Clause 21.—(DISPOSAL OF ASSETS AND COMPUTATION OF GAINS.)

HC Deb 25 May 1965 vol 713 cc438-517

Mr. John Hall (Wycombe)

I beg to move Amendment No. 192, in page 18, line 14, after "property", to insert: other than tangible, movable property".

The Chairman

With this Amendment, we will take also the following Amendments: No. 301, in line 14, after "property", insert: other than decorations awarded for valour".

Amendment No. 194, in Clause 26, page 28, line 7, leave out subsection (1) and insert: Tangible, movable property shall not be a chargeable asset.

No. 198, in page 28, line 35, at end insert: (7) Works of art purchased during the lifetime of the artist shall not be liable to capital gains tax when disposed of by that purchaser.

No. 257, in page 28, line 10, at end insert: but vehicles classified as vintage vehicles either used or on display shall not be a chargeable asset".

No. 245, in page 28, line 20, at end insert: (2) Livestock shall not be a chargeable asset.

No. 369, in page 28, line 10, at end insert: (2) Books and manuscripts shall not be chargeable assets.

Amendment No. 264, in page 28, line 35, at end insert: (7) Any gain accruing on the disposal of a production herd in respect of which an election has been made under paragraph 2 of the Twentieth Schedule to the Income Tax Act 1952 (Treatment of Farm Animals etc.) shall not be a chargeable gain unless the said election was made after 6th April 1965.

1.30 a.m.

Mr. Hall

Yes, Dr. King.

It is a little difficult to know quite where to start, because this will be a long debate, but perhaps, as it has been fashionable to quote from "Alice in Wonderland" during today's debate, one might take the advice which the King gave to Alice to begin at the beginning, to go on to the end and then stop.

Most of the Amendments that we are considering relate to Clause 26 and cover a fairly wide field. When we debated the short-term gains on Clause 16 I pointed out our difficulty in dealing with the short-term Clauses before the long-term ones, and I said that there was bound to be an overlapping of argument and that we would find it necessary, in order to make the argument clear at a later stage, to deploy some of the arguments again. I therefore hope you will understand, Dr. King, if I traverse some of the ground that I covered before, although I shall try to avoid it as much as possible.

We are taking with this Amendment others which are very important and which will be referred to by various of my hon. Friends. Amendment No. 301 refers to decorations awarded for valour. In passing, I would say that it is difficult to decide how one would value a decoration awarded for valour. Some would say that such decorations are priceless and impossible to value. We have the familiar case, in Amendment No. 257, of vintage vehicles. Amendment No. 245 covers livestock. Then there is Amendment No. 369 concerning books and manuscripts, and I am delighted to see that Amendment because it relates to an interest of my own. No. 198 covers certain works of art and No. 264 relates to production herds. Therefore, a wide range of chattels, moveable and tangible property, will be debated at this hour of the morning.

I do not intend to debate vintage cars. We have been told by the Financial Secretary that the Government are giving way on this point and that vintage cars will not be caught by the Capital Gains Tax. Indeed, this news was received with much elation outside and it almost made headline news in the Press.

Sir D. Glover

It had nothing to do with vintage cars. If the Government had not given way on vintage cars the tax would have applied to all cars.

Mr. Hall

The fact is that this doubt was cleared up and the news has been received with great joy by the public. Perhaps this is one of the golden con- cessions that we heard about yesterday. My hon. Friend the Member for Chippenham (Mr. Awdry) may wish to return to this matter later. He may require some greater detail, but I think some of us are satisfied that we got what we asked for, and we are very grateful.

It is interesting to contrast the concession given for vintage cars with the system applicable to modern plant under these capital gains Clauses. However, I will leave my hon. Friends to deal with the specific points raised on other Amendments.

I want to deal with our main objections in principle to the inclusion of chattels in the purview of Capital Gains Tax. I think I have traced the article to which I believe the Financial Secretary was referring when he said that he thought I had based some of my information about the customs in the United States on a certain article. Actually, I did not base my information on that source, but the information appears in a rather modified form in an article in the Daily Telegraph of 4th May. I think it is interesting because it confirms in part what I said and it also brings to light certain other points of reaction to the Government's proposals.

I should like to quote some relevant parts of the article. It stated: The experience of the United States is often pointed out to us as an example of a capitalist country that has lived with a capital gains tax for years. But the American Treasury itself regards the taxation of capital gains as the most troublesome and complicated part of the tax system. I think that should be borne in mind. It continues: It has failed to date to find a formula which is both practical and equitable: it recognises that the capital gains area is a most contentious area. The lawyers in the Temple, and the accountancy profession, will long toast Mr. Callaghan as the best begetter of new business, better even than the man who draws up his own will or the man who writes up his own tax return. I am sure that some of my hon. Friends will be grateful to the Chancellor of the Exchequer for the additional work that is to be given to them. The article goes on: Mr. Callaghan has cast his net on capital gains very wide indeed. He has given a hostage to fortune by including personal chattels of over £1,000 within the scope of the scheme. This is hardly wise, because the United States Treasury has long since ceased to chase transactions in personal property except in special cases. The quiet abandonment of this area of capital gains by the Administration with the most experience on the subject should have taught Mr. Callaghan a lesson. We shall have to learn all over again that this area is not really productive of tax, for the simple reason that it is most easily driven underground by cash or barter transactions. It goes on: To chase what cannot be collected only results in growing contempt for the law. Those few people who will be caught will be the exceptions. There will be a build-up of resentment. The Government should bear the last paragraph in mind. It says: The Revenue is already pretty worried by the anti-social public image of the department. Snooping after capital gains on Chippendale chairs and Georgian silver will hardly improve that image. We don't want a return to the days when a Revenue man could enter a house to inquire about dog licences and the like. Recruitment into the Department, already difficult, will become as difficult as the recruitment of prison warders. That is a rather interesting parallel.

I think that the authors are absolutely right; and that this tax will be practically impossible to administer and enforce. A few will be caught, but most of those most likely to be concerned will treat the law with contempt. It will be avoided in the same way as people try to avoid death duty, and probably for the same reason, which is that the duty is regarded as unjust.

Will the Financial Secretary tell the Committee how the tax will be administered and policed? What additional staff has been added to the Inland Revenue since the 1962 Act, which, one presumes, must have required certain additional staff? What additional staff will be necessary if this Amendment is accepted and tangible removable property is taken out? Indeed, what additional staff will be necessary if the Amendment is not accepted, and we have a capital gains tax to administer with all its complications, including the tax on chattels?

