in the previous Capital Gains Tax. Yet it is now hon. Members opposite who charge my right hon. Friend with spiteful motives for not giving this relief. Why did not their Government do so? Presumably for the same reasons that my right hon. Friend does not do so. First, it would seriously injure the Revenue on the tax and, secondly, it would affect the practicability of collecting the tax in general. For those reasons, the Opposition's proposal was rejected by the Conservative Government and presumably will now be rejected by my right hon. Friend.

I am anxious to say that we are hearing too much of this sort of talk from hon. Members opposite. It is damaging talk both inside and outside the country. They make unjust accusations of anti-business attitudes and spiteful class hatred—all that kind of demagogic tomfoolery which does damage to Britain both in this country and outside it. The fact is that the Chancellor is an extremely moderate and reasonable man. I am going to criticise many aspects of this, and I shall probably trespass greatly upon his moderation and patience in the course of this Finance Bill. I must confess that I am completely against those bogus arguments, bogus incitements against the Chancellor, and the general projection to the world of an atmosphere in which the Chancellor is supposed to be the innocent puppet dangled by a group of Bolsheviks for all sorts of spiteful class-hating fiscal nonsense. This is a dishonest argument and a typical example of the kind we can expect on the question of Surtax and Income Tax on short-term capital gains. The hon. Gentleman the Member for Worcester spoke about the Minority Report as opposing the continuing of short-term capital gains tax.

4.30 p.m.

Mr. Raymond Gower (Barry)

If the hon. Gentleman sees imperfections in the short-term tax as introduced by the previous Government, would he deem it a good reason to continue those imperfections, while extending the term of the tax and also setting that tax in the context of a larger Capital Gains Tax based on a different system?

Mr. Lever

I do not in the least criticise anyone raising the imperfections of this tax. I rather share their opinions in certain respects. What I do criticise is the dishonest pretence that these imperfections are the result of some malice, some anti-business position, some supposed Marxist class-hating position, on the part of the Chancellor. I think it has done grave injury to this country in business circles throughout the world.

The Chancellor of the Exchequer (Mr. James Callaghan)

I am much obliged for my hon. Friend's defence. However, he does not need to take such arguments seriously. Where I go around the City and among business circles in this country I do not find anything like the atmosphere that is engendered from time to time from the benches opposite. I have just had the good fortune to open an international fair and I can assure my hon. Friend he should not take all this too seriously. People understand that it is not true.

Mr. Lever

It is characteristic of my right hon. Friend's moderation and commonsense that he finds himself always in the most sensible areas of the City. Some of the foolish and exaggerated talk sometimes gets abroad in financial circles and gives a misguided impression of what is going on.

Mr. Norman Cole (Bedfordshire, South)

Is this quite in order?

The Chairman

I think we are getting into a debate not merely on the Question, That the Clause stand part, but even that the middle third of the Bill stand part. I think this is going a bit too far away from the specific Amendment.

Mr. Lever

I will come to the point. The hon. Gentleman the Member for Worcester spoke about the Royal Commission's Report in relation to these proposals and to this Amendment. He talked about the Royal Commission Minority Report as opposing this tax. I am sure it was not a deliberate deception, it can only be called a Freudian slip, because in order to maintain the arguments that the hon. Member has attempted to one has to believe that there was a short-term Capital Gains Tax in existence when the Royal Commission reported.

Mr. Peter Walker

In fact, the Minority Report states that if, subject to the following recommendations being pursued—the recommendation being a long-term Capital Gains Tax—there should not be a short-term Capital Gains Tax. It follows that if a long-term tax was introduced any short-term tax in existence should be done away with.

Mr. Lever

The hon. Member must not run away from the fact that when he addressed the Committee he talked about the Royal Commission Minority Report opposing the continuation of the short-term capital gains tax provided it got a long-term one. The Royal Commission did not do anything of the kind, because at that point the Royal Commission had no short-term Capital Gains Tax in contemplation. That was an achievement, a kind of demagogic spoof of the Tory Party. Later when the Tory Party came into office they brought in the short-term Capital Gains Tax.

It is quite clear that the hon. Member had a guilty slip of the tongue which is the most favourable construction I can put upon it. The point I am making is that if he takes account of the fact that there was no Capital Gains Tax in existence when the Royal Commission reported the rest of his argument becomes a little thin, because the Royal Commission reported unanimously against any such short-term Capital Gains Tax, such as the Conservative Government later brought in.

It is no good trying to impress this side of the Committee with quotations from the Royal Commission Majority and Minority Reports when it is quite plain to anyone who has ever read those Reports that both would be opposed to a short-term Capital Gains Tax as brought in by the Conservative Government. I think rightly. I think that the short-term Capital Gains Tax is not readily to be justified. No one who has studied this with great care supported any kind of short-term Capital Gains Tax. The Conservative Government had this Report before them and presumably had studied it and, having been warned by the Majority against any kind of Capital Gains Tax, they defied the Majority Report and brought in a Capital Gains Tax.

It is nice to see the Conservative Party in this defiant and fiscally innovatory mood. It is much to its credit and not very usual either. It proceeded to defy the Minority Report and was in advance even of the servant of the Government, at the present time, which led the Minority Report. It was much to the left of him, because he said there was no justification for treating short-term gains differently from long-term gains. Even the Minority Left-wing Report warned against this but it had no impact upon the Conservative Party. Such wisdom fell upon deaf ears, or stony ground, and it brought in a short-term Capital Gains Tax which distinguished between short-term gains and long-term gains. It is too late now to expect the Committee and others to take serious notice and it must not come in this dogmatic way and seek to reverse that.

I want to say something to deprive myself of any kudos for supporting the Government. I find it very difficult to understand why short-term gains in the hands of an individual are subject to Surtax and Income Tax. I suppose it is the idea that there is something immoral about it as compared with a long-term gain. It is speculative and, in some way, rather tainted with the desire to acquire "a quick buck" as they call it in the United States. I would have thought that was a case for making a lower rate of tax, because if it is simply a gambling gain, surely that is a case for lowering tax since gambling gains are treated very considerately by the Conservative Party and the Labour Party.

Mr. Geoffrey Lloyd (Sutton Coldfield)

I support the Amendment.

Mr. Emrys Hughes (South Ayrshire)

On a point of order. I wonder whether you could clear up this matter for me, Dr. King. Is it not the custom of the House, a rule of the House, that anyone who has a financial interest in any Amendment has to declare it? For example, if an hon. Member is likely to benefit in the Capital Gains Tax from the passing of an Amendment, ought he not to disclose it during the course of his speech?

The Chairman

It is not a matter of order. It is the custom for an hon. Member to declare an interest if he has a financial interest to declare.

Mr. Lloyd

No doubt we shall soon hear from the Treasury Ministers the justification for increasing the time limit from six months to 12 months. I want particularly to ask them whether they have considered the effect of the change on the small investor. I do not want to comment on the disquisition of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) on the benevolence of the Chancellor of the Exchequer. While the right hon. Gentleman has a very genial personality to which we are all subject to some extent, he is the agent of a Socialist Government and a Socialist Party hostile to capital and hostile to investment. However, I will leave the broader question of whether this proposal is an old-fashioned Socialist swipe at the big speculator or the big investor and deal specifically with the small investor.

This is a type of investor whom we on this side of the Committee want very much to encourage—I do not know so much about the attitude of hon. Members opposite. I want to examine the effect of the change on the small investor. In the Midlands there are already some hundreds of investment clubs. There is a great increase in investment among younger executives and people on the shop floor. If you look closely, Dr. King, you may often find a copy of the Financial Times on the assembly line, something which not everybody realises.

I am the president of the Midlands branch of the Wider Share Ownership Association, and in these debates I wish to be the spokesman of this type of investor. Let us admit right away that in his case there is not the drama of the 91 per cent. of the high Surtax payer who is caught by these provisions, but there is something which is still very important. It is the standard rate of Income Tax paid by the prosperous car worker earning £20 or £25 a week, or even more, a man who in his own phrase is now topping up his investment, who probably has something in the Post Office Savings Bank or, if he is in Birmingham, in the Municipal Bank, and who feels that he would be better off with a type of industrial investment. This type of investor presents new problems, problems which the Socialist Party, in its backward-looking attitude, has not thought of, as it thinks largely of the old-fashioned type of speculator in the City. We ought to be doing everything possible to adjust our tax system so as to encourage the small democratic investor.

Under this Clause, if such an investor takes a capital profit in the 12 months' period, instead of paying 30 per cent. he will have to pay more than 40 per cent. This may not seem so dramatic as the difference for the Surtax payer who pays 30 per cent. after 12 months, but 91 per cent. if the period is less than 12 months, but it is as important and perhaps even more important for the kind of individual whom I am considering, even though he does not have the more penal taxation of the big man with the big income.

4.45 p.m.

The reason is fundamentally that this type of investor normally thinks of his income in terms of weeks. The difference between six months and 12 months seems a great deal bigger to him than it does to those who operate in the City of London. In addition, as we know, his income may be more subject to ups and downs within the period. There are many reasons why a working man, even in the prosperous areas of the Midlands, may suddenly need some money. I do not want to overpress this argument, and he might well decide, if he has them, first to use his Savings Certificates, or his money in the Municipal Bank, but circumstances could arise in which he might have to encash and sell his securities after six months, but before 12 months, and he would then be caught by the new provisions which we are seeking to change.

Have the Treasury Ministers and the Inland Revenue considered the effects of their new proposal on this type of investor? To point it up sharply, in the Midlands there are anxieties about the car industry as a result of some of the measures which this Administration has taken. The new investor has to consider now whether within a period of after six months and before 12 months he may have to encash some of his savings and sell them, in which case he would be caught by this provision. That is why I support the Amendment. Have the Government in proposing this change fully taken into account the new type of investor whom we want to encourage?

Mr. Richard

I rise briefly merely to ask one question and make one comment. The terms of the Amendment are sweeping and they apply to all the words set out in line 12 of page 11, Clause 16. Clause 16 substitutes certain words for other words now appearing in Section 10(2) of the Finance Act, 1962. The words which the Amendment proposes to take out are: where the disposal occurs more than three years after the acquisition in the case of a disposal of land, or where the disposal occurs more than six months after the acquisition in any other case". The Clause proposes that the relative periods for short-term gains on both land and the securities should be 12 months in both cases instead of three years and six months.

On the face of it, at any rate, the Conservative Party is opposed to this sort of tax. It seems to be opposed to short-term Capital Gains Taxes, at least in the form which the Government now pro-rose them. In which case, is it the intention of hon. Members opposite to exclude from the operation of the Capital Gains Tax a speculative profit made on the sale and subsequent disposition of land if that subsequent disposition takes place not within the three-year period as in the 1962 Act, but within the six months' period which is now proposed by the Opposition.

Let there be no mistake—the Amendment may not have been intended to set the speculative gains in land within that period, but in fact it does. Unless an Opposition spokesman is prepared to say, "We the Conservative Party are in favour of taxing speculative gains made on the sale and disposition of land", we are back in precisely the position before the General Election, namely, that from time immemorial the Tory Party has not been prepared to deal with land speculation and the Labour Party is.

Mr. Peter Walker

Will the hon. Gentleman explain why his own Government have decided to reduce the period from three years to one year?

Mr. Harold Lever

It shows how fair minded they are.

Mr. Richard

In this Finance Bill we are considering a long-term tax and a short-term Capital Gains Tax. In order to rationalise the tax system, it may well be better to deal with short-term speculative gains in land in exactly the same way as one would try to deal with short-term speculative gains in securities. For that purpose a 12-month period may well be appropriate. Is it the Conservative Party's view that a speculative gain in land, if it occurs within six months, should not be taxed? If it is, it has gone even further back than it did in 1962.

Mr. Heath

We are discussing the Amendment in the context of the Bill, and the hon. Gentleman is putting a false question if he is trying to break off the second part of the Bill from the third part. I have already explained the difficulties of discussing these things, but he must accept that we are discussing the Bill as a whole in this context.

Mr. Richard

What I put to the right hon. Gentleman as the spokesman for his party on this matter is simply this: Is the Tory Party in favour of taxing speculative gains in land? If so, what is the Amendment doing in this form?

Mr. Heath

Because we introduced it in this form.

Mr. Richard

Why put it in this way?

The Chairman

Order. We cannot have just dialogue.

Mr. Charles Fletcher-Cooke (Darwen)

I hope that when the Solicitor-General deals with the change in the 1962 tax he will explain not merely the virtues of a 12-month period over a six-month period, but also why, if there is a long-term Capital Gains Tax, we need a short-term Capital Gains Tax. It is not a sufficient defence to say that they have it in America or that we had a short-term capital gains tax for the last three years when we did not have a long-term capital gains tax. There is a need for justification, not only of the 12 months period, but also of the very existence of Clause 16 and others. If we have a long-term Capital Gains Tax, surely the effect of taxing a 12-months gain at a higher rate—certainly in the case of individuals, although not in the case of companies—is to freeze the exchanges. It must mean that for long periods the operation of the exchanges will be artificially frozen and many of the exchange facilities, which are in the nature of invisible exports, will be denied. Everybody will try to postpone his gain.

If it be wrong to make a gain, why is it more wrong, as the hon. Member for Manchester, Cheetham (Mr. H. Lever) put it, to make a quick gain? Surely if we have an exchange, if we have a market—and we pride ourselves on our markets—we do not want any more artificial impediments than we can avoid to a rapid turnover.

I can understand that if we have no long-term Capital Gains Tax we must do something about what was once called the casino. But if we are to have a long-term Capital Gains Tax, we need a very big philosophic justification for attacking a gain made within 12 months more fiercely than we might attack a gain made, say, in 13 or 14 months because we are inhibiting our market and freezing the commerce and finance of this country to a certain extent. "Freezing" is perhaps too dramatic a word, but we are slowing it down. Why should we do that?

While the Solicitor-General is on that point, I wonder whether he would take up the allied point made by my hon. Friend the Member for Worcester (Mr. Peter Walker), which was this. There may be involuntary disposals. There may be compulsory purchases. There may be the case under Section 208, I think, of the Companies Act. There may be other such methods and situations. It will be in the interest of the holder of the security of the land, or whatever the asset may be, to delay the proceedings in order to get over the crucial date. We all know the power which people have in delaying these matters if they put their minds to it. It is very much against the good of society that they should be in a position in which they have to procure this delay.

I am not sure whether this is a good point because, in spite of reading this great book—the Bill—several times, I am not certain to what extent involuntary disposals are caught by either of these capital gains taxes. I would regard the case which my hon. Friend the Member for Worcester put under the Companies Act as an involuntary disposal if ever there was one. Is it, or is it not, caught, first, by the short-term Capital Gains Tax and, secondly, by the long-term Capital Gains Tax? Are matters of compulsory purchase caught? If so, are they caught by both taxes? We want to know to what extent people will be made to pay either tax when they are forced to dispose of an asset and what degree of force is necessary before they escape, if they escape at all, because there are various degrees of force. One may come to an agreement to avoid compulsory purchase.

The Chairman

There are later Amendments about compulsory purchase.

Mr. Fletcher-Cooke

I am much obliged, Dr. King.

The relevance of this to the point which I am making is this. This is another case where, if they are subject to tax, there will be a delay in the transacting of the necessary business of the country and often of the public business of the country, because compulsory purchase, whether of land, assets or anything else, should be done speedily. If it is in the interests of the holder of the asset to delay the process of acquisition in order to get over the 12 months period, it is another example of the slowing down effect, the freezing effect, which the short-term gains tax will have. It will be affected by the long-term tax but much more by the short-term tax because in that case one can have some lively hope of extending almost any period of the transaction over 12 months if one puts one's mind to it.

The only people likely to pay this tax are those who are in poor and dire straits, as my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) said. The people who will be hardest hit by the short-term gains tax are those who have not the resources to hold on for 12 months. Anyone who has the resources to hold on for 12 months will be all right. The people who will be hit are those who need to realise either because they are forced to do so legally or because of an important moral obligation or commitment which they cannot in honour get out of. If they can get out of it, they can hang on for 12 months and pay the lower rate.

I beg the Government to think again about the relationship between these two taxes. It is not enough to appeal to the past historically, as the hon. Member for Cheetham did, because we are legislating for the future. I will not make any attack on his party, and I do not think that he should make any attack on mine in this matter. We wish to get this right. The fact that the Americans have a short-term gains tax wrings nobody's withers, and the fact that the Royal Commission took a different view does not impress me at this date of history. What we want is not an appeal to authority but a logical exposition of why we need both taxes, and I hope that we shall get it soon.

Mr. Emrys Hughes

You ruled earlier in the debate, Dr. King, that it was the custom and not the rule of the Committee that those who might have a pecuniary interest in the Amendment should disclose it. I want to set an example to right hon. and hon. Members opposite. My interest As rather remote. It is a small investment in a small municipal bank of which I was the chairman and, for many years, a director. I hope that hon. Members Opposite will continue the custom of the Committee of disclosing interests during our discussions on the Bill.

5.0 p.m.

The right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) claims that he speaks on this occasion for the small investor. He gave the instance of some motor works in Birmingham where there was a considerable degree of small investment and the workers were particularly interested in the Financial Times. I quite agree that in these matters the Financial Times is now discussed among a large section of the population. I read the Financial Times. I have found it in some queer places. The last time I visited Wormwood Scrubs, I found that people there were reading the Financial Times. A special request had been put to the governor of the prison by a gentleman who had to serve a period in the prison because of some delinquencies in financial transactions.

The right hon. Member gave us a picture of a large percentage of workers in industry reading HANSARD and the Financial Times to see what is likely to happen to their financial gains.

Mr. Geoffrey Lloyd

The hon. Member would, I think, like to get it accurate. What I said was that if one looked sharply one could see in the assembly lines some copies of the Financial Times. I did not suggest that every worker was reading it. I gave it as an example of the new interest in investment in the Midlands.

Mr. Hughes

If on the assembly lines in Birmingham workers are allowed to read the Financial Times and calculate from its columns, I should say that there was something wrong with the management. I can only give my experience—

Mr. Frederic Harris (Croydon, North-West)

Did the hon. Member read the Financial Times when he was chairman of the municipal bank?

Mr. Hughes

I did not acquire the habit of reading the Financial Times until I had an opportunity of reading it in the aeroplane coming down from Scotland. I know that this is an attempt to draw me out of order, and I can resist anything except temptation, so "Get thee behind me, Satan".

Is the right hon. Member really painting a picture of the working class being greatly concerned about the Amendment? There are no motor works, no conveyors and no eager speculators of the Financial Times or readers of the Economist among the working class of my constituency.

Sir A. V. Harvey

The hon. Member has distilleries in South Ayrshire. I am sure that they are interested in all these matters.

Mr. Hughes

There is one distillery in South Ayrshire, and I shall certainly make inquiries to see whether the workers in that distillery are interested in the Amendment. What they are interested in is not the Financial Times, but the Noon Record. My own observation does not lead me to the morbid conclusions of hon. Members opposite.

I represent coal miners, and frequently I go down the mines and I spend a certain time among the miners, but I have never yet succeeded in finding a copy of the Financial Times down a coal mine. In giving us this idea of the small investors anxious about their shares and very anxious to back up the Opposition in their attempts to get the Bill amended, particularly by this Amendment, I rather suspect that the right hon. Member is conjuring up something from his imagination.

Mr. Geoffrey Lloyd indicated dissent.

Sir William Robson Brown (Esher)

Would the hon. Member deny that the operators of trade union funds wisely and shrewdly read the Financial Times?

The Temporary Chairman (Sir Harry Legge-Bourke)

Order. I am sure that all hon. Member's reading is of immense importance, but I ask them all to read the Amendment and keep to it.

Mr. Hughes

I should never have dreamed of mentioning the Financial Times, Sir Harry, had it not been used as an illustration by the right hon. Member for Sutton Coldfield. It was his assertion and argument that gave me a great deal of interest. I wondered to what extent there was a large number of small investors holding up the assembly lines of the works in Birmingham calculating what effect the Amendment, if carried, will have on their investments.

From my observation, although there is a quite large number of small investors, I do not think that the great bulk of people who work at these factories and are classified as small savers and small investors are likely to suffer from a sense of pain, indignation and outrage if this Opposition Amendment is not carried.

Mr. Geoffrey Lloyd

The hon. Member has asked me whether workpeople in the Midlands are interested in the Finance Bill. I can tell him that they are, because in the rapid progress of the investment club movement in the Midlands in recent months, the officers of the Wider Share Ownership Association have found in the last week that there is hesitation by people in the factories, who are no longer prepared to go on with the formation of investment clubs because they are anxious about what is being put into this Finance Bill.

Mr. Hughes

I do not suggest that the right hon. Member is entirely inaccurate. His imagination has, however, tended to overemphasise the importance of the case for the Amendment. If there are these gentlemen who, following the Financial Times, decide that this is something by which they are greatly to lose, I should say that they are just as entitled to pay their taxes as anybody else.

What will happen if this series of Amendments is carried and the Chancellor of the Exchequer does not have enough money to pay the farmers their annual subsidies? [HON. MEMBERS: "Oh."] There is a groan from hon. Members opposite, but they are perpetually calling for increased public expenditure. They want more expenditure on defence and on agricultural subsidies. Up to the present, the amount of money that they would take away from the Exchequer by the Amendments is considerable. If as the week goes on all these Amendments were to be carried, the Chancellor of the Exchequer would not have the money to pay out the necessary expenditure which has already been passed by the Committee.

These people are entitled to pay their share of taxation. I cannot conceive of any patriotic investor working in a motor works in Birmingham who would grudge paying the sums demanded by the Chancellor of the Exchequer to pay for pensions and other social benefits. It is quite inconsistent for hon. Members opposite to call for big increases in national expenditure and then refuse to provide the money by which that expenditure can be met. I am quite sure that the honest working-man investor will be far more ready to cough up his taxation than some of the less patriotic gentlemen who manipulate shares on the Stock Exchange.

Mr. Donald Box (Cardiff, North)

I have great difficulty in following the arguments of the hon. Member for South Ayrshire (Mr. Emrys Hughes). I think he got a little way from the Amendment, but in case I upset him I think I ought to tell him that when not in the House of Commons I have a certain capacity as a financial adviser.

I am very sorry that the Chancellor is not responding to this Amendment, which I support, because I should have thought that this was one sphere in which he really ought to have told us exactly why he wants to increase the period from six months to 12 months. If during his intervention just now he gave a true indication of what he thinks the City and financial circles think of some of the Clauses in his Bill he is very much out of touch, and it is hardly suprising that the country's finances are in a mess.

The hon. Member for Manchester, Cheetham (Mr. Harold Lever) has reminded us on several occasions that a speculative gains tax was first introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), but remember the circumstances in which that tax was introduced. It was a period of financial crisis in the country, and that tax was introduced as a gesture of equity, to offset the restrictions which were being placed on other people in other spheres at that time. It was a period of general deflation, and it was rather more successful and brought to a speedier conclusion than, I fear, the present period will be.

The object of my right hon. and learned Friend's speculative gains tax was definitely to discourage speculation; certainly to discourage speculation rather than to raise revenue. It is a fact that the short-term speculative capital gains tax of 1962 raised only some £1 million to £1¼ million. On the principle that the grass is always greener in the garden next door I think a lot of people outside think that making money on the Stock Exchange in dealing in stocks and shares is very easy indeed. Bearing in mind that losses are allowed to offset profits I think the modest revenue which that speculative gains tax has realised so far is adequate proof that the buying of stocks and shares and making a profit is not just a matter of sticking a pin at random in the back of the Financial Times and then ringing up one's broker and picking up a profit a week or two later.

Mr. Lubbock

The hon. Gentleman is saying that that tax was not designed to hit the legitimate investor but the person "stagging" new issues and making short-term gains. The very good rate of yield from that tax is an indication that it has been successful in discouraging people from short-term gambling operations.

Mr. Box

The hon. Gentleman has taken one of my points ahead of time, because that is one of the points I wanted to make. I can say from personal experience that the most successful investor on the Stock Exchange is undoubtedly the man who invests for the longer period rather than the shorter period. Undoubtedly, people who have gambled in the market in the past have been usually those who could perhaps least afford it and who found themselves invariably, after trying to cash in on the market in such a short period, finishing up sending a cheque and paying the difference to their broker rather than receiving one. There is no doubt, as the hon. Gentleman the Member for Orpington (Mr. Lubbock) has said, that the six months' tax we have known in the past two or three years has been eminently successful in curbing speculation, and certainly it has been successful in curbing the "stag", or "tizzy" snatcher, as people who snatch a very small profit are known as in the market.

I think the question we must look at is what harm has the six months' period we have known in the past two or three years done, because we have had two or three years to look at it now, and whether the extension to 12 months will do further harm in the future. In my opinion the existing tax has already done a certain amount of harm to the flexibility of the market, and I am afraid it is a harm which may prove irreparable unless the situation is reversed before very long.

5.15 p.m.

I do not expect hon. Members opposite to agree with me or to sympathise with this point of view, or to realise that certainly the events in the past few months have built up a considerable scale of tax losses. What, I think, they are inclined to overlook—and, perhaps, many on this side as well are inclined to overlook—is the stabilising factor that this short-term investor had on the market. Quite often he may not have been a speculator; he may have been someone who invests in the normal way; but when sudden disaster hit the market and it fell very badly on what we know as a Black Monday or a Black Friday—and there have been plenty in the past and I expect there will be a good many more in the future—quite frequently he took the view that the market would improve later, rang up his broker and said, "Buy me 500 so-and-so. I think the fall has been overdone and I think there will be an improvement in a week or a fortnight's time". If he was right he sold and made his tax-free profit. What people are inclined to overlook is that that support, when the market was falling rapidly, was a stabilising factor in the market as a whole. Now that he has disappeared I think it is to the detriment of the marketability of shares on the Stock Exchange.

The Chancellor of the Exchequer may, of course, think this is a good thing.

During Second Reading of the Bill he was talking about the retention of profits, and talking in the context of the disposal of profits of businesses. I would remind him that they have been somewhat successful in building up the capital market, because I see that tomorrow B.P., in which the Government are majority shareholders, is making a very big issue on the Berlin market in Deutschmarks. So it is evident that the actions he has taken in this and other spheres are having a detrimental effect on the new issue market in this country. I am afraid that by extending the period from six to 12 months we are helping to weaken rather than strengthen the position of our capital market in this country.

I would agree on this with my hon. and right hon. Friends who have stated that this really hits the small investors. The hon. Member for South Ayrshire cast doubt on whether many working class people in this country have an interest in the stock market. Well, they may not have a direct interest, but perhaps few of them realise how many of their insurance policies, their pension funds and their union funds are invested in the market in one way or another.

I therefore feel that this Amendment should be supported, because I am quite certain that this upset to the marketability of shares in the country and its effect on the smaller shareholders certainly will not help the capital market in future.

Mr. Richard

Will the hon. Gentleman tell us, if he thinks the 1962 Act and the tax on short-term speculative gains on the Stock Exchange has operated well, why it should not apply to short-term speculative gains in land, and why it would not be justified there?

Mr. Box

I was not dealing with land. I specified where my interest lay, and it was not in land. Moreover, there is, I believe, a later Amendment, on which it would, perhaps, be more appropriate to deal with the hon. Member's point.

The Solicitor-General (Sir Dingle Foot)

It may be for the convenience of the Committee if I intervene at this stage. A great deal of heat has been engendered in the support for these two Amendments, but nearly all the speeches which have been addressed to the Committee from the other side have been made precisely three years too late. They would have been extremely relevant if they had been delivered in consideration of the Finance Bill of 1962. For example, the hon. Member for Worcester (Mr. Peter Walker) referred at some length—I am not complaining—to the recommendations of the Royal Commission on Taxation. Those recommendations were before the House in 1962. In both the Majority and Minority Reports the Royal Commission advised against any form of short-term Capital Gains Tax. [HON. MEMBERS: "Oh."] That advice was available to the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) when he introduced his Finance Bill three years ago. That advice was rejected by the party opposite.

Then again we are told about the position of the small investor. If the arguments which have been addressed to the Committee today, especially by the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd), are relevant, they must have been equally relevant in 1962, because the whole picture that he painted was one of the small investor who wanted to be able to get his investment back at very short notice. That applies whether it is within six months, or 12 months. We are dealing here with short-term capital gains, and I suggest to the Committee that the principle with which we are concerned was accepted by the House in 1962. What we are concerned with now is the application of the principle, particularly in the context of this Finance Bill when we are also bringing in a Measure to deal with long-term capital gains.

Mr. Box

Would not the right hon. and learned Gentleman agree that the circumstances have altered to the extent that we have now had two to two-and-a-half years to try out the short-term Capital Gains Tax? We know that it has curbed speculation, but it has been a poor revenue raiser. Is the Solicitor-General suggesting that the extension to 12 months will increase revenue, and materially help the Chancellor?

The Solicitor-General

I am coming to the reason for increasing it to 12 months, if I might deal with the matter in order. I was referring to the 1962 Act. A feature of that Act was that it imposed two different time limits in respect of short-term capital gains—a limit of three years in the case of land, and six months in the case of assets other than land. What we are doing in this Bill is to equate the two and to have the same period of 12 months for both sets of transactions. We can see no reason in principle why we should distinguish between a short-term capital gain in land, and a short-term capital gain which is realised from transactions in other forms of assets.

The point that has not been made by any hon. Gentleman opposite, though it was made in an interjection by my hon. Friend the Member for Barons Court (Mr. Richard), is that so far as the alteration of the time limit relates to transactions in land, it is an alteration in favour of the taxpayer. We heard from he hon. Member for Worcester about the desire of the Chancellor of the Exchequer to inflict penal taxation. That was his phrase. He entirely overlooked, or if he did not overlook he failed to remark on, this aspect of the alteration, that at the present time, if one makes a capital gain at any time within three years, payment has to be made of Income Tax and Surtax, that is to say something at a rate which is higher than the rate proposed in the Bill for long-term capital gains. There are three years during which the taxpayer is penalised under the 1962 Act.

We are proposing to reduce the period far land to 12 months. That means that if a speculator is engaged in a transaction in land, and the sale is made after 12 months but before 3 years have elapsed, he will be relieved from the rate of taxation imposed on him by the 1962 Act. This is not, therefore, a case of penal taxation. This goes to the point of the small investor. If a small investor engages in transactions in land, he will get the benefit of the relief if the sale is made between 12 months and three years.

Mr. Frederic Harris

Will the right hon. and learned Gentleman explain why the Government have decided to be so generous to such a suggested land speculator by cutting the period from three years to one year? What is the reason for it? Why are the Government doing it?

The Solicitor-General

I have been dealing with the effect of the alteration. Nobody can dispute that we are to give the taxpayer a relief which he did not receive under the 1962 Act. [HON. MEMBERS: "Why?"] We are doing it because we want to be fair as between different classes of transaction. We see no reason why we should deal with one set of transactions differently from another.

Mr. Gower

Will the right hon. and learned Gentleman explain his reference to the small investor being a purchaser of land? Can he describe how the small speculator goes in for land? Does he buy large lots, or does he buy tiny pieces of land? Or is it done by share ownership, or by purchasing the freehold?

Mr. Geoffrey Hirst (Shipley)

Single sods.

The Solicitor-General

There are all kinds of ways in which he may deal with it. He may buy a site for building. He may buy shares in a land holding company. That is one of the matters specifically dealt with in the 1962 Act. Section 14 of that Act deals precisely with the situation where the transaction is not in land, but in the shares of a land holding, or land purchasing, company, and one of the effects of the Clause is that we make it unnecessary to have complicated machinery to prevent tax avoidance when dealing in shares in a land holding company.

Mr. Box

Surely the right hon. and learned Gentleman is joking when he suggests that the small man, in some devious way, rings up and buys small parcels of land? If he wants to buy shares, he can buy unit trusts, and he can go into the bank, but he cannot do that with land. Will the right hon. and learned Gentleman explain what he means when he talks about the small speculator buying small plots of land?

The Solicitor-General

I say that this happens time and again. Small investors have invested in real property. They are not confined to shares and securities. I am pointing out that since it is said that it is the small investor who is particularly hit by this type of legislation, it follows that the small investor will derive some benefit from the reduction in the period which is proposed by this Clause.

I come to the principal question which has been raised in this debate. It was put by the hon. and learned Member for Darwen (Mr. Fletcher-Cooke). He asked why there should be this distinction. He asked why there should be long-term capital gains which are taxed at a certain rate—30 per cent.—and why there should be short term capital gains which attract both Income Tax, and, in the appropriate cases, Surtax.

It would be logical to subject to Income Tax and to Surtax all capital gains of whatever description, whether short-term or long-term. Indeed, if we did so, we should avoid a vast amount of litigation in our courts, but I think the Committee will be agreed that where we are dealing with long-term capital gains, that is to say with gains which have accrued over a lengthy period of time, if those gains were subjected to tax at steeply graduated rates in the year when they were realised, we would be imposing a very heavy burden indeed on the persons concerned. But when we are dealing with short-term gains, the argument rests on this proposition, which I invite the Committee to accept, and indeed which was the basis of the legislation in 1962, that they are in substance indistinguishable from income. It does not make much difference whether, in the short term, one makes capital gains which one includes in one's annual income, or whether one earns the money in one's profession or trade as the case may be. That is the argument which the House accepted three years ago, and we invite the Committee to accept it now.

5.30 p.m.