Above all, where is the Inland Revenue to obtain the staff? Every professional and industrialist in this Committee will know that the recruitment of responsible executive staff is becoming almost impossible. One of the biggest headaches of the industrialist and the professional man encounters lies in finding good responsible staff of any calibre. How is the Inland Revenue to recruit this additional army of valuers and inspectors who will have to visit the private homes of individuals in order to examine and value the property there? How will it recruit the additional office staff necessary to record the returns of auctioneers and dealers?

Above all, how will it get the right calibre of people? It appears to me that the inspectors who will be recruited will need to have exceptional tact and charm. We have all read Schedule 9, but perhaps I may refresh the memory of the Committee by reading paragraph 13, which states: … If for the purposes of this Part of this Act the Board authorise an inspector or other officer of the Board to inspect any property for the purpose of ascertaining its market value the person having the custody or possession of that property shall permit the inspector or other officer so authorised to inspect it at such reasonable times as the Board may consider necessary. Hon. Members may remember that I suggested this point yesterday, but what I then forgot to point out was that the paragraph also states: … If any person wilfully delays or obstructs an inspector or other officer of the Board acting in pursuance of this paragraph he shall be liable on summary conviction to a fine not exceeding five pounds. It is an interesting departure from our normal procedure to give this kind of authority to Inland Revenue officers to enter private homes at any time that the Board may consider necessary. It is for that reason that one would have to recruit inspectors of considerable tact and charm. They will have to point out to the housekeepers or custodians of the property that if they do not cooperate they will be liable to a fine. They will have to destroy the fine image of every Englishman's home being his castle, and they will have to cope with dogs and other hazards that face canvassers. I do not think that it will be easy to find people of charm to do this job. [An HON. MEMBER: "Or of knowledge,"] We shall come to that point later. The inspector takes with him another officer. When I pointed this out we were told, as I suspected, that he would be a valuer.

I should have thought it even more difficult to secure the services of people who are properly qualified as valuers. They would have to apply a vast range of expertise. Expertise would be required in silver—perhaps I would offer my own services there at a suitable fee—in old china, in furniture—and there I could recommend some of my constituents in Wycombe—in pottery of the Greek and Roman empires, in books and in paintings. There is a vast field of expertise in painting. There are experts on various schools and indeed on individual artists. An expert on one artist or one school may know nothing about others.

There would have to be valuers capable of valuing livestock. Perhaps it would be easier to find those than some of the others whom I have mentioned. There would have to be valuers capable of valuing the old steam engines and omnibuses we heard about yesterday, a very special field. To quote a well-known but nevertheless telling phrase, when one thinks of the problem facing the Inland Revenue in recruiting the necessary valuers the imagination boggles.

Some of the many loopholes in this tax which are already apparent were mentioned yesterday. Normally a new law has to be in operation a little while before these loopholes are discovered and legislation is passed to close them, but here we have a case where before the law has been passed people have already seen that there are loopholes in it. I do not want to refer to them. Some have been mentioned already. Nor do I want to put fresh ideas into people's minds, but there has been no suggestion about how some of the loopholes which have already been drawn to the Financial Secretary's attention are to be stopped up.

There is a fruitful field for evasive action, for example, in the £1,000 proviso. I would imagine that it is impossible to value all the objects which are likely to be put up for sale in the next few years in thousands of houses all over the country. What is to stop somebody by arrangement with an intending purchaser putting up for sale two objects, one worth over £1,000 and the other worth under £1,000 and arranging that they are bought for just under £1,000 each so that the seller gets what he wants and the articles can be said to have been sold for not more than £1,000 each.

There is another interesting query to which I do not fully see the answer. How does the £1,000 proviso operate on death if chattels are bequeathed in £1,000 lots? If someone with a good deal of furniture, silver, objets d'art and paintings decides that he will bequeath these possessions to a number of people in lots not exceeding £1,000 in value so that, in total, the gain after valuation on death is in excess of the £5,000 which will be allowed on death as not subject to tax, would these bequests be caught, or would they come under the chattel provisions and be excluded from taxation? I am sure that the Financial Secretary knows the answer, and perhaps I ought to know it myself; but I am not entirely clear.

The attempt to tax chattels will create chaos and confusion. It will overload the Inland Revenue. It will create appalling difficulties of valuation, many examples of which have been given already. Because of the difficulty of valuation, it could lead to grave injustice. It will certainly damage London as a great art centre and market. It will encourage evasion and concealment. It will tend to bring the law into disrepute, not just the law relating to tangible and moveable property but the general tax law as well. Nothing good can be said for the inclusion of chattels in these Clauses. As nothing good can be said for it, let us away with it.

The Chairman

Before I call the next speaker, may I remind the Committee of the excellent example set by the hon. Member for Wycombe (Mr. John Hall) and ask that, if it is possible, hon. Members do not repeat any of the arguments which we had on chattels in relation to short-term capital gains.

1.45 a.m.

Mr. Dennis Walters (Westbury)

In supporting the Amendment moved by my hon. Friend the Member for Wycombe (Mr. John Hall), I shall refer mainly to the Amendment which stands in my name and the names of my hon. Friends the Members for Norfolk, Central (Mr. Ian Gilmour), York (Mr. Longbottom) and Bromley (Mr. Hunt) which relates specifically to books and manuscripts and requires that they be exempt from tax. Very few books are valued at £1,000 or even approaching that figure. The great majority of books which appear on antique sellers' shelves do not even reach £100, let alone £1,000. Therefore, there could be no conceivable yield of any relevance, and neither is there any question of substantial evasion.

There has always been a convention that books and manuscripts are not taxed, and it is very sad to see a departure from it. This convention is even referred to in a U.N.E.S.C.O. Convention of which the Chancellor of the Exchequer spoke earlier this year.

Occasionally in the case of books, and nearly always in the case of manuscripts, there are two choices open to a vendor: either he can sell as a single object or he can break up a collection and sell as separate objects. Under the Clause as at present drafted, a vendor would be allowed to sell a set of objects to different people as though they were separate objects, and amalgamation would apply only if the sale were to a single person.

It follows that if a vendor had a collection of letters which could be of great historical importance and value, valued financially at say, £2,000, and if he sold them to one purchaser he would be subject to tax, but if he broke up the collection and sold them to 12 different purchasers then there would be no tax liability. By doing this he would have broken the collective aspect which could be lost forever and irreparable damage could have been done to something of great historical value. This also applies in the case of illuminated manuscripts. Here again the vendor would have the choice of either selling miniature by minature, and thereby escaping tax, or selling as a single object and thereby being hit fully by the operation of this Clause.

It seems obvious that the tax would produce next to nothing but would operate against the interests of literature and could do a great deal of damage to items of value and importance. I hope the Financial Secretary will find it possible to make a concession on this point.

Mr. James Ramsden (Harrogate)

I wish to recommend to the Financial Secretary what is, in the view of this side of the Committee, the main point of this group of Amendments, namely the desirability of exempting totally works of art from the operation of the Capital Gains Tax. In Monday's debate the Financial Secretary made a reply which I hope he will not repeat when he replies to this debate. He was dealing with chattels in connection with the short-term tax. The main burden of his reply to our Amendments is in column 120 of HANSARD. He said: 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."—[OFFICIAL REPORT, 24th May, 1965; Vol. 713, c. 120.] He argued that if this Capital Gains Tax is to be effective it must be applied right across the board and its objects would be frustrated if any exceptions were allowed, and that only if it is so applied will it produce this sense of equity to which the Government apparently attaches such importance.

I think that I have the support of my hon. Friends when I say that it might be possible for society to pay too high a price for the attainment of this sense of equity. If it is to be attained by including works of art within the operation of a tax such as this, and if as a result of that we disrupt the market in works of art in this country, which holds a pre-eminent place among the art markets of the world, and if another effect is to bring the growth of private collections in this country virtually to a stop, and if, finally, it has the effect which was dwelt on by my hon. Friend the Member for Wycombe (Mr. John Hall) of bringing the law into disrepute because of the difficulty of administering this tax, and, what is more important, it sets the officers of the Inland Revenue, whose job it is to administer the law, at odds with the public, it will be too high a price to pay. If that is to be the effect of resisting the Amendment, I believe that it is not short of the truth to say that it is too high a price to expect the country to pay.

This is particularly true when one considers what the Government apparently hope to gain from the institution of this tax. What do they hope to gain? Certainly they cannot hope to gain very much revenue. The Financial Secretary will no doubt correct me if I am wrong, but no great yield in revenue is expected from the operation of this tax on works of art. The Government are apparently pinning their faith on the proposition that if they tax capital gains, and if they make the operation of this tax universal, they will put the trade unions in a frame of mind where they will be more disposed than they are at the moment to accept the operation of an incomes policy. We were told this by the Chancellor of the Exchequer in the opening passages of his Budget statement, and I take that to be one of the arguments, if not the main one, for the institution of this tax.

If that is so, and the Financial Secretary does not seem to be disagreeing with me, I do not think that it is a sound basis for a far-reaching change in the tax system, such as this proposal to tax works of art adds up to. For one think, it is problematical whether it will have the result that is intended. This is not the time, and I do not wish, to discuss the likelihood of success of the Government's incomes policy, but to anybody who follows the papers it does not look as though the announcement of the forthcoming Capital Gains Tax before Christmas has done much to moderate the flow of wage claims or to influence favourably the course of wage settlements. It certainly does not look as though the policy is succeeding, and if it fails a great deal of harm will have been done by the Government by the introduction of this tax.

I should have thought that there was plenty of room for two views as to what constituted privilege in this connection. Who are these privileged people who are supposed to be caught by this tax?

2.0 a.m.

Among those I meet around the country in all walks of life I do not find this burning resentment against a supposed class of privileged people who make large gains as a result of collecting and disposing of works of art. This point of view is not widely held among people to whom I talk. If there is a class of person about whom there is a general feeling that they are over-privileged in the present day, it is those who appear to go on strike, often for fairly trivial reasons, and who cause the public to miss their trains and be late for work as a result of failing to turn up for their own. I do not say that there is resentment, but there is a fairly general sense of exasperation at these activities, which are the activities of a class of people whom, we are told by the Government, this tax is expressly designed to appease. There are very much two views on what constitutes privilege in the country at present. The Government have not chosen a good theoretical basis for this tax—especially for a tax which will certainly do harm. It is extremely problematical whether any good will result.

Will the tax do harm, and what harm is it likely to do? In certain respects the answer is that it will do a great deal of harm. I take the position of the private collector. Because there has been inflation, anyway since the war, private collecting of works of art has been attractive for other than aesthetic reasons. But it need not therefore be regarded as an anti-social practice. There are extraordinary misconceptions in the Labour Party on the motives and thoughts of the private collector. The hon. Member for Salford, West (Mr. Orme) yesterday said: 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 vauls."—[OFFICIAL REPORT, 24h May, 1965; Vol. 713, c. 104.] It is almost impossible to be more wrong. This is almost the only country in Europe, if not in the world, in which works of art are not hidden in bank vaults but are freely open to the enjoyment of large numbers of the public. The reason is that in other countries there is a tax on works of art and a strong incentive for their owners to conceal them, but in this country there is no such tax.

Mr. Ridley

The only vaults in which works of art are hidden in this country are those where there is the national collection of 12,500 pictures which the public are not allowed to see.

Mr. Ramsden

That gloomy congeries will be vastly increased if the Amendment is rejected. Nor need we accept the view mentioned by my hon. Friend the Member for Wycombe yesterday—the view of a noted Socialist economist who thought that the collecting of works of art was snobbery and a "fashionable" activity in the worst sense of the word. That point of view is not even widely held by the Labour Party. I was glad to see a much more just and sound appreciation of the rôle of the collector of works of art in our national life in a speech by Lady Gaitskell in another place last Session. I would like to remind the Committee what she said: Now we come to ourselves, and what we feel about culture generally. The British are always faintly apologetic about the Arts, and regard them as a kind of highbrow sport, and a rather expensive one at that. This feeling has not been dispelled by some of our younger painters and dramatists, whose works a large section of the public regard as a kind of shock treatment to which they will not submit. However, in the last decade or so there has been a change in their attitude to painting, because no longer is a picture a beautiful and valuable object in itself, but it has been upgraded. It has become an investment—a word which is music to British ears. In fact, the prices of pictures and other works of art are as sensitive a barometer of national prosperity as are the prices of shares on the Stock Exchange."—[OFFICIAL REPORT, House of Lords, 3rd June, 1964; Vol. 258, c. 529.] The noble Lady very successfully and with a very balanced view, was welcoming the growth of private collecting as a source of enrichment to our national culture and national life.

It is a great mistake for anyone to think that all private collectors are very rich men. I would like to give the Committee one example of an acquaintance of mine, a neighbour, who began life as a not particularly successful engineer working on his own. He happened also to be a passionate collector of 18th and early 19th century English drawings, and when he had any spare money to invest he made a practice of buying such drawings in the knowledge that, chosen with discretion, they would hold their value and be available to cash in on if his business activities ever left him in need.

But he prospered and enlarged his collection, which is now of national importance and will eventually find its way to the Courtauld Collection. The point is that a decision made by a man like that—the first decision to collect—is a decision made at the margin, with economic considerations in mind every bit as much as the aesthetic ones. If this tax is to come into operation, such decisions will not in future be made; or they will be made by far fewer people, to the immense impoverishment of the enjoyment of the arts by many people in this country.