The question then arises why we want to make the change from six months to 12 months. A six months' time limit is in itself unsatisfactory. The normal period over which we measure income for the purpose of taxation is one year. If the proposition that I have put before the Committee is correct—and it was accepted in 1962—there is no reason why we should have different periods for earned income and short-term capital gains. The hon. Member for Worcester referred to the American experience and said that they had a period of six months. That is true, but it has not been very satisfactory.

It is material to tell the Committee that in his 1963 tax message to Congress the then President of the United States proposed that the short-term holding period should be increased from six months to one year, so that gains realised within one year would be treated as ordinary income. Later the Secretary to the Treasury in the United States defended this proposal on the ground that the existing preferential treatment of assets disposed of in a period of less than one year was difficult to justify either on economic or equity grounds, and he went on to observe—and this is also material—that the six months' period frequently resulted in purely speculative profits qualifying for relief as long-term gains. That was the attitude taken by the Government of the United States.

Mr. Peter Walker

Does the right hon. and learned Gentleman also agree that after a full examination of this message by several Congressional committees it was decided not to change the six months' period? Will he also confirm that the comments made by the Secretary to the Treasury were directed against the whole operation of a short-term tax, and not against the period?

The Solicitor-General

No. I have just been quoting, and the Secretary to the Treasury was referring specifically to the six months' period. He was justifying the proposal put forward by the President for a 12 months' period, which is what we propose. I suggest that we should at any rate take notice of American experience.

It is true that that proposal did not get through Congress. There are many proposals which do not get through Congress, and even some which do not get through the House, but which none the less deserve support. This, of course, will be more fortunate. I suggest that we are making a quite logical change, not only in equating the two forms of short-term capital transaction but also in imposing the same period for these transactions as we do for Income Tax and Surtax, namely, a period of 12 months. I therefore invite the Committee to reject the Amendment.

Sir A. V. Harvey

The Solicitor-General is just about as ill-informed on the City and small investors as is the Chancellor of the Exchequer. Today the Chancellor said that he was not unduly worried about the City of London or industry. He said that he did not get much criticism. All I can say is that he should read his Sunday newspapers. If he read half a dozen at random yesterday he would see that criticism is being directed at the Government from all sections of the electorate.

The Solicitor-General said that he saw no difference between six months and 12 months. There is a vast difference. [HON. MEMBERS: "Six months."] I shall give the hon. and learned Gentleman reasons why as I continue. The Solicitor-General made use of what is happening in the United States, but he did not go on to say that the United States has a maximum tax of 25 per cent., which is graduated. Like the Prime Minister, he seems always ready to quote what America does, while never admitting that what happens in America is based upon a free enterprise system. Hon. Members opposite try to get the best of both worlds in their arguments. The Solicitor-General has not presented any argument.

Right hon. Gentlemen opposite are not in touch with the electorate. The remarks of the hon. Member for South Ayrshire (Mr. Emrys Hughes) about small investors are remote from the facts. There are many public companies today in which 80 per cent. of the equity shares are held by small shareholders, with holdings of under £500 each. I know of a works pension fund which is invested in equity shares to the extent of 86 per cent. Shop stewards are trustees, and when they analyse the advice which is given to them on investments they are apt to say, "Are these industries likely to be taken over?" Workers today are well informed on these matters, and want to hedge against inflation like everybody else. They do not want to buy Daltons and see their investments depreciating by 60 per cent. They want to put their money into good blue chip shares which will offset inflation.

Mr. Emrys Hughes

Has the hon. Gentleman received any representations at all from any working-class organisation or trade union against this proposal?

Sir A. V. Harvey

I have discussed the matter with members of the pension fund, and I know that they are very concerned about it. I can assure the hon. Member of that. If a man invests £200 or £300 in equity shares and finds that because Vickers have to dispense with workers on the TSR2 he has to move to Lancashire to get a job with Leylands, he must put up additional money to transfer his family and buy a new home, and he therefore has to liquidate his investments. It is the small man who has to liquidate quickly who gets a rough ride. The large investor can wait one, two or three years, until this lot are out of office.

Mr. Harold Lever

Under the 1962 Act.

Sir A. V. Harvey

I am trying to show the difference between six months and 12 months. My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) made this point very forcibly. I.C.I. annually distributes a considerable number of bonus shares to its workers, who frequently have to realise those shares in order to meet mortgage rates or interest charges—probably more so today than they did under the previous Government. They also stand to lose a great deal.

The Solicitor-General must give the Committee a better argument than he has done. The public will not understand the reason for this, and quite rightly so. One hon. Member opposite tried to confuse the issue by bringing in the question of land. That is quite a separate matter. Speculation in land can be anti-social, but a man who is trying to protect his hard-earned savings in equity shares is not acting in an anti-social manner. It is a good thing for the country that he should have invested in equity shares. The Chancellor should be encouraging small shareholders, but instead of that he is penalising them.

These matters will be taken note of in the country, and as the weeks go by the Chancellor must not be surprised if public opinion polls go more and more against the Government. Right hon. Gentlemen opposite do not put first things first, even when it is in their own interest to do so. In my 20 years' experience in the House they have never done so. They will never learn.

Mr. Harold Lever

I gather that the hon. Member is speaking in favour of the Amendment. He is therefore in favour of a short-term Capital Gains Tax, but one which would be rather less severe in its effect upon shares than is at present proposed.

Sir A. V. Harvey

The hon. Member cannot have been listening to what I have said. Perhaps he will read the OFFICIAL REPORT tomorrow. He may be able to understand the position then.

Mr. Lubbock

What I do not think hon. Members opposite appreciate is that the periods appropriate to a short-term Capital Gains Tax are quite different from those appropriate for a long-term Capital Gains Tax. We cannot look back at the situation in 1962 and say that as the periods were appropriate then they must therefore be appropriate now. We should not be too rigid in our minds.

The position now is that we are to have a long-term Capital Gains Tax at the rate of 30 per cent. Therefore, it is not necessary to extend the six months' period to tax those people who might still be speculating if they have access to short-term borrowing which enables them to hold on until the end of that period. At present it is impossible for anyone to borrow, certainly for stocks and shares. Every hon. Member, I expect, has had letters from his bank manager asking him to reduce his overdraft because of the conditions created by this Government. By extending the six months' period I do not think we should be encouraging people to speculate.

I urge the Chancellor to reconsider this Amendment which has been so reasonably proposed. I must agree with much that has been said, especially by the right hon. Member for Sutton Cold-field (Mr. Geoffrey Lloyd) in the light of his experience in the Wider Share Ownership Association. I urge on the Chancellor that the position of small investors is of critical importance. I am not concerned with the large speculator, who I think is already being caught by the 1962 Act. I supported that at the time. The person who is making money by a stagging operation, that is, applying for a new issue when he has not got the money to pay for it and immediately selling the allotment later when he receives the money, is already caught by the 1962 legislation.

Similarly, so is a person dealing in options. I do not suppose that many are doing so, because everything is going down on the Stock Exchange. A six months' period was adequate to deal with those people. It is much less worthwhile to them to do so now when, if they hang on for a longer period, they will be subject to the long-term Capital Gains Tax. I urge that this six months' period is perfectly adequate and I ask the Chancellor to think again about the Amendment.

Mr. Norman St. John-Stevas (Chelmsford)

I support the Amendment. I agree with the hon. Member for Manchester, Cheetham (Mr. Harold Lever) that it would be much preferable to have no kind of short-term gains tax at all, but, since we are evidently to have it foisted upon us by the Government, the term should be made as short as is reasonably possible. We are entitled to criticise this period sharply despite the animadversions made by the hon. Member for Cheetham on the speech of my hon. Friend the Member for Worcester (Mr. Peter Walker) because he is a member of a party which, in totally different circumstances, introduced a Capital Gains Tax.

I should have thought he would have been better employed looking to his own position because, after his statement about the injustice and unsuitability of any form of Capital Gains Tax, he should not only be supporting this Amendment but proposing one himself to eliminate the short-term Capital Gains Tax entirely from the Finance Bill.

Mr. Harold Lever

Perhaps the hon. Member has not been long enough in the House to know that there is often a chronic dilemma for hon. Members. They have a choice between two evils. I would have a choice between a Capital Gains Tax and a Conservative Government if I helped to put out the Labour Government. No one in his right mind would have much difficulty in deciding which is the greater evil.

5.45 p.m.

Mr. St. John-Stevas

The point I am making is that the hon. Member made great play of the fact that it was a Conservative Government which introduced a Capital Gains Tax in the first place, but the conditions prevailing then were so different that this sort of argument is quite irrelevant. This short-term Capital Gains Tax is being brought in in the context of the existence, or proposed existence, of a long-term Capital Gains Tax, whereas the original tax was produced under conditions in which there was no Capital Gains Tax of any kind existing.

Presumably, the rationale of a short-term tax is to catch speculators. That was the point made by my hon. Friend the Member for Kidderminster (Sir T. Brinton) in an interjection. The purpose of the tax introduced by the Conservative Government was precisely this, and that is why it was limited to six months. It was not a totally successful tax. It was not successful because, although it did match speculators, it also caught a number of people who were not speculators and it therefore caused injustice. It is surely quite evident that if we have a period for a short-term tax which is double that originally introduced, it will double the likely amount of injustice which will be caused. This is a point which the Solicitor-General ignored altogether.

It will work injustice, as my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) said, particularly or the small investor and particularly on the wage earner who is investing money. I was astonished to hear the remarks of the hon. Member for South Ayrshire (Mr. Emrys Hughes) when he poured scorn on the picture of thousands of small investors watching with the greatest anxiety the progress of our discussions because they feared that their savings might be affected. That is precisely what they are doing. They are doing so with reason because, after 13 years of Conservative Government, they have something to lose and they are afraid that they will lose it after six months of a Labour Administration.

This was supplemented by the extraordinary implication made by the Solicitor-General that the average small investor is some form of speculator who is speculating and lending in land allotments.

The Solicitor-General

I never said that.

Mr. St. John-Stevas

I do not say that the hon. and learned Gentleman said it, but he implied it. Taken together, those statements show how totally out of touch the present Government are with the actual situation of investing in the country as a whole. The force of the argument put forward by my hon. Friend the Member for Worcester is recognised by the Government in that they are reducing, or proposing to reduce, in this Bill the term of operation for the short-term tax in so far as it concerns land from three years to one year.

This was a point made by the hon. Member for Barons Court (Mr. Richard). He raised the question of what the Conservative attitude was to the taxing of land speculators and asked if this would not mean that land speculators would go scot free. Of course it does not because this Amendment is moved in the context of the Bill as a whole and subject to the knowledge that there is another Clause in the Bill which will impose a long-term Capital Gains Tax on land acquisition as a whole. Therefore, this Amendment has everything to be said for it, not only in equity but also in logic. We have not heard one logical argument from the other side of the Committee against this Amendment nor one in denial or rebuttal of the very great injustice which this short-term Capital Gains Tax is likely to work.

Mr. Hirst

The remarkable thing about the debate so far has been the speeches made by hon. Members opposite. The hon. Member for Barons Court (Mr. Richard) obviously had not remembered the 1962 Act and did not even know what the Conservative Government had done. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) I will pass over. He is a very good debater, but on this occasion he seemed to get hold of a bad point, and, realising it half way through, with that fertility of mind for which he is noted he twisted round the Royal Commission's Report in aid. For once he did not succeed. I was surprised at the Solicitor-General, because I am certain—this is the measure of my respect for him—that in his ordinary professional calling he would never have accepted such a bad brief but would have returned it. The brief he holds this afternoon should have been returned to the Treasury.

What is so astounding is the attitude of mind of right hon. and hon. Members opposite. Several of my hon. Friends have stressed this fact. I rise particularly because, although a good deal has been said already, I feel keenly that small investors need their spokesmen in the House of Commons. Their spokesmen are not right hon. and hon. Members opposite, who are out to do them down. I am sorry to disappoint the hon. Member for Cheetham, but I must say that I believe that there is a certain element of Left-wing menace about this. What else can explain the old-fashioned idea that speculators and investors are all rich, big barons? That attitude is so stupid.

There are millions of small investors in this country. I am amazed at the number of people who have an interest in stocks and shares. The Conservative Party believes that it is a very good thing that people should have a greater realisation than they were able to have in the past of what happens in industry and of how far their welfare is tied up in it. One of the reasons why the United States goes ahead in many ways better than us is that the profit motive and all that goes with it and a belief in free enterprise and private enterprise permeate that whole society. That is a state of affairs which the Conservative Government tried to bring about in the last few years. The success of this effort can be measured by the fact that tens if not hundreds of thousands of ordinary working people have gone into investing in the equities of companies, often of the companies in which they work, and through various trusts and arrangements.

I cannot think what the Solicitor-General was even implying with regard to small land speculators, unless the Government have something up their sleeves such as an investment trust for unit sods. Otherwise, I cannot imagine what is in the Solicitor-General's head. It is so stupid that that sort of brief should be presented as a serious argument. It is a disrespect to the Committee. I hope that the Financial Secretary will come to the Solicitor-General's aid and give us some satisfactory answer before we come to a decision on the Amendment. At present it seems that the Amendment will have to be pressed. Perhaps the Chancellor of the Exchequer should be sent for.

I have said before—I repeat it—that we shall not make progress on the Bill if we continue to receive from the Treasury Bench in reply to our serious arguments the type of argument we had from the Solicitor-General today. Our case has not been answered in one particular. Not one point which worries me has been satisfactorily answered. All we have had is a sort of waffle which has convinced nobody. I have enough respect for the Solicitor-General to know that his argument did not impress him either.

Mr. Gower

On some occasions members of the Opposition who tackle Amendments are disappointed. On some occasions they are uncertain about what the Minister who responds to a debate means. On other occasions they are confused. This afternoon the Solicitor-General, perhaps unintentionally, succeeded in leaving us with all three qualities. He certainly did not convince us. He left us in great doubt and he confused us. As my hon. Friend the Member for Shipley (Mr. Hirst) reminded us, the Solicitor-General suggested that there would be great pleasure in the minds of some small investors because they could now hold land for a different period without being charged with a short-term capital gain. I assure the hon. and learned Gentleman that for every small investor who is pleased about this concession there will be thousands of other small investors who will be deeply worried about the extension of the short-term tax from six months to a year in the case of securities.

The hon. Member for Manchester, Cheetham (Mr. Harold Lever), in his usual fluent manner, implied that the Amendment had been moved in an extravagant way. That is not an accurate charge. The Amendment was put forward by my hon. Friend the Member for Worcester (Mr. Peter Walker) in a very moderate way—in far too moderate a way, I thought. The hon. Member for Cheetham went on to say that we on this side seem to think that the Chancellor was a Socialist instructed by some Bolsheviks. The only uneasiness we have about one or two of the Government's economic advisers is the unhappy history of certain countries which relied upon their advice in the past.

The true picture here is that in the context of the long-term Capital Gains Tax which the Chancellor of the Exchequer has now introduced a distinction can be shown. The hon. Member for Cheetham seemed to think that because the Conservative Government a few years ago brought in a speculative gains tax—as my hon. Friend the Member for Kidderminster (Sir T. Brinton) said, a tax against speculators—that is a good reason why the Labour Party can justify extending its effect. The very existence of a long-term tax which will deal with the major problem would lessen rather than increase the need for this short-term tax. I agree with my hon. Friends that the need for this tax has now largely disappeared. Therefore, the case for the present Amendment is much stronger.

My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) stressed the importance of this matter to small investors. I believe that he understated the extent of the extension of share ownership. My right hon. Friend explained how it has extended in the industrial Midlands. I know of several cases where large numbers of the staffs at municipal town halls have combined in savings investment clubs. I know of an industrial trading estate where large numbers of the employees are associated in a similar form of investment club. The party opposite underestimates the effect of this on the minds of so many potential and actual investors. It is very unfortunate that expression is now being given to this attitude and that this spirit is permeating legislation, because the Conservative Party succeeded in laying the seeds for a vast extension of investment and ownership by ordinary people. This was the first root of a new growth—a salutary, health development.

It may be that this very development is being sadly threatened. It may be that the very people who need to be encouraged will be deterred. Some small investors who have newly entered into investment are anxious people; they are people with slender means and limited resources. A few blows like this could deter them for ever. I sincerely hope that right hon. and hon. Members opposite will pay some attention to the virtues of share ownership and investment by ordinary people. Or is it that there is still the old feeling of antipathy towards capital and investment? Is the "Old Nick" still alive? Is this a predominant factor lurking in the minds of right hon. and hon. Members opposite which prevents them from taking our attitude towards wider investment?

Mr. Harold Lever

Does the hon. Gentleman wish to persist in the charge that the Labour Government are anti-investment and anti-investor, in view of the fact that nearly every large trade union—trade unions are in very close touch with the Government—holds substantial quantities of ordinary shares?

6.0 p.m.

Mr. Gower

No, I said that I sincerely hoped that they will take the view that this is a flower to be nurtured and cultured, but I then suggested, alternatively, that they might not be capable of taking that point of view. I sincerely hope that the hon. Gentleman is correct and that hon. Members opposite will not adopt a partisan approach. I hope they will take every possible step to encourage wider investment by ordinary people with ordinary resources, and I hope their legislation will be adopted to encourage that process.

For those reasons, I have no hesitation in supporting the Amendment and in hoping that my right hon. and hon. Friends will press it to a Division.

Mr. Stratton Mills (Belfast, North)

I wish to make a brief comment on the speech of the Solicitor-General which was, I thought, a very poor speech indeed. He said that because the Conservative Party had introduced a short-term Capital Gains Tax for a period of six months we therefore accepted the principle of the tax, which is partly right, but then he went on to argue that if we accept a period of six months we must then accept a period of 12 months. One can extend that argument to 2, 3, 5 or 10 years. I hope that the hon. and learned Gentleman will think a little more carefully before submitting this kind of argument at later stages of the Bill.

It is distressing to notice in the contributions from the benches opposite an attitude which was, I thought, well put forward by the hon. Member for South Ayrshire (Mr. Emrys Hughes), which does not seem to encourage the spread of share ownership. This is most distressing indeed. Certainly we on this side of the Committee wish to encourage the spread of wealth, and this is a good way of doing it. But in this new age in which we see a wider spread of share ownership the Luddites on the benches opposite have nothing to contribute.

Mr. Heath

The first debate in the Committee on the Capital Gains Tax sections of the Bill has given us a detailed and extraordinarily interesting view of these problems. The debate has covered quite a wide field and has brought a considerable number of interesting arguments, not least from the other side of the Committee.

It was, therefore, all the more disappointing that we heard such a poor attempt by the Solicitor-General, if I may say so with respect to him, to answer these detailed points. In fact, I do not think the Solicitor-General really attempted to answer the points at all. I think the Committee felt that after beginning to despair of the Financial Secretary to the Treasury for three days last week, after hearing the Minister without Portfolio on Thursday night and Friday morning, and now having listened to the Solicitor-General, we would really rather return to the Treasury Ministers to see what they can do to help us.

The Solicitor-General has this remarkable quality of great calmness and courtesy in making a good brief seem ineffective, and when he gets a really bad brief such as he has had this evening we have all seen what the results are. He has not even answered the few points that his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) put to him, some of which were also put by my hon. Friends.

It was a very interesting discussion, as to whether in the case of a long-term Capital Gains Tax there ought to be any separate short-term Capital Gains Tax at all. The hon. Member for Cheetham and, I understand, the Solicitor-General tried to make the point that we ought not to have used the argument about the minority Report in saying that the Government should have reduced the period for securities to six months. I find this is baffling. As the Government have taken the minority Report and have followed it in every detail with this one exception, we are entitled to point out that they have not followed it completely and that in their approach to short-term capital gains they have made the situation worse.

What argument did the Solicitor-General use? First, he tried to develop the argument that the Government were doing what the United States President had recommended. He then hastily had to withdraw the argument when it was pointed out that the United States Congress had not accepted the argument and that the United States was not following this procedure in any case.

The Solicitor-General

I went on to say that this had not been accepted by Congress. None the less the views expressed by the President were relevant to our present discussion.

Mr. Heath

The views may have been relevant, but they do not seem to have been operative. We are not suggesting they should be operative either.

I should like to comment on a few points expressed by the hon. Member for Cheetham when he was dealing with the nature of this tax. Of course, there is this difference, that even under this Bill, even with the short-term tax we are dealing with business assets and with chattels. This, therefore, is a much wider and much more penalising tax than the one introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) because this is, as we have said all along, an all-embracing tax. Many of my hon. Friends have emphasised its impact on the movement for wider share ownership and the small investor. Most of us found it difficult to be wholeheartedly convinced by the Solicitor-General's enthusiasm for the small investor in land. In the experience of most of us, this is not one of the things which occupy the attention of the small investor to any great extent.

Mr. Harold Lever

It seems to me that it would be helpful if the right hon. Gentleman would answer the points I made rather than those which I did not make in relation to the previous tax. Perhaps he would give us his opinion about the point that I did make. Does he think it lies in the mouth of Conservative Front Benchers to complain that my right hon. Friend is being spiteful in not allowing against Income Tax and Surtax losses in respect of activities which, if they are profitable, cause Surtax and Income Tax to apply to them, having regard to the identical position having been taken up in the 1962 Act by the Conservative Government?

Mr. Heath

I appreciate the point. I was trying to indicate to the hon. Gentleman, with a subtlety which I thought he would have appreciated, that this is a more penalising tax because it includes business assets and chattels. That is what my right hon. and learned Friend meant when he said that it was a more penalising tax.

There is also a lack of understanding amongst hon. Members opposite of the importance of this matter to small investors. Hon. Members opposite are always so scornful of these matters. One should consider the man earning £2,000 a year or £40 a week which, after all, is not an extravagant amount in these times, who decides to save for his holidays and for this purpose invests in a unit trust. He does that for 11 months of the year for his holiday and realises it before the year is out. Under this arrangement he has to pay Capital Gains Tax and he has to pay at the Surtax level because it ranks as unearned income. I hope the Financial Secretary is not going to fall into the pit which the Solicitor-General digs for himself with every sentence that he utters. This is an example of what happens in our society as a result of the improvement in incomes today.

What answers did the Solicitor-General give us? He gave two answers which he delivered with great force, vigour and profundity.

First of all, he said that what we are doing in this Bill is equalising the time in respect of land and securities. We recognise that from reading the Bill. He gave no reason why there should be this equalisation. He did not think there was any difference between land and securities, but we all know that, taken separately, there are considerable differences. But the hon. and learned Gentleman said "No, they are equalising." He has obviously been convinced of that fact. He said with equal force that it should be dealt with in the normal financial year and that this is convenient for administration.

Does he expect us to be convinced by this, in the light of the arguments put forward by the hon. Member for Orpington (Mr. Lubbock)? The only arguments that the Solicitor-General has been able to produce are those two well-known administrative hobby-horses—"We are equalising the situation "and" "We are dealing with it a year at a time because it is administratively convenient." I must tell the hon. and learned Gentleman that we are not in the least convinced by this. He has given us no intellectual satisfaction and no practical reason of any kind for the measure taken in the Bill. Therefore I advise my hon. and right hon. Friends to divide the Committee.

Question put, That "twelve" stand part of the Clause:—

The Committee divided: Ayes 199, Noes 187.

Division No. 124.]	AYES	[6.11 p.m.
Allaun, Frank (Salford, E.)	Crosland, Anthony	Ford, Ben
Allen, Scholefield (Crewe)	Crossman, Rt. Hn. R. H. S.	Fraser, Rt. Hn. Tom (Hamilton)
Atkinson, Norman	Cullen, Mrs. Alice	Freeson, Reginald
Bacon, Miss Alice	Dalyell, Tam	Calpern, Sir Myer
Beaney, Alan	Darling, George	Garrett, W. E.
Benn, Rt. Hn. Anthony Wedgwood	Davies, G. Elfed (Rhondda, E.)	Garrow, A.
Bennett, J. (Glasgow, Bridgeton)	Davies, Harold (Leek)	Gower, Raymond
Binns, John	Davies, Ifor (Gower)	Gregory, Arnold
Bishop, E. S.	Davies, S. O. (Merthyr)	Grey, Charles
Blackburn, F.	Dell, Edmund	Griffiths, David (Rother Valley)
Blenkinsop, Arthur	Diamond, John	Hamilton, William (West Fife)
Boardman, H.	Dodds, Norman	Hannan, William
Boston, T. G,	Doig, Peter	Harper, Joseph
Bowden, Rt. Hn. H. W. (Leics S.W.)	Driberg, Tom	Hart, Mrs. Judith
Braddock, Mrs. E. M.	Duffy, Dr. A. E. P.	Hattersley, Roy
Bray, Dr. Jeremy	Edelman, Maurice	Hazell, Bert
Broughton, Dr. A. D. D.	Edwards, Robert (Bilston)	Heffer, Eric S.
Brown, Rt. Hn. George (Belper)	English, Michael	Henderson, Rt. Hn. Arthur
	Ennals, David
Brown, Hugh D. (Glasgow, Provan)	Ensor, David	Herbison, Rt. Hn. Margaret
Brown, R. W. (Shoreditch & Fbury)	Evans, Albert (Islington, S.W.)	Holman, Percy
Butler, Herbert (Hackney, C.)	Evans, Ioan (Birmingham, Yardley)	Houghton, Rt. Hn. Douglas
Callaghan, Rt. Hn. James	Finch, Harold (Bedwellty)	Howarth, Robert L. (Bolton, E.)
Castle, Rt. Hn. Barbara	Fletcher, Sir Eric (Islington, E.)	Hoy, James
Chapman, Donald	Fletcher, Ted (Darlington)	Hughes, Cledwyn (Anglesey)
Coleman, Donald	Fletcher, Raymond (Ilkeston)	Hughes, Emrys (S. Ayrshire)
Craddock, George (Bradford, S.)	Floud, Bernard	Hunter, Adam (Dunfermline)
Crawshaw, Richard	Foley, Maurice	Hunter, A. E. (Feltham)
Cronin, John	Foot, Sir Dingle (Ipswich)	Hynd, H. (Accrington)
Hynd, John (Attercliffe)	Morris, John (Aberavon)	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Irving, Sydney (Dartford)	Murray, Albert	Silkin, S. C. (Camberwell, Dulwich)
Janner, Sir Barnett	Newens, Stan	Silverman, Julius (Aston)
Jeger, George (Goole)	Noel-Baker, Francis (Swindon)	Silverman, Sydney (Nelson)
Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Noel-Baker,Rt.Hn.Philip(Dertoy,S.)	Slater, Mrs. Harriet (Stoke, N.)
Jenkins, Hugh (Putney)	Norwood, Christopher	Slater, Joseph (Sedgefield)
Jenkins, Rt. Hn. Boy (Stechford)	Oakes, Gordon	Small, William
Jones, Dan (Burnley)	Ogden, Eric	Snow, Julian
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)	O'Malley, Brian	Soskice, Rt. Hn. Sir Frank
Kelley, Richard	Orbach, Maurice	Stewart, Rt. Hn. Michael
Leadbitter, Ted	Orme, Stanley	Stones, William
Lever, Harold (Cheetham)	Oswald, Thomas	Swain, Thomas
Lever, L. M. (Ardwick)	Owen, Will	Swingler, Stephen
Lewis, Arthur (West Ham, N.)	Page, Derek (King's Lynn)	Taylor, Bernard (Mansfield)
Lipton, Marcus	Pannell, Rt. Hn. Charles	Thomas, George (Cardiff, W.)
Lomas, Kenneth	Pargiter, G. A.	Thornton, Ernest
Loughlin, Charles	Parkin, B. T.	Tinn, James
McCann, J.	Pavitt, Laurence	Tuck, Raphael
MacColl, James	Pearson, Arthur (Pontypridd)	Varley, Eric G.
MacDermot, Niall	Peart, Rt. Hn. Fred	Wainwright, Edwin
McGuire, Michael	Pentland, Norman	Walden, Brian (All Saints)
McInnes, James	Popplewell, Ernest	Walker, Harold (Doncaster)
Mackenzie, Gregor (Rutherglen)	Price, J. T. (Westhoughton)	Wallace, George
Mackie, John (Enfield, E.)	Pursey, Cmdr. Harry	White, Mrs. Eirene
McLeavy, Frank	Randall, Harry	Whitlock, William
MacMillan, Malcolm	Rankin, John	Wilkins, W. A.
MacPherson, Malcolm	Redhead, Edward	Willey, Rt. Hn. Frederick
Mahon, Simon (Bootle)	Rees, Merlyn	Williams, Mrs. Shirley (Hitchin)
Mallalieu,J.P.W.(Huddersfield,E.)	Reynolds, G. W.	Williams, W. T. (Warrington)
Manuel, Archie	Rhodes, Geoffrey	Willis, George (Edinburgh,E.)
Mayhew, Christopher	Roberts, Albert (Normanton)	Wilson, William (Coventry, S.)
Mellish, Robert	Robertson, John (Paisley)	Winterbottom, R. E.
Mendelson, J. J.	Rogers, George (Kensington, N.)	Woodburn, Rt. Hn. A.
Mikardo, Ian	Rose, Paul B.	Woof, Robert
Millan, Bruce	Ross, Rt. Hn. William	Yates, Victor (Ladywood)
Milne, Edward (Blyth)	Rowland, Christopher	Zilliacus, K.
Molloy, William	Sheldon, Robert
Monslow, Walter	Shinwell, Rt. Hn. E.	TELLERS FOR THE AYES:
Morris, Charles (Openshaw)	Shore, Peter (Stepney)	Mr. George Lawson and
		Mr. William Howie.
NOES
Agnew, Commander Sir Peter	Curran, Charles	Hirst, Geoffrey
Alison, Michael (Barkston Ash)	Dalkeith, Earl of	Hobson, Rt. Hn. Sir John
Aliason, James (Hemel Hempstead)	Davies, Dr. Wyndham (Perry Barr)	Hogg, Rt. Hn. Quintin
Anstruther-Gray, Rt. Hn. Sir W.	d'Avigdor-Goldsmid, Sir Henry	Hooson, H. E.
Awdry, Daniel	Deedes, Rt. Hn. W. F.	Hordern, Peter
Baker, w. H. K.	Digby, Simon Wingfield	Howe, Geoffrey (Bebington)
Barber, Rt. Hn. Anthony	Douglas-Home, Rt. Hn. Sir Alec	Hunt, John (Bromley)
Barlow, Sir John	Elliot, Capt. Walter (Carshalton)	Hutchison, Michael Clark
Batsford, Brian	Elliott, R. W.(N'c'tle-upon-Tyne,N.)	Iremonger, T. L.
Beamish, Col. Sir Tufton	Eyre, Reginald	Irvine, Bryant Godman (Rye)
Bell, Ronald	Fell, Anthony	Jenkin, Patrick (Woodford)
Bessell, Peter	Fletcher-Cooke, Charles (Darwen)	Jennings, J. C.
Biggs-Davison, John	Fletcher-Cooke, Sir John (S'pton)	Johnson Smith, G. (East Grinstead)
Birch, Rt. Hn. Nigel	Foster, Sir John	Kerby, Capt. Henry
Black, Sir Cyril	Galbraith, Hn. T. G. D.	Kilfedder, James A.
Boyd-Carpenter, Rt. Hn. J.	Gammans, Lady	King, Evelyn (Dorset, S.)
Boyle, Rt. Hn. Sir Edward	Giles, Rear-Admiral Morgan	Kirk, Peter
Brewis, John	Gilmour, Ian (Norfolk, Central)	Lagden, Godfrey
Brinton, Sir Tatton	Glover, Sir Douglas	Lambton, Viscount
Bromley-Davenport,Lt.-Col.Slr Walter	Goodhew, Victor	Lancaster, Col. C. G.
	Gower, Raymond	Lewis, Kenneth (Rutland)
Brooke, Rt. Hn. Henry	Grant, Anthony	Lloyd, Rt.Hn. Geoffrey (Sut'nC'dfield)
Buck, Anthony	Grant-Ferris, R.	Lloyd, Ian (P'tsm'th, Langstone)
Bullus, Sir Eric	Gresham-Cooke, R.
Burden, F. A.	Griffiths, Eldon (Bury St. Edmunds)	Lloyd, Rt. Hn. Selwyn (Wirral)
Buxton, R. C.	Grimond, Rt. Hn. J.	Longbottom, Charles
Campbell, Gordon	Gurden, Harold	Longden, Gilbert
Carr, Rt. Hn. Robert	Hall, John (Wycombe)	Lubbock, Eric
Cary, Sir Robert	Hall-Davis, A. G. F.	McAdden, Sir Stephen
Chichester-Clark, R.	Harris, Frederic (Croydon, N.W.)	MacArthur, Ian
Clark, William (Nottingham, S.)	Harris, Reader (Heston)	Mackenzie, Alasdair (Ross&Crom'ty)
Cole, Norman	Harrison, Brian (Maldon)	Mackie, George Y. (C'ness & S'land)
Cooke, Robert	Harrison, Col. Sir Harwood (Eye)	Macleod, Rt. Hn. Iain
Cooper, A. E.	Harvey, Sir Arthur vere (Macclesf'd)	McMaster, Stanley
Cooper-Key, Sir Neill	Harvey, John (Walthamstow, E.)	McNair-Wilson, Patrick
Cordle, John	Harvie Anderson, Miss	Maltland, Sir John
Corfield, P. V.	Hawkins, Paul	Marten, Neil
Costain, A. P.	Hay, John	Mathew, Robert
Craddock, Sir Beresford (Spelthorne)	Heath, Rt. Hn. Edward	Maude, Angus
Crawley, Aidan	Higgins, Terence L.	Maxwell-Hyslop, R. J.
Cunningham, Sir Knox	Hill, J. E. B. (S. Norfolk)	Maydon, Lt.-Cmdr. S. L, C.
Meyer, Sir Anthony	Pym, Francis	Thomas, Sir Leslie (Canterbury)
Mills, Peter (Torrington)	Ramsden, Rt. Hn. James	Thompson, Sir Richard (Croydon,S.)
Mills, Stratton (Belfast, N.)	Redmayne, Rt. Hn. Sir Martin	Turton, Rt. Hn. R. H.
Mitchell, David	Rees-Davies, W. R.	Tweedsmuir, Lady
Monro, Hector	Ridley, Hn. Nicholas	van Straubenzee, W. R.
Morrison, Charles (Devizes)	Roberts, Sir Peter (Heeley)	Walder, David (High Peak)
Mott-Radclyffe, Sir Charles	Robson Brown, Sir William	Walker, Peter (Worcester)
Munro-Lucas-Tooth, Sir Hugh	Roots, William	Walker-Smith, Rt. Hn. Derek
Neave, Airey	Russell, Sir Ronald	Walters, Dennis
Noble, Rt. Hn. Michael	St. John-Stevas, Norman	Ward, Dame Irene
Onslow, Cranley	Sandys, Rt. Hn. D.	Webster, David
Orr-Ewing, Sir Ian	Shepherd, William	Wells, John (Maidstone)
Osborn, John (Hallam)	Sinclair, Sir George	Whitelaw, William
Page, John (Harrow, W.)	Smith, Dudley (Br'ntf'd & Chiswick)	Williams, Sir Rolf Dudley (Exeter)
Page, R. Graham (Crosby)	Smyth, Rt. Hn. Brig. Sir John	Wills, Sir Gerald (Bridgwater)
Pearson, Sir Frank (Clitheroe)	Spearman, Sir Alexander	Wilson, Geoffrey (Truro)
Percival, Ian	Stainton, Keith	Wise, A. R.
Peyton, John	Stanley, Hn. Richard	Wolrige-Gordon, Patrick
Pike, Miss Mervyn	Steel, David (Roxburgh)	Woodnutt, Mark
Pitt, Dame Edith	Stoddart-Scott, Col. Sir Malcolm	Wylie, N. R.
Pounder, Rafton	Taylor, Sir Charles (Eastbourne)
Powell, Rt. Hn. J. Enoch	Taylor, Frank (Moss Side)	TELLERS FOR THE NOES:
Prior, J. M. L.	Thatcher, Mrs. Margaret	Mr. Martin McLaren and
		Mr. Jasper More.