I would also say a few words about the likely effect of this tax on the market for works of art. The active interest of private collectors is growing year by year and sustains in London what is acknowledged now to be the leading art market of the world. That has not always been so. Before the First World War, the market was between London and Paris and between the wars it was shared between Paris and New York; but now London has re-established itself, despite the competitive advantages of Switzerland and America because of the international standing of their currencies.

I invite the Committee to consider how this has come about. There are a number of reasons, but perhaps the main one is the determined and—in the highest sense—skilled efforts of a comparatively small number of firms in the trade. They have been able to succeed because their activities have been founded upon the presence of a live and active home market for works of art. There is in this country an unrivalled cumulative treasure house of works of art in private hands, and they come on to the market. The market has access to them. It is therefore an active market.

The overheads of those who deal on it, and therefore the costs to both buyers and sellers, are lower than they are in America and France. There is a long tradition in this country that art dealers in London buy for stock and not just on commission. This adds to the confidence both of buyers and sellers, and brings customers into the London market. The great, world-renowned auction sales in London could not continue without the support of the buying of London dealers, and they, in turn, are sustained by the buying of private collectors.

Perhaps the most important of all these features is that the market has access to a steady supply of works of art which are its raw material. If this tax comes into operation the market will dry up straight away, and this access will cease, because in the first stage sellers and buyers will postpone all their decisions until they see whether it is possible to sustain this tax and to continue with it at the same rate. The market will be completely frozen on the first stage. On the second stage, when eventually things start up again and people find they have to sell, or want to buy, they will begin to seek out not the reputable dealers but those who are prepared to countenance transactions in cash and to make out misleading invoices—and we shall have the whole paraphernalia of underground practices of the kind that take place outside this country in places and in markets where taxation upon works of art is prevalent and established.

Those who will gain are the least reputable businesses in this trade. Those who will suffer are precisely the reputable firms whose activities have made the London market what it is, and who have become the leading names in the world in this trade, simply because the last thing they will touch is a transaction which is not in the highest degree reputable and above board.

If the Financial Secretary can demonstrate to us that this will not happen, well and good, but it is certainly the opinion of the trade and of all of those with whom I have talked, and my hon. and right hon. Friends—many of whom are immensely knowledgeable—that these effects will certainly ensue if the tax is sustained. I leave out of account the consequent effect upon the export trade and all the advantages which arise to this country through the international market in works of art. I do not wish to detain the Committee longer. My hon. Friends will no doubt refer to many other points which can be made in this connection.

2.15 a.m.

To sum up: I am convinced that if this tax is applied to works of art it will have the effect of severely cutting down private collecting, together with the impoverishment of the opportunities for artistic appreciation and the general richness of our cultural life. I believe that it will destroy London's pre-eminence as an art market and hazard the very important and growing advantages of this export trade to which the Financial Secretary referred yesterday. Finally, I believe that it will prove impossible to administer. For this reason, it is likely to bring the law and the officers of the Revenue into disrepute, and the yield which will result will be practically negligible. I hope, therefore, that the Financial Secretary will accept the Amendment.

Sir L. Heald

I shall not detain the Committee for more than a moment or two, but I should like to support my right hon. Friend the Member for Harrogate (Mr. Ramsden) by reminding the Committee of a brief quotation. It is as follows: The argument is … that the taxation of the most prosperous reduces the scope for envy … Of this argument it can be said that it panders to some of the least creditable motives of which the human mind is capable … As it is impossible for everyone to own a Rolls-Royce, the factory should be closed and the existing cars sold for scrap … If champagne is not available for all, it should be drunk by none. There is some significance in the fact that the arts which flourish least are those which are most heavily taxed, for heavy taxation creates a preference for the ephemeral rather than the permanent pleasures … A lost weekend in Paris or a day at the races are alike in this, that they leave behind no taxable asset. That comes from an admirable volume by a gentleman called Parkinson—

Mr. MacDermot indicated assent.

Sir L. Heald

I am glad to know that the Financial Secretary is familiar with it. Our discussions have brought to my mind a number of such passages. I hope that he will read it again, and that he will bring it to the notice of his colleagues.

Mr. Bryan

When the Motion to report Progress was being debated, the Chancellor said that he hoped we would not spend a long time debating the Amendment concerning chattels because most of the points had already been covered in the debate on the short-term capital gains. I think that in that one remark he dropped the most resounding clanger, because it showed that he has not the slightest idea what his tax would do, what its effect would be on the art world. In an article entitled "Bulls in China Shops", Dennis Sutton, the editor of "Apollo", says of this tax: It is one which could damage, possibly beyond repair, a section of the community which has contributed much to our international prestige. It may be said that that is an interested Englishman giving a biased view.

Let us look, therefore, at what the French say. The French authority, M. Pierre Cabanne, in an article entitled—I translate for the benefit of the Committee—"How France has Lost Her Place in the International Art Market", explains not only how it lost that place but to whom it has lost it. He analyses, from the French point of view, how this has happened. His tone is a little bitter, because he regards France as being preeminent in the production of painters, and I do not think that we can quarrel with that. He says that one reason is that in France, they have a ten per cent. auction tax. The second reason is a two per cent. income tax, and he goes on to ridicule this, saying that the yield from this tax is so small that they could probably get it back from the expenditure of foreign buyers spending their money in Paris if this tax were not there.

He then takes a good slam at the Minister for Cultural Affairs because of his undue power to control exports. He goes on to praise the initiative and drive of British firms and explains how after the war, New York temporarily held the lead. London gradually took over, culminating in last year's purchase by Sothebys of Parke Bernet.

He says that our firms are virile and go-ahead and that the market here is highly competent and manned by men of great expertise. He implies other reasons, in particular the fact that the London market enjoys freedom. Hon. Gentlemen opposite probably do not like hearing that. The market prospers because it is left alone. Freedom in the market means no tax or tiresome recording. People do not always want their sales recorded or published. There is no earthly reason why there should not be privacy in sales.

There is also, largely because of this freedom, the wide variety of goods going through the London market week by week. It would be interesting to know the number of lots that have gone through Sothebys, Christies and other leading firms in the last few years. It would give us some idea of the size and turnover in the market. This variety is obviously an attraction for foreign buyers. The large turnover only continues because of the freedom of the market.

A Capital Gains Tax is bound to put the break on. I hope, therefore, that the Government will have second thoughts. They should realise that London is an agreeable and attractive place for the foreign buyer. We have wonderful museums and so on, with top-class experts in charge of them. We have some of the best theatres in the world. Our market in art has been built up by hard work and skill—not by accident. If we lose it it will also be no accident. The Capital Gains Tax will have lost it for us. It will have stopped the steady flow and variety. The atmosphere and conditions for success will have gone. The trade will be driven underground and the most reputable firms will suffer.