Mr. John Hall (Wycombe)

I beg to move Amendment No. 191, in page 11, line 16, to leave out subsection (2) and to insert: (2) Tangible, moveable property shall not be a chargeable asset.

The Temporary Chairman

I think that it would be for the convenience of the Committee to discuss at the same time the following two Amendments: Amendment No. 258, in page 11, line 24, at end insert: but vehicles classified as vintage vehicles either used or on display shall not be a chargeable asset". Amendment No. 246, in page 11, line 24, at end insert: (4) Livestock shall not be a chargeable asset.

Mr. Hall

I confess that I am a little sorry that it has been arranged to take these two further Amendments at the same time because they refer to separate and special points which ought not to be lost sight of in the general debate on the main subject arising under the Amendment which I have moved, that is, the exclusion of tangible, moveable property. I shall refer to Amendments Nos. 258 and 246 only in passing, because I am sure that several of my hon. Friends will have a good deal to say about them. I hope that my hon. Friend the Member for Twickenham (Mr. Gresham Cooke), who has specialised knowledge of mechanical horse-power, will have much to say about vintage and veteran cars, and I hope that my hon. Friend the Member for Worthing (Mr. Higgins) will have the opportunity to come in on Amendment No. 246, which relates to live horse-power, to livestock.

The Amendment to exclude vintage cars arose because our attention was drawn to the fact that the Clause as at present drafted might in fact—I am sure that it was quite unintentional—cover vintage and veteran cars which had been bought and accumulated for a museum. The Montagu Motor Museum drew attention to this matter, pointing out that the British motor industry had failed to establish its own motor museum and the Montagu Motor Museum, at the cost of considerable money and effort, had brought together a number of vintage and veteran cars. It would be most distressing if, as a result of these provisions, Capital Gains Tax were imposed on these cars and the museum had to be broken up in consequence. I am sure that the Committee will agree that this would be a disastrous consequence. In a sense, Amendment No. 258 is a probing Amendment. I am not sure that the Clause as drafted would have that effect, and it is important to be quite certain that it has not.

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

In the hope of shortening the debate—we have many matters to attend to—it might be helpful if I made clear at once that it is certainly not the intention to impose this tax on sales of vintage cars. I give that assurance now. We can discuss the details later on the Amendment.

Mr. Hall

The Committee will be delighted to hear that. I do not know whether that assurance covers both vintage and veteran cars.

Mr. MacDermot indicated assent.

Mr. Hall

I understand that veteran cars may well be older than vintage cars. There is a distinction, although, not being a user of a vintage or veteran car, I find it a little difficult to understand. At one time, I had a veteran or vintage car with a very large horsepower, although most of the horses had died over the years.

Before deploying my arguments on Amendment No. 191, I have two preliminary comments to make. At the beginning of the Committee stage today, my right hon. Friend the Member for Bexley (Mr. Heath) pointed out that the Committee was in some difficulty in having to consider the short-term Clauses under Part II before we had considered Part III. I realise that, according to the order of the Bill, we should consider Clauses 16 and 17 first, but this does produce certain problems. Clause 18, which I regard as the charter Clause, together with the Clauses which follow in Part III, establishes the principles on which the new Capital Gains Tax is to be based, and it is in relation to those principles that the Amendments relating to Clauses 16 and 17, which make amendments to the 1962 Act, arise. Therefore, there will be some difficulty in discussing the Amendments to Clauses 16 and 17 because they affect later Clauses governing long-term gains as well as short-term gains. The arguments are not necessarily the same although they must to some extent overlap.

I mention this because we on this side must reserve our position here. During the debate on these Amendments, there is bound to be a considerable amount of overlapping between the arguments to be deployed on Clauses 16 and 17 and those to be deployed on later Clauses touching a similar point but relating to long-term rather than short-term gains. It would be distressing if, when we came to the later Clauses, we were not able to re-deploy many of the arguments which might have overlapped as well as additional arguments covering the long-term aspect of the same problem. That matter may crop up later, and that is why I make the point now.

My second preliminary point arises out of an intervention by the hon. Member for South Ayrshire (Mr. Emrys Hughes) in our previous debate when he invited Members of the Committee to declare their interest. It struck me that he was asking for a very wide declaration of interest, because a good many hon. Members on both sides are likely to be affected, directly or indirectly, by these tax provisions. It is rather like asking us to declare an interest when we are debating the Income Tax Clauses. I except for the moment Surtax Clauses. However, in deference to the hon. Gentleman's wish—I have a great respect for him and I wish he were here to listen—I declare my own interest.

I have, among other things, some rather nice Georgian silver which was given to me at the time of my wedding and other times at a period when people used to give silver before other things caught up with them. Over many years, this silver has cost me a great deal in maintenance, having it cleaned, burnished and looked after. If I were to sell it—I have no intention of doing so—I think that, taking into account the cost of maintenance over the years in relation to the original value of the articles—I should probably sustain a capital loss, and I wonder whether I might be able to claim for it. To safeguard my own position, because I know that the modern criminal is a highly educated man who reads HANSARD, I hasten to say that such pieces of Georgian silver of any value which I have are safely in the bank. I do not want to be visited by any enterprising person who reads the report of this debate.

Clause 16 extends the existing short-term Capital Gains Tax under Case VII of Schedule D of the 1962 Act, which was, in effect, a speculative gains tax. I emphasise that. When it was introduced, it was a speculative gains tax. It was not regarded by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) as a Capital Gains Tax. Clause 16 extends this tax to cover all assets except chattels of value under £1,000. Moreover, as we note with regret from our last Vote, it extends the time limit from six months to 12 months. It does something else which was not done under the 1962 Act: it makes short-term gains liable not only to Income Tax but to Surtax. This goes even further than the suggestion of the minority of the Royal Commission who specifically said in their Minority Report—I think that it is paragraph 61—that such gains should be exempt from Surtax and should be liable only to Income Tax.

As in other cases, the Government are now proposing fiscal measures which other countries have tried and found unworkable. Other nations are now beginning to depart from an attempt to tax chattels. To include chattels is to fly in the face of experience gained by other countries which have had a Capital Gains Tax in one form or another for some years. The experience of the United States has been referred to on several occasions, but hon. and right hon. Members opposite will know that the United States Treasury has long since abandoned the attempt to collect tax on chattels except in certain special cases.

6.30 p.m.

The yield from the personal—I stress that word—Capital Gains Tax even in the United States, where it is probably higher than in other countries which have such a tax, is small. As far as my information goes, the yield in the United States is about 2–5 per cent. of the total tax revenue. Within that figure the yield from the tax on chattels, the most important part presumably being works of art, is probably minute. It would be interesting to be told what yield the United States treasury has been able to obtain from the tax on chattels and particularly from the tax as it applies to works of art. I assume—indeed, I am sure—that the Treasury investigated these facts before deciding to impose the tax and must have thought it was worth while to do so and that the Revenue would be worth the trouble of getting it. It would be interesting to discover from the experience of the United States what tax revenue is obtained from the sources I have mentioned.

One of the things which worry me about the proposal to include chattels is how it is proposed to administer it. The Committee should be told. If, as I suspect, the administration will be unworkable and unjust in its effects, we should not have it. We have had many experiences of taxation imposed by Governments of all parties which in the end were found to be unworkable, impinged harshly on certain sections of the community and produced situations which brought the tax law into disrepute. We do not want to increase the number of examples of that kind.

Am I not right in assuming that the proposals will impose an intolerable burden on the Inland Revenue? Apart from the requirements in Schedule 9 which call for returns from auctioneers and valuers in the case of transactions in excess of £1,000, it authorises in paragraph 13 an inspector or other officer of the Board to enter a private house and inspect property for valuation purposes. This is a departure from what we are accustomed to. Who is to be the "other officer"? Will an inspector of the Inland Revenue visit the house accompanied by a valuer? It will be difficult to get enough valuers to cover the whole range of personal chattels.

Another point of great interest from Schedule 9—I have to mention the Schedule because it has some effect upon the Amendment—is that there is a right of access for these officers at such reasonable times as the Board may consider necessary. In other words, the Board of Inland Revenue will be able to decide when it shall send an inspector or other officer to any individual's house or place of business where the chattels may be situated to look at those chattels in the person's possession with a view to valuing them or to see whether he still has them or has disposed of them. It would be interesting to know what would be regarded as a reasonable time. If an inspector visited me in the middle of my lunch, he would get a very dusty reception, and so he would if he visited me without previous notice. We ought to know exactly how this will work.

It appears that the Inland Revenue will be asked to undertake a very distasteful and embarrassing task. It will be used in a way which will arouse considerable enmity and dislike on the part of taxpayers. No one appreciates more than I do the tremendous burden so often placed on Inland Revenue officers and the conscientious way in which they attempt to carry out their duties and, despite the impression sometimes conveyed to the contrary, try to be of assistance to the taxpayer in unravelling his taxation problems. It is not easy for tax inspectors to have really good, warm relations with the public despite the great efforts they make to be helpful, but this will destroy any relations that they have with the public. If power is to be given to them to go into people's private homes, to demand to be given access at times which seem reasonable to the Board, to inspect people's property, to see whether they have still got it or have disposed of it, or even to value property which might be there, it will make life very difficult indeed for the Inland Revenue. I am sure that this is not a burden that the Inland Revenue wishes particularly to carry, and that if we asked it whether it wished to be included in these provisions, it would say "No".

It will be impossible to carry out inspection and investigation into the whole range of chattels. Therefore, what will probably happen will be that the Inland Revenue will concentrate upon what are loosely described as works of art. Here we can perceive the hidden hand of the master. There was a book, which I am sure that hon. Gentlemen on both sides and particularly hon. Gentlemen opposite have read, entitled "An Expenditure Tax", which was published in 1955. I do not need to quote the author, I am sure that he is well known. In one paragraph where he is referring to possible taxation on works of art, he says: Meanwhile wealthy individuals are artificially encouraged to buy valuables—from stamps and diamonds to old masters—and to enjoy them in private, rather than to invest their savings in productive channels. This, apparently, is the attitude of mind of hon. Gentlemen opposite—that one should not invest money in beautiful things, whether stamps, diamonds, paintings, old books, silver or glass, and that one should divert one's savings to more productive channels.

Mr. Harold Lever

It does not say that.

Mr. Hall

It refers to people investing their savings in productive channels.

Mr. Lever

What the author is complaining about is the artificial inducement so to do. He is not complaining about innocent enjoyment of diamonds, works of art, and so on. He is complaining about a tax system which artificially encourages people to buy those things rather than invest their money in more productive channels.

Mr. Hall

The hon. Gentleman can place whatever construction he likes on the article. He has already placed certain constructions on parts of the Royal Commission Report which do not find general acceptance. I have merely quoted what seems to be the attitude of mind of hon. Members opposite.

I do not intend to deploy all the arguments against applying the Capital Gains Tax to works of art, certainly not in any detail. I shall leave that to colleagues of mine who are better versed in the world of art than I am and know far more about it than I do. I am collector in a very modest and restricted way and would not say that my experience of art collecting entitled me to make any profound observations about this problem, but I think that I can summarise some of the problems which the Inland Revenue will meet. These must be apparent to anybody who uses common sense in looking at the problems without necessarily having any special experience of the operations of the art world.

First, it seems to me that if there is to be a swingeing Capital Gains Tax upon the sale of works of art which can fetch any price in the market today—we have had examples of very high prices paid for certain paintings and other works of art over recent years—their possessors will be very reluctant to declare them. Surely this will mean reluctance to have loan exhibitions and to allow visitors to look at the pictures in the galleries at large houses.

I see that hon. Members smile, but in many houses there are valuable paintings that have been in the family for many years, perhaps for centuries, and the existence of which may not be generally known. They may be listed only in an art lover's catalogue or known in a very limited circle. If that is so, the owner will be very reluctant to bring them to the notice of the authorities by encouraging visitors to go and see them.

Mr. J. Grimond (Orkney and Shetland)

Are we not discussing short-term gains? If a picture has been in the possession of a family for many generations, will it come under this Clause?

Mr. Hall

This is one of the problems we are discussing, concerning short-term capital gains. It also covers, as I said earlier, the problems of the long-term as well as those of the short-term. There is bound to be overlapping which must be taken into account, because chattels can be long-term as well as short-term.

Mr. J. J. Mendelson (Penistone)

The hon. Gentleman says that some of these priceless paintings have not been seen by anyone for a long time. Would the situation therefore be much worse than it is now, if what the hon. Gentleman claims proved to be correct? Is it his suggestion that pictures on view now will be shut off and no one allowed to see them? Can we not come now to the point of the Clause?

Mr. Hall

Perhaps I have not made myself sufficiently clear to the hon. Gentleman. Let us consider a short-term example. A painting is acquired abroad by an art lover. It might increase in value even within 12 months. Indeed, since there seem to be curious movements in the art world, even within a few weeks there might be a direct capital appreciation. Certainly there will be a substantial appreciation some years later. That is a possible and feasible example.

Such a collector will be very reluctant to put that work of art on show—that is all I am saying. [HON. MEMBERS: "Why?"] Because if he does it becomes known that he owns a certain painting and it will also become known that he is selling it, when he will become liable to Capital Gains Tax. It may be that in all equity he should disclose it, under this Clause, but I say that this Clause will encourage that kind of evasion and make it much more difficult for people to show works of art collected from now onwards.

Then there is the serious effect that the Clause may have upon London as a great centre for works of art. If works of art bought and sold in the markets of London are to become subject to this tax then those who wish to buy will go outside the country to do so. The Clause will also produce an appallingly difficult problem of valuation. How does one value these things? I will give an example because it explains the difficulty that a Government valuer has at times in assessing the true value of a work of art.

The Government were offered a Louis XVI commode in December, 1960, in settlement of death duties totalling £22,000. The Government valuer decided that this was too high a valuation and the offer was refused. It was sold by auction in May, 1962, for £33,000. What will be the position in a transaction of that kind under this Clause? The Government valuer in that case said that the commode was not worth £22,000, yet it was disposed of later for £33,000, producing a substantial capital appreciation on which, under this proposal, the Capital Gains Tax would now be payable. Presumably valuation will be applicable at the time of acquisition.

6.45 p.m.

If the Government valuer was correct in the case of the commode, there was a most remarkable increase in its value in a short period. If the original value was wrong, as it would appear to have been, then, under this Clause, the seller of the work would be charged Capital Gains Tax quite wrongly because the Government valuer had under-valued the commode in the first place.

The Government will be placing a very considerable burden on the valuers they are able to obtain. In many cases they will have to visit homes in order to he able to value works of art. In the case of paintings they may have to take them away for X-ray and other tests to see whether they are genuine Old Masters or not. All this seems to be an invitation to concealment. The Government will be inviting people in a sense to try to evade the law by concealing the acquisition of works which might be of value. They will invite these people to conceal disposal of works of art and chattels and there are many ways in which this can be done.

For instance, they can be sold to a foreign nominee or disposed of abroad in various ways. The Government are inviting people to conceal acquisition of works of art, despite their attempt to get auctioneers and others to give information to the Government—it will be interesting to know in what form. It will be difficult to insist on a dealer who sells a work of art to a customer for auction demanding proof of identity of the purchasers so that he can give information to the Inland Revenue.

There are a number of ways which one can think of, without straining one's intelligence too much, by which the Bill's provisions can be evaded. It is fundamentally wrong to insert a Clause in any Bill which can easily be evaded or is an invitation to evasion. If one does so, it brings the law into disrepute. If it becomes increasingly clear that there are 101 ways of getting round the law in this respect, then a great deal of damage will be done to the fiscal law. There are many ways of getting round the £1,000 gift provision, but I will not suggest them to the Committee, for I want to keep one or two up my own sleeve. But no doubt there are hon. Members on both sides who can suggest ways themselves. Then again, if one wants to establish a value for a work of art in one's possession one can often do it by a false auction which establishes a false value. There are various tricks of this kind.

Would not the Chancellor agree that to introduce for the first time capital gains legislation on tangible movable property—in other words, chattels—is really an encouragement of spivs and snoopers, will bring the law into contempt and will produce for the Inland Revenue an impossible and embarrassing task? Would not the right hon. Gentleman further agree that this is a thoroughly bad proposal, that it has been tested by other countries and found wanting as inadequate and unworkable and that, in view of the experience of those other countries, he should, even at this late stage, accept our Amendment and withdraw tangible, movable property from this provision?

Mr. Harold Lever

I am in general in favour of the tax on chattels owned by people, otherwise than in the course of their trade and capital gains. I am aware that there are two sins one can commit as a member of the Government party; one is to talk at length and the other is to oppose the Government's action. I will try to be brief. I am of the opinion that this is not a party political question. It is a party political question to decide how much tax should be exacted from different classes of society, but it is not a party political question to decide the means by which this money should be raised from people. I think there are much better and wiser ways of taxing the well-to-do than by seeking to tax their personal chattels and possessions.

The first point I would make is that a trifling income is to be expected from this tax. It will bring in a trifling income except where the income it brings in is produced harshly, namely by death. People may be reluctant to pay this tax and, as has been alleged it may cause them to be reluctant to die, but die they must and when they do their possessions come into charge for Estate Duty.

Our Estate Duty, by any reckoning, is severe and stiff enough—where it is not avoided—without adding anything to it. I have heard no one on the Left or Right-wing in politics who knows anything about Estate Duty deny this. Estate Duty is high and powerful enough as it stands. To add Capital Gains Tax on personal possessions, or any possessions, seems to be misguided. It is unwise to initiate this new tax upon personal possessions.

May I invite the Committee to a self-denying ordinance which I will impose upon myself, namely that we cease to bring in, as argument, what is happening in Europe, the United States, France and Sweden? The effect of doing this has two consequences apart from lengthening the debate unnecessarily. One is that gradually, by quoting from what is being done abroad, we can finally justify the accumulation in our own tax system of every particular suppression of every country in the world. Equally foolishly we can, as I see some hon. Members intend to from the drafting of later Amendments, demand every concession made from every tax system in the world so that we gradually collect every concession from every different country and destroy the fiscal intent of the Finance Bill.

Mr. John Hall

It seems to me helpful to gain from the experience of other nations. When an experiment has shown that what they have done was thoroughly bad it seems we could profit from such a lesson.

Mr. Lever

This is a theoretical counsel of perfection—that we should all possess the useful and encyclopaedic knowledge of everyone else's tax system so that we can by process of reasoning and deduction finally arrive at perfection and wisdom in the arrangement of our fiscal affairs. All that happens when we get this sort of thing are partially out-of-context assurances and counter-assurances which most hon. Members of the Committee are in no position to verify or even follow. It would be better if we gained some knowledge of our own taxation system instead of being bedevilled by these constant incursions into what is said to be done or not to be done in other parts of the world.

I do not base my argument on the fact that this tax has fallen or succeeded in Timbuctoo or Uruguay or the United States or anywhere else. I am simply assessing as sensibly as I can what the likely result will be of a tax of this kind. The likely result is a maximum inconvenience to the citizen and the minimum of revenue to the Chancellor of the Exchequer. It is quite possible to bring about taxes which are exceedingly painful and do not bring in any revenue. For example if I were fortunate enough to buy a Renoir during a period when these works were selling for a couple of hundred pounds before the war and if I moved at the present time into another house which for one reason or another invites a different type of picture, not a Renoir but a Corot, I find my Renoir can be realised for £30,000.

The Deputy Chairman (Sir Samuel Storey)

I think the hon. Gentleman is getting on to capital gains, not short-term capital gains.

Mr. Lever

It is worse in the short-term case, because I have to give away as much as 90 per cent. of my gain.

Mr. Emrys Hughes

Is not my hon. Friend giving a direct invitation to burglars?

Mr. Lever

I am quoting a theoretical case. If the possession of any valuables is a direct invitation to burglars I dare say a great many hon. Members are constantly, offering that invitation. As far as the possessor of these art works is concerned, if he is threatened with the tax he cannot switch from one art work into another. I know there is some case for switching in gilt, but there is an even greater case for switching in personal possessions. If I realise an armchair in order to buy a sofa, both having gone up in the meantime in the antique market, or if I sell a Renoir to buy a Corot, both having gone up, I am not being taxed on capital appreciation at all; I am being taxed on realisation, or change over, of one particular article.

There may be a case in regard to more important matters when a switch is made in saying that a person must pay the tax. The object of this taxation is not to add to the fund of human wisdom or logic. It is to add to the revenue and it applies to a particular section of the community—those who make capital gains. There is a case for it perhaps in commercial matters, but there is surely not much of a case for it in relation to personal possessions. The Chancellor will lose only minute sums if he abandons the tax on personal possessions. I will readily support other means of taxing the same class of people in society. Let him raise the modest sum he can expect from this taxation by other means, from the same class of society, but do not raise it in this unfortunate manner where the making of revenue produces the maximum discomfort—[HON. MEMBERS: "Hear, hear."]—For some reason or another hon. Members opposite cheer this. They do not realise that my promise to support the Chancellor in making good revenue is as firm as my opposition to this particular provision.

7.0 p.m.

Mr. James Ramsden (Harrogate)

I intervene only briefly because I wish to make my main argument in connection with the taxation of works of art on later Clauses which deal with long-term capital gains. I want to take this opportunity to endorse one argument so cogently made by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) in a speech which must have very much coincided with the point of view of almost every hon. Member on this side of the Committee and which could not have been a more eloquent plea to his hon. and learned Friend the Financial Secretary to drop the idea of a tax of this kind on chattels.

I took note of his words when he said that the yield from the tax would be trifling—this was one argument on which he based his plea—except, he said, in its impact in the case of death. He hit on a very important factor. There will be very few short as opposed to the long-term gains on works of art. There will not be many people, except dealers, who will be caught under a different form of tax, who will buy a work of art and then sell it within the space of a year. If this is done, there will not be many people who will make a gain. The most likely instance of the tax biting will be on the widow or orphan in the case of a death.

Mr. MacDermot

It will save time if I point out that on no occasion will the short-term gains tax be levied on death. On the occasion of death, the charge will always be to the long-term tax.

Mr. Ramsden

The hon. and learned Gentleman has missed the point. There may well be cases when a collector dies, leaving a widow and some children who are obliged to realise his collection, or part of it, for cash in order to pay death duties, or to meet some other need. This realisation may have to take place within the space of a year or six months. If that is the case, the rate of tax will bite hardest in an instance which every hon. Member would agree to be most regrettable. The only instance which I have been able to bring to mind of a short-term tax biting on a work of art or something of that kind is this one instance, and it seems to be the most regrettable.

We understand that there is to be an opportunity for a debate on the long-term aspect and it would be fitter if I deployed my arguments about the considerable effects on private collections and the art market of the long-term tax then, and I propose to attempt to do so. I will conclude now simply by asking the Chancellor whether he will explain why the Government have taken this step of including chattels and works of art for the first time within the ambit of the capital gains tax. When the short-term tax was originally instituted by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), it was quite clear that he had given some thought to the matter. He said: I propose to exclude from this general charge certain types of property. First, I exclude moveable property like pictures … because I do not think that to bring these in would be worth the complications involved."—[OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 980.] It has been the general view from both sides of the Committee so far that the yield from this tax will simply not be worth the complications involved, to put it at its lowest. This was the conclusion of my right hon. and learned Friend and I am sure that the Committee would like to hear what it is that has changed the Treasury's thinking on this subject. How do the Government justify bringing works of art within the ambit of the short-term tax for the first time?

Mr. Stanley Orme (Salford, West)

I want briefly to intervene to say how much I support the proposal of my right hon. Friend the Chancellor of the Exchequer. Despite what was so cogently argued by my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), works of art have become a form of hard investment. If they are used as a form of hard investment, why can they not be taxed under the Capital Gains Tax in the ordinary way? This would show the country that the Government were prepared to tax this form of investment. It is regrettable that works of art have become a pawn in the financial game, as they have.

Mr. Harold Lever

Perhaps I did not make it clear. Would my hon. Friend sympathise with my argument more if the taxpayer proved to the satisfaction of the Inland Revenue that the chattels were used solely for the adornment of his own house in good faith and not in the nature of an investment? Would he still say that these chattels should be taxed?

Mr. Orme

There is a difference between chattels and works of art. Surely this proposal deals with works of art. Anyway, "chattels" would cover works of art and at the sort of value which hon. Members have in mind, they would mostly be works of art. The sale of works of art has become a disgrace in this country and in the Western world as a whole. Works of art are now regarded as a form of investment and are often hidden away in bank vaults.

The Deputy-Chairman

Order. The hon. Member is dealing rather with long-term capital gains and not with short-term capital gains.

Mr. Orme

I appreciate that, but as it has been said that both sides of the Committee disagree with the Government on this issue, I wanted to emphasise that the Government have my support.

Sir Hamilton Kerr (Cambridge)

My right hon. Friend the Member for Harrogate (Mr. Ramsden) asked why the Government had chosen this moment to introduce a new form of tax. Perhaps I can give the answer. It becomes more and more obvious as consideration of the Finance Bill proceeds that it owes its inspiration to one of those new and mysterious figures who glide down the corridors of power. I refer to none other than my distinguished constituent, Dr. Nicholas Kaldor. On this Finance Bill, while the voice may be that of Callaghan, the hand is that of Kaldor.

I know that it is not—and very rightly—the tradition of the Committee to refer to civil servants, however eminent, but I am surprised that the Chancellor of the Exchequer has drawn his inspiration from doctrines which, when tried elsewhere, have failed so disastrously. We found in Ghana, in India and Ceylon that the whole economy tottered until these things were repealed, while, I believe, in the streets of Georgetown, British Guiana, the red flag of revolution was raised.

The Deputy-Chairman

I do not think that Dr. Kaldor is a short-term capital gain.

Sir H. Kerr

I am sure that he will be far from a short-term gain to the Labour Party when these measures are discovered.

I come back to the point about the Chancellor of the Exchequer. I am surprised that he has introduced this Clause. I think that it offends against his central thesis and the principle of his Budget. He has claimed that he wishes to expand exports and to reduce unnecessary expenditure at home. My hon. Friend the Member for Wycombe (Mr. John Hall) referred to the fact that London is perhaps the greatest art sales centre in the world, and our exports on this account, owing to the facilities offered here, rose from some £5 million in 1955 to £24 million this year. This is, therefore, a source of most valuable foreign exchange of which, I thought, the Chancellor was desperately in need.

Secondly, it imposes immense extra expenditure at home because of these inspectors who will have to be utilised. The amount to be raised will be very small in comparison with the number of inspectors who will have to enter our houses. It seems to me a veritable snoopers' charter, something which has never happened since the days when Cromwell and his Redcoats broke into our houses.

As a personal confession, when I retire at the end of this Parliament, I had dreamed of passing my dotage in a charming mill and manor house by the River Cam, perhaps dead-heading a few roses. If these inspectors enter my house, I will risk a year in Wormwood Scrubs, picking oakum, cleaning latrines, and eating a constipatory starch diet. Englishmen are entitled to resist these snoopers coming into their homes.

I am therefore surprised by this proposal, because it goes against the main principle of the Budget, which is to expand exports and to reduce expenditure at home. I hope that the Committee will vote against it.

Miss Harvie Anderson (Renfrew, East)

In supporting the Amendment, I should like to draw attention to the point made by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) about the question of double taxation. This was emphasised most clearly by my right hon. Friend the Member for Harrogate (Mr. Ramsden). I hope that the Financial Secretary will realise that my fears in this connection arise from the fact that when a chattel, not necessarily a work of art, passes from one generation to the next, it is subject, in the normal course of events, to Estate Duty. As my right hon. Friend said, it is precisely in those circumstances that it may become necessary for the next generation to sell, and all too frequently within the period of a year. These chattels—some of them may be essentials in terms of their use—are subject to double taxation which I hope, judging from the intervention of the Financial Secretary, may not have been fully appreciated when this somewhat incomprehensive document—the Bill—was drawn up.

May I give an example of what I have in mind? In recent weeks I chanced to be in a remote village in the country far from any art centre or any great art collector. There came into an antique shop a village resident with part of a china tea set in her hand which was priceless. Her husband had just died and she wished to sell this chattel. It seems to be a monstrous imposition on someone of this order—and there are tens of thousands of people of this order—that they should have to get a valuation, maybe from a reputable person and maybe not, in order to realise a sum of money quickly to sustain their way of life when they are left in need. That is what that kind of sale amounts to, and it is always inevitably a short-term sale. The ownership having changed involuntarily within a specified time.

My second point is this. There may well prove to be very many transactions of the short-term kind which we are discussing. I cannot see that it will be possible to check all these transactions or to have available people qualified to check them. It seems that these transactions will promote widespread evasion. But we are not dealing in this Clause with a speculative tax. The Chancellor of the Exchequer differentiated between what he termed in one of his Budget speeches "very short-term gains" and "real gains". We are dealing in this Amendment with very short-term gains where, I should have thought, the question of speculative gain was unlikely to enter and where gain at all was a very remote consideration.

The object of this tax is to raise a sum of money for the Revenue. I believe that the sum realised will be very small indeed. Far from being a form of investment which is speculative in nature and liable to bring considerable profit either to the individual who buys or to the nation which is alleged to benefit, I think that this will only prove to be a very considerable imposition on the private affairs of the citizens of this country. It is bound to be enacted in a most unfair and unjust manner, whatever the intention. I hope therefore that the Amendment will be accepted.

7.15 p.m.

Mr. Terence L. Higgins (Worthing)

I rise to support what my hon. Friend the Member for Wycombe (Mr. John Hall) said. May I begin by saying what a pleasure it is to follow in debate my hon. Friend the Member for Renfrew, East (Miss Harvie Anderson), who is a constituent of mine.

The principle involved in this short-term capital gains tax is quite clear. The intention is to tax the short run appreciation of assets which are realised. This was appreciated by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). We on this side would quarrel, however, with the extension of this tax to tangible assets, and that is why we have tabled the main Amendment.

I think that it would be true to say that we detect perhaps a change in policy from that of the grey eminence of the late Sir Stafford Cripps, who influenced policy during the period of office of the last Labour Government, to policies of two blue eminences—one light blue and one dark blue—who influence economic policy at present. Despite the colour of these two gentlemen's universities, we on this side believe that we should scrutinise with great care the kinds of proposals put before us this evening.

I should like to say a few words on the question of veteran cars. I think that I would be right in saying that veteran cars are those built before 1914 and that those manufactured between 1914 and 1936 are vintage cars. It is probably the first category and, perhaps, both categories which should be covered by the Amendment which the Financial Secretary has agreed to consider favourably.

I turn to discuss Amendment No. 246, which is concerned with livestock. It is not, as far as I know, concerned with the question of "bulls" and "bears". It is certainly not concerned with the question of bears only. Possibly is it concerned with the question of bulls. Almost certainly it is concerned with the question of horses. [An HON. MEMBER: "What about stags?"] I am not sure about stags. The broad scope of the Amendment is fairly clear to hon. Members on both sides. If my understanding of the matter is correct, this Clause will affect not people who are engaged in livestock business or in racing as a business but only those who happen to participate in racing as a hobby or for some other reason. It would appear that the people who so engage in racing are not subject to taxation. The reason for this appears to be that on balance the gain to the Exchequer would be a negative one—that is to say, they are not taxed because overall the people concerned do not make a profit.

It is also true to say that they are normally excluded because there is some advantage to the country in exporting livestock. I think that the Peppiat Committee concluded that some £2 million in export earnings were to be gained in a year. The reasons why people engaged in racing are normally excluded from taxation are fairly clear. I should have thought that this would also be a reason for excluding them from the operation of the short run capital gains tax. Perhaps the Financial Secretary will tell us whether if this tax imposed in connection with livestock is expected to yield a net gain to the Revenue, since it is perfectly true, as the hon. Member for Manchester, Cheetham (Mr. Harold Lever) said, that it would be a mistake to impose a tax which would be difficult to collect if it did not yield a net gain to the Revenue. The question of importing livestock is still relevant in this connection.

My next point is that livestock are unlike the other kind of chattels mentioned, such as paintings and articles of artistic value. First because livestock is subject to sudden fluctuations in value. The value of a horse, for example, fluctuates according to whether it wins or loses a race and this might affect the discounted value of its future earnings, either as a racehorse or if subsequently it is put to stud. Its value is also likely to fluctuate according to whether it is well or ill or has an accident. It is clear that over a quite short period, the value of such an asset tends to come down to zero. This is not the case with an art treasure, the value of which is perhaps maintained over hundreds of years.

I have two queries on page 128 of the Bill concerning the costs that are allowable in determining a capital gain. Paragraph (4) of the Sixth Schedule states: Subject to the following provisions of this Schedule, the sums allowable as a deduction from the consideration in the computation under this Schedule of the gain accruing to a person on the disposal of an asset shall be restricted to two items. The first item effectively includes the cost of maintenance. It is relevant to ask the Financial Secretary whether, in computing the capital gain, allowance will be made for the cost of maintaining the asset. Again, unlike an art treasure, which requires very little maintenance, in the case of livestock a considerable amount of money is normally involved in maintaining an asset.

My second point concerns paragraph 4 (1,b) and the cost of enhancing the value of an asset. It is fairly clear that it would be wrong to impose a capital gains tax if what has happened is that the asset has been acquired and its value has been added to by the expenditure of additional money to enhance its value. This might include the cost of training fees. I hope that in replying to the debate the Financial Secretary will indicate what costs will be allowed when computing the capital gain which is charged, or it is proposed to charge, in the case of livestock.

The final point which needs to be made in this connection is whether individual animals are to be covered by the computation or whether one is to deal with collections of animals. It would probably be the feeling of the Committee that it would be wrong to deal with individual animals as such. If I understand the situation correctly, it would be possible for people with more than one horse, if they make a gain on one and a loss on another, to offset the gain against the loss and to reach a net figure. The question again arises whether expenditure on the whole group of horses, both for maintaining them and for enhancing their value, is allowable when taking the whole group of horses together. There would seem to be a case for doing this with livestock.

There are certain provisions on page 131 of the Bill concerning wasting assets. The phrase is used that animals shall not be regarded as wasting assets so long as"—

The Deputy-Chairman

Order. The hon. Member is getting on to long-term capital gains.

Mr. Higgins

With respect, Sir Samuel, I do not think I would be doing that. My point is that the definition of "wasting assets"—no, you are probably right, Sir Samuel. I apologise. I am grateful for your help.

Mr. John Hall

I am sure that the Committee would not want to Miss the interesting point that my hon. Friend was making. When you were not present, Sir Samuel, it was pointed out that we were in great difficulty in dealing with this matter because of overlap between arguments on the short-term and on the long-term gains and that it is difficult to confine one's arguments entirely to the one Clause.

The Deputy-Chairman

I am well aware of that and I have allowed a good deal of latitude, but the less we stray into capital gains, the better.

Mr. Higgins

I am entirely happy with your ruling, Sir Samuel, and I hope that if I am fortunate enough to catch your eye when we discuss long-term capital gains, I may be able to make the point.

We will be appreciative if the Financial Secretary will cover the matters which I have raised and tell us precisely what he has in mind. Whatever one feels about the underlying principle—and there is division in the Committee about whether we think that the present capital gain provision is right or should be extended—it would be quite wrong to push it forward on a blanket basis without taking account of the individual peculiarities of certain assets, some of which have been dealt with by my hon. Friends, such as art treasures and also the question of livestock.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The hon. Member for Manchester, Cheetham (Mr. Harold Lever) made a courageous and interesting speech on this tax. I only hope that he will not be beguiled into the Government Lobby by a promise from the Financial Secretary that he will listen to what the hon. Member said. After that devastating attack by the hon. Member as well as the attack by my hon. Friends on this side, it is hard to see how the Government can proceed with this short-term tax. I am reminded of the Government's proposals for the arts, when they said in their White Paper that There is ample evidence of the need for a more coherent, generous and imaginative approach to the whole problem. If the Clause is coherent, generous and imaginative, I am very surprised. Even the man who stole the Goya has been so disillusioned by the Finance Bill that he has decided to give it back.

Sir Douglas Glover (Ormskirk)

That is the first argument I have heard in favour of the Bill.

Mr. Ridley

People own works of art for different reasons than speculation. They own them because they want to enjoy them. They want to enjoy having them on their walls or showing them to people who visit their houses. Perhaps they want to preserve them because they do not want them to be destroyed and lost to civilisation. They even buy them to encourage up-and-coming artists. For all these reasons, there are very few speculators in the art world. It is a nasty mind that imagines a speculator under every bush. There are no speculators here. There are no dividends on works of art. Many hon. Members have pointed out the need for expenditure on them for maintenance, cleaning, looking after them and insuring them.

Mr. J. T. Price (Westhoughton)

I hope that the hon. Member will not spoil a rational argument by exaggerating it. To my knowledge, there are a great number of clever people who are always on the look-out for spotting a winner in the art world. In my lifetime, for example, one could buy anything painted by L. S. Lowry for two guineas. Now, one could not buy it for £600. Many clever people are looking for winners in things of this kind. It is a form of acquisition of property.

Mr. Ridley

I am surprised that the hon. Member should think that it is something to be taxed. Here is an example of private enterprise supporting and encouraging a young painter and enhancing the name of Britain as a country and of our artistic school. Is the hon. Member such a Philistine as to want to cut this back or to destroy that initiative?

The Deputy-Chairman

The hon. Member should not pursue this theme. It was obviously a long-term capital gain which was referred to.

7.30 p.m.

Mr. Ridley

I wish that you had intervened earlier, Sir Samuel, to point out to the hon. Member for Westhoughton (Mr. J. T. Price) the unwisdom of his interjection. That is simply the short-term gain on which one gets no revenue. Nobody is going to realise a short-term gain with the law as it is proposed under this Bill. In my opinion, we shall get no profits at all except possibly from the odd bankrupt who, I suppose, will be sold up, and he might have to pay a long-term gain. Now we are even told by the Financial Secretary that he does not think people who die will be aggregated under the short-term gains. So far as I can see, therefore, there is no chance of revenue being earned as a result of this Clause.

However, it will have one very odd effect, because in the first year we are going to charge Income Tax and Surtax on any gain which is realised, and after the year is up the rate suddenly drops to 30 per cent. For the better-off, those in the higher bracket of Surtax, what starts at an 88 per cent. or slightly less rate of tax drops suddenly to 30 per cent. So, of course, there will be no sales by people in this position, and that will completely distort the market. I am against the tax as a whole, and when we reach the Clause about the long-term gains tax I shall hope to elaborate my argument if I am fortunate enough to catch your eye, Sir Samuel, but in the short-term, if we must have a tax at all on chattels, why do not we have the same rate throughout, and then we shall not get distortion of the market which will slop people selling within one year?

Many a collector likes to sell something in order to take advantage of a better piece which appears suddenly on the market and which will fit better into his collection. If it is a question of his paying a Capital Gains Tax because he has sold a piece, it will preclude that sort of switching which enables people to improve their collections. So I think there is a very great deal to be said against this Clause.

Finally, I see no evidence at all that by leaving works of art or chattels out of the present existing short-term gains tax we have attracted the speculators, the sharks, into this class of goods.

Mr. Mendelson

Oh, there are plenty of them.

Mr. Ridley

I know of no cases—

Mr. Mendelson

Plenty of them.

Sir Kenneth Pickthorn (Carlton)

Then let the hon. Member stand up and give them.

Mr. Ridley

I know of a case where a man has entered into the art market and realised a gain in one year—this is about the worst form of speculation I can think of, and I am not talking of the long-term Capital Gains Tax—I am talking of the short-term Capital Gains Tax. But there is no chance of that taking place on any sizeable scale at all within one year—unless it so happens that one buys a picture which one thought to be worthless but which turns out to be a very valuable one, as in the case of the man who paid £80 for a picture which turned out to be a Stubbs and fetched £24,000, I think, at auction.

But this is not deliberate speculation. This is a windfall, like winning the football pools or winning on Premium Bonds. This is something which we have not as a country included in our tax laws. We do not charge Income Tax and Surtax on football pools winnings, nor do we charge them on Premium Bond winnings or any other form of windfall of that sort, and it seems to me grossly unfair to include that sort of windfall in this Capital Gains tax. The person selling the picture would probably not know he had got a Stubbs. He might buy it and sell it a couple of months later and be surprised to find that what he paid £80 for fetches £24,000. But having done it he has no option: he has sold it, and he has made a capital gain, and he has to pay this enormous sum of tax on it.

My hon. Friends have, I think, put so many strong and valid arguments against this tax that I hope the Financial Secretary really will drop it. We cannot develop the argument in full now, and the best half, the bigger half of it, relates to the long-term tax, but even on the short-term tax there is a very large-sized argument which has not been pressed, and that is the argument of the evil effect it will have on the art market and on art collectors in the foremost artistic centre in the world.

Mr. MacDermot

I observed that a number of hon. Members still wish to speak and I am not trying to shut anybody out; but I have been asked an awful lot of questions and it will help to avoid confusion in my mind if I try to answer some of them now. It may also be—I do not know—that hon. Members will agree that the scope of this debate really is a very narrow one and that it might be better if we were to defer some the broader questions till we come to discuss the long-term tax. Indeed, I have got to be careful to keep within the rules of order, because we are not discussing the wider question whether it is right to make chattels a charge to the long-term Capital Gains Tax but merely whether short-term gains should be subject to charge.

Let me say at once that my whole argument proceeds on the assumption that the Committee, when later it considers long-term tax. Obviously, if the Com- we should make chattels subject to the long-term tax. Obviously, if the Committee came to a different conclusion, that they should not be subject to long-term tax, it would then be quite wrong to make them subject to the short-term tax. Obviously, if that, as I hope, unlikely situation were to arise, this would be a matter which we should have to correct at a later stage of the Bill. So I hope that we can have common ground here that the sensible thing to do is to argue this very narrow question on the assumption that there is to be a Capital Gains Tax for the long term, although I appreciate that hon. Members opposite will hope to achieve a different object.

If we are going to do that, then, of course, I do not need, perhaps to answer in detail the questions put to me on why we have come to a different conclusion from that which the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd) came to when he found that he did not think it was desirable or necessary, or worth the trouble indeed, to tax short-term gains on chattels; because he, of course, was not introducing a long-term tax at all.

I think that if I can come straight to the heart of the matter, putting it quite shortly, assuming we are going to have a long-term Capital Gains Tax applying to chattels, then the case for the taxation of short-term gains accruing through the disposal of chattels is simply that if an individual should buy a chattel which is worth £1,000 and then dispose of it within the short term, within the year, in order to make a quick profit and should prefer to do that rather than retain the chattel, then there is no reason why he should not pay tax on that quick profit, just as much as anybody would on any other form of short-term gain.

For example, suppose a man buys a picture for £2,000. He buys a picture for £2,000 from a dealer, presumably intending to keep it—I would accept that. But suppose somebody comes along the next day, as does sometimes happen when somebody buys a picture not to sell it; the next day somebody comes along and hears that the other man has bought the picture for £2,000 and offers him £2,500. Then he is tempted to take his quick profit, which is what it is, instead of keeping and enjoying his picture. So he makes £500. Well, what reason is there, really, to distinguish between that, which is nothing other than a pure short-term capital gain, from any other kind of short-term gain he may make?

Mr. Ramsden

Perhaps I have misunderstood the Bill or perhaps I am misunderstanding the Financial Secretary's argument, but surely, if he had not included works of art under this Clause on the assumption that the Committee is going to accept the long-term Clause, this man he is talking about would still be caught under the long-term Clause? Would he not?

Mr. MacDermot

No. If we do not apply the short-term provisions to a sale within 12 months, I think that they will escape, but I shall look further into that. In any event, this is irrelevant to my argument.

Mr. Ramsden

This is a rather important point. The hon. and learned Gentleman has told us that he need not answer the question: why should we accept the introduction of a short-term Capital Gains Tax on chattels for the first time when it was not introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd)? He said that he need not answer that because, unlike my right hon. and learned Friend, he was speaking from a position where he thought there would be the institution of a long-term Capital Gains Tax. Surely the other point which is in dispute is of some importance in that context and the Committee ought to be clear about it.

Mr. MacDermot

The hon. Gentleman is putting a new point to me. Up to now the whole argument has proceeded on the basis that chattels sold on short term should not be subject to tax at all. That is what I have understood hon. Gentlemen opposite to be arguing. What is now being put is that, instead of short-term gains in relation to chattels being taxed at the short-term rate, in other words being added to a person's income, they should be taxed instead at the flat rate of 30 per cent. This is what is being suggested. I come back to the same point. If a person, instead of retaining the picture, decides to sell it and make a quick profit on it, why should that not be taxed on the same basis as any other quick profit that he may make.

It is an arbitrary decision where one draws the line between a short-term and a long-term gain—and we discussed this on the last Amendment—but assuming that one draws the line at one year, which is what the Committee has decided to do, there is an essential distinction between a short-term gain and a long-term one. That distinction applies equally well when dealing with chattels as with land, or stocks and shares, or whatever it may be. There is no reason to give a special and different treatment to a short-term gain on a chattel, compared with that given to a short-term gain on anything else.

Perhaps I could address myself briefly to the more general argument about which I was asked, namely, why should chattels be subject to Capital Gains Tax? I cannot go into this in any detail, because I would be out of order, but we will be coming to this later.

The Amendment which is proposed goes considerably wider than the exclusion which the right hon. and learned Member for Wirral included in his Bill in 1962. I do not know whether it was intentional or not, but not all chattels were excluded from that Act. Section 11 provides that commodities dealt with on a futures market, foreign currency of any description, unless acquired for personal expenditure, and tangible movable property of any description acquired for use in a business, but disposed of without being so used, were subject to charge under that Act. No doubt that difference was accidental.

I would remind the Committee that there are already substantial exemptions for chattels. To start with, all chattels which have a disposable value of less than £1,000 will not be subject to charge. The example given by my hon. Friend, that of a Lowry bought for two guineas and sold for £600 would not be subject to charge at all. All private road vehicles are excluded, and while I am on that subject let me make it clear that we do not intend to attempt to charge any kind of ancient motor car, to use a neutral word, whether it qualifies in the technical language of the experts as being vintage or veteran.

Mr. Grimond

Why should not these tangible assets be charged at this short-term rate of tax in the same way as any other windfall gain? Why exclude vintage motor cars? Of all the peculiar things to exclude, this seems the most peculiar. If we can exclude vintage cars, why not pictures and why not anything else? Why this extraordinary group of exemptions?

7.45 p.m.

Mr. MacDermot

I agree that it is illogical and fortuitous; but as, for other good reasons, we have decided to exclude motor cars, we thought that it might look vindictive if we brought veteran and vintage motor cars back into charge. They have the good fortune to escape, but I agree that it is illogical.

Mr. R. Gresham-Cooke (Twickenham)

If vintage and veteran cars, and vintage and veteran buses, are to be excluded, what about historic commercial vehicles? Should not they also be excluded?

Mr. MacDermot

I have said nothing about buses or commercial vehicles. I have referred to veteran and vintage cars. They are the ones which, fortuitously and accidentally, get the benefit of the exemption.

Mr. Robert Cooke (Bristol, West)

Would vintage railway engines be included? They could be worth the sort of money about which the hon. and learned Gentleman is talking. What about an eighteenth century funeral car?

Mr. MacDermot

I doubt whether the eighteenth century funeral car would come in, and I am certain that the railway engine would not.

Mr. Hector Monro (Dumfries)

Enthusiasts reckon that veteran cars are those which were built before 1907, Edwardian cars those built between 1907 and 1918, and vintage cars are those built between 1918 and 1931. Is that what we are talking about?

Mr. MacDermot

I thought that by using the overall word "ancient" I was including all categories.

In addition, there is the important exemption under Clause 30 for works of art and other comparable objects disposed of by gift, or on death, or as a result of sale, to national, or university, or other local authority collections. One side effect of making chattels subject to charge is that it will give a considerably added inducement to people either to make gifts of important works of art to these public collections, or to sell them. It will go further than the inducements which they have at present under our Estate Duty law.

The result is that the tax will apply only to the relatively small class of chattels which are individually worth over £1,000, but, as is well known, and is public knowledge, there are cases where chattels of this kind result in very substantial gains indeed. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) gave the example of a Stubbs bought for £80 and sold for £24,000. This is a substantial capital gain, and a pure capital gain. If one accepts the principle that capital gains should be subject to tax, there seems to be no reason why those gains should be any less subject to charge than any other. I am looking at it for the moment from the point of view of equity as between different taxpayers. I know that there is an argument about the effect upon the art market, and I shall come to that.

Mr. W. R. Rees-Davies (Isle of Thanet)

There is a complete difference. In the one case the person is a collector, not a trader. The taxing laws of this country are built up to cover the position of income and trade—to cover the trading of a stockbroker, the trading in stock-broking. It is quite a different thing if one happens to be a collector of an individual article. That is the fundamental difference in principle between hon. Members on this side of the Committee and hon. Members opposite. Individual collector's items are the same as the items of a stamp collector. It is the same with the person who owns a horse, and the same with the person who has an individual bet. It is quite different from trading.

Mr. MacDermot

The hon. Member is quite wrong. There is no connection with the position of the trader, who is charged to Income Tax but not to Capital Gains Tax. Capital Gains Tax is concerned with capital gains made, in this case, by an individual collector. On the net result of his transactions a collector may make a loss, in which case that loss can be set off against other capital gains. But if he does not make a loss; if he makes substantial gains—and generally only substantial gains will be subject to tax, in respect of articles which are of substantial value—and realises those gains, there is no reason in equity, as between him and another taxpayer, why he should be exempt from paying tax on his gains whereas the other taxpayer, who may have put his money into unit trusts or investment trusts, should be subject to charge.

The collector has had many other additional advantages. He has had the pleasure of being a collector. He has had the pleasure of looking at his collection, and showing it to his friends, and so on. Looked at from the point of view of equity among taxpayers, if he has made substantial gains there is no reason why he should be exempted from the tax.

Mr. Heath

Has not the hon. and learned Gentleman missed the point about the Stubbs? It was bought for £80 and sold for £24,000. The owner who put it up for sale placed a reserve on it of £80. The dealer estimated that it might fetch £3,000, whereas in fact it was sold for £24,000—and did not all these things happen at the same time? The only question is, what valuation would the hon. and learned Gentleman put on that picture at 6th April, 1965?

Mr. MacDermot

I will come to the question of valuation in a moment.

These substantial gains are being made, and if they were allowed to go tax-free one of the main objects of the tax would be lost. The tax is designed to produce a sense of equity, because it is well known that there are privileged people who are able to make substantial increases in their income and also to escape all tax in the process. The number of people subject in this way to the charge, in respect of short-term gains, will be very small, I agree. But this is not in itself a reason for not making these people subject to a short-term gains tax. If all the administrative work has to be undergone in relation to them—which will be the case if they are to be subject to charge—there is no reason to differentiate and make them subject only to the long-term rate and not the short-term rate.

Mr. Ramsden

Was I right in thinking that this aspect of the matter will relate to the dependants of deceased persons, and that among the few cases concerned will be widows and orphans and others who have to sell because they are in need of ready money?

Mr. MacDermot

The position is that where, on a death, the executors sell a picture, even if the deceased person bought the picture within a period of 12 months before he died, it will not be subject to the short-term gains tax; it will be caught only by the long-term tax. If, after the picture has passed from the hands of the executors into the hands of the widow, she decides to sell, she will have to pay tax only on any gain that has arisen since the death, because the estate will be responsible for the duty on any gains made up to the time of death.

In practice, if a widow decides that she wants to sell a picture at that stage it is unlikely that the estate will finally have been wound up. It would be a very unusual circumstance if the figure at which she sold the picture was not accepted for both estate duty and capital gains purposes as being the value at the time of death, because unless the picture had been bought virtually the day before her husband died, it would be extremely difficult to establish that there had been any gain between the time of death and the time of sale.

That brings me back to the point I made several times earlier. The rare occasions on which this short-term gains tax will be levied in respect of chattels will arise where there has been both a purchase and a resale within a period of 12 months and one has two hard and fast figures to go by. Otherwise, because of the obvious valuation difficulties referred to by the right hon. Member for Bexley (Mr. Heath) it would be virtually impossible for the Revenue to establish a short-term gain over the relative period.

Mr. J. T. Price

I am not concerned about the merits of the tax. I am concerned with the question who will keep a record of all the casual transactions which take place by private treaty. Who will initiate the levying of the tax?

Mr. MacDermot

It will be a matter for normal tax returns. If anybody sells a chattel for over £1,000 he will be required to make a return of it for tax purposes. The person who purchases that picture will also have to make a return, and the difference between that figure and the original purchase price will represent the gain.

Mr. Fell

The hon. and learned Gentleman has been talking about the widow who sells a picture not very long after the death of her husband. In such a case the hon. and learned Gentleman has said that his people would accept the valuation at the time of death. He has said that they would accept what the picture was sold for as the valuation. Is this so? It is important to know this. If it were not so—if a physical valuation were asked for—we might have the most enormous difference between the realised price and the valuation.

Mr. MacDermot

Perhaps the hon. Member will read what I have said. If he has a specific point to take up with me, I shall be glad to try and deal with it, but I think that I have dealt with the point, and I must ask him to accept my answer for the moment.

I now turn to the question of valuation and the alleged administrative difficulty. First, there is the problem of the valuation of works of art, where even experts differ considerably. If there has not been a recent sale there must be some give and take in this matter. This is not a new problem, arising out of this tax; it has arisen already in respect of Estate Duty. Those who are responsible for administering this tax are satisfied that these problems are not insurmountable, and they feel that the tax is workable.

In relation to the short-term tax we must bear in mind that from a practical point of view there will nearly always be two hard figures—the purchasing price and the disposal price. The greater problem will arise in connection with the long-term tax. Perhaps for that reason I should not go into too much detail about it at the moment—but hon. Members will remember that there is provision for time apportionment.

In the ordinary way this probably will operate to the benefit of the taxpayer and he will be content to have the valuation on Budget day arrived at by means of time apportionment. If he does not want that, it is always open to him to elect for an actual valuation. Then it would become a matter for expert valuation by professional valuers.

8.0 p.m.

I was asked by the hon. Member for Wycombe (Mr. John Hall) what was meant by the words "inspector of other officer" in the Schedule. There a valuer is envisaged. The reason for this provision is that if we are to have a provision of this kind there must be power for the Revenue to be able to inspect a picture to make a valuation. I do not anticipate that in practice any difficulties of the kind the hon. Member imagined would arise. Naturally, the Revenue are as anxious as anyone to preserve good relations with the public and observe normal courtesies in that respect.

Turning to some of the other specific questions I was asked, I shall not at the moment seek to deal with the alleged effect on the art market which was referred to by the hon. Member for Cambridge (Sir H. Kerr); but he also referred to the large increase in exports of works of art in recent years. He did not refer to the large increase in imports. The net increase in the value of exports, averaged over the last five years, was just over £4 million. This is a very valuable trade and we are most anxious to preserve it. We are satisfied that this tax will not impede it.

The hon. Member for Worthing (Mr. Higgins) also asked a number of specific questions which I shall try to answer. First, he asked me to confirm that the livestock provisions will not affect those in business in horse racing. Anyone carrying on a trade in racing would be taxed if he is liable to tax under the normal trading provisions and this tax would not affect him.

The hon. Member asked what the net yield would be in relation to livestock. I am afraid that no estimate is possible and I cannot assist the hon. Member on that. He asked if I thought the value of race horses would fluctuate violently and create difficulties for that reason. I accept that the valuation fluctuates violently and that this may affect the amount of gain or loss quite substantially, but that is something which is not due to the nature of the tax but to the nature of the chattel.

The hon. Member asked what costs would be allowed. Costs of maintenance will not be allowed in relation to a race horse any more than in relation to any other chattel. He then asked a very nice question, by which I mean a difficult one to answer, about training fees and whether they would come within the words: cost of enhancing the value of an asset. I do not think it was the intention of the draftsmen that they should, but obviously, looking at the matter as a lawyer, it is a point well open to argument and a matter on which possibly the Special Commissioners would find in favour of the taxpayer. I do not think I am in a position to give especially valuable advice on that subject.

Mr. Higgins

The hon. and learned Gentleman is infinitely better qualified than I am to give a legal interpretation, but may I refer him to page 128 of the Bill? In Schedule 6(4–1) it seems clear that the maintenance charges should be allowed. He said that they are not allowed as in the case of any other asset, but as I read paragraph (a) they would be because they are: expenditure wholly and exclusively incurred by him in providing the asset, The drafting should be cleared up. Is the cost of providing the asset on the day it is sold or on the day that it is acquired? I should think that clearly it would be the latter.

Mr. MacDermot

I do not know how much we are in order to discuss this now, but we shall come to the Schedule later and can discuss these provisions in detail then. I think the cost of maintenance is different from the cost of providing the asset.

Mr. Peter Walker

May I ask the hon. and learned Gentleman to look most carefully into the question about the yield which the tax would produce, which is fundamental to the argument? In the past owners of race horses in training have been excluded from taxation by the Inland Revenue for the simple reason that the majority of race horse owners lose and do not win. In fact the revenue would provide more losses than gains. Over the years this has been the position and on 99 per cent. of British race horses, even if the person concerned owns 50 or 100 of them, there has been no tax for this reason.

I gather that 10 out of 11 never win a race and it is likely that the number of losses under the tax would be more than the amount of gains. Those loses in the case of a rich owner would be available to be set off against money made on shares. Will the hon. and learned Gentleman look at that and give us a reply at a later stage?

Mr. MacDermot

Certainly I shall look at it. I daresay the hon. Member looked at a very interesting article in a Sunday newspaper yesterday which made the point that it would cost the Revenue more than it would gain and would provide useful support to the breeding of race horses. That was not the view of the deputation which came to the Inland Revenue on behalf of bloodstock breeders. I shall look into the matter further, but probably the answer is that at the end of the day it is impossible to make a firm and useful decision on the matter because views differ so much about the data.

Mr. Joel Barnett (Heywood and Royton)

Taking the argument as presented, it would be ideal to keep this provision in the Bill in order to encourage this sort of loss. This is a magnificent opportunity. The hon. Member for Worthing (Mr. Higgins) was arguing for this provision to remain.

Mr. MacDermot

That certainly was the argument in the article in the newspaper.

I was also asked whether this would apply to individual animals or to collections of animals. The important point which has not been altogether appreciated—certainly outside the Committee—is that the £1,000 limit exemption for chattels would apply to each individual animal. When, as will happen sometimes, a productive herd which is taxed on a herd basis as a capital asset some people have been frightened that on disposal of the herd capital gains tax might be attracted. The answer is that it would not be unless each individual animal in the herd was worth £1,000 or more.

Mr. Robert Cooke

How does the hon. and learned Gentleman manage to differentiate between a set of four-legged animals and a set of four-legged chairs?

Mr. MacDermot

I thought the hon. Member was about to make a serious intervention. We must get on and I had better not give way any more. I think I have dealt with the specific points about which I was asked.

Mr. John Hall

One point which the hon. and learned Gentleman has not touched on, perhaps because he is keeping it for the debate on the long-term problem, is the amount of revenue which has been raised from such a tax in the United States.

Mr. MacDermot

There is no available information on that. The hon. Member made [...] point at the outset of his remarks that we were moving towards a tax from which other countries were moving away. He may be right but I have no knowledge of that. I know of no country which had such a tax on chattels and has withdrawn it.

Mr. John Hall

The point I made was that although it was not withdrawn by the United States nevertheless the United States have partly drawn away from it because they have not been pursuing this tax on chattels except in specific cases. Otherwise, they are drawing away from the tax.

Mr. MacDermot

I certainly have no knowledge of that. I would hope that the Committee, as it is a very narrow point that we are discussing, will find it convenient to let us reach a conclusion on this point now and defer the very important and wider considerations until we reach the long-term tax.

Mr. Fell

The Financial Secretary quickly brushed aside the point raised by my hon. Friend the Member for Bristol, West (Mr. Robert Cooke). One can understand the position about a set of chairs. One can perhaps understand the position with other sets. What happens in the case of a set of paintings? If each painting could be sold for £900, what would happen? Would there be an encouragement to split the set of paintings and sell each one at a different sale for £900? Would the vendor get away with it then?

Mr. MacDermot

If a series of pictures was held to be a set within the meaning of the Bill, if each picture had a value of £900, and if the pictures were sold separately and to different final owners, they would not attract the tax. If they were sold as one set, they would. If an attempt were made to avoid the provisions of the tax by selling them to one person but selling them through an intermediary, the attempt to avoid the tax would be unsuccessful.

Mr. Fell

Does not that mean that this is a deliberate incentive to people holding sets of various objets d'art to split them? In other words, we are getting back to the question of [...]litting works of art so that, for exa[...] one picture is held in one co[...] and another picture of a set is held in some other country.

Mr. Rees-Davies

I am very pleased to follow the Financial Secretary. I have great sympathy with him in the task which he has been given. It is an almost impossible task to put upon any man of taste and culture. I hope that the hon. and learned Gentleman will not take it too hard if I do my best to hit for a six almost every point he has made. It is a long time since I played cricket. Since I gave up cricket, I have spent almost my entire spare time in one connection or another in the world of art. I ask the indulgence of the Committee if I go into one or two aspects which have not yet been touched upon but are yet sufficiently relevant to a short-term Capital Gains Tax.

Because I think that the hon. and learned Gentleman's mind was more on the paper than on what I said in my intervention, I will first tell him why I think that there is no real case for a short-term or for a long-term Capital Gains Tax in relation to works of art. A trader or a dealer or anyone earning his livelihood in this sphere pays his Income Tax. I have for a long time favoured a Capital Gains Tax because I have always taken the view that the professional man suffers where there is no Capital Gains Tax in modem society and that the businessman gains. I have always felt that there was a case for a Capital Gains Tax across the board in other fields. However, I will not go into that now, because it would take up too much time.

I want to say something about the individual who is a pure collector. I do not mean a pure collector in the sense of being a person engaging in trade, because if he is a collector who engages in trade there is no reason why the gentlemen in the Inland Revenue should not tax him on capital gains in that respect as being part of the capital gains in his trade. To my mind, there is an inherent difference on the question of principle between the individual collector and the person who engages in trade. If I have a bet on a horse which wins the Derby, I do not expect to pay tax. If I buy some stamps which turn out to be valuable, I do not expect to pay tax.

The debate has missed a major question throughout. Hon. Members have spoken about works of art as if they are only pictures. I am much more interested in silver, in antiquities, in porcelain, in furniture, and in old works of art. Today I had the pleasure of seeing the great Churchill collection sold at Christie's. I warn the Committee to be realistic. Two pieces were bought by the same dealer. The same value had been placed on each. One piece went for £28. The other piece went for £128. There was absolutely no difference between the two pieces. It so happened that there were not two of the people bidding at the time the first piece was sold who were bidding when the second piece was sold.

8.15 p.m.

There will be no yield from this tax, because it will be resisted by everybody. The tax will have a serious and a bad effect on public morality. It will also have a serious and bad effect on efficiency and on the trust in which Inland Revenue inspectors are held. I entirely disagree with the Financial Secretary's view that there will not be an insurmountable problem of valuation in the Inland Revenue. Before I came here today, I spoke to six Income Tax inspectors, some of whom I have known personally for some years. I have spoken also to those whose task it is to value.

I can honestly say that in most of these fields to which I have adverted today I know those who are the principal valuers. I know them personally and well in many cases. No tax inspector has had the temerity to say that he could even begin to value in any one of these fields. There is a certain field in which it is well known that no tax inspector could value. I am prepared to stake a substantial bet that there are not more than two men in the whole country who could give any true or proper idea of the value of the Spencer Churchill collection in the realm of certain antiquities. There is one firm which could do so. There is one individual could do so. I refer now to actual value. To find whether the work of art is first-class one must go to certain fields—to the keepers of the Victoria and Albert Museum, to the keepers of other museums, and to certain individuals.