We have been asked from the Chair not to repeat the arguments which we adduced in earlier debates on this subject. We are obliged to repeat some of them because we were not given answers to our questions. We cannot allow the Financial Secretary to ignore our questions. We must ask them again. The other day a strong case was put on the valuations issue by my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) but the Financial Secretary did not even rise to answer him. We must, therefore, have these answers tonight.

As a start may we have an explanation of exactly how these valuations will be conducted. If there is disagreement between a seller's expert and the Treasury expert, who decides—a tribunal or arbitration? If at the end of the day two reputable valuers, one for either side, heartily disagree, what value is to be accepted? Time and time again questions come up, to which there seems to be no answer. May I quote again from the article by Dennis Sutton: To take but a single instance, it would be interesting to know the answer to the following proposition. An owner possesses an inherited work which he submits to Expert A in April, 1965. This authority believes it to be by Schiavone, and on this attribution its value would be X pounds. However, two years later, Expert B examined the work in question and comes to the conclusion that it is by Tintoretto. Expert A is then called in again and, after discussing the matter with Expert B, agrees with his findings. The owner then disposes of the work at a sum which is vastly more than the value placed on it in April, 1965. What then was its true value at that date? It is insoluble. One could go on for ever thinking up equally unanswerable conundrums.

What will happen if I sell a painting in ten years' time to someone in San Francisco? How do we arrive at its valuation in April, 1965? Will a Government inspector go to San Francisco to inspect it? It is hard to value when going back ten years in any event, but an article cannot be valued without seeing it. Someone might say that he knows the type of painter and the price his works fetched, but it might be a good painting but an utterly ugly subject; and there is also the question of its condition.

When I was on holiday at Easter in Ireland, I went round Westport House, the home of the Marquess of Sligo. I remember seeing two enormous candlesticks, about 4 ft. high, which were presented in the eighteenth century to one of his forebears who was Governor of Jamaica. How on earth would one value such things as in 1965 in 20 years' time? What price would one put on these unique articles? They have no class, type or parallel; absolutely nothing to guide anyone.

We have not yet got down to the business of sets. In the explanatory White Paper, we are told about the set of Chippendale chairs as if a set is established at six, eight or whatever the number is, but that is not so. A set from a huge palace might comprise 50 chairs. One would not know whether one was selling a half, a quarter or a whole set.

What about the pictures in the Royal Gallery? There are a dozen pairs of kings and queens. Are they all a set, or are two of them a set because they are of a husband and wife? One can play with this for ever. As far as I can see, there is no answer. We must have answers.

When I spoke about an hour and a half ago, I asked a certain question but we made not the slightest progress. I will therefore repeat what I said. I read to the Chief Secretary the passage from the Royal Commission's Report stating that it would be unrealistic to support that it would not require a substantial addition of staff to administer it. We have been supplied by the Board with a tentative estimate that the increase of staff in the Chief Inspector's Branch would be of the order of 500. To this must be added a formidable addition to the work of the Valuation Office of the Inland Revenue and of that branch of the Estate Duty Office that is responsible for the valuation of unquoted shares. 2.30 a.m.

May we have an answer to that? What is the staff position? The Royal Com- mission's Report refers to 500. That was the estimate 10 years ago. Is it now 700 or 1,000? What are the possibilities of recruiting these people? Where are the qualified personnel to come from? Are they available or not? Nobody on these benches can imagine that they are. We still have not had anything like an answer to the question who is going to value these articles. In the end, the only people one can think of are the people in the trade, and it is almost impossible to think that any of them will come forward. Why should they value against their own prospective customers? So we come to an absolute deadlock, unless the Financial Secretary has a trump card up his sleeve which none of us has heard about so far.

I should like to refer to the question of the patronage of the arts. We are going through a period of tremendous interest in the arts and I think this will continue to grow. It is obviously highly desirable for any promising painter to get all the encouragement he can. If people buy his paintings, that is the most encouraging thing that can happen. But if we apply this tax it cannot do anything but discourage patronage of the arts.

For all these reasons I am very much against this tax. But I repeat for about the seventh time that I hope we can have some answers.

Mr. James Scott-Hopkins (Cornwall, North)

I wish to direct my remarks to Amendment No. 264. I ask the Committee to turn their attention from the problems concerning the arts, which have been so ably stated, and to consider the question of the farmer and agriculturist who is caught by this tax. The Amendment to which I refer is very narrow and deals with one small category of people, namely those who have elected in the past to have their herds accounted on a herd basis under the Twentieth Schedule to the 1952 Act.

It might be convenient if I were to explain the situation. When the party opposite were last in office in the period 1945–51, they introduced in 1948 a choice for the farmer. He could decide whether to have his herd accounted on a herd basis or not. If the herd was not accounted on a herd basis, the buying, selling and upkeep of the herd were accounted in the ordinary trading way, and, whatever the profits or losses made by the farmer, the herd was liable for Income Tax. If, on the other hand, the farmer elected to have his accounting done on the herd basis, the whole cost of acquiring, adding to or improving the quality of the herd was treated as capital, and for that he obtained not one penny of relief. This was the bargain which was struck, on the clear understanding that the farmer did not get Income Tax relief at all. So that when he disposed of the herd, or part of it, if there was a profit the profit would not be taxed, and if there was a loss there would be no relief for that loss.

This was the offer which was made to the farming community. If they chose not to elect for the herd basis, the profit and the loss and proper maintenance appeared in the normal trading account and was liable to tax.

Mr. MacDermot

I do not know whether hon. Gentleman was in the Chamber when I made my statement in our previous debate on this question of the herd basis. I do not think it has been universally realised that the exemption for chattels valued at under £1,000 would apply in such a case to each animal within the herd. So that I do not think there is any real risk of the kind of situation that the hon. Gentleman is contemplating by which the herd would become subject to Capital Gains Tax on disposal.

Mr. Scott-Hopkins

I am grateful to the Financial Secretary for that statement. I was here at the time, and I have also read his words. I have in front of me a letter from the Inland Revenue, dated 13th May and addressed to Mr. Turpitt, of the National Cattle Breeders' Association, from which it appears that what the hon. and learned Gentleman says is the reverse of the existing position. If I read the letter, hon. Members will realise that it explains exactly what has happened. It says: The Board of Inland Revenue direct me to reply to your letters of 8th April and 3rd May, and to say that the capital gains tax will not apply to gains which are otherwise chargeable to income tax or corporation tax. Where therefore a taxpayer who has elected for the 'herd' basis sells an animal, or it dies or is destroyed, any sum realised for it will be brought into account in determining his liability to income tax and further liability to capital gains tax will not arise. That is the first point, if I may interrupt my reading. It means that those people who have elected to have their herd treated on a herd basis will, when they are disposing of part of their asset, have it put in the normal trading account, and they will now have to pay Income Tax if a profit has been made. That is a clear breaking of the 1948 bargain.