Over a period of six months the rise in the value of silver is considerable. The antique silver market has risen by well over 50 per cent. in the last nine months. Two months ago certain Georgian silver plate pasing through Christie's was valued at £780 to £800. In fact a set of Falstaff fetched £1,650, over double the valuation the trade had placed upon it. This shows how absurd it is for anyone to say that he could value these things.

The problems of valuation are insurmountable. I say that as a fact, not as an opinion. I say it culled from the expert facts of 15 years' knowledge, and from having spoken to those who are concerned in the trade. If the Financial Secretary wants to meet the persons concerned, I will lead a deputation to him of 12 to 14 of the leading valuers in six different fields. They will confirm everything I have said. If the hon. and learned Gentleman wants to talk to them, I can give him their full names and addresses.

I repeat that there will be no yield. It will disrupt public morality, because fiddling will start and we shall go back to the old days of the snoopers and the black market. Further, people will take two or three valuations. I suppose that the way the Inland Revenue will try to operate is to see how people deal with their insurance policies. I suppose that one way of trying to get a valuation is to call up one's insurance broker now and put a very high valuation upon various articles. Then if one gets rid of them one has the valuation and the fact that one has been paying insurance for that period on them. No one will be able to deny it. It is impossible to assess with accuracy what is really a true valuation, more particularly when the price is in excess of £1,000.

The Inland Revenue inspectors do not want this provision. They detest it, and they are very worried about it. They do not want to have this task thereby losing the great respect that they have managed to achieve over the years, and I am sure we all have a profound respect for the way in which they go about their tasks.

The worst aspect of the snooping side of the matter is that those very men are the people who have got to go into the houses. I accept what the Financial Secretary said, that this will be done discreetly, quietly and in accordance with their normal duties, but we are breaching one of the great liberties of this country. We have not before given the Inland Revenue the power to go into our homes. One has got to be proved to be fraudulent first, before the Inland Revenue can ask one to go back 10 or 12 years and produce one's Income Tax assessments. But here we are giving a right to men who do not want it to go into a house in order to have the opportunity to inspect works of art in it, and of course this is very difficult. When these men go in to inspect a work of art they have to determine whether it is worth, say, £1,000 at this year's valuation. But how are they to know whether next year what is taxed at £1,000 this year will not be taxed at only £500? Not only are we entering into the field of public morality but we are endangering something that is very important.

In the art world it is rather like being a barrister or a solicitor or a banker. The same game goes on. That is to say, the most important things are confidence and trust, and there is a great deal of secrecy because it is very important not to let the other person know what is the really good thing that one is after. If a person is after some really nice piece he does not want anybody else to know about it.

Consequently Sotheby's and Christie's, who both dislike this idea intensely, do so for two main reasons, as do the rest. The first reason is this. It is the work of art which is worth more than £1,000 upon which they depend for their success and livelihood. The commission which they take, which is 10 per cent. on the article sold, is substantial when the amount for which the article is sold exceeds £1,000. Therefore, if we want to retain the predominance of our auctioneers, we should see that they get the opportunity to sell works of art of high value. The success of the art market in this country has not resulted from the sale of articles worth £20, £50 or £100. It has arisen because the big sales come to this country from all over the world. It is the ones which the public read about, such as the little Rembrandt that sold the other day fetching an enormous sum of money—quite an unrealistic figure—which attract the public. They also attract Messrs. Christie's, Sotheby's and the others, because that is where their commission lies, and a very substantial one.

Therefore, if we apply a tax which bites in respect of a short-term capital gain of over £1,000, we are running into this real difficulty, that we are placing these people in a position which is not as good as it is at the moment. We are harming their position. We are preventing the flexibility of the market. Instead of people in future selling works of art for over £1,000 in the open auction, they will sell their works of art privately. I have no doubt that there are some well-known collectors in the House of Commons. What is to stop me going to one of my hon. Friends and offering to sell him a valuable work of art direct, or indeed, to swap it and merely pay the difference? I see that my hon. Friend the Member for Bristol, West (Mr. Robert Cooke) is nodding vigorously. There are many who will do this and it will never be regarded as criminal. The interesting thing is that it would be rather like getting a bit through the Customs. It will never be regarded as being morally wrong to try to evade tax so much as defending culture against the Philistines. That is the factual way in which the public will regard it. I hope my party will say of this, short-term and long-term, that we will throw it out altogether if and when we are returned to power.

There is another matter which is very important. About three weeks ago I received a letter asking me whether I would allow two or three small things of mine to go into an exhibition—first some antiquities, and then some silver for an exhibition later in the year. So far as I am concerned, the answer will still be "Yes", but I am not at all sure that others will agree. People who own certain works of art which they know are valuable may say to themselves, "I am not going to exhibit these works of art for fear that the snoopers get to know where they are, and if I want to sell them privately I shall find myself taxed to the limit." I know that hon. Members opposite, and indeed some hon. Members on this side of the Committee as well, may say that that is quite wrong. But there it is. That is the sort of disadvantage which will arise.

With regard to the unworkability of these provisions, at the moment there is a complete flexibility in sale. There is nothing to stop a person selling one work of art and buying in another in a sale next week. Under this short-term capital gain arrangement, we are putting an effective stop for 12 months on the buying, selling, and exchange of those works of art. A considerable number of these types of change takes place, and I believe they ought to continue to take place, because it is the mobility and flexibility of this market which has created the greatness of the art centre. It has been quite a tug-of-war in order to get away from France, Germany and America the absolute dominance in the intellectual field.

We have fallen into the American trap. Hon. Gentlemen have taken over an American system of taxation of capital gains. They have then said—and I can understand the argument; I am not criticising it—that it would be socially inequitable to have a Capital Gains Tax which covers stocks and shares and these other fields, but leaves out tangible and moveable properties. The argument has been addressed—and I am interested in that too but will not say anything about it until later—to bloodstock and breeding racehorses. It has been pointed out that there should be an exception there because there is no yield and there may be losses.

In this field I am prepared to concede that there are gains, particularly to those who understand art and the art market. But the fact is that, even if there are gains, the amount which will enure to the benefit of the Revenue in the forthcoming year will be nothing. In about five years' time, assuming that the art market has gone up by a further 200 per cent. on what it is today in modern paintings, ancient paintings, silver, Chinese porcelain and European porcelain, which perhaps will not be an unreasonable assumption if trade in the world generally rises, it might be possible that the Government will see a couple of million £s in respect of art objects of over £1,000 in value as their yield.

8.30 p.m.

The right hon. Gentlemen opposite and those who advise them should be good enough to accept some real advice from those who understand this subject. They should discuss this with the gentlemen who run the leading auctions and with some of the keepers in museums whom they can approach and see whether they feel that the initiation of the short-term Capital Gains Tax is working purely on the ground of the rather curious idea that one is keeping social equity balanced precariously in a matter of this kind.

The Financial Secretary has already said that he will make a distinction on vintage cars. He did not do so for me last week on vintage port, but I hope that he will do so on really great works of art, right across the board, on values of over £1,000. If he does not, it will lead to a lowering of standards of morality and a lowering of respect for the Inland Revenue without giving an iota of assistance in the financial aims which he wishes to achieve.

Mr. Ian Gilmour (Norfolk, Central)

The Financial Secretary said that this was a very narrow point, an odd description for the imposition of a tax which is capricious, Philistine and has a large number of very damaging side effects which my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) has so ably enumerated. I am very disappointed that the Financial Secretary should have followed the advice of his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) about foreign countries. He is making a great mistake in being so cavalier about the experience of foreign countries—another example of little Englandism at its worst. There is surely something to learn here and it would be interesting to hear from the Financial Secretary in what countries, if any, this tax has been successful and in what countries it has failed.

The authors of the Minority Report of the Royal Commission on the Taxation of Profits and Income, and the authors of much of this Budget, certainly had a different attitude towards experience in other countries. They took the trouble to reprint in the Minority Report two appendices relating to foreign countries. It would have become the Financial Secretary to have found out what happened in the United States and elsewhere.

It has been virtually admitted that the yield of this tax will be more or less negligible and will damage the art market and create a large bureaucracy. The authors of the Minority Report were not unduly worried about the creation of a bureaucracy, but they expressed a view and this is one of the few occasions where the Chancellor in his Budget departed from them. He first departed from the Minority Report in having a short-term Capital Gains Tax at all. Secondly, he departed from the view expressed in paragraph 70 that We are in accord with the view that for an initial period the tax should he limited to gains arising from the sale of businesses, securities of all kinds and real property.… The Chancellor has ignored that advice and also advice which he could have obtained from the Minister of Education who took the same view in his book, which is rather optimistically entitled "The Future of Socialism", when he said: To reduce the administrative difficulties the tax should be limited, at least initially, to gains arising out of the sale of businesses, stocks and shares and real property. Therefore, people knowing full well what they are talking about, and not unduly tender to the claims of private property or worried about the encroaches of bureacracy, thought that this tax should not be imposed at the time when a general Capital Gains Tax was imposed. Presumably, the authors of the Minority Report would have been even more strongly against this tax being put on chattels if they had known that a short-term gains tax would have been there as well.

The Financial Secretary may have thought that the point was narrow, but he gave no real defence of this tax, which is imposed in defiance of the experience of other countries, which is an invitation to corruption, and which is a bureaucratic nonsense.

Mr. Robert Cooke

The fact that a Member could sit in the Chamber for nearly two and a half hours waiting to speak on this subject is proof enough of the great importance which hon. Members attach to it. I had many things in mind to say, but a good deal of the ground has already been covered by my hon. Friends, although not all the questions have been answered by the Financial Secretary. I remind the hon. and learned Gentleman that scorn does not answer questions, and several of the points which he made will tomorrow read pretty badly in HANSARD from his point of view. At least, this debate on the short-term Capital Gains Tax will serve as a curtain-raiser to the much more wide-ranging debate on the subject tomorrow. Certainly, as regards works of art, about which we have been mainly concerned today, tomorrow's debate will show that the long-term tax will have very far-reaching and damaging effects.

There are one or two questions which have not been asked and on which I must press the hon. and learned Gentleman for an answer. He tried to give the impression that everything would be all right in the case of a death. As I understood him, however, he said that if the executors paid the death duties and then the widow who inherited the work of art sold it within a year, she would be caught for the capital gains, the estate also having paid the death duties. This would seem most iniquitous. I hope that I have misunderstood, but, obviously, we cannot have too much assurance from the Government, although, of course, assurances from the Dispatch Box do not have the force of law and the courts may well interpret these things differently. This applies all along the line. We may well find, in spite of the explanations given from the Dispatch Box, that some of these very complicated provisions work out differently in practice.

There has been no reference yet to the case of the valuable chattel worth more than £1,000 which is destroyed by fire during the twelve-month period. It would apply in the long term, too, but in the case of the short-term tax, if the collector had bought the work of art in good faith and it was then destroyed by fire, he would have to pay Capital Gains Tax if he got more back from the insurance.

Mr. Rees-Davies

My hon. Friend is right on that point. Has he considered the question of thefts and burglaries, too?

Mr. Cooke

I am much obliged to my hon. Friend. That merely strengthens the point. The money got back could be subject to tax, but the collector, surely, should have the option to reinvest the money tax-free in another similar object.

The hon. Member for Manchester Cheetham (Mr. Harold Lever) said that we ought not to be draw aside into considering what happens in other countries. My hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) has already dealt with the situation in America. I hope that the Government will not call in aid the American Capital Gains Tax. From the studies which I have made, I gather that that works out as a tax relief in many cases because an article can be taxed under capital gains and escape quite a lot of tax which it would not escape if it were sold and taxed under income. In other words the American capital gains tax is a way out of paying taxes, which it certainly would not be under this Government's proposal.

The yield in America can be quite considerable compared with what it will be here. I echo the sentiments expressed by my hon. Friend the Member for the Isle of Thanet. I am sure that the yield will be absolutely nil in the short term, and there will have to be a good deal of interference with the liberty of the subject in getting nothing back.

I cannot allow the Financial Secretary to escape from the consequences of two things he said which will have a serious effect on our cultural heritage. I go so far as to say that. He admitted that the effect of this tax, in both the short term and the long term, was to break up pairs or sets of articles, sets of chairs, sets of mirrors, even a series of paintings. There will be a special inducement to people to try to sell items separately in order to avoid the tax.

On the question of pairs and sets, it would appear that if one tries to sell the articles as a group to a particular person they will be caught, but that if one sells them singly they will be exempt. The Financial Secretary said that if one tried to sell them through a third party one would be caught. As I see the Bill, there is nothing illegal about selling to a third party who then can sell the articles back to the first party whom one wanted to have them. What about letting them out on hire purchase or some sort of contract hire? Would that not be a way round the problem? There are all sorts of ways round these provisions which the spivs will be working out. An entirely new group of people will grow up trying to get round these provisions, which in any case will provide no revenue.

The Financial Secretary said that the exemptions from tax would have a splendid effect, and that it would be easy to sell the items to museums and galleries. We are fairly well provided with museums and we envisage a great expansion of them in London and the provinces, but surely there will not be room for all the chattels which will be affected by the tax. Surely some of them should remain where they are—in the historic houses of individuals. The Financial Secretary talked about exemption. That will apply to some things but not everything. Plenty of things will be caught by the Clause. Surely it is better that the articles should stay in the historic houses, a thousand of which are open to the public now and enjoyed by thousands of people every year. That is the sort of thing that we want to maintain. We do not want provisions in the Act which will lead to dispersal.

It was said that some of the valuable articles will disappear and go underground. That will happen even under the short-term provisions. The articles will be hidden away for a year. There will be positive inducements not to show or lend them to anybody. Certainly there is an inducement not to sell them. If a collector who buys an article wants to sell it and it should be taxed at the same rate in the short-term as in the long-term, then the art market will not be distorted and if the articles are for sale anybody can own them. But under these provisions there will be an inducement to hang on to the articles for 12 months and be caught only by the long-term provision, and so the articles will not be available for the market.

The Government must give more thought to the question of who is to list the transactions and the ways in which the Inland Revenue will be able to ensure that it collects what it is entitled to. We have heard about snoopers. It would appear that the Government will make auctioneers and antique dealers their agents for the collection of the tax. This applies to the short-term as well as the long-term. It seems that the dealers will have to supply lists. I presume they will be weekly lists rather like the ones the police send round about stolen property, saying that a certain picture is wanted by the Inland Revenue.

Also, if the Inland Revenue is suspicious about the whereabouts of a painting, it is enabled by the Clause to go to people's homes. How far is it to be allowed to search? The Inland Revenue may be wrong, but nevertheless it has power to make a search. Will it tear a historic house to pieces trying to find one miserable painting that it cannot track down? Surely that sort of thing could happen. No doubt the priesthole of former days will again come into its own.

The Financial Secretary made the case that only articles of substantial value will be affected. The figure of £1,000 is an extraordinary arbitrary one. With the sort of inflation that one envisages under the present Administration, £1,000 is likely to have a very different value a year or two from now. Once we have £1,000 in the Bill, what is to prevent a future Socialist Government from altering the figure? One cannot place any reliance on an arbitrary figure in the Bill.

I could go on for longer, but as there are other Clauses on which it would be better to say some of the things I want to say and ask some questions, I shall content myself with saying that the long-term tax is iniquitous and the short-term tax is utterly fatuous.

8.45 p.m.

Mr. John Hall

In the long debate we have had on this Amendment the Clause has received almost universal condemnation. The exception was the hon. Member for Salford, West (Mr. Orme), who tried to support the Government, very loyally, in their intention but made it clear that he had not really understood that the term "chattels" covered such a very wide variety of articles.

I suppose one rare gleam of light has penetrated the gloom of the debate—and I do not mean by that that the speeches made by my hon. Friends were not brilliant. By "gloom" I mean the way in which they have been received by hon. Members opposite. That gleam of light was the assurance by the Financial Secretary that vintage and veteran cars are exempted from the penal Clauses of the Bill. I was sorry, the hon. and learned Gentleman having given this concession in respect of mechanical horsepower, that he was not prepared to do the same for live horsepower. We did not have the same good fortune with livestock.

The hon. and learned Gentleman brushed aside many objections rather lightly. He touched only briefly on the administrative and policing difficulties. He indicated airily that he thought that the Inland Revenue would be quite capable of coping with the many problems of valuation, despite the difficulties to which attention has been drawn, especially by my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) who has specialised experience.

I myself mentioned an example in which the Government Valuer grossly under-valued a chattel which was sold a short time later for very much more. For the first time, an inspector of taxes will have the right to enter a private house and he can be accompanied by an official to value an article in that house. If the valuer fixes the value and then the owner sells the article within a matter of months, even if the valuer's figure proves grossly wrong and the owner get far more for it he can be penalised by a very considerable capital gains tax arising from a false valuation. That is only in the short term. In the long term it may be even worse.

One of the problems here is that of separating the argument as between the short term and the long term effects because of the introduction of chattels into the clause. One is forced to strike at it in the long term because if that were to fall then the short term would fall as well, as the hon. and learned Gentleman pointed out. No doubt when we reach Clause 18 and successive Clauses this point will be returned to again and again.

In effect, the Financial Secretary made only one point. He asked why, when someone makes a substantial gain by selling a work of art or a chattel in excess of £1,000, it should not be treated as another short term gain. Quite apart from the fact that anyone buying a work of art or chattel gets no income from it—indeed, he may have to pay a good deal in maintenance and improvements—the hon. and learned Gentleman has not directed his attention to the unworkability of this provision. It is no use introducing a principle of taxation if it is not going to work. If it is going to be constantly evaded it will, as has been pointed out time and again on this side of the Committee, bring the whole of law into disrepute.

Mr. A. P. Costain (Folkestone and Hythe)

Does my hon. Friend recall, when we were sitting on the Public Accounts Committee together, the difficulties we had over the Purchase Tax on second-hand diamonds, even amongst a small number of dealers. Would it not be much worse here?

Mr. Hall

I recall that very clearly. This is going to be much greater than the problem there. Hon. Members on this side of the Committee have given a number of examples of the ways in which this kind of taxation can be avoided and the encouragement to avoidance which this particular Clause invites. The number of examples quoted so far are only a fraction of the number of ways in which this particular tax can be avoided. We are inviting tax avoidance on a large scale and unless the staff of the Inland Revenue, their advisers and valuers, is increased to an extent which is not really possible or feasible, then it will be quite impossible to gain any worthwhile revenue from this. Reasonable collectors of works of art will be turned into tax avoiders on a large scale and a crime is being made where no crime previously existed.

Why has no party seriously tried to introduce this form of tax on tangible removable chattels? The reason is that it has been realised it was impossible to enforce and would create tax problems which were not wanted. I cannot believe that the Minister has directed his attention to the real problems facing the Inland Revenue in administering this part of the capital gains legislation. What is contemplated is a serious invasion of privacy.

I have some pieces of silver which might, if they were put up for auction, fetch a sum rendering me liable for taxation under this Clause. Am I now, having disclosed this fact in this Chamber, likely to get a telephone call from my local inspector of taxes saying "I am coming along to see you, with another officer, in order to see what you have and to find the value of it so that if at some time in the future you dispose of it we shall know if you have made a capital gains profit"? Is that sort of thing going to happen?

Mr. Callaghan

They are not worth £1,000.

Mr. Hall

The Chancellor does not know the value of them.

Mr. Robert Cooke

The hon. Member for the Isle of Thanet (Mr. Rees-Davies) will produce a fair valuation and I will exchange for any other article he cares to name.

Mr. Hall

I shall bear these offers in mind if I ever come to the point of disposing of them, but I have no intention of doing so as I made clear earlier. The silver is in safe custody so that it will not attract the attention of any nocturnal visitors.

The Minister's replies have been very disappointing and I do not think his heart was in the debate. I do not believe if it was left to him to decide, he would wish to see this tax imposed on chattels. He gave the Committee the impression that he was speaking reluctantly to a brief which had been given to him and he had no conviction that what he was saying was really accurate. I believe that in his heart of hearts the Minister probably agrees with us on this side of the Committee and I hope he will welcome an expression of opinion on this which might encourage the Government, perhaps at Report stage, to do something about this. I would invite my right hon. and hon. Friends to divide on this Amendment.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 189, Noes 182.

Division No. 125.]	AYES	[8.55 p.m.
Allaun, Frank (Salford, E.)	Craddock, George (Bradford,	Ford, Ben
Allen, Scholefield (Crewe)	Cronin, John	Freeson, Reginald
Atkinson Norman	Grossman, Bt. Hn. B. H. S.	Galpern, Sir Myer
Bacon, Miss Alice	Cullen, Mrs. Alice	Garrett, W. E.
Barnett Joel	Dalyell, Tam	Garrow, A.
Beaney Alan	Darling, George	Gregory, Arnold
Bence, Cyril	Davies, G. Elfed (Rhondda, E.)	Grey, Charles
Benn, Bt Hn Anthony Wedgwood	Davies, Harold (Leek)	Griffiths, David (Rother Valley)
Bennett, J. (Glasgow, Bridgeton)	Davies S. O. (Merthyr)	Griffiths, Rt. Hn. James (Llanelly)
Binns, John	Dell, Edmund	Hamilton, William (West Fife)
Bishop, E. S.	Diamond, John	Hannan, William
Blackburn, F.	Dodds, Norman	Harper, Joseph
Blenkinsop, Arthur	Doig, Peter	Hart, Mrs. Judith
Boardman, H.	Driberg, Tom	Hattersley, Roy
Boston, T. G.	Duffy, Dr. A. E. P.	Hazell, Bert
Bowden, Rt. Hn. H. W. (Leics,S.W.)	Edelman, Maurice	Heffer, Eric S.
	Edwards, Robert (Bilston)	Henderson, Rt. Hn. Arthur
Braddock, Mrs. E. M.	English, Michael	Herbison, Rt. Hn. Margaret
Bray, Dr. Jeremy	Ensor, David	Hill, J. (Midlothian)
Broughton, Dr. A. D. D.	Evans, Albert (Islington, S.W.)	Hobden, Dennis (Brighton, K'town.)
Brown, Rt, Hn. George (Belper)	Evans, Ioan (Birmingham, Yardley)	Holman, Percy
Brown, Hugh D. (Glasgow, Provan)	Finch, Harold (Bedwellty)	Houghton, Rt. Hn. Douglas
Brown, R. W. (Shoreditch & Fbury)	Fletcher, Sir Eric (Islington, E.)	Howarth, Robert L. (Bolton, E.)
Butter, Herbert (Hackney, C.)	Fletcher, Ted (Darlington)	Hoy, James
Callaghan, Rt. Hn. James	Fletcher, Raymond (Ilkeston)	Hughes, Cledwyn (Anglesey)
Castle, Rt. Hn. Barbara	Floud, Bernard	Hunter, Adam (Dunfermline)
Chapman, Donald	Foley, Maurice	Hunter, A. E. (Feltham)
Coleman, Donald	Foot, Sir Dingle (Ipswich)	Hynd, H. (Accrington)
Hynd, John (Attercliffe)	Murray, Albert	Slater, Joseph (Sedgefield)
Irvine, A. J. (Edge Hill)	Newens, Stan	Snow, Julian
Irving, Sydney (Dartford)	Noel-Baker,Rt.Hn.Philip(Derby,S.)	Soskice, Rt. Hn. Sir Frank
Janner, Sir Barnett	Norwood, Christopher	Stewart, Rt. Hn. Michael
Jeger, George (Goole)	Oakes, Gordon	Stones, William
Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Ogden, Eric	Swain, Thomas
Jenkins, Hugh (Putney)	O'Malley, Brian	Swingler, Stephen
Jones, Dan (Burnley)	Orme, Stanley	Taylor, Bernard (Mansfield)
Jones,Rt.Hn.SirElwyn(W.Ham,S.)	Oswald, Thomas	Thomas, George (Cardiff, W.)
Kerr, Dr. David (W'worth, Central)	Owen, Will	Thomas, Iorwerth (Rhondda, W.)
Lawson, George	Page, Derek (King's Lynn)	Thornton, Ernest
Leadbitter, Ted	Pannell, Rt. Hn. Charles	Tuck, Raphael
Lever, L. M. (Ardwick)	Parker, John	Varley, Eric G.
Lewis, Arthur (West Ham, N.)	Parkin, B. T.	Wainwright, Edwin
Lomas, Kenneth	Pearson, Arthur (Pontypridd)	Walden, Brian (All Saints)
Loughlin, Charles	Pentland, Norman	Walker, Harold (Doncaster)
McCann, J.	Popplewell, Ernest	Wallace, George
MacColl, James	Price J. T. (Westhoughton)	Weitzman, David
MacDermot, Niall	Pursey, Cmdr. Harry	Wells, William (Walsall, N.)
McGuire, Michael	Randall, Harry	White, Mrs. Eirene
Mackenzie, Gregor (Rutherglen)	Rankin, John	Whitlock, William
MeLeavy, Frank	Redhead, Edward	Wigg, Rt. Hn. George
MacMillan, Malcolm	Rees, Merlyn	Wilkins, W. A.
Mahon, Simon (Bootle)	Rhodes, Geoffrey	Willey, Rt. Hn. Frederick
Mallalieu,J.P.W.(Huddersfield,E.)	Richard, Ivor	Williams, Mrs. Shirley (Hitchin)
Manuel, Archie	Robertson, John (Paisley)	Williams, W. T. (Warrington)
Mayhew, Christopher	Rogers, George (Kensington, N.)	Willis, George (Edinburgh, E.)
Mendelson, J. J.	Rose, Paul B.	Wilson, William (Coventry, S.)
Mikardo, Ian	Ross, Rt. Hn. William	Winterbottom, R. E.
Millan, Bruce	Rowland, Christopher	Woodburn, Rt. Hn. A.
Miller, Dr. M. S.	Sheldon, Robert	Yates, Victor (Ladywood)
Milne, Edward (Blyth)	Shore, Peter (Stepney)	Zilliacus, K.
Molloy, William	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Monslow, Walter	Short, Mrs. Renée (W'hampton,N.E.)	TELLERS FOR THE AYES:
Morris, Charles (Openshaw)	Silkin, S. C. (Camberwell, Dulwich)	Mr. Ifor Davies and
Morris, John (Aberavon)	Silverman, Julius (Aston)	Mr. William Howie.
Mulley,Rt.Hn.Frederick(SheffieldPk)	Slater, Mrs. Harriet (Stoke, N.)
NOES
Agnew, Commander Sir Peter	Dean, Paul	Hornby, Richard
Alison, Michael (Barkston Ash)	Deedes, Rt. Hn. w. F.	Howe, Geoffrey (Bebington)
Allan, Robert (Paddington, S.)	Doughty, Charles	Hunt, John (Bromley)
Allason, James (Hemel Hempstead)	Douglas-Home, Rt. Hn. Sir Alec	Hutchison, Michael Clark
Anstruther-Gray, Rt. Hn. Sir W.	Elliot, Capt. Walter (Carshalton)	Iremonger, T. L.
Awdry, Daniel	Elliott, R. W.(N'c'tle-upon-Tyne,N.)	Johnson Smith, G. (East Grinstead)
Baker, W. H. K.	Emery, Peter	Johnston, Russell (Inverness)
Barber, Rt. Hn. Anthony	Eyre, Reginald	Jopling, Michael
Barlow, Sir John	Fell, Anthony	Kaberry, Sir Donald
Batsford, Brian	Fletcher-Cooke, Charles (Darwen)	Kerby, Capt. Henry
Beamish, Col. Sir Tufton	Fletcher-Cooke, Sir John (S'pton)	Kilfedder, James A.
Bessell, Peter	Galbraith, Hn. T. G. D.	King, Evelyn (Dorset, S.)
Birch, Rt. Hn. Nigel	Gammans, Lady	Kirk, Peter
Black, Sir Cyril	Gardner, Edward	Kitson, Timothy
Box, Donald	Gibson-Watt, David	Lambton, Viscount
Boyd-Carpenter, Rt. Hn. J.	Giles, Rear-Admiral Morgan	Lancaster, Col. C. G.
Boyle, Rt. Hn. Sir Edward	Gilmour, Ian (Norfolk, Central)
Brewis, John	Glover, Sir Douglas	Langford-Holt, Sir John
Brinton, Sir Tatton	Godber, Rt. Hn. J. B.	Lloyd, Ian (P'tsm'th, Langstone)
Brooke, Rt. Hn. Henry	Goodhew, Victor	Longbottom, Charles
Buck, Antony	Grant, Anthony	Longden, Gilbert
Bullus, Sir Eric	Grant-Ferris, R.	Lubbock, Eric
Burden, F. A.	Gresham-Cooke, R.	McAdden, Sir Stephen
Buxton, Ronald	Grimond, Rt. Hn. J.	Mac Arthur, Ian
Campbell, Gordon	Gurden Harold	Mackenzie, Alasdair (Ross&Crom'ty)
Carlisle, Mark	Hall, John (Wycombe)	Mackie, George V. (C'ness & S'land)
Carr, Rt. Hn. Robert	Hall-Davis, A. G. F.	McLaren, Martin
Cary, Sir Robert	Harris, Frederic (Croydon, N.W.)	Macleod, Rt. Hn. Iain
Chichester-Clark, R.	Harris, Reader (Heston)	McNair-Wilson, Patrick
Clark, William (Nottingham, S.)	Harrison, Brian (Maldon)	Marten, Neil
	Harrison, Col. Sir Harwood (Eye)	Mathew, Robert
Cole, Norman	Harvey, Sir Arthur Vere (Macclesf'd)	Maude, Angus
Cooke, Robert	Harvey, John (Walthamstow, E.)	Maxwell-Hyslop, R. J.
Cooper, A. E.	Harvie Anderson, Miss	Maydon, Lt.-Cmdr. S. L. C.
Cooper-Key, Sir Neill	Hawkins, Paul	Meyer, Sir Anthony
Corfield, F. V.	Heald, Rt. Hn. Sir Lionel	Mills, Peter (Torrington)
Costain, A. P.	Heath, Rt. Hn. Edward	Mills, Stratton (Belfast, N.)
Craddock, Sir Beresford (Spelthorne)	Higgins, Terence L.	Mitchell, David
Crawley, Aidan	Hill, J. E. B. (S. Norfolk)	Monro, Hector
Crowder, F. P.	Hirst, Geoffrey	More, Jasper
Curran, Charles	Hobson, Rt. Hn. Sir John	Morrison, Charles (Devizes)
Dalkeith, Earl of	Hogg, Rt. Hn. Quintin	Mott-Radclyffe, Sir Charles
Dance, James	Hooson, H. E.	Munro-Lucas-Tooth, Sir Hugh
Davies, Dr. Wyndham (Perry Barr)	Hordern, Peter	Neave, Airey

Onslow, Cranley	Robson Brown, Sir William	van Straubenzee, W. R.
Orr-Ewing, Sir Ian	Russell, Sir Ronald	Walder, David (High Peak)
Osborn, John (Hallam)	Sandys, Rt. Hn. D.	Walker, Peter (Worcester)
Page, John (Harrow, W.)	Shepherd, William	Walker-Smith, Rt. Hn. Sir Derek
Page, R. Graham (Crosby)	Sinclair, Sir George	Walters, Dennis
Pearson, Sir Frank (Clitheroe)	Smyth, Rt. Hn. Brig. Sir John	Ward, Dame Irene
Percival, Ian	Spearman, Sir Alexander	Webster, David
Peyton, John	Stainton, Keith	Whitelaw, William
Pickthorn, Rt. Hn. Sir Kenneth	Stanley, Hn. Richard	Williams, Sir Rolf Dudley (Exeter)
Pike, Miss Mervyn	Steel, David (Roxburgh)	Wills, Sir Gerald (Bridgwater)
Pitt, Dame Edith	Talbot, John E.	Wilson, Geoffrey (Truro)
Pounder, Rafton	Taylor, Sir Charles (Eastbourne)	Wise, A. R.
Price, David (Eastleigh)	Taylor, Frank (Moss Side)	Wolrige-Gordon, Patrick
Ramsden, Rt. Hn. James	Teeling, Sir William	Woodnutt, Mark
Rawlinson, Rt. Hn. Sir Peter	Thatcher, Mrs. Margaret
Redmayne, Rt. Hn. Sir Martin	Thomas, Sir Leslie (Canterbury)	TELLERS FOR THE NOES:
Rees-Davies, W. R.	Thompson, Sir Richard (Croydon,S.)	Mr. Francis Pym and
Ridley, Hn. Nicholas	Turton, Rt. Hn. R. H.	Mr. Dudley Smith.
Roberts, Sir Peter (Heeley)	Tweedsmuir, Lady

Mr. Peter Walker

I beg to move Amendment No. 346, in page 11, line 25, to leave out subsection (4).

The purpose of the Amendment is primarily exploratory, to discover exactly what the Government have in mind. I believe that a similar provision appeared in the 1962 Act with the difference that on that occasion there was no mention of the phrase "other than sterling". Perhaps the Minister without Portfolio will kindly give the reason for the insertion of this phrase.

One wonders what type of concern or person the Government have in mind in the Clause. Presumably, for banks which are entitled to hold foreign currency, any changes in the value of currency will come into the normal trading position and be taxed in the normal way of trading. I wonder what will be the position concerning a change in the general value of the currency. I do not suggest the possibility of any devaluation of our currency—I agree with the Prime Minister when he said in New York that any currency which had £11,000 million of overseas backing was unlikely to be devalued—but what will be the position in the event of a change up or down in the value of the currency? People might, for example, have been given permission to hold a certain amount of foreign currency for the purpose of purchasing an asset overseas. At the time when they spend the money for that asset overseas, will they be forced to pay some form of Capital Gains Tax as a result of the Clause?