The letter continues: The new tax will only apply to the disposal of the whole or a substantial part of a herd, which is not at present taxable, but the Bill as drafted exempts from capital gains tax the gain realised on each animal if its sale price or market value is not more than £1,000. That is the point made by the Financial Secretary: (The Bill tapers off the relief by providing that when the sale price or value exceeds £1,000 the tax payable is not to be more than one-half of the excess.) That is quite splendid, as long as the beast is valued at under £1,000, but, as the hon. and learned Gentleman, knows, many beasts, and particularly those in pedigree herds, are worth far more than that. It could easily happen in this case, as in other cases and with other types of goods and chattels, that the animals in question would be worth more than £1,000.

I do not think that the Financial Secretary has tried to differentiate the very small category of people who since 1948 have elected to use the herd basis as the method of accounting. He does not mean to differentiate for those people—on the one side, the pedigree breeders and, on the other, the commercial breeders whose individual animals might each be worth less than £1,000. If he seeks the advice of the Ministry of Agriculture, he will find that pedigree animals are normally worth over £1,000—sometimes the price is extremely high.

Why should this particular category of people who have elected to have herd accounting to be the ones to suffer? This is not a very wide point, and I ask the Financial Secretary to give exemption from Capital Gains Tax to these people who elected to have their herds dealt with on a herd accounting basis. It is not an excessive demand to make, but it is something that should be granted in this case, because it was the hon. and learned Gentleman's predecessors in Government who offered this choice to the agricultural community. I do not think it right that they should now go back on their promise, although I must confess that after hearing some of the hon. and learned Gentleman's remarks—his ominous remarks on the farming industry—I should not be surprised if they did. However, I hope that the hon. and learned Gentleman will not do this, because to do so would be most inequitable.

Sir D. Glover

In an interesting debate we have had two of the most remarkable speeches made on the Finance Bill from my right hon. Friend the Member for Harrogate (Mr. Ramsden) and my hon. Friend the Member for Howden (Mr. Bryan). It is not accidental perhaps that they both come from Yorkshire. Theirs were the best thought-out speeches in the debate. Watching the Financial Secretary whilst both were speaking, I was increasingly disturbed that he was finding it almost impossible to stay awake.

Mr. MacDermot indicated dissent—

Sir D. Glover

I must also draw attention to the fact that in 10¾ hours of debate we have not had a single word from the Chancellor of the Exchequer. We are now dealing with one of the biggest changes in the tax structure and surely we should have had the Chancellor's views put forward in the debate. I place that on record because it should be on the record. In listening to the debate on the Amendment, I was increasingly reminded of those two magnificent books "I, Claudius" and "Claudius the God." Claudius, who married Messalina, organised Saturnalia parties and, because he was not a very bright individual, she left him at the gate to take the money.

I am forced to ask what the Government think they are going to do to police and control capital gains. All the objects of art which we have been discussing and all these movable chattels are things which an ordinary person can value. Only an expert can value them and the expert is not somebody who can value pictures and china and all the other ramifications. If one is to have a good valuation one must have not only an expert on china but even an expert on one particular type of china. One may require one expert on Ming and another on European china. One cannot have just one expert engaged by the Department to value things which are subject to Capital Gains Tax on their disposal. If the Financial Secretary is still awake—[HON. MEMBERS: "Order"]—I say it with great sympathy.

Mr. MacDermot

I assure the hon. Gentleman that even when he is addressing the Committee I find no difficulty in keeping awake.

Sir D. Glover

I am glad to hear it. I was very disturbed because some time ago not only was the hon. and learned Gentleman yawning, but his eyes were closed and he was finding it difficult to keep awake.

This tax on shares and other transactions is expected to bring in about £125 million at its very peak, but on the question of movable chattels we have had no information from the Government about what the tax will bring in. I doubt whether the total figure in any one year will be anything like £1 million. It will probably be about £500,000. The Financial Secretary has not told us how he visualises the policing of this tax will be carried out from the Inland Revenue. My right hon. Friend the Member for Harrogate, in his very fine speech, pointed out that the only too likely result of the tax will be to drive dealings in these sorts of things into the hands of disreputable rather than reputable dealers. There will have to be a far stronger policing of this part of the Capital Gains Tax than has been indicated by the Government so far if that is true, as I believe it to be. Where will the experts come from? Will they be engaged on each item at a commercial fee, at a fee laid down by the Inland Revenue, or will they be recruited and become full-time employees of the Inland Revenue? If the latter, how many of them, and at what salary?

2.45 p.m.

These are all relevant questions. I very much doubt that these experts could become employees of the Inland Revenue. There are very few of them, and the Inland Revenue will not be able to get them at anything like the Civil Service salary. Is the Inland Revenue quite sure that an independent valuer in the commercial market who today is working for the Department and tomorrow will be working on the other side will be able to give a fair valuation? Who will give the third valuation if there is a dispute? If a man gives his son an object of value and says that, in his view, it is worth £900 and, therefore, does not incur Capital Gains Tax, but the Inland Revenue hears about it and wants it valued, is a valuer to be sent all the way from London to Northumberland to value it or will the Revenue ask for the article to be brought to London for valuation? The valuers are not in Northumberland or Cumberland, but a lot of objects of art are in houses in those parts of the country.

We have been given no idea of the on-cost in the detailed administration of a tax which will bring in virtually no revenue whatever. It is a tax brought in out of spite. It is playing down to the lowest emotions of the Chancellor's supporters. It is thought to be popular in the country. It appears to be fair to the proletariat, but, in fact, it will bring in no revenue, so what is its purpose? It will damage one of the best export markets we have, a market which is respected all over the world, for no advantage to other taxpayers. I can understand the Government bringing in swingeing taxation which I might disapprove of if it would bring in revenue which could be used for a purpose which they regarded as socially desirable. But I cannot see how the Treasury will get any real net benefit from this tax on moveable chattels.

Mr. Timothy Kitson (Richmond, Yorks)

Will my hon. Friend deal with the question of Capital Gains Tax on the professional footballer? The Minister with responsibility for sport is here, and it would be interesting to know how that would be administered.

Sir D. Glover

I am grateful to my hon. Friend. I suppose that a professional footballer is an asset of diminishing value and, therefore, would probably show a capital loss. I am not quite sure how a football club would claim back for a capital loss in respect of a footballer who was valued at nothing after a period of years.