As foreign currency can be held only either by people who have the authority to hold it or by licensed dealers in foreign currency, the Clause seems slightly unnecessary. I shall be grateful to have an explanation from the Minister.

The Minister without Portfolio (Sir Eric Fletcher)

The hon. Member for Worcester (Mr. Peter Walker) has raised three points on his exploratory Amendment. He inquired, first, why the words "other than sterling" were used. I confirm that all that we are doing in subsection (4) is to reproduce both the substance and the effect of the similar provision which was contained in the Finance Act, 1962, introduced by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). Sterling is excluded because cash is not a chargeable asset for the purposes of capital gains and, therefore, it is unnecessary to deal with sterling.

The object of the subsection is to bring into the short-term gains tax category gains—and, of course, losses—realised on the disposal of currency. There are excluded from the operation of the subsection both those concerns like banks whose business is to deal in foreign exchange and individuals who have permission to obtain currency for their personal expenditure outside the United Kingdom.

The third question which the hon. Member put was a more difficult question. He inquired what would happen if some currency were devalued. I welcome his assurance, which has been repeated now over and over again from both sides of the Committee, that there is no prospect of sterling being devalued, but he put forward a hypothetical question that somebody might obtain permission to acquire some other currency and then, before that currency was realised, the value of that currency might change. This is a rather abstruse question, but my interpretation, subject to verification, is that the individual in question would have to stand either the gain he made, if it were a gain, or get the benefit of the loss incurred as a result of the change in the value of that currency, just as he would if the foreign currency appreciated or depreciated without any sudden devaluation. I hope that answers the hon. Member's point.

Mr. Cole

I wonder if the Minister will address his mind to this point, to get it on the record? What happens about legally tendered currency in this country, in the case of rarity, or a special occasion of issue? I am thinking of the coin- age issued at the Coronation. Would that attract tax? Or would it be legal tender and not attract tax?

Sir Eric Fletcher

I think it is reasonably clear that anything which is legal tender in this country comes within the definition of currency and is therefore excluded from the operation of the Capital Gains Tax.

Mr. Peter Walker

I am most grateful to the Minister, and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Peter Hordern (Horsham)

I beg to move Amendment No. 310, in page 11, line 34, to leave out "hundred" and to insert "thousand".

Under the Bill as it stands a gift of over £100 in value is subject to both the short-term and the long-term Capital Gains Tax, and the purpose of this and the next following Amendment, in page 11, line 36, to leave out from "disposal" to the end of the subsection, is, first, to increase the sum chargeable from £100 to £1,000, and second, to make the sum assessable for short-term gains only.

I think the Committee will recognise that this is a pretty shabby Clause as it stands. I do not think it requires much imagination by hon. Members on either side of the Committee to think what the value of £100 will be in a few years' time if the present marked depreciation continues at its present rate.

It seems unfortunate that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) is not in his place just at this moment. We have had from him so far this evening an objection to the Capital Gains Tax in principle and as a whole, in which, I may say, I am in entire agreement with him, and an objection also to the Capital Gains Tax on chattels, and also an objection to making a comparison with other countries. I well see his point of view on this. If we are to make any comparisons with other countries we shall find that in the United States gifts are exempt, and even in Sweden, a country whose praises are so often sung by hon. Members on the other side of the Committee, gifts are specifically exempt.

It is a mean little Clause this, because it represents what I would take to be the very opposite of what the Chancellor intended in his Budget speech. The Chancellor during that speech said he was hoping to make some kind of fiscal history. I think he has done just this by this Clause. For years Members on both sides of the Committee, and indeed the country as a whole, have been accustomed to a tax on incomes, a tax on earnings, a tax on company profits, a tax on consumption, a tax on enterprise and even, reluctantly, a tax on the settlement of property for death, but a common feature of all these taxes is that they are necessary for the revenue. It has never been said that the capital Gains Tax is necessary for the revenue. It has never been claimed that it will bring in a sizeable slice of revenue for the Inland Revenue, and it cannot be claimed for this little tax on gifts of over £100.

9.15 p.m.

For the first time—and this is where the Bill makes fiscal history—we are to have a tax on human generosity. As a result of this Clause, if someone gives away securities valued at over £100, that is his lot. No matter how many people he distributes them between, that is it. I should like to give the Committee an example to bear out my statement that this is a tax on generosity.

Suppose that one was a holder, and had been for some years, of £1,000 worth of stock in an industrial company. Suppose that company were to declare a one for one scrip issue. This would mean no increase in the value of the holding. It would double the number of shares, but there would be no increase in value, and I take it that no tax is proposed on that scrip issue. But if the holder of that stock were to transfer, say, £300 worth of these shares to his favourite nephew, he would be taxable under the Clause. Therefore, this is nothing but a straight tax on generosity. It cannot be described as anything else. The fact is that the virtue in the act of a gift in itself becomes taxable.

I am not saying that we should argue against the Clause only as a matter of principle., but it is a shabby little Clause in every detail, and I hope that that will be appreciated by everyone. There are, however, some questions on fact which I should like the Government to answer. Suppose the holder of a gilt-edged security found it running to its redemption date and accepted the conversion offer made by the Government. I take it that the position is that if a conversion stock is offered in exchange for an existing gilt-edged security, no tax is payable. But what if, under the Clause, sufficient of that conversion stock were transferred to somebody else? What would happen if stock valued at more than £100 was transferred? Would that sum in excess of £100 be liable to Capital Gains Tax?

Secondly, Premium Bonds are specifically exempt by the provisions of the Bill. What is the position of somebody giving away his gains received from the fruition of his Premium Bonds? What happens if he wins £1,000 and gives it away? Will that be liable to short-term gains tax? Are winnings on football pools and lotteries, which are specifically exempt under the Capital Gains Tax, to be taxed if assigned away?

Another point which will come up later in our discussions concerns the 4 per cent. Victory Bonds. What is the position of the holder of these bonds who is lucky enough to get his stock drawn at par? Is that to be taxed under the Capital Gains Tax? If not, what is the position if more than £100 worth is transferred? Let us suppose that a company is taken over by another and the existing shares are made over to that company. If the new shares are transferred as a gift to somebody else, are they liable to Capital Gains Tax, although they would not be in the first place?

All these questions need accurate answers. There is more scope for misunderstanding in this miserable little Clause than in the whole of this enormous hand-out called a Finance Bill. The result of the Clause will be to stratify capital in the hands of holders. It means to say that not only is generosity taxed at every stage but that there is no incentive to pass on securities to another person, whether or not he is a member of the family.

Mr. Barnett

The hon. Member has made a great point about taxing generosity. He will surely agree that if a gift is made in cash this is not a tax on the gift as such but a tax on the gain.

Mr. Hordern

The hon. Member has not got the point. It is a question how that cash is derived. If it is derived from a sale of securities the element of over £100 is taxable. The whole object of the Government seems to be to encourage that old Gladstonian adage, "Let the money fructify in the pockets of the people." This miserable little Clause is not a concession to the Left wing; it is a concession to Mr. Scrooge, and will be so regarded.

The whole concept of the Clause is illustrative of what the Government are. This is a banana Government. All their Measures—and this one in particular—will lead to financial constipation. For that reason, among many others, I hope that the Clause will be rejected.

Sir A. V. Harvey

I wish to put only one point to the hon. Member. If anybody gives a covenant for a total amount of £1,000 to a relative or friend the receiver of that covenant will not pay a gains tax, but the giver of the covenant does not get it allowed for Surtax. Let us suppose that instead of making the straight gift the owner says, "I will do this in the form of a covenant. I do not get Surtax relief, but the receiver will not pay a gains tax." This must be clarified, because there is a difference of opinion among hon. Members on both sides of the Committee as to what will happen in those circumstances.

Mr. Cole

I endorse what my hon. Friends have said about this being a tax on generosity. It is either a tax on generosity or an indication of fear, because there is some significance between the two figures of £100 and £1,000. Why are we able to deal with £1,000 under another subsection and only with £100 in the case of a gift? I suspect that some economic pundit has worked the matter out and has said, "If we do not watch this it will undermine the whole of our short-term capital gains structure. We shall have these people giving gifts all over the place, and the provision in respect of the £1,000 will be undermined."

If that is so—leaving aside any emotive action—why cannot we have the £100 increased to £1,000? If the Government think that their measures are quite good enough to cover the £1,000, why should it be only £100 in this case? One would think that any kind of logic—if that is the right word to apply to the Bill—would lead one to proceed the other way round, and to say that a person can give something away up to the value of £1,000 and pay tax on up to £100. A person may want to be generous and give something to a member of his family when he is getting married, or when there is some other celebration, or he may want to make a gift as a reward of some kind. If it is over £100 it gathers tax, whereas in the other case a person can dispose of up to £1,000 without the Revenue worrying. I cannot understand the logic of the matter. I suspect that there was no logic but that the Government said, "If we do not put something in like this we shall find our £1,000 ideas all destroyed and undermined". That may have been a very proper course, but they have chosen the wrong figure.

Mr. Fletcher-Cooke

Before he replies, may I ask the Minister without Portfolio two questions? I appreciate that this is not a gift tax, although it is getting very near to it. Does this apply to settlements made, not for valuable consideration, but in natural love and affection in the case of marriage or things of that sort? If it does, may I urge him that it should not, because it would introduce a very considerable innovation into the liberties of settlors under those circumstances making such settlements in what used to be called good equitable consideration, although they were not valuable considerations.

Mr. Higgins

I wish to raise a few points. The first arises from a letter I received from a constituent who was contemplating making gifts of assets slightly above the figure stipulated in the Bill and who is worried about what responsibilities he might incur as a result. As my hon. Friend the Member for Horsham (Mr. Hordern) pointed out, this is a singularly mean sort of Clause to include in the Finance Bill because it strikes at generosity and means that people contemplating making gifts will have this additional problem to worry about. If it should deter them from making such gifts, that is something we should deplore.

The second point on which I should appreciate clarification by the Minister refers to the final part of Clause 16(5). That subsection says that with Clause 26(2) Clause 16: shall not apply to gifts made by the same individual in the same year of assessment the total market value of which exceeds one hundred pounds, Does this effectively mean that a person is limited to making a gift of under £100 to one person and if he makes another gift to someone else that will also be caught?

The final point is, does it mean that if no allowance is made, as we hope it will be to allow for inflation—that is to say, if no Clause is included to enable the effects of inflation to be taken into account—when people make gifts in this way and the asset is disposed of in future, they have to pay an appreciable amount of tax because the monetary value of the asset concerned has increased? Is it seriously supposed that on small gifts of this kind the rate of appreciation may be 5 per cent. per annum and the money value in five years may be £105? Does the Revenue seriously propose to collect that sort of sum and that anyone who makes a gift of just £100 should include it in his Income Tax return? What amount of labour would be involved in that exercise? It would surely be more equitable and more economical if the limit were raised above the extremely low limit stipulated in the Bill.

9.30 p.m.

Mr. Costain

According to the Bill, as I read it, husband and wife are one person. If a husband and wife decided to give to their son and daughter-in-law a gift at Christmas and on the anniversaries of their birthdays, would the Clause bite? It would appear that there could be a build-up several times over. The father and mother are one person. The son and daughter-in-law are one person, according to the Bill.

Mr. Stratton Mills

Treasury Ministers have leaned heavily on the experience in the United States. I hope that the Government in replying on this Amendment can tell the Committee authoritatively the position under American legislation. I have not had the opportunity to check the point recently, but my memory is that each donor in the United States can make a gift of up to 1,000 dollars per annum to each individual within a certain area of relationship. This is very much wider than the Clause as drafted.

Sir Eric Fletcher

I have been asked many questions. I will do my best to answer most of them, particularly those dealing with the position under English law. I am sure that the hon. Member for Belfast, North (Mr. Stratton Mills) will forgive me if I am not in a position to answer off the cuff his question about American law.

I think I can dispel much of the misunderstanding which underlies some of the speeches we have heard in support of the Amendment. The Clause has been referred to by the hon. Member for Horsham (Mr. Hordern) as a shabby Clause. He and other hon. Members have referred to it as a tax on human generosity. It is nothing of the kind. It has been suggested that the Clause will fetter the natural desire for human generosity. The subsection is an exempting provision. It creates an exemption. It provides that in these circumstances there shall be exempted from tax gifts of assets of a certain amount. The subsection will not prevent any gifts from being made. It applies only to gifts of a certain kind.

Hon. Members have spoken as if this operates on all kinds of gifts. It applies only to gifts of chargeable assets. For example, it does not apply to any gift of a chattel of under £1,000. It does not apply to any gifts of cash. It is inconceivable that it could have any operation or gifts of land. Its operation is practically confined, therefore, to gifts of securities.

It is inherent in the whole principle of the Capital Gains Tax that a liability to the tax should accrue on the disposal of an asset. A gift must be treated as the disposal of an asset, just as disposal by way of sale or death, for this reason. Unless there were such a provision, the door would be wide open to tax avoidance. [Interruption.] I do not know whether hon. Members opposite are suggesting that the Committee should, not legislate against tax avoidance. If there were not some such provision, it would be open to anybody to avoid the liability to the Capital Gains Tax by making gifts one after another and passing securities on and thereby escaping the liability for the tax.

Hon. Members in terms are suggesting that the exemption of £100 should be increased to £1,000. My own reaction when I first saw the subsection was to wonder why there was any exemption limit at all. [HON. MEMBERS: "Oh."] Yes; it is only intended to apply to gifts that are de minimis in character. It is not intended to relieve from liability gifts of any substance at all in so far as they are gifts of securities that have appreciated in value.

I have been asked certain specific questions—

Mr. Stratton Mills

rose—

Sir Eric Fletcher

I will give way in a moment. I have been asked so many questions that I think it would be fairer to those who have asked them if I were to do my best to answer them before I forget what they are. Then I will give way.

The hon. Member for Macclesfield (Sir A. V. Harvey) asked me whether this provision applies to covenants. This subject has nothing whatever to do with covenants, as has been made clear in the debate on the Budget and in an earlier debate on this Bill. As the hon. Member knows, in future sums payable under a covenant will not be deductible for either Surtax as in the past or Income Tax.

Sir A. V. Harvey

The hon. Gentleman said that these sums are not deductible for Surtax or Income Tax. Would he clarify that point, because it is important that the Committee should know?

Sir Eric Fletcher

May I come back to that point? I was just about to reply to a question put to me by the hon. Member for Horsham. He asked me a number of questions. One question was whether gains on the drawing of a Premium Bond would be subject to Capital Gains Tax. The answer is, no. Premium Bonds are exempt under the Bill as it stands.

The hon. Gentleman also asked me what would be the position of the holder of some 4 per cent. Victory Bonds that were drawn. There I am told that the capital gain that arises on such a holding would be liable to Capital Gains Tax. I was also asked by the same hon. Member what would be the position if a gilt-edged security were converted into some other stock—

Mr. Hordern

I asked what would be the position if it were held to redemption and the conversion offer accepted. As I understand, under the Bill it is exempt from Capital Gains Tax. If over £100 in value were distributed, would the excess over £100 be liable to Capital Gains Tax?

Sir Eric Fletcher

Yes, if it were over £100 the whole of the gain would be subject to Capital Gains Tax. In other words, I think in this context the Committee should appreciate that the general intention of this Capital Gains Tax is to tax capital gains.

Mr. Hordern

As the hon. Gentleman confirms that shares issued in exchange for others which are not ordinarily liable to Capital Gains Tax are liable to Capital Gains Tax on their distribution over a value of £100, if this is not a tax on generosity we do not know what is. Will the hon. Gentleman not admit that?

Sir Eric Fletcher

I think the hon. Member is confused. The liability to tax on capital gains arises on a disposal and that may be by transfer, it may be by sale or it may be by gift. It may be by a variety of ways. Whatever the event which creates the liability, the tax becomes due.

May I now refer to the hon. Member for Macclesfield who put a totally different question about covenants? The answer is that Clause 12 which deals with this matter applies to Surtax and not to Income Tax.

Sir A. V. Harvey

I thank the hon. Gentleman very much.

Sir Eric Fletcher

The hon. Member for Belfast, North asked a question, but I see that he has now gone away. I am very happy to think that he and other hon. Members are now satisfied.

Mr. Fletcher-Cooke

Will the hon. Gentleman say whether a settlement made by way of a gift to a daughter in consideration of her marriage or something of that sort is considered a gift for this purpose or not?

Sir Eric Fletcher

That will obviously fall to be decided under the general law of the land. The hon. and learned Member knows perfectly well that a settlement is a gift for all purposes.

Mr. Fletcher-Cooke

Then the answer is that it is. It is disgraceful if when a parent in consideration of a daughter's marriage settles upon his daughter £2,000 of securities that is considered to be a disposal and is taxed.

Sir Eric Fletcher

A settlement is just as much a disposal as a gift. If on settlement on a daughter securities are settled which at the time of the settlement are worth £2,000 and from the date of acquisition they show a capital gain, there is no reason why that capital gain should not be taxed in the same way as any other disposal.

Mr. Fletcher-Cooke

This shows the very unsatisfactory nature of the reply. This shows that every gift made out of pure bounty and out of natural love and affection will attract the same rate of tax on profit as if a man had made a profit on the Stock Exchange for his own selfish purposes. I was horrified when the Minister without Portfolio made this remark. This shows that this tax is much nearer a gift tax than anybody suspected. The hon. Gentleman said that it would have been open to the taxpayer to avoid paying a Capital Gains Tax by making a gift. If one does not make a profit but one chooses to give something away, why should one be taxed on a profit which one has not made? There is no obligation to make or to release a profit or to do any of these things to satisfy the Treasury.

If one chooses to give one's money to one's children or anybody else, why should not one be allowed to do so without paying tax at the same rate as if one had realised a profit and spent it in a way which everybody would disapprove of? This is a monstrous suggestion. I suppose that in future we shall be taxed as if we had made a large income when we have made a small income, and we shall be deemed to have made a large income when we have not made an income at all.

Sir Eric Fletcher

rose—

Mr. Fletcher-Cooke

No, I will not give way. I feel strongly about this. We shall be taxed for not making a sufficient income in future as we are now taxed for not making a sufficient profit. A parent will have to sell to his daughter at a loss and then presumably he will not have to pay this miserable tax.

Sir Eric Fletcher

The hon. and learned Member says that this is monstrous, but there is no change in this respect from the position under the 1962 Act. Precisely the same principle applies in respect of gifts or settlements under the 1962 Act—[Interruption.]—which were treated as disposals.

The Chairman

Order. I hope that the Government side will allow its spokesman to argue the case without the support of too much noise.

9.45 p.m.

Mr. A. R. Wise (Rugby)

I have two questions to put to the Minister without Portfolio purely for the purpose of clarification. I understood him to say—I shall not tangle with him on questions of law, about which he knows more than I do—that a gift of cash would not attract this tax, and gifts of chattels would attract this tax. May we take that as official? Is that really the Government's view?

Sir Eric Fletcher

The answer is that a gift of cash, obviously, does not attract Capital Gains Tax, because there is no capital gain. If one gives away £1,000 which one has held in the bank for no matter how long, it is still £1,000. There is no capital gain. As regards chattels, what the hon. Gentleman said is right, subject to this. There is no Capital Gains Tax attached to any gift of a chattel under £1,000 in value.

Mr. Stratton Mills

The Minister without Portfolio will recognise from the arguments which have been put from this side of the Committee the complications which this tax will create. His answers this evening show that he ought to feel a lot of sympathy for the Inland Revenue officers who have to administer the tax.

I asked the hon. Gentleman a question about experience in the United States of America. That question should have had an answer, particularly in view of the tremendous weight which the Government Front Bench have put on the American experience. I suspect that one Treasury Minister at least must know what the position is. The Committee should be given the facts.

We have all been greatly struck by the generosity with which the Minister without Portfolio greeted the fact that people were to be allowed to give away £100. He paid tribute to those who prepared the Bill for their kindness and generosity, and we should pay tribute to him for endorsing that. The hon. Gentleman hinted that, if he had had his way, he would not have allowed it himself. Had he had his way, a taxable profit would have been created if a man gave his child some pocket money.

Why was the figure of £100 picked? We have had no explanation. Was it picked, as most of the Government's planning decisions are, with a pin? How was it arranged? My impression is this. Hon. Members will recall that one is entitled to give £500 as a gift inter vivos to any one individual within five years prior to death and, in the event of death within that period, it will escape Estate Duty. I think that the Government have divided £500 by 5 and said that in this provision they would take the figure of £100. That may be scientific tax management—I do not know—but the Minister should recall that, under our gifts inter vivos provisions, that amount could be given to a number of people. A man with three or four children could give up to £500 within five years to each and those sums would be exempt from Estate Duty. So the comparison does not really carry weight.

I hope that we shall have a much better reply before we divide this evening if we are to make progress in the Committee.

Mr. Ian Gilmour

The Minister without Portfolio made a remarkable speech, and one of his astonishing observations was, "I am not in a position to answer about America". Why not? What was he doing at the weekend? It is highly relevant to know what happens in America. The Treasury ought to tell us. Perhaps the hon. Gentleman was too busy being told about the position in England. Surely it is relevant for the Committee to know what happens elsewhere. Why does the hon. Gentleman have to be so insular? Is it because he knows that experience elsewhere tells against the provision? We must assume either that or that the Treasury has been thoroughly negligent in not bothering to find out what happens elsewhere.

Mr. Hordern

The minority Report of the Royal Commission made the point that in the United States gifts are exempt.

Mr. Gilmour

I do not think that the Minister without Portfolio has had time to read the Royal Commission's Report. I think, therefore, we ought to keep this debate fairly simple.

An even odder remark by the hon. Gentleman was that hon. Members seem to be saying that we should not legislate for tax avoidance. Whatever else is he doing? The whole provision of short-term Capital Gains Tax is legislating for tax avoidance. The hon. Gentleman can hardly imagine that people will go out of their way to value their assets to see whether they are worth less than or more than £100. This Clause, like so much else in the Bill, is legislating for tax avoidance. It is thoroughly reprehensible that the Government should so ignore the danger of encouraging people to avoid taxation. They are bringing in a series of provisions which the mass of the people will not think reasonable and which they will think it perfectly normal and right to do all they can to avoid.

The hon. Gentleman says that in their great generosity the Government are going to tax the gift of a father to his daughter. Will he say whether a similar act of generosity will apply in the case of a gift from husband to wife or wife to husband?

Sir T. Brinton

My hon. Friend the Member for Horsham (Mr. Hordern) referred to the meanness of the Clause. It seems to me that one of the things we have to remember is the value of money. We are talking about £100 as the maximum gift to escape possible capital gains assessment. This is rather less than the price of a motorised pedal cycle and considerably less than the price of a new double bed, as I discovered recently. [Laughter.] They break in the middle occasionally. It is something less than the price of four cases of whisky, or, as I gather from a reply given to a Question by the hon. Lady the Member for Liverpool, Exchange (Mrs. Braddock), two cases of gin in this House.

These are very small sums, and they are shrinking all the time. What could be bought for £100 last October would now cost £104, as those who have been watching the Retail Price Index will know. [HON. MEMBERS: "What about stamps?"] Stamps are included in the Index. We are, indeed, talking about a very small sum. It seems that the strongest point which has been made is that if the Government have found it administratively impracticable in good common sense to try to apply the Capital Gains Tax to chattels of a value less than £1,000 why in the case of securities of gift do they attempt to go for transactions as small as this?

The Government are imposing an administrative burden not only on the tax authorities but on the wretched taxpayers, which is not worth while. The question of valuation will crop up. Not all securities have a market value. They have to be valued. How many people will be caught in future for some wretched little transaction of slightly over £100? Their names will be in the papers and they will be pilloried for doing something that they will regard as a small transaction—which, indeed, is what it will be.

I appeal to the Government to have a little sense about this. It was originally argued that the tax was imposed—and many of my hon. Friends will accept this reasoning though not necessarily all the applications—in order to equalise the position as between the capitalist who was able to make profits by his possession of capital and those who had no capital and had to pay heavy taxes on their incomes. Surely the reasoning behind that means that, in logic, this tax should be on individuals and should not be carried further back. The Government have elected to make it a tax designed to extract money at every conceivable point. Later we shall discuss the repercussions on business. But, in private affairs, any time that any transaction of any kind takes place, the Government want their pound of flesh.

If the Government had been sincere in their argument that the Capital Gains Tax was to assure justice between one form of taxpayer and another form of potential taxpayer, they would not have carried it to the length that if, for instance, I want to give my daughter £120 and do so in some form which might incur a capital gain, I must pay tax on the gift. Surely that is going too far.

Sir Eric Fletcher

Perhaps I can deal with the point the hon. Gentleman has just made, for it may save time. The hon. Gentleman, let us suppose, wishes to make a gift of £500 or £1,000 or £5,000 or any other sum in cash to his daughter or to someone else. He can do one of two things. If he sells securities in order to make the gift in cash, then, if those securities have appreciated in value, this should properly attract Capital Gains Tax. If, instead, he wished to make the gift in securities then it is equally just and proper that he should pay tax on the Capital Gain that has accrued. Unless we had a provision in the Bill to prevent that kind of avoidance, it would be opening the door to considerable tax avoidance.

The hon. Member for Norfolk, Central (Mr. Ian Gilmour) I think completely misunderstood the position.

The Chairman

Order. The hon. Gentleman should remember that he is intervening in a speech.

Sir T. Brinton

The Minister's intervention merely indicates the obsession of the Government with the question of whether these people avoid paying the Tax. They are horrified at the idea that anyone might arrange his affairs in such a way as not to pay the maximum tax. One of the basic differences between these benches and those opposite is that we still believe that the money a man possesses and the goods and chattels he possesses are his own. We believe that the money he owns belongs to him, that the Government have a right to ask certain taxes of him but we do not believe that the money he earns and the goods he owns belong to the Government and the public, and that when they allow him to retain some part of them they are doing him a favour. That is what your philosophy is. That is what it amounts to.

10.0 p.m.

The Chairman

It is not my philosophy. I have no philosophy.

Sir T. Brinton

I beg your pardon, Dr. King. I realise that in your present position you are neutral. That is what the Government's philosophy is. In order to extract a small amount of tax, because that is all it means, the Minister and his friends are haggling about the difference between an exemption of £100 and £1,000. The Minister himself said that he saw no reason for any exemption at all and I must admit that there is a lot to be said for his point of view, I have no doubt that people have heard frequently of taxi-drivers refusing a 3d. tip because it is not worth having. Neither is £100. It is so small that it really is not worth having at all. What I am suggesting is that for administrative convenience and in order to make sure that there are not a lot of people contravening the law, very often unconsciously, it would be far better to make a realistic exemption which at least would accord with the exemption which has had to be made for practical reasons in respect of chattels in Clause 17.

It is very difficult indeed to discuss this matter because it is tied up with Clause 26 Section 2, which deals with the same matter in respect of long-term capital gains and as has been pointed out it is rather difficult to discuss them in isolation. If the Government have really made up their mind they are going to extract the maximum in tax at every single point they had better say so, and the country had better realise that this tax, which is a tax on inflation, is going to be exacted at every conceivable point throughout the whole of the economy, on every conceivable economic operation, and throughout every transfer of goods within a family. In other words it is to be part of the sand in the economic machinery from now on.

The Minister and his friends are producing today a tax which will be bitterly resented, which will not work and which will inevitably produce either enormous administrative difficulties for the tax inspectors and the public or a great many contraventions, many of them unconscious. Is this what is wanted? If it is then the Government are going the right way about it. The tax is going to lead to this situation in many other spheres as well as this one and I ask that the hon. Gentleman will think again as to whether this niggling exemption is not making administrative nonsense of what he intends to do.

Mr. Costain

When I intervened earlier, I asked the Minister without Portfolio a specific question. It has been the custom on this side of the Committee to give a Minister sufficient time for the necessary consultations. However, I point out that I have had no answer at all to what was a most pertinent question. The question was whether a husband and wife, son and daughter-in-law, are accepted as one and the same for tax purposes. As we have had no answer, I take it that they are. If that is correct, the Committee and the country should know what that means.

Sir Eric Fletcher

I apologise to the hon. Gentleman for omitting to answer that question. The answer is that there is no tax on a gift from husband to wife, or vice versa.

Mr. Costain

That was not the question. I am suggesting that if a father and mother wish to give their children £12 10s. on a birthday or at Christmas and they happen to be lucky enough during the course of the year to make a profit on a share transaction, that £12 10s gift will be subject to tax. Does the hon. Gentleman consider that to be a concession?

Let me make it quite clear so that the Minister cannot duck the question. I am saying that under taxation law husband and wife are the same so that son and daughter-in-law, being husband and wife, are also the same. If any family wishes to give—[Laughter]—the Minister laughs, but this is a serious mattter. If the Government consider that £12 10s. as a birthday present is something which ought to be taxed, then the country ought to know. Will the Minister deny it?

Mr. Box

I have one query for the Minister without Portfolio. In reply to my hon. Friend the Member for Horsham (Mr. Hordern) he asserted that 4 per cent. Victory Bonds, if successfully drawn for repayment at par, were subject to capital gains. I point out to him a quotation from the Stock Exchange Year Book which says: Bonds held for at least six months before death are acceptable at par (plus accrued interest) in payment of death duties. Would he tell me whether Victory Bonds which are surrendered for the purposes of death duties at par are subject to Capital Gains Tax, assuming, of course, that the total exceeds £5,000?

Sir Eric Fletcher

I am afraid that I cannot answer that, but I will undertake to write to the hon. Gentleman and let him know.

Mr. Peter Walker

I am sorry that this Government, poised for instant action, on the one occasion when they can give instant action should decide to send it by post, and, to judge by the present state of the postal services, that will take a long time.

I want, first, to object strongly to the manner in which the Minister suggested that this was a wonderful concession which the Government were giving. When he spoke, there were no more of my hon. Friends who wanted to speak, but after he had sat down almost all of my hon. Friends wanted to speak. That was indicative of the manner in which he upset them by the suggestion that a Socialist Government who allow people to give gifts to their friends and relatives of up to £100 in a year are being very generous to the taxpayers.

This is a remarkable conception that the hon. Gentleman has put forward. We are disappointed that he had no idea of the comparable position in the United States. We are disappointed that he made no mention of the administrative difficulties and he must recognise that they are considerable.

Let us take the situation of a person who, in the course of a year, gives twelve gifts of securities of £10 apiece. This frequently happens as, for example, with unit trusts where gift schemes are available. If during the course of the year the total number of such gifts reaches £100 or more, the individual concerned has to recall the gifts he made during the year, although he may have made the first in January, then having no idea that he was to be invited to be a godfather in November, and therefore had no intention in January of giving more than £100. However, at the end of the year he must quickly calculate what gifts he has given in the year and then see whether he can obtain valuation at the time he gave the gift to the person concerned so that an appropriate return on the subject can be made to the Revenue. This is an administrative nonsense. I recognise that if we are to have a Capital Gains Tax there must be some limit on gifts. What we on this side suggest is that the Government have been thoroughly mean and thoroughly incompetent in drafting this Clause to meet the need.

Let me deal with the alternatives available. The limit which we suggest is £1,000. It may be argued that this is too much or too little, but what the Committee must remember is that we are not talking about £1,000 worth of gain; we are talking about £1,000 worth of gift. The amount of gain from that may be nil, it may be negligible, or it may be £1. Nevertheless, what you are doing by this Clause is that you are making every such gift—

The Chairman

Order. The hon. Gentleman must observe the rules of debate. I am not doing anything.

Mr. Walker

I am sorry, Dr. King.

What the Government are doing by this Clause is creating tremendous administrative

problems, many of which are not necessary. They could have drafted a Clause which was related to the amount of gain concerned in any gift. This would probably have been a better way of dealing with the matter. They could have lifted the limit to a larger sum. What they certainly should have done was to relate the size of the gift to the individual and not the size in total during the course of one year to any number of individuals. This is a very incompetent way of handling the situation.

Much to our surprise, the Government are not willing reasonably to amend the Clause. They propose to continue what is a complete administrative nonsense. They are to continue a scheme under which many people will have to make complicated returns at the end of the year, having gone back over all their transactions by way of gift in the past year. I hope that my hon. Friends will divide the Committee on the Amendment.

Question put, That "hundred" stand part of the Clause:—

The Committee divided: Ayes 182, Noes 169.

Division No. 126.]	AYES	[10.13 p.m.
Allaun, Frank (Salford, E.)	Doig, Peter	Hunter, Adam (Dunfermline)
Atkinson, Norman	Driberg, Tom	Hynd, H. (Accrington)
Barnett, Joel	Duffy, Dr. A. E. P.	Hynd, John (Attercliffe)
Beaney, Alan	Edelman, Maurice	Irvine, A. J. (Edge Hill)
Bence, Cyril	Edwards, Robert (Bilston)	Irving, Sydney (Dartford)
Benn, Rt. Hn. Anthony Wedgwood	English, Michael	Jackson, Colin
Bennett, J. (Glasgow, Bridgeton)	Ennals, David	Janner, Sir Barnett
Binns, John	Ensor, David	Jeger, George (Goole)
Bishop, E. S.	Evans, Albert (Islington, S.W.)	Jeger,Mrs.Lena(H'b'n&st.P'nras,S.)
Blenkinsop, Arthur	Evans, Ioan (Birmingham, Yardley)	Jenkins, Hugh (Putney)
Boardman, H.	Finch, Harold (Bedwellty)	Jones, Dan (Burnley)
Boston, T. G.	Fletcher, Sir Eric (Islington, E.)	Jones, Rt.Hn.SirE1wyn(w.Ham,S.)
Bowden, Rt. Hn. H. W. (Leics S.W.)	Fletcher, Ted (Darlington)	Lawson, George
Braddock, Mrs. E. M.	Fletcher, Raymond (Ilkeston)	Leadbitter, Ted
Bray, Dr. Jeremy	Floud, Bernard	Lever, L. M. (Ardwick)
Broughton, Dr. A. D. D.	Foley, Maurice	Lewis, Arthur (West Ham, N.)
Brown, Rt. Hn. George (Belper)	Foot, Sir Dingle (Ipswich)
Brown, Hugh D. (Glasgow, Provan)	Freeson, Reginald	Lipton, Marcus
Brown, R. W. (Shoreditch & Fbury)	Galpern, Sir Myer	Lomas, Kenneth
	Garrett, W. E.	Loughlin, Charles
Butler, Herbert (Hackney, C.)	Garrow, A.	McCann, J.
Butler, Mrs. Joyce (Wood Green)	Gregory, Arnold	MacColl, James
Callaghan, Rt. Hn. James	Griffiths, Rt. Hn. James (Llanelly)	MacDermot, Niall
Chapman, Donald	Hannan, William	McGuire, Michael
Coleman, Donald	Harper, Joseph	Mackenzie, Gregor (Rutherglen)
craddock, George (Bradford, S.)	Hart, Mrs. Judith	MacMillan, Malcolm
Cronin, John	Hattersley, Roy	Mahon, Simon (Bootle)
Grossman, Rt. Hn. R. H. S.	Hazell, Bert	Mallalieu,J.P.W.(Huddersfield,E.)
Cullen, Mrs. Alice	Healey, Rt. Hn. Denis	Manuel, Archie
Dalyell, Tam	Heffer, Eric S.	Mayhew, Christopher
Darling, George	Herbison, Rt. Hn. Margaret	Mendelson, J. J.
Davies, G. Elfed (Rhondda, E.)	Hill, J. (Midlothian)	Mikardo, Ian
Davies, Harold (Leek)	Hobden, Dennis (Brighton, K'town)	Millan, Bruce
Davies, Ifor (Gower)	Holman, Percy	Miller, Dr. M. S.
Davies, S. O. (Merthyr)	Houghton, Rt. Hn. Douglas	Milne, Edward (Blyth)
Dell, Edmund	Howarth, Robert L. (Bolton, E.)	Molloy, William
Diamond, John	Hoy, James	Monslow, Walter
Dodds, Norman	Hughes, Cledwyn (Anglesey)	Morris, Charles (Openshaw)
Morris, John (Aberavon)	Rees, Merlyn	Thornton, Ernest
Mulley,Rt.Hn.Frederick(SheffieldPk)	Rhodes, Geoffrey	Tuck, Raphael
Murray, Albert	Richard, Ivor	Varley, Eric G.
Newens, Stan	Robertson, John (Paisley)	Walden, Brian (All Saints)
Noel-Baker, Francis (Swindon)	Rogers, George (Kensington, N.)	Walker, Harold (Doncaster)
Noel-Baker,Rt.Hn.Philip(Derby,S.)	Rose, Paul B.	Weitzman, David
Norwood, Christopher	Ross, Rt. Hn. William	Wells, William (Walsall, N.)
Oakes, Gordon	Rowland, Christopher	White, Mrs. Eirene
Ogden, Eric	Sheldon, Robert	Whitlock, William
O'Malley, Brian	Shore, Peter (Stepney)	Wigg, Rt. Hn. George
Orme, Stanley	Short,Rt. Hn.E.(N'c'tle-on-Tyne,C.)	Wilkins, W. A.
Oswald, Thomas	Short, Mrs. Renée (W'hampton,N.E.)	Willey, Rt. Hn. Frederick
Owen, Will	Silkin, S. C. (Camberwell, Dulwich)	Williams, Mrs. Shirley (Hitchin)
Page, Derek (King's Lynn)	Silverman, Julius (Aston)	Williams, W. T. (Warrington)
Pannell, Rt. Hn. Charles	Slater, Mrs. Harriet (Stoke, N.)	Willis, George (Edinburgh, E.)
Parker, John	Slater, Joseph (Sedgefield)	Wilson, William (Coventry, S.)
Parkin, B. T.	Snow, Julian	Winterbottom, R. E.
Pavitt, Laurence	Soskice, Rt. Hn. Sir Frank	Woodburn, Rt. Hn. A.
Pearson, Arthur (Pontypridd)	Stewart, Rt. Hn. Michael	Yates, Victor (Ladywood)
Pentland, Norman	Strauss, Rt. Hn. G. R. (Vau[...]hall)	Zilliacus, K.
Popplewell, Ernest	Swain, Thomas
Price, J. T. (Westhoughton)	Swingler, Stephen	TELLERS FOR THE AYES:
Pursey, Cmdr. Harry	Taylor, Bernard (Mansfield)	Mr. Charles Grey and
Rankin, John	Thomas, George (Cardiff, W.)	Mr. William Howie
Redhead, Edward	Thomas, Iorwerth (Rhondda, W.)
NOES
Agnew, Commander Sir Peter	Grant-Ferris, R.	Mott-Radclyffe, Sir Charles
Alison, Michael (Barkston Ash)	Gresham-Cooke, R.	Munro-Lucas-Tooth, Sir Hugh
Allan, Robert (Paddington, S.)	Grimond, Rt. Hn, J.	Neave, Airey
Allason, James (Hemel Hempstead)	Gurden, Harold	Onslow, Cranley
Anstruther-Gray, Rt. Hn. Sir W.	Hall, John (Wycombe)	Orr-Ewing, Sir Ian
Awdry, Daniel	Hall-Davies, A. G. F.	Osborn, John (Hallam)
Baker, W. H. K.	Harris, Frederic (Croydon, N.W.)	Page, John (Harrow, W.)
Barber, Rt. Hn. Anthony	Harris, Reader (Heston)	Page, R. Graham (Crosby)
Barlow, Sir John	Harrison, Brian (Maldon)	Pearson, Sir Frank (Clitheroe)
Batsford, Brian	Harvey, Sir Arthur Vere (Maccles'd)	Percival, Ian
Beamish, Col. Sir Tufton	Harvey, John (Walthamstow, E.)	Peyton, John
Bessell, Peter	Harvie Anderson, Miss	Pickthorn, Rt. Hn. Sir Kenneth
Birch, Rt. Hn. Nigel	Hawkins, Paul	Pike, Miss Mervyn
Black, Sir Gyrll	Heald, Rt. Hn. Sir Lionel	Pitt, Dame Edith
Box, Donald	Heath, Rt. Hn. Edward	Pounder, Rafton
Boyd-Carpenter, Rt. Hn. J.	Higgins, Terence L.	Price, David (Eastleigh)
Boyle, Rt. Hn. Sir Edward	Hill, J. E. B. (S. Norfolk)	Pym, Francis
Brewis, John	Hirst, Geoffrey	Ramsden, Rt. Hn. James
Brinton, Sir Tatton	Hobson, Rt. Hn. Sir John	Redmayne, Rt. Hn. Sir Martin
Brooke, Rt. Hn. Henry	Hooson, H. E.	Rees-Davies, W. R.
Buck, Antony	Hordern, Peter	Ridley, Hn. Nicholas
Bullus, Sir Eric	Hornby, Richard	Roberts, Sir Peter (Heeley)
		Robson Brown, Sir William
Buxton, Ronald	Howe, Geoffrey (Bebington)	Russell, Sir Ronald
Campbell, Gordon	Hunt, John (Bromley)	St. John-Stevas, Norman
Carlisle, Mark	Hutchison, Michael Clark	Sandys, Rt. Hn. D.
Carr, Rt. Hn. Robert	Iremonger, T. L.	Shepherd, William
Cary, Sir Robert	Jenkin, Patrick (Woodford)	Sinclair, Sir George
Chichester-Clark, R.	Johnston, Russell (Inverness)	Smith, Dudley (Br'ntf'd & Chiswick)
Clark, William (Nottingham, S.)	Jopling, Michael	Spearman, Sir Alexander
Cole, Norman	Kerby, Capt. Henry	Stainton, Keith
Cooke, Robert	Kilfedder, James A.	Steel, David (Roxburgh)
Cooper-Key, Sir Neill	King, Dr. Horace (S'pton, Itchen)	Talbot, John E.
Corfield, F. V.	Kirk, Peter	Taylor, Sir Charles (Eastbourne)
Costain, A. P.	Kitson, Timothy	Taylor, Frank (Moss Side)
Crawley, Aidan	Lancaster, Col. C. G.	Teeling, Sir William
Crowder, F. P.	Langford-Holt, Sir John	Thatcher, Mrs. Margaret
Curran, Charles	Lloyd, Ian (P'tsm'th, Langstone)	Thomas, Sir Leslie (Canterbury)
Dalkeith, Earl of	Longbottom, Charles	Thompson, Sir Richard (Croydon,S)
Davies, Dr. Wyndham (Perry Barr)
Dean, Paul	Longden, Gilbert	Turton, Rt. Hn. R. H.
Deedes, Rt. Hn. W. F.	Lubbock, Eric	Tweedsmuir, Lady
Doughty, Charles	McAdden, Sir Stephen	van Straubenzee, W. R.
Douglas-Home, Rt. Hn. Sir Alec	MacArthur, Ian	Walder, David (High Peak)
Elliot, Capt. Walter (Carshalton)	Mackenzie, Alasdair(Ross&Crom'ty)	Walker, Peter (Worcester)
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Mackie, George Y. (C'ness & S'land)	Walker-Smith, Rt. Hn. Sir Derek
Emery, Peter	Maclead, Rt. Hn. Iain	Walters, Dennis
Eyre, Reginald	McNair-Wilson, Patrick	Ward, Dame Irene
Fell, Anthony	Mathew, Robert	Weatherill, Bernard
Fletcher-Cooke, Charles (Darwen)	Maude, Angus	Webster, David
Fletcher-Cooke, Sir John (S'pton)	Maxwell-Hyslop, R. J.	Whitelaw, William
Gammans, Lady	Maydon, Lt.-Cmdr. S. L. C.	Wills, Sir Gerald (Bridgwater)
Gibson-Watt, David	Meyer, Sir Anthony	Wilson, Geoffrey (Truro)
Giles, Rear-Admiral Morgan	Mills, Peter (Torrington)	Wise, A. R.
Gilmour, Ian (Norfolk, Central)	Mills, Stratton (Belfast, N.)	Wolrige-Gordon, Patrick
Glover, Sir Douglas	Mitchell, David	TELLERS FOR THE NOES:
Godber, Rt. Hn. J. B.	Monro, Hector	Mr. Martin McLaren and
Goodhew, Victor	More, Jasper	Mr. Geoffrey Johnson Smith.
Grant, Anthony	Morrison, Charles (Devizes)

Mr. Michael Alison (Barkston Ash)

I beg to move, in page 13, line 5, after "1965" to insert: except that, in the case of any acquisition before that date, no tax shall be chargeable by virtue of this section where the qualifying period enacted in section 10(2) of the Finance Act 1962 exceeds that provided for in subsection (1) of this section". The purpose of this Amendment is a simple one in spite of the rather complicated and roundabout way in which, in keeping with the rest of the Bill, it has to be expressed. The object of the Amendment is, I believe, just, and I hope it will prove, after I have expounded it, to be acceptable to the Committee as a whole. I hope, Dr. King, that you will allow me to recapitulate a little of the familiar ground of the Finance Bill in trying to make my point. It is a technical and niggling point, but it is of considerable consequence to a large number of our fellow citizens.

The Bill provides for a continuation, albeit in an altered form, of the tax in respect of short-term gains which was introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) in 1962. One of the changes with which I am concerned is the time limit within which the disposal of an asset is susceptible to the short-term gains tax. Under the 1962 Act, the speculative short-term gains tax was applied if the disposal took place within six months in the case of stocks and shares, and three years in the case of land. Any acquisitions or disposals which took place within the appropriate time limits therein imposed attracted, and were susceptible to, the short-term gains tax.

Under the Bill the time limits are altered. There is now a uniform time limit of 12 months in respect of both land and other securities, but the rub of the argument is that this new qualifying period operates only from 6th April of this year. Subsection (11) of this Clause provides that for assets acquired before that date the time limits appropriate to the 1962 Act continue into the post-Finance Bill period. This means that if somebody had the misfortune to acquire a parcel of land a day before Budget day he would have to hold on to it for three years if he was to escape the penal rate of taxation by way of Income Tax and Surtax. After that he would qualify for the 30 per cent. Capital Gains Tax. But if he had acquired that parcel of land a day after Budget day he would be subject to a time limit of only 12 months.

This is an unnecessary and unfair anomaly. Why should somebody who had the misfortune to acquire a parcel of land just before Budget day have to hold on to it for three years? I ask that particularly in the light of the arguments which have been put forward by the Government in respect of amending the time periods for the short-term tax. This afternoon the Solicitor-General was at pains to point out that the alteration of the time limit in respect of the short-term gains tax was in the interests, and in favour, of the taxpayer. We appreciate that. The shortening of a qualifying period means that one has a better chance of escaping the 40 per cent. plus Income Tax and possibly Surtax rate, and coming into the 30 per cent. Capital Gains Tax rate. Of course it is an improvement from the taxpayer's point of view, but it is a discriminating improvement in favour of a certain section of taxpayers. Some will be left out on a limb, and will have to abstain from realising a parcel of land for very much longer.

The Solicitor-General justified the new time limit by saying that it was fair to different kinds of transactions. This is true, but we find ourselves faced with this curious anomaly, that whereas stocks and shares realised within 12 months attract the same sort of penalty in terms of the short term tax as land, land itself, simply because of perhaps a 24-hour difference in the date of acquisition, is differentiated against to the extent of three years as opposed to 12 months. This is very far from being fair in terms of different kinds of transaction. It is quite anomalous.

10.30 p.m.

I would like to point out some snags which will arise in the case of different types of purchase of land. The point about the compulsory purchase of land is still an obscure one. If a compulsory purchase order is placed on a parcel of land and that land has to be realised within three years of the time of purchase, and the seller happens to have acquired it before Budget day, the sum realised on compulsory purchase will be susceptible to Income Tax and, possibly, Surtax, whereas a compulsory purchase order in relation to a plot of land bought after Budget day, and therefore held for only one year, will have to pay only the lower rate of 30 per cent. if the compulsory purchase happens to fall after nearly twelve months of tenure. In such a case this proposal is clearly likely to impose an unfair burden simply by virtue of the fortuitous time at which one happened to acquire a parcel of land—before or after Budget day.

The question of gifts also arises. Let us take the case of a farmer who wants to make a gift of a parcel of land—

The Chairman

Order. The hon. Member is arguing a complex case. I would be grateful if hon. Members who must talk would talk a little more quietly. I find it difficult to hear.

Mr. Alison

As long as you do not mind my talking, Dr. King, I am not too concerned about the comments of other hon. Members.

If a farmer wishes to make a gift of a parcel of land to a son or daughter, if he has a parcel of land which he acquired after Budget day he can make a gift within or just after 12 months and incur only the 30 per cent. Capital Gains Tax which is imposed on the gift, whereas if the land was acquired before Budget day he will have to hold it for three years before he can escape the heavy penalty of Income Tax or Surtax. It will continue to impose anomalous and discriminatory penalties on different types of people simply according to an accidental event, namely, the time when the land was originally acquired.

I submit that there will be yet a further unsatisfactory result, in that this proposal will tend to cause a distortion in values of land. The would-be purchaser of land will know for certain that in looking round at the possible parcels of land he can acquire for development from possible sellers that seller A will be prepared to dispose of a parcel of land in a shorter period of time because he acquired it after Budget day and will therefore have to hold on to it for only 12 months to escape Income Tax or Surtax. That parcel will therefore come on to the market three times as quickly as an equivalent parcel which was acquired by a would-be seller just before Budget day, because he will have to hold on to it for three years in order to escape this penal taxation. Great anomalies in relation to land values will be created by the freezing element imposed by this discrimination. That is a further unsatisfactory result.

It will cost the Treasury nothing to accept the Amendment, which will bring all transactions in respect of land under the same qualifying period of 12 months, whenever acquired, from 6th April, 1965. It will cost the Treasury nothing, because the tax is a voluntary tax—that is to say, people can avoid it entirely by refraining from disposing of land. There will be an extra degree of voluntariness required on the part of some people, to hold on longer-24 months in the case of those who acquired land just before Budget day.

Some people will argue that the imposition must fall on a purchaser of land before Budget day, because he purchased the land in full cognisance of the fact that he would have to hold it for three years, as the law stood at that moment, in order to escape the penalty of Income Tax or Surtax which the 1962 Act imposed. That is true. But anybody who purchased land before Budget day under the 1962 proposals would expect that at the end of the necessary period of time he would be able to dispose of the land without any further taxation charge. Of course, the difference introduced in the new Bill is that, however long the land has been held, it will now come in for a capital gains charge. The situation is totally different.

If the Government are not prepared to accept the Amendment, the only fair thing to do in reference to a purchaser of land prior to Budget day will be to say that he will be able to dispose of it without having to pay a Capital Gains Tax. I ask the Government to consider that as an alternative.

Mr. MacDermot

The hon. Member for Barkston Ash (Mr. Alison) moved this slightly technical and complicated Amendment very clearly and put his case very persuasively. The question at issue, which I do not think raises any major question of principle, is important, although it is within a fairly narrow compass.

The issue which confronted us was whether, in changing the period of time for the short-term tax, we should make the new rates apply to acquisitions which were made before Budget day or to leave pre-Budget acquisitions to run out on their old timing. First, when one takes assets previously subject to the six months tax, the question is whether it would be fair to say that they should be subject to the short-term tax if they were disposed of within the new period of one year. We thought it would not be fair to someone who had bought what I call a short-term asset and who contemplated that he would be able to dispose of it within six months and escape tax. We thought it would be unduly harsh then to impose tax on him when maybe he would never have entered the transaction if he had known that he could not dispose of it after the six months' period without being subject to tax. We thought that it was fair and right.

On applying the same judgment and the same principles to land, we thought it right to let the period run out, because the parties to the transaction of the sale of land within three years before Budget day would have negotiated and agreed their price in the belief that if there were a resale within three years this would attract a high rate of tax. I say a high rate because one is assuming for this purpose that a person of substance is doing the transaction. In the case of land I suggest he usually would he such a person. Sometimes, of course, it would operate at a lower rate. Considerations of the likely incidence of tax, of course, enter into negotiations as a factor which goes to determine the price.

For that reason we thought that it is right to leave the position as it is in the Bill: that any resale within the contemplated three-year period, that is to say, which was in contemplation by the parties at the time of the transaction, should be taxed at the higher rate.

The hon. Member raised three specific points. He said, first, that the effect of a compulsory purchase order might be different. I do not think so. As I understand the position, I do not think there would be any difference. The law would be the same in respect of the compulsory purchase order. I think the same applies in relation to a gift if he were to dispose of property by gift. The hon. Member says that it would distort land values. Of course, if we accede to his Amendment it will distort land values in a different sense. It means that it would give a quite uncovenanted gain to the man who purchased within three years before Budget day, and it would mean that he would be able to dispose of the property more advantageously to himself within the period during which he contemplated that he would have to hold the land.

For these reasons, I suggest that, in what I agree is a matter of nice distinction and fine balance, our conclusion is the better one.

Mr. Heath

This is a most disappointing reply from the Financial Secretary. He said that this Amendment does not raise a matter of great principle, and he has paid a tribute to the way in which my hon. Friend the Member for Barkston Ash (Mr. Alison) argued his case so persuasively and with logic.

This really is an anomaly which has arisen in the Bill as a result of the different periods taken for the tax. We understand that the Financial Secretary, the Chancellor and all the Treasury Ministers have been very hard pressed in trying to get this enormous Bill ready, and they cannot have given the fullest consideration to all the points. Is this not a case where the Financial Secretary could say that he accents that there is this anomaly and that he is prepared to make an adjustment? Nevertheless, he comes along at the end of a day's hard debate, which has been of a very high level, and presents a completely rigid front on something which will not cost the Treasury much, which will remove a feeling of inequity between individual citizens and which he could easily grant. At this stage of the Bill this is not good enough, and I hope the Chancellor will give him a gentle nudge and say, "Look, this is a case where you could meet the Committee." If the Financial Secretary is going to make real progress with the Bill he must come some way towards us on something which he says does not raise a point of great principle.

The case argued on the question of securities is not exactly comparable, because it does not mean that the persons who originally undertook the contract are getting a worse deal than those who come under the Bill now, whereas in the case argued by my hon. Friend they are going to get into a worse position. As was explained, this means an overlapping situation in which they will feel a sense of grievance and inequity.

I hope that in a case like this, which will cost so little, which does not raise a point of great principle and which can be fitted into the Bill, the Financial Secretary will come some way to meet us. I hope the Chancellor will urge him to do so. If the Financial Secretary cannot meet us on this point I must again urge my hon. Friends to divide the Committee.

Mr. George Y. Mackie (Caithness and Sutherland)

I urge the Financial Secretary to accept the Amendment. I followed the argument of my hon. Friend the Member for Barkston Ash (Mr. Alison) with care and I thought he put his points very clearly.

I could not follow the Financial Secretary's argument that anyone who bought land and intended to keep it for three years, bought it with financial considerations in mind because he had intended to keep it for three years. The Government have altered the situation at the end of the three years, and I thought my hon. Friend put this point very clearly. A man in that position would then have to pay a tax which he did not expect to pay.

In all equity, the Government should say that such a man should be put on an equal footing with people who bought after the Budget, and I urge the Financial Secretary to reconsider his decision.

Mr. MacDermot

If it is the wish of the Committee, I will certainly undertake to look further into the point.

Sir D. Glover

Seriously?

Mr. MacDermot

Seriously. Of course, I would not make such an offer if I did not intend it seriously.

This is a point which I considered and I was responsible for the decision. There have been some arguments adduced on matters to which perhaps I did not give sufficient weight. I do not want to commit myself, but I will gladly reconsider the whole question if it will meet with the wishes of the Committee.

Mr. Alison

In those circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

10.45 p.m.

Sir D. Glover

We have had a very good debate all day on various Amendments to the Clause. I want to make my position quite clear to the Chancellor of the Exchequer and the Financial Secretary. I had grave doubts even in 1962 about the bringing in of a Capital Gains Tax, or a speculative gains tax which was the term used at that time. But I accepted that there was a strong case for covering the spculative gain element in stagging, in the buying of options, both call and put, and other ramifications which my right hon. Friends then hoped to cover. I have listened all day to the arguments.

Mr. A. E. P. Duffy (Colne Valley)

The hon. Member has not been here.

The Chairman

Order. If the hon. Member for Colne Valley (Mr. Duffy) wishes to intervene, I hope that he will do so in the conventional way.

Mr. Duffy

With permission, when the hon. Member for Ormskirk (Sir D. Glover) says he has listened to the arguments all day, I feel moved to say that I have sat here all day and I have not seen the hon. Member in his place.

Sir D. Glover

It is not for me to draw attention to the hon. Member's eyesight. I have been here for at least five hours and I have listened to nearly all the major speeches. I do not know whether the hon. Member for Colne Valley (Mr. Duff) has contributed. If he has and I have missed what I am sure was an earth-shaking pronouncement, I am sorry. I have certainly listened to all the speeches from the other side of the Committee, which as usual in this debate have been very few indeed.

To return to the major argument, I was critical, but I accepted at the time that there was a case for closing he loopholes on speculative gains. I am not criticising their right to do so, but when the Government bring in a long-term Capital Gains Tax I do not see why they need to extend its provisions, as they do in the Clause, from six months to twelve months. I cannot see where the logic of their argument leads them. The hon. Member for Manchester, Cheetham (Mr. Harold Lever), who is no longer in his place, argued with great cogency in two very able speeches, both of which were critical of the Government. In one case he went as far as to say that if the enormity which would be created by producing a Conservative Government had not been in his mind he would have voted against his own party on an Amendment which we were discussing at that time, which shows that he felt very strongly that the Amendment should have been accepted.

The Chairman

Order. We cannot go over that Amendment now.

Sir D. Glover

I am speaking, with great respect, on the Question, That the Clause stand part of the Bill. I think I am right in saying why I disagree with the Motion which is before the Committee and in drawing attention to the fact that hon. Members opposite adduced arguments against accepting this Motion.

Mr. Mendelson

One hon. Member.

Sir D. Glover

I went on to refer to the hon. Member for Cheetham.

Mr. Duffy

Who are the others?

The Chairman

Order.

Sir D. Glover

I do not need your protection, Dr. King. I am prepared to deal with hon. Members opposite. It makes it very difficult to say "more than one", because there have not been more than one.

This is another example of the fact that the Labour Party does not believe in democracy. One of the fundamental things that we are up against on this question is that, as on the other Clauses of the Finance Bill, we are discussing matter; of great moment and great complexity, but it is obvious that even those on the Government Front Bench have not been able to absorb all the implications of what they are doing under the Bill, and certainly not those of what they are doing under the Clause. In any democracy it is not sufficient to be doing good. In a democracy one has not only to be doing good but to give the public the opportunity of realising what one is doing. When hon. Gentlemen opposite find it very difficult to justify their own case, it means that they are not taking the public along with them in their legislation.

What is the argument for extending the period? We have not had any argument from the other side which has been convincing. We have had speech after speech on various Amendments from this side of the Committee which were overwhelming in their logic. [Laughter.] I am afraid that hon. Gentlemen opposite are not treating the Clause with the seriousness with which the public will. We have heard speech after speech, some from the other side of the Committee, criticising what is being done under the Clause. We have had no speeches from the Government back benches using any coherent argument why the Clause should be accepted in its present shape. [Interruption.] If the hon. Member for Penistone (Mr. Mendelson) feels so strongly that the arguments from this side of the Committee were not cogent, why did he not intervene in the debate and say so? Why does he think that his arguments should be given from a comatose position on the Question, "That the Clause stand part of the Bill"? If he felt that the Amendments were not relative to the problems of the nation, he should have intervened and made, as I am sure he could have done, a cogent speech, to which we would all have listened with great attention, setting out his arguments why our arguments were not as valid as we thought they were.

At the moment we think that our arguments are overwhelming in their logic and commonsense approach to the problem. We have accepted—we have not repudiated or criticised—the speculative gains tax which my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) brought in in 1962 when he was Chancellor of the Exchequer. We have accepted that there were arguments in the Report of the Royal Commission. We have accepted that in the Bill the Chancellor has accepted in part the Minority Report of the Royal Commission. That Report said that we did not need a short-term Capital Gains Tax but could have a long-term one. What is the argument for extending from six months to twelve months the short-term excessive burden on anyone who gets a capital gain? What is the logic if the right hon. Gentleman is bringing in at the same time a Capital Gains Tax which is all-embracing and lasting over a period of years with no diminution? He is explicitly saying that he thinks that all capital gains, whenever achieved, shall have a penalty applied to them of 30 per cent.

Therefore, in these conditions, accepting that the short-term speculative gains tax might be necessary to stop stags, calls and puts on the Stock Exchange—we accept that—what is the virtue in the extra six months? Whatever is the logic of the extra six months? What is the purpose for this if it is not simply to be ideologically stupid in trying to put a burden on some people who should not have that burden put upon them?

This Clause, passed without Amendment, is making it certain that there will be some very serious repercussions on what I should have thought all sides of the Committee would have wanted to encourage. My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), who is not for the moment in the Committee, made a most cogent speech this afternoon about the small investor. The small investor will be very seriously hit. I should like to put a point which I have not heard made today.

I do not know what is the Chancellor's own experience, but I know my own. When I was a younger man, with very little money, and invested my first £100 on the Stock Exchange, I was very nervous and almost drew it out again the same day because I thought that I would lose it. What I needed was some encouragement to believe that there was going to be some gain for my investment. It so happened that in my case I found it, because I invested when this country was prosperous; and so I have more money to invest because I thought it a good thing to do. Yet what the Chancellor is doing here is to make certain that the person who has, let us say, quarrelled with his wife—[Interruption]—oh yes, this is very true—has saved £100 and has had this quarrel because his wife has said, "Let's have a jolly good holiday" and he has said, "No, we will invest our money and bring prosperity to ourselves over the years". Then something happens and he has to sell the investment. He then finds that when he sells he will have the amount grossed up with his income. What an encouragement for a man to put away a pound or two pounds of his wages—[Interruption.] There is nothing funny about this. It is a most serious matter, because this is virtually how every original investor started.

What is the encouragement to a man to put away a small amount, when his wife says she wants a refrigerator and he argues that it would be better to invest the money and get more money next year, and so on? Of course she will say, "Yes, as you did last year, when you had to sell and gross it up with your income. We will have the refrigerator".

What I have read of Labour Party propaganda tells me that hon. Members opposite want a wider distribution of prosperity; but what is the Chancellor doing under this short-term Capital Gains Tax? It is the small investor who, because of illness, change of job, for family reasons, or otherwise, having made this investment, is all the more likely to sell as a forced seller within the twelve months. If he does, then he will have to gross any profit with his ordinary income. Whatever is the encouragement? Where is the encouragement for a man to invest again the following year? Where is the encouragement to his mates when they slowly realise what is happening? Where is the encouragement towards a climate of making it a good thing to invest in British equity?

The Chancellor is making it far more difficult to create the right kind of opinion whereby people will have their money for investment in the growth of British industry; the Chancellor whose supporters are always talking about expansion, and so on. The Chancellor knows very well that the First Secretary is building up a picture of a growth target of 25 per cent. for the next five years.

11.0 p.m.

Of course, the Chancellor says that the investment that will bring about that increase will come from the great tycoons, from the investment trusts and from the institutions, and he is right as to a great percentage of the amount involved. But, at the same time, if that growth is to take place, if we are to build a more just society, if we are to spread share ownership, surely we ought to be giving the greatest encouragement to the small man in persuading him to take part in this expanding equity that is British industry.

Under this Clause, the Chancellor will make it more difficult for these individuals. He is removing the encouragement. He is making it less likely that they will be able to persuade their friends that what they did was a good investment. He is therefore making it more likely that the ordinary chap who has not got into the habit of investing will be frozen off and decide that it is not worth the candle.

The Chancellor does not need this extension to the long-term Capital Gains Tax to clamp down on the stags and other manipulators on the Stock Exchange. That was all covered under the six-month speculative gains tax. This additional six months is just an ideological stupid nonsense. It does not create any advantage in logic. It only makes it more difficult for the little chap to take his chance in building up British democracy.

Sir Alexander Spearman (Scarborough and Whitby)

This tax has two general disadvantages which it would be difficult for Treasury Ministers to deny. First, it will be very expensive to collect, and on that we had an intervention from the hon. Member for Westhoughton (Mr. J. T. Price) who took just that line. Secondly, it will make a great deal of unproductive work for lawyers, accountants and dealers. The only tax that has these disadvantages should, to justify it, have compensating advantages to offset them.

The main object of taxation, as I see it, is to regulate spending and to see that it is in equilibrium with production, but this tax will largely come out of savings and therefore will not affect consumption. I would guess, too, that the revenue will be very small. It is a tax that will be paid by only those with relatively small incomes. Let us take an extreme case. No one paying tax at 18s. 3d. in the £ will pay this tax. Obviously, anyone who has to pay 91¼ per cent. of his profits in taxation will not sell.

The two particular disadvantages I would bring to the attention of the Chancellor are, first, that this will lead to narrower markets and widening prices in the gilt-edged market. At present, if a very big line of stock comes on offer, a jobber will absorb it even though he has not a buyer because, by putting forward switching propostions, he is sure that he can find something that will take. Equally, if a very big buyer comes along he will sell stock even if he has not got it, because he knows where he can get it through a switching operation. This tax will affect switching operations so that there may well be much more violent fluctuations in price.

Secondly, there is a retrospective element in this. Supposing institution A had applied for a stock when it was issued and kept it all the time, it would pay no tax; but if institution B had acquired the stock by switching, then it would pay perhaps very heavy tax.

I accept that institutions do not switch for the benefit of the Treasury; they switch for their own benefit, but that switching makes a powerful contribution to making London the freest market in the world. The Chancellor would not deny the value to the whole country of the supremacy of London as a financial centre. This switching has very much helped the Treasury in the past when it has had issues on sale. I hope that the Chancellor will listen to the representations which will be made about this tax as it affects switching. I know he said that he would listen to any views put forward, and I know him to be a reasonable man.

I seem to remember that, during a debate last week, he felt a little uncomfortable about the word "listen" and it may be it is very difficult for him to give way in this matter. It reminds me of an account of a conversation between Mr. Churchill and General de Gaulle during the war, which I read in The Times recently. Mr. Churchill said, "But will you make no concessions, mon General?" and de Gaulle said, "No, none. I am much too weak". I am afraid that is the position of the Chancellor today.