The Amendment in my name deals with decorations, and I am sure we will get some concession here. There is no money involved; it is purely the personal, human problem. Perhaps people do not realise that today, as a result of the shortage of decorations like the Victoria Cross, these medals fetch over £1,000 at auction sales. Their price will almost certainly go up. We bought one in my Territorial battalion—we had one V.C. of the 1914–18 war—about three months ago at a cost of £1,170. As the Financial Secretary will realise, that would have incurred capital gains, being over £1,000. There are quite a lot of decorations in families, or belonging to widows, because so many of these decorations were awarded posthumously. It may be that the widow dies and because of death duties and that sort of thing it is necessary to sell this decoration.

I am certain that no one in this Committee would wish to have the State extract some form of capital gain on a decoration originally awarded for valour. I would qualify my Amendment by saying that I am only talking of those sales from the family to which the medal was originally awarded and not of sales between dealers. When it is being sold by that family the decoration would not incur tax. I am sure it would be contrary to the wishes of the people of this country. No widow sells that sort of decoration unless she is in financial need, so she is selling not to get a capital gain or make a profit but because she is forced to. I am sure the British people would think it a sin and a shame if the State inflicted this tax upon such a transaction.

Mr. Michael Alison (Barkston Ash)

I would like to refer particularly to the asset of livestock among the category of tangible moveable property, and especially racehorses. An amendment stands upon the Order Paper in the name of myself and my hon. Friend's on this, and I hope the Financial Secretary will be able to agree that this is rather a special category of livestock, giving rise to rather peculiar problems of computation in terms of capital gains.

I am interested in this because the town of Wetherby is included in my constituency, and the races there are without peer in the North of England, compared to which those at York and Catterick are but a pale shadow.

It is of real significance to trainers, breeders and owners of racehorses in the Wetherby area. Neither as a matter of practical politics, which is the art of the possible, nor as a matter of quality, can racehorses or similar bloodstock be assessed for long term capital gains, having regard to the provisions which Ministers have set down in their own Bill.

I am not going to deny that racehorses can be sold at a capital profit, but what I assert—and this is particularly in reference to paragraph 4 of the Sixth Schedule—is that, first, the scale of costs which must be allowable in equity in computing the gains to be realised on disposing of an asset in this category worth more than £1,000 will be so colossal in relation to the sort of gains to be realised, especially having regard to the rarity of gains realised in this class of asset, that there is nowt in it for the Treasury, and it is not worth the collection. This is a serious point, to which I shall return when considering the implications of the Sixth Schedule in relation to computing allowable costs.

Secondly, it is a tax which will not only have nothing in it from the Treasury's point of view, but will be positively discouraging, particularly to hobby racehorse owners and breeders, if the only fixed and immutable feature in reality in the risky, changeable, chancey business of breeding horses is the capital gains charge. It will be very discouraging if the only thing which is universally present whenever there is a racing gain is a Treasury impost.

It will be so discouraging that the body of people who do this voluntarily to amuse themselves, and many others as well, will be driven into extinction. The creeping paralysis of the Treasury battening this tax on to this form of sport will drive it into extinction. This is a serious matter, because, as the Peppiatt Committee has made clear, racehorse breeding is a considerable undertaking for the community as a whole, not only in terms of pleasure, but in turnover in bloodstock sales abroad. This tax will be a positive disincentive, having regard to the rarity with which a capital gain comes the way of the racehorse owner or breeder compared with the frequency of his losses.

I come now to the main burden of the question of computing all allowable costs, and I draw the attention of the Financial Secretary to paragraph 4 of the Sixth Schedule where it says: the amount of any expenditure wholly and exclusively incurred on the asset … for the purpose of enhancing the value of the asset is to be an allowable cost in computing the gain. It stands to reason that if one is considering this in regard to racehorses, the expenditure involved in enhancing the value of the asset must include training fees. After all, the whole point of possessing a racehorse is to possess a winner. This is the only circumstance under which this asset acquires an enhanced value. It does so only if it wins races. Thus, any training expenditure must be directed towards enhancing its value, and enhancing its capacity to win races, and therefore the fees incurred in training, which may be anything from two to six years, must be allowable costs. If it is a progressive process of breeding and training a horse to win races, it must indubitably come under the heading of allowable costs.

3.0 a.m.

Another aspect is the fee paid to the jockey. The chances are that one will produce a winner if one can afford in the long run to get the best jockeys. The best jockeys cost money. Yet employing the best jockey is a way in which the value of the asset is enhanced by putting the horse in the way of winning races. This cost must be allowable in computing the deduction. What about entry costs, insurance and transportation, the cost of moving the horse from A to B, petrol, depreciation of the vehicle—all related to entering the horse in a race. This expenditure must be an enhancement of the value of the asset and not a maintenance cost. Enhancement value can hardly be separated from all aspects of possessing a racehorse and bringing it to the point of entry and winning or losing a race.

Another enhancement cost is the cost of the other horses. The successful and business-like hobby racehorse owner or breeder has a string of horses. The collective unit of perhaps two dozen racehorses contribute to producing a winner. There may well be only one winner in a dozen, but the emergence of the winner will be due to some extent to the existence of the collective group of racehorses which produce not only enthusiasm among those attending to the needs of the string of racehorses but also a stimulus in the collective life of the stables. The whole cost of maintaining a string of racehorses is, strictly speaking, a cost of enhancement in producing one winner.

Mr. Kitson

Is my hon. Friend suggesting that if an owner has a horse he thinks good enough to win the Derby, and he buys a lead horse for the string, he will he able to offset the price of the lead horse against the eventual value of the Derby winner?

Mr. Alison

Not only the lead horse but all those associated with it. These are all costs of producing a winner, and they are enhancement and not maintenance costs. The conclusion is that especially when the training may cover many years there will be an immense allowable enhancement cost in respect not only of one horse but of a whole group which must be set against the capital gain which, in the rare cases where it exceeds the £1,000 limit, is to be taxable. There is "nowt" in it for the Treasury, but there is a serious disadvantage to the hobby racehorse owner and breeder because gains in terms of the realisation of livestock are as rare as a jackpot in the pools. In the many years that a racehorse owner or breeder trains a string of racehorses, if he succeeds in producing a winner the element of chance is at least as great as the element of chance referred to in Clause 26 (5) which states that winnings from pool betting or lotteries are not chargeable against duty.

In other words, if one makes one's packet on backing the right horse at the Derby, then one gets off scot free, but if one gets a gain from reselling the horse which wins the Derby, one is charged for a capital gain. It is simply not logical. A capital gain realised on a successful horse race contains just as much element of chance as anything specifically included in betting and lotteries, and if the hon. and learned Gentleman cannot accept this Amendment, I hope he will at least say that it is impossible to differentiate between enhancement and other costs. The unfair penalising of racehorse owners and breeders will be something of a national disaster for which no political party should covet the parentage.