Sir Charles Mott-Radclyffe (Windsor)

We have followed the Financial Secretary during the debate through rather tortuous paths, weaving our way through different arguments. We have had vintage cars, I think they are excluded; vintage locomotives, I think they are included. I do not know about vintage port. That is probably included.

Mr. Rees-Davies

We lost that one last week.

Sir C. Mott-Radclyffe

What we have not had from any right hon. Gentleman on the Front Bench is any lucid explanation or logical argument as to why it is necessary to impose a short-term Capital Gains Tax on this kind of chattel and other movable objects at all. I do not believe that the right hon. Gentleman, the Financial Secretary and his colleagues quite understand the kind of difficulty they will get into when they apply this tax. My own view is that it is technically unworkable. All that is achieved by putting a short-term Capital Gains Tax on works of art is the distortion of the genuine respectable market.

Who is going to sell a chattel worth more than £1,000 in a period under 12 months unless he is forced to do so by reason of some misfortune that has befallen him? No one will. They will simply hold it over for 13 months and if they want to realise it then, they do not pay the high short-term Capital Gains Tax; they pay the long-term tax of 30 per cent.

There is no revenue for the Treasury at all. The market will simply freeze up on the short term, and if the respectable market freezes up then the hon. Gentleman is going to create a very undesirable black market. He is bound to. There are hundreds of thousands of ways of evasion, practised on the Continent and not in this country, which I would be very sorry to see practised here. It would be very undesirable but it will happen. He is creating a spivs' market by the short-term Capital Gains Tax.

Some cogent remarks have been made from these benches concerning the problem of evaluation. The Government Front Bench have, I think, misunderstood the point about the sale, which was referred to, of the Stubbs. This is almost a test case and I should like to recapitulate for the benefit of the Chancellor. An unknown, unidentified picture of a horse was put into an auction on 6th May. I do not know the owner. I have no idea how long he had the picture. Whether he had it 10 years or 20 days, I do not know. He put a reserve of £80 on it, and this unidentified picture was subsequently identified by the art dealers as a Stubbs and was sold for £24,000.

Either way round, either short term or long term, I should have thought that Capital Gains Tax would become payable on the difference between £24,000, which is what the picture fetched on 6th May, and what the picture was worth on Budget day.

Sir D. Glover

What was it worth?

Sir C. Mott-Radclyffe

That is what I want to ask. What was it worth on Budget day? When is a Stubbs a Stubbs—when it is painted, or when it is identified? [Interruption.] This is not a frivolous argument. It was worth £24,000 a month after Budget day. A reputable dealer valued it just after Budget day for about £3,000. I do not know how one arrives at a value. Two or three dealers of the highest repute could vary enormously, with the best will in the world, in valuing a picture; or silver or anything else. The only way to arrive at the value of any work of art is to test the market. This is an extremely chancey business, as we all know. Experts do not know what these things will fetch.

I do not think that the Government Front Bench have dealt seriously with this problem of valuation. I do not know how any work of art that is sold, perhaps, many years subsequent to Budget day can be valued at what it was worth in an unknown set of circumstances on 6th April, 1965. Unless the Chancellor can give a more cogent explanation of how he proposes to approach this extremely difficult problem, which I believe to be insoluble—I do not think that he has the faintest idea of the sort of difficulty that he is getting into—we have every right to oppose the Clause on the basis of the explanations which the right hon. Gentleman has put up so far.

Mr. Anthony Fell (Yarmouth)

My hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) has been kind towards the Government Front Bench. What worries me about the Clause is that during the debate this evening we have had a series of messages being passed between the advisers and the Front Bench and it has become more and more clear that Ministers simply did not know the answers to all the various questions that were asked by my hon. Friends. [Interruption.] All the hon. Members who are on the benches opposite were here throughout most of the debate and they were quite aware of what was going on.

If the homework of Treasury Ministers has been done so badly that they do not know from day to day any of the answers on the Clauses and Amendments which they know are coming forward, I am very much worried about whether they have any idea of the long-term effects of the legislation which they are trying to put through in the Bill.

11.15 p.m.

Mr. A. Henderson

The hon. Gentleman and I have sat through many Finance Bills and I know him to be a factually truthful person. Would he not agree that when the party opposite occupied the Treasury Bench messages passed backwards and forwards?

Mr. Fell

I am grateful for that intervention. Of course it is true that Front Benches have a habit of communicating. But it is one thing to have a Conservative Front Bench getting advice on the rather stupid questions put to it by the Labour Opposition and another thing to have a Socialist Government Front Bench getting advice of the obviously highly intelligent questions put to it on its own Bill. The Government feel that the questions are so important that they give a reply to each.

My hon. Friend the Member for Windsor drew attention to the case of the Stubbs. What worries me is how the Chancellor is going to organise this tax. The Stubbs was one of thousands of miscalculations which have been made by top valuers. Not many years ago an E1 Greco painting which the too valuer at Christie's suggested should have a reserve price of £36 went for £36,000. It is almost impossible to get an exact valuation. Will the Chancellor get valuers to go round with his officials valuing works of art?

The Chancellor appears to disagree but we have not had an answer to this. I realise that we have been told that we are to get answers on a later Clause dealing with long-term gains, but why should we let this Clause go by default on a promise that we are to learn certain things on a later Clause?

Dame Irene Ward (Tynemouth)

When they have done their homework.

Mr. Fell

Meanwhile, we will have passed what may turn out to be a disastrous Clause because the Chancellor, and more particularly his advisers, did not realise what would accrue from their actions.

I hope that my hon. and right hon. Friends on the Front Bench will not put us off from voting against this Clause simply because my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced a short-term Capital Gains Tax in 1962.

My right hon. and hon. Friends have been arguing strongly against various parts of this Clause and it would be wrong if we were put off from voting against it.

Mr. Hirst

I am encouraged to rise now because the Chancellor himself is present. It is typical that, time after time, we get inadequate answers. This is holding up the Bill, and that cannot be in the interests of the Government or anybody else. Some hours ago, my hon. Friend the Member for Worcester (Mr. Peter Walker) made an exceedingly good speech. I noted it down. He put about eight questions—I cannot remember them all—and I am certain that not one of them was answered. I drew attention to that fact at the time. That was very largely the fault of the Solicitor-General. I have no doubt that he is very able in his own field, but tonight he had a brief which no junior at the Bar would ever have accepted. The result was absolute chaos. In due course he was followed by the Minister without Portfolio who does a lot of work on Finance Bills. If ever a man worked for his portfolio tonight, it was the hon. Gentleman on that Amendment, but we had no answer. The Financial Secretary has been trying the hardest of all and is getting worn out because he is working so hard.

The Chancellor should do something about this. It is not fair that a mass of terribly important questions should not be answered, especially when one is of fundamental importance, as was the case with the Amendment in page 11, line 12, which dealt with the period. Right, left and centre my hon. Friends have been pointing to the many ramifications of these proposals. The reason for the change has not been made at all clear. Nobody in his right senses would accept the arguments of the Solicitor-General—he should be locked up if he did. We ought to have something better than that.

I assume that the Chancellor has spent some time considering the Bill and he must know what the reason for these proposals is. He and I know each other well. We have debated together many times and once or twice we have been on the same side of the argument, but that is not so tonight. He must have some idea and we ought to know what the reason is. We are being forced one by one to make an array of speeches searching for the truth which remains hidden, or, when not hidden, is revealed bare-faced, and we return to our view that this is being done from some element of malice, or whatever it may be—certainly lack of understanding—and complete disregard for what has been happening in the economy over the years, particularly under Conservative rule.

One of the greatest things the Conservative Government did—deliberately because it was our policy—was to help to create a small property-owning nation with many people owning shares, something never known before in this country. A Government seeking to make the nation "go" and seeking to get growth at the points in the economy where it is required should be seeking to foster this development. Instead, right hon. Gentleman opposite are doing exactly the opposite.

As it is fundamental, I make no apologies for repeating that it is the smaller investor who will be caught by the network of the Clause. The big investor may be caught occasionally for some family reason, but by and large he will be able to wait to sell; or he may have building society assets of which he can dispose. He will also have better borrowing facilities, when we do not have a 7 per cent. Bank Rate. But the small man who may have to realise in order to meet his obligations will be caught and one can think of all sorts of things which can happen in a family and which cause trouble. This provision will not encourage such a person to make investments.

We have been given no reason for this sort of double event. It is bad enough that the Government's economic policy should be decided and directed, as we understand, by all sorts of evidence which Dr. Kaldor gave to the Royal Commission, but when we are also guided by the sort of evidence which he did not give to the Royal Commission, then God help our country. The Minority Report of the Royal Commission was clearly not in favour of a short-term Capital Gains Tax. It wanted a longer term and certainly not a mixture of the two, which is utterly illogical and bound to cause damage to the economy in many respects.

My hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) pointed out very well the reflex this has right away across the board in other countries and upon the picture they have of Britain. Hon. Members opposite often talk about "running down your own side" and about our making comments which can be quoted abroad and all the rest of it, but it is much worse that by their actions they should so appear to damp down initiative and the efforts of the small individual upon whom the national reputation must depend. The time has long gone when what mattered was what a few wealthy people did. Growth, investment, development of the country today depend, as they do in other highly developed and civilised countries, on the efforts of small individuals and the sum of all their efforts. They are the motive power in the United States, for instance, and we have got to have that power here, too. Instead of encouraging that, we have the folly of this Capital Gains Tax, and all this fiddling and footling, in malice or spite, to make sure that unless everybody can have something nobody shall have it. Really, hon. and right hon. Members opposite have got to grow up.

I have quite a lot of regard for the Chancellor, although politically we are miles apart, and I beg him to get the Committee out of this atmosphere in which we must go on, as I am now, trying to get answers to quite simple questions, apart from the technical questions which I am not now attempting to deal with, and we have to go on simply because there is nobody on the Treasury Bench competent to reply. I hope they will be removed.

Mr. Grimond

I have no objection in principle to a Capital Gains Tax, though I would have hoped that it could have been coupled with some reduction in direct taxation on incomes which is one of the most powerful arguments for it and to my mind one of the most serious drawbacks to the present proposals. The real reason for a Capital Gains Tax surely is that someone who makes a gain out of capital asset is as liable to contribute to the revenue of the country as someone who makes money in any other way. I would quite accept that. But why should it not apply then to a person who makes a capital gain on the pools? I reject the academic argument that there is no asset. There is no reason in equity why betting wins should not be taxed.

I would ask the Chancellor to make clear to the Committee what revenue he expects the tax to yield by extending it in the short term from six months to 12 months, and what evidence he has that this revenue, whatever it may be, can be obtained without a very great increase in administrative expenditure. I think that the Committee is entitled to know that. I should have thought there was a case at least for leaving the short-term tax at six months. The same question arises on the extension of the tax whether it will really bring in so much, and I should have thought there was a case for the rate to be 30 per cent. even beyond the six months' period.

The last point is that of the gain on a picture—such as a Stubbs picture—bought and sold within 12 months even though bought otherwise than for speculation. If it was bought for £80 and then is sold for £24,000, quite clearly—

Sir C. Mott-Radclyffe

I thought the point was put clearly. There was a reserve of £80 put on the picture by the vendor. When he bought it I have no idea.

Mr. Grimond

This seems to be an esoteric argument. It is irrelevant that there was a reserve on it. The question is, what did he pay for it? If I understand the Clause aright the only questions which are relevant are, what he paid for it, how he acquired it, what he sold it for, and was it within 12 months. If I have misunderstood the Clause, and these are not vital questions, I hope that the Chancellor will explain it.

11.30 p.m.

Mr. J. E. B. Hill (Norfolk, South)

I wish to support all the very powerful criticisms which have been made of the Clause from this side of the Committee. It seems that if we bring in a Capital Gains Tax there is a great argument in principle in favour of having a fixed rate so that people will know their tax liability at the time of completing their transactions. One of the criticisms of our short-term Capital Gains Tax was that people operating in markets simply did not know their liability until the end of the year.

I wish to reinforce the criticism of the short-term tax on chattels, because it seems that administratively it is nonsense, and that it is indefensible from the point of view of social justice. What is going to be the cause for a sudden rise in the value of a chattel within 12 months? The probability is that it will be the recognition of its true value, hitherto unrecognised.

It seems to me that the only people who will be caught by this are the less fortunate and simpler people who, for one reason or another, have to sell. We have all had in mind the case of the widow who has to sell. What we perhaps have not had in mind is the fact that a valuation at death will, presumably, be probate valuation, usually at a modest figure, because probate is not conducted on the basis that the largest possible market valuation should be made at the time. If it were, estates would be subject to very heavy penalties.

On the other hand, it may be that in a comparatively short time—within 12 months—one of the legatees, one of the family, may be forced to sell for reasons beyond his control—sickness, poverty, or just sheer shortage of money. It may follow that some family possession put into the market will, like the Stubbs, fetch an unexpectedly high value. If the Stubbs is sold by the widow, believing it to be of some value, but not of great value, which seems to have been the case here, is it really desirable that merely because she did not have the luck to sell outside the period of 12 months she should be subjected to this penal taxation?

Taking the Stubbs at £24,000, and assuming that a similar picture was owned by a needy widow who had paid a modest probate valuation because it was not known to be a Stubbs, is it desirable that the tax should be at the Income Tax plus Surtax rate on £24,000? Even if we regard it as earned income, the tax will be about £17,000 to £18,000, whereas if by chance the same transaction took place outside 12 months, the 30 per cent. tax would amount to £7,200. It seems to be a travesty of social justice to suggest that that is a desirable result, as the penalty will depend on luck. Anyone with good advice, anyone knowing the possibilities, will obviously avoid that.

Another criticism is the astonishing burden which will be laid on the Inland Revenue by having two totally different systems of taxation for identical transactions. How can a valuation be satisfactorily arrived at in the art world when there is not necessarily a sale transaction at the beginning? The disposition may be by way of a gift, or even by winning at gambling.

It seems to me that a totally unnecessary burden is being laid upon the Inland Revenue, which will be grossly overworked by the rest of the Bill. Hungarian Rhapsody No. 13, I would call it, and the sooner it is trimmed down and brought on to a workable basis by rejecting the unworkable and impracticable parts of it, so much the better.

The Solicitor-General

I think that I can answer this debate in a few words, because most of the speeches to which we have listened have merely been repetitions of speeches made on Amendments. First, I want to reply to the right hon. Member for Orkney and Shetland (Mr. Grimond), who put the specific question what the Revenue expected to gain from the change in the length of the short-term Capital Gains Tax. At a rough estimate it will be about £6 million a year, when the tax comes fully into effect.

In referring to the particular case of the Stubbs picture—and I find myself in agreement with the right hon. Gentleman—I would say that if a picture was purchased for £80 and sold for a very much larger sum within 12 months it would attract tax under this proposal. But I cannot imagine that anyone dealing in a chattel of such value would not be advised as to the appropriate time to make the sale.

I now come to the repetitious arguments used by hon. Members opposite. Many of them referred again to the small investor. Again and again during the debates on various Amendments hon. Members opposite have stood up as champions of the small investor. But we have not had any answer why the small investor has not been adversely affected by the 1962 legislation. That mystery remains unresolved. Apparently, if a person makes a short-term capital gain within six months he is a speculator. Apparently that is something rather discreditable. But if he makes a short-term gain within 12 months he comes into the class of small investors. That is the whole argument underlying the speeches of hon. Members opposite.

If, as we have been told, the small investor is to he deterred and frustrated under the 12 months' tax provision, how is it that he has not been affected in the slightest degree by the six months' tax provision—because no evidence has been advanced that the 1962 legislation has had any effect on his position in the market.

Sir D. Glover

The hon. and learned Gentleman has completely missed the point. The point has been made time and time again that we accept that under short-term speculative gains there was stagging and contango-ing, and so on, and that a loophole had to be closed. We accepted that that had an adverse effect on the small investor, but that it had to be done. But there is no need to extend the provision to 12 months.

The Solicitor-General

I am talking about the quite legitimate small investor. If he is frustrated and deterred by a Capital Gains Tax which applies over a period of 12 months, the same result must have followed, to some extent, in the case of a period of six months. No evidence has been put forward as to the effect of that period.

I have been asked about the purposes of the Clause. Its two main purposes are clear enough. We discussed the first in the debate on the first Amendment this afternoon. In the first place, the Clause alters the time limits within which short-term gains are to be treated as income. We make a perfectly logical change and we get rid of the discrimination between gains on land transactions and gains in relation to other assets. We give the taxpayer relief in one case and we achieve a slightly different result in the other. But we achieve the perfectly logical result that when we are treating, as we have done since 1962, capital gains as income, we should deal with them in precisely the same way as with all other income and make the year the basis of taxation.

The second major difference is that we come to the question of the assets which are to be taxed. Criticism has been largely directed at the fact that we bring in tangible moveable property and that is a change from the Act of 1962. Here it is necessary to look at the whole scheme of this part of the Bill. What the Bill sets out to do is to remedy a glaring fiscal injustice, the injustice which results from the present system under which earnings of whatever sort are heavily taxed whereas capital gains are entirely free. That is what we are seeking to cure by this Measure.

We have to look not merely at this Clause; we have to look at the later Clauses, which deal with long-term Capital Gains tax. It would be entirely inequitable in dealing with long-term tax if we were to distinguish between ore kind of asset and another. Therefore, it is essential that we should bring in tangible moveable property, but if we bring it in in relation to long-term tax, it follows that we must necessarily bring it in in relation to the short-term tax as well. These are two salutary changes in our tax law. I therefore recommend them to the Committee.

Mr. John Hall

We have been debating Clause 16 for nearly eight hours and I do not propose to detain the Committee for long, because we have nearly arrived at a time when we should come to a conclusion. I am sorry that we have not had a greater contribution from back benchers opposite. We have had interventions from two of them, I believe. It is true that we had interventions from the Front Bench opposite, but we could have done without most of those.

The Solicitor-General said that there were two main purposes in introducing this Clause and amending the 1962 Act. One was to alter the time limit. We had noticed that. The second was to include tangible movable property in order to cure the inequity which arises because gains on capital have been exempt from tax, certainly before 1962, whereas incomes have been taxed. To do that we had to be sure that all gains on assets are taxed whatever they may be, even though it means bringing into the Bill assets which will be practically impossible to tax and will encourage the maximum amount of evasion.

I can only assume that Clause 16 has been introduced because of reluctance on the part of the Government to abandon Conservative legislation. They have an instinctive realisation that anything introduced by the previous Administration must be sound. Therefore, they are very reluctant to let go the 1962 Act, introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), which was introduced, of course, for a quite different reason.

In hanging on to Conservative legislation on the very good ground that ipso facto it must be good legislation, the Government failed to realise two things. The first is that it was designed to deal with short-term speculative gains over a smaller field, and the second that it was not associated with a long-term tax. To deal with a long-term tax a short-term tax is not necessary. I do not want to annoy the hon. Member for Manchester, Cheetham (Mr. Harold Lever) by quoting again the minority Report which was quoted by my hon. Friend the Member for Shipley (Mr. Hirst).

11.45 p.m.

We have attempted to improve this Clause by introducing Amendments designed to shorten the time. We have introduced Amendments designed to delete the references to tangible and moveable property, the inclusion of which makes absolute nonsense of the short-term gain provision. If this is included in the short-term and, indeed, in the long-term provisions, the Government will have a grave responsibility for introducing something which will put such a strain on the Inland Revenue that it may bring about a breakdown of the service. This is a tax which will create widespread attempts to evade it.

The Government have rejected our attempts to bring some realism into the section of the Bill affecting gifts. I might say in passing that my right hon. Friend the Member for Bexley (Mr. Heath) will have to refuse any further invitations to be a godfather, in view of what we have heard this afternoon. The Government have rejected Amendments which were designed to bring some sense into the treatment of gains arising from the sale of land. Nevertheless, the hon. and learned Gentleman had eventually to yield to the logic of the case presented to him and we are delighted to know that the Government will look at that point again.

I do not wish to go over all the arguments which have been deployed so eloquently by my right hon. and hon. Friends. All I can say, in conclusion, is that the answers that we have had from the benches opposite have beeen completely and utterly unsatisfactory. They have completely failed to understand—whether deliberately or because they have not been able to appreciate them—arguments which have been deployed so eloquently and forcefully. They

have failed to realise that the short-term gains tax is quite unnecessary if we have a long-term one. They have failed to realise that in many respects it is unworkable. They have failed to realise that it adds many unnecessary complications and will produce artificial conditions in many markets, and that the Clause as it stands is unnecessary and should never have been tabled.

The Government have had representations on this subject from a number of bodies, including the Association of Certified and Incorporated Accountants, which takes a similar view and points to the problems which will arise and the burdens which will fall on professional advisers in trying to administer this complicated legislation.

For all the reasons which have been deployed throughout the whole of the eight hours' debate, I can do no other than advise my right hon. and hon. Friends to divide.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 169, Noes 159.

Division No. 127.]	AYES	[11.48 p.m.
Allaun, Frank (Salford, E.)	Ensor, David	Jenkins, Rt. Hn. Roy (Stechford)
Barnett, Joel	Evans, Albert (Islington, S.W.)	Jones, Dan (Burnley)
Bence, Cyril	Evans Ioan (Birmingham, Yardley)	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Benn, Rt. Hn. Anthony Wedgwood	Finch, Harold (Bedwellty)	Lawson, George
Bennett, J. (Glasgow, Bridgeton)	Fletcher, Sir Eric (Islington, E.)	Leadbitter, Ted
Binns, John	Fletcher, Ted (Darlington)	Lever, L. M. (Ardwick)
Bishop, E. S.	Fletcher, Raymond (Ilkeston)	Lewis, Arthur (West Ham, N.)
Blenkinsop, Arthur	Floud, Bernard	Lipton, Marcus
Boardman, H.	Foley, Maurice	Lomas, Kenneth
Botton, T. G.	Foot, Sir Dingle (Ipswich)	Loughlin, Charles
Bowden, Rt. Hn. H. W. (Leics S.W.)	Freeson, Reginald	McCann, J.
Braddock, Mrs. E. M.	Galpern, Sir Myer	MacColl, James
Bray, Dr. Jeremy	Garrett, W. E.	MacDermot, Niall
Brown, Rt. Hn. George (Belper)	Garrow, A.	McGuire, Michael
Brown, Hugh D. (Glasgow, Provan)	Gregory, Arnold	Mackenzie, Gregor (Rutherglen)
Brown, R. W. (Shoreditch & Fbury)	Grey, Charles	MacMillan, Malcolm
Butler, Herbert (Hackney, C.)	Griffiths, Rt. Hn. James (Llanelly)	Mahon, Simon (Bootle)
Butler, Mrs. Joyce (Wood Green)	Hannan, William	Mallalieu,J.P.W.(Huddersfield,E.)
Callaghan, Rt. Hn. James	Harper, Joseph	Manuel, Archie
Chapman, Donald	Hattersley, Roy	Mayhew, Christopher
Coleman, Donald	Hazell, Bert	Mendelson, J. J.
Craddock, George (Bradford, S.)	Healey, Rt. Hn. Denis	Mikardo, Ian
Cronin, John	Heffer, Eric S.	Miller, Dr. M. S.
Crosland, Anthony	Hill, J. (Midlothian)	Milne, Edward (Blyth)
Crossman, Rt. Hn. R. H. S.	Hobden, Dennis (Brighton, K'town.)	Molloy, William
Cullen, Mrs. Alice	Houghton, Rt, Hn. Douglas	Monslow, Walter
Dalyell, Tam	Howarth, Robert L. (Bolton, E.)	Morris, Charles (Openshaw)
Darling, George	Hoy, James	Morris, John (Aberavon)
Davies, G. Elfed (Rhondda, E.)	Hughes, Cledwyn (Anglesey)	Mulley,Rt.Hn.Frederick(SheffieldPk)
Davies, Harold (Leek)	Hunter, Adam (Dunfermline)	Murray, Albert
Dell, Edmund	Hynd, H. (Accrington)	Newens, Stan
Diamond, John	Irvine, A. J. (Edge Hill)	Noel-Baker, Francis (Swindon)
Dodds, Norman	Irving, Sydney (Dartford)	Noel-Baker,Rt.Hn.Philip(Derby,S.)
Doig, Peter	Jackson, Colin	Norwood, Christopher
Edelman, Maurice	Janner, Sir Barnett	Oakes, Gordon
Edwards, Robert (Bilston)	Jeger, George (Goole)	Ogden, Eric
English, Michael	Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	O'Malley, Brian
Ennals, David	Jenkins, Hugh (Putney)	Orme, Stanley
Oswald, Thomas	Sheldon, Robert	Walden, Brian (All Saints)
Owen, Will	Shore, Peter (Stepney)	Walker, Harold (Doncaster)
Pannell, Rt. Hn. Charles	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)	Weitzman, David
Parker, John	Short, Mrs. Renée (W'hampton.N.E.)	Wells, William (Walsall, N.)
Parkin, B. T.	Silkin, S. C. (Camberwell, Dulwich)	White, Mrs. Eirene
Pavitt, Laurence	Silverman, Julius (Aston)	Whitlock, William
Pearson, Arthur (Pontypridd)	Slater, Mrs. Harriet (Stoke, N.)	Wigg, Rt. Hn, George
Pentland, Norman	Slater, Joseph (Sedgefield)	Wilkins, W. A.
Popplewell, Ernest	Snow, Julian	Willey, Rt. Hn. Frederick
Price, J. T. (Westhoughton)	Soskice, Rt. Hn. Sir Frank	Williams, Mrs. Shirley (Hitchin)
Pursey, Cmdr. Harry	Stewart, Rt. Hn. Michael	Willis, George (Edinburgh,E.)
Rankin, John	Strauss, Rt. Hn. G. R. (Vauxhall)	Wilson, William (Coventry, S.)
Rees, Merlyn	Swain, Thomas	Woodburn, Rt. Hn. A.
Rhodes, Geoffrey	Swingler, Stephen	Yates, Victor (Ladywood)
Richard, Ivor	Taylor, Bernard (Mansfield)	Zilliacus, K.
Robertson, John (Paisley)	Thomas, George (Cardiff, W.)
Rogers, George (Kensington, N.)	Thomas, Iorwerth (Rhondda, W.)	TELLERS FOR THE AYES:
Rose, Paul B.	Thornton, Ernest	Mr. Ifor Davies and
Ross, Rt. Hn. William	Tuck, Raphael	Mr. William Howie.
Rowland, Christopher	Varley, Eric G.
NOES
Agnew, Commander Sir Peter	Goodhew, Victor	Morrison, Charles (Devizes)
Alison, Michael (Barkston Ash)	Grant, Anthony	Mott-Radclyffe, Sir Charles
Allan, Robert (Paddington, S.)	Grant-Ferris, R.	Munro-Lucas-Tooth, Sir Hugh
Allason, James (Hemel Hempstead)	Gresham-Cooke, R.	Neave, Airey
Anstruther-Gray, Rt. Hn. Sir W.	Grimond, Rt. Hn. J.	Noble, Rt. Hn. Michael
Awdry, Daniel	Gurden, Harold	Onslow, Cranley
Baker, W. H. K.	Hall, John (Wycombe)	Osborn, John (Hallam)
Barber, Rt. Hn. Anthony	Hall-Davis, A. G. F.	Page, John (Harrow, W.)
Barlow, Sir John	Harris, Reader (Heston)	Page, R. Graham (Crosby)
Batsford, Brian	Harrison, Brian (Maldon)	Pearson, Sir Frank (Clitheroe)
Beamish, Col. Sir Tufton	Harvey, Sir Arthur Vere (Macclesf'd)	Percival, Ian
Bessell, Peter	Harvie Anderson, Miss	Peyton, John
Birch, Rt. Hn. Nigel	Hawkins, Paul	Pickthorn, Rt. Hn. Sir Kenneth
Box, Donald	Heald, Rt. Hn. Sir Lionel	Pike, Miss Mervyn
Boyd-Carpenter, Rt. Hn. J.	Heath, Rt. Hn. Edward	Pitt, Dame Edith
Boyle, Rt. Hn. Sir Edward	Higgins, Terence L.	Pounder, Rafton
Brinton, Sir Tatton	Hill, J. E. B. (S. Norfolk)	Price, David (Eastleigh)
Bromley-Davenport,Lt.-Col.Sir Walter	Hirst, Geoffrey	Ramsden, Rt. Hn. James
Brooke, Rt. Hn. Henry	Hobson, Rt. Hn. Sir John	Redmayne, Rt. Hn. Sir Martin
Buck, Antony	Hogg, Rt. Hn. Quintin	Rees-Davies, W. R.
Buxton, Ronald	Hordern, Peter	Ridley, Hn. Nicholas
Campbell, Gordon	Hornby, Richard	Roberts, Sir Peter (Heeley)
Carlisle, Mark	Howe, Geoffrey (Bebington)	Russell, Sir Ronald
Carr, Rt. Hn. Robert	Hunt, John (Bromley)	St. John-Stevas, Norman
Cary, Sir Robert	Hutchison, Michael Clark	Sandys, Rt. Hn. D.
Chichester-Clark, R,	Iremonger, T. L.	Scott-Hopkins, James
Clark, William (Nottingham, S.)	Jenkin, Patrick (Woodford)	Shepherd, William
Cole, Norman	Johnson Smith, G. (East Grinstead)	Sinclair, Sir George
Cooke, Robert	Johnston, Russell (Inverness)	Smith, Dudley (Br'ntf'd & Chiswick)
Cooper-Key, Sir Neill	Jopling, Michael	Soames, Rt. Hn. Christopher
Cortield, F. V.	Kerby, Capt. Henry	Spearman, Sir Alexander
Costain, A. P.	Kilfedder, James A.	Stainton, Keith
Crawley, Aidan	King, Evelyn (Dorset, S.)	Steel, David (Roxburgh)
Crowder, F. P.	Kirk, Peter	Talbot, John E.
Curran, Charles	Kitson, Timothy	Taylor, Sir Charles (Eastbourne)
Dalkeith, Earl of	Langford-Holt, Sir John	Teeling, Sir William
Davies, Dr. Wyndham (Perry Barr)	Lloyd, Ian (P'tsm'th, Langstone)	Thatcher, Mrs. Margaret
Dean, Paul	Longbottom, Charles	Thomas, Sir Leslie (Canterbury)
Deedes, Rt. Hn. W. F.	Lubbock, Eric	Thompson, Sir Richard (Croydon,S.)
Doughty, Charles	MacArthur, Ian	Turton, Rt. Hn. R. H.
Douglas-Home, Rt. Hn. Sir Alec	Mackenzie, Alasdair (Ross&Crom'ty)	Tweedsmuir, Lady
Elliot, Capt. Walter (Carshalton)	Mackie, George Y. (C'ness & S'land)	van Straubenzee, W. R.
Elliott, R. W. (N'c'tle-upon-Tyne,N.)	Macleod, Rt. Hn. Iain	Walder, David (High Peak)
Emery, Peter	McNair-Wilson, Patrick	Walker, Peter (Worcester)
Eyre, Reginald	Mathew, Robert	Ward, Dame Irene
Fell, Anthony	Maude, Angus	Weatherill, Bernard
Fletcher-Cooke, Charles (Darwen)	Maxwell-Hyslop, R. J.	Webster, David
Fletcher-Cooke, Sir John (S'pton)	Maydon, Lt.-Cmdr. S. L. C.	Whitelaw, William
Gammans, Lady	Meyer, Sir Anthony	Wills, Sir Gerald (Bridgwater)
Gibson-Watt, David	Mills, Peter (Torrington)	Wilson, Geoffrey (Truro)
Giles, Rear-Admiral Morgan	Mills, Stratton (Belfast, N.)	Wise, A. R.
Gilmour, Ian (Norfolk, Central)	Mitchell, David
Glover, Sir Douglas	Monro, Hector	TELLERS FOR THE NOES:
Godber, Rt. Hn. J. B.	More, Jasper	Mr. Martin McLaren and
		Mr. Francis Pym.

Mr. Callaghan

I beg to move, That the Chairman do report Progress and ask leave to sit again. We have been here since 3.30 and have disposed of five Amendments and one Clause. Although you have no view in the Chair, you may think, Sir Samuel, that progress is a relative term, but at least in Parliamentary language we have made progress. Whether we shall be able to make faster progress tomorrow will depend, I suppose, upon the length of the speeches and the nature of the replies. [Interruption.] I have, I trust, a number of concessions that ought to be made in the Bill, if we are ever allowed to get to them. As I say, the progress that we make will depend upon the speeches that hon. Gentlemen make and upon the assiduity with which they devote themselves to their scrutiny of the Bill. However, we have completed one Clause today, so I move the Motion.

Mr. Heath

After those last extraordinarily encouraging words of the Chancellor we are all agog for the concessions which are about to shower upon us. Indeed, I feel some reluctance in acceding to the Motion. Here we are after a long day's argument, fresh and full of vigour. The Government's majority is rapidly falling; it has fallen by 25 per cent. since the last Division. So we can well understand why the Chancellor has now moved to report Progress.

We have had a hard day's work. We have made considerable progress. This is, after all, the Chancellor's entire reconstruction of the short-term capital gains. He will recall that, with his hon. Friends, he discussed for two and a half days the original proposal by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). So the right hon. Gentleman is right. We have made good, solid progress today, and, therefore, I think that we should accede to the Motion. We eagerly look forward to the concessions which will shower upon us tomorrow.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.