Mr. MacDermot

I hesitate to intervene when other hon. Members wish to speak, but we have been about an hour and a half on this group of Amendments. I thought that the hon. Member for Ormskirk (Sir D. Glover) brought himself in his last few sentences to refer to the Amendment which appears in his name but that, until then, he had reinforced the arguments which we heard earlier. The hon. Member for Barkston Ash (Mr. M. Alison) reinforced, I thought, his own arguments which he had put when we discussed this matter in connection with the short-term gains tax and which I sought to answer on that occasion.

At the beginning of our discussion the hon. Member for Wycombe (Mr. John Hall) introduced the first of these Amendments saying that what he was concerned with was the main objection of principle to the inclusion of chattels at all. He began by advising us on this side of the Committee to learn from the experience of the United States Treasury who, he contended, had found this to be the most unsatisfactory and complicated part of their Capital Gains Tax law. I assure him that we have sought to profit from the American experience in our system of taxing chattels, and there are some marked differences.

The American law is very wide indeed and covers all chattels; and not only are all chattels subject to this charge, but any loss on chattels is not allowable. That, one would assume, is not the system which is likely to command universal support here; and it is one which would encourage considerable attempts at evasion. The Commercial Clearing Houses Organisation has provided advice to American taxpayers when filling in their forms, and says that most things are included; stocks, bonds, and real estate; one's house, automobile, and the tools and equipment one uses around the house; and even the supply of coal and oil.

If the hon. Member thought we had modelled ourselves on the American system for taxing chattels, he would have reason to think we were getting into difficulties. We have exemptions for residences and automobiles and all chattels of less than £1,000 value; and taxpayers here are allowed to set off losses of chattels against gains. That is an entirely different matter.

He then sought to make our blood curdle with imaginations of the difficulties of administration and the army of snoopers who would be descending upon our homes. He let his imagination run to the point where it boggled. On the question of snoopers, to start with—

Mr. John Hall

I must point out that I did not use the word "snoopers." I talked about the charming, courteous and tactful inspectors who would be employed.

Mr. MacDermot

I think, with respect, that the hon. Member did use the word "snoopers." We shall be able to check it later on. Anyhow, he read in awesome tones the provision in the Schedule which gave power to people to enter and inspect, as if it were some terrible new draconian provision. In fact, it is modelled on a provision contained in Section 9(8) of the Finance Act, 1894, which confers a precisely similar power for the purposes of Estate Duty.

Mr. Callaghan

A Conservative Government.

Mr. MacDermot

I do not think the idea that we have suddenly departed from all principle and invaded the Englishman's home in some impermissible way will stand up.

We were then asked various questions about the way in which the provisions for valuation will work in relation to chattels. I concede that difficulties arise in this respect, but we do not consider that they are so great as to outweigh what we think would be the objections in principle to the complete exclusion of chattels from charge. That is what we have to balance. As everybody knows, very substantial capital gains are made on some chattels. These attract a great deal of publicity and attention. If we were to exempt all chattels, and people were to hear and read of these gains being made and find that these are exempt from all charge, it would tend to bring the whole tax into disrepute.

Mr. Robert Cooke (Bristol, West)

rose—

Mr. MacDermot

I cannot give way. As I explained earlier, my experience is that if I give way too much during the course of my argument it usually wastes time. If I have not met the hon. Member's point when I have reached the end of my remarks I will gladly give way then. There are difficulties of valuation. We have to weigh up the question whether the administrative difficulties are such as to counter-balance the real disadvantages which would come from a total exclusion. The difficulties have been exaggerated, although they exist.

One of the reasons why they will be fewer than people have feared is that there is a time apportionment basis of valuation. One hon. Member gave the example of a picture which had been discovered to be a Tintoretto, and which was disposed of at a high price. He said that we had to try to discover what its value was on Budget day. The value at the time when it was originally acquired would be known, and when it was thought to be a worthless picture its value would have been negligible. A time apportionment basis in such a case would be bound almost always to operate heavily in favour of the taxpayer. He would opt for the time apportionment basis, which he can do as of right. We have taken no power for the Revenue to exercise any option for a valuation, even when it is patent that the time apportionment basis operates quite illogically and adversely to the interests of the Revenue. It is only the taxpayer who has the option. In those cases where he does opt, he does so because he has a view on advice of what he thinks the value was on Budget day which is more favourable to him than the time apportionment basis.

3.15 a.m.

He would, therefore, submit a scheme with an expert valuation. If it is one which is accepted by the Revenue, it would depend on the authority and repute of the valuer. I am asked what happens when there is a dispute between valuers. That is not a new problem. It arises, of course, over estate duty valuation in connection with pictures and works of art, and there is properly recognised appeal machinery and machinery for settling disputes. Let us not let our imaginations run away with us. The great majority of these things are sold by negotiation, and this will continue to be the case.

Mr. Alison

There is a distinction here between the problem of computation and base value duty in the case of a chattel such as a picture, and that of a racehorse, to which I referred.

Mr. MacDermot

I have not yet come to the hon. Member's point about race-horses. What we are discussing is valuations of works of art. I cannot deal with everybody's points in the same breath.

It was suggested that the £1,000 provision would lead to people seeking to conceal from the Revenue that a chattel had been disposed of for £1,000. We must recognise that in this tax on chattels there is plenty of scope for avoidance. What we should weigh up is whether it would be better that there should be, in effect, a wholesale avoidance of Capital Gains Tax as a result of our removing chattels from charge, so that—

Sir D. Glover

They should be.

Mr. MacDermot

I entirely agree with the hon. Gentleman that, from a legal point of view, avoidance would not occur if chattels were not subject to charge, but I am looking at this in my non-legal capacity, from the point of view of an ordinary member of the public. He understands that this tax sets out to be fair, and then sees that people who have the capital can make very substantial capital gains over a period and escape the net altogether. I was asked who are the privileged class. They are the people with the available time and cash, and either with the necessary knowledge, or with the ability to hire it. This is what has to be weighed up against the fact that there is considerable scope for evasion of this tax.

Just because there is that scope for evasion, we do not think that it is right that we should say that we do not think that the chattels should be subject to charge at all. An important point raised by many hon. Members was the alleged effect of the tax upon the London art market. We appreciate the real value and importance of the success which the London art market has had since the war. London has been built up into the leading position in the art world, which is something we did not have between the wars.

I have referred briefly to the figures of both exports and imports. They have risen considerably in recent years. Last year they reached an all-time record; £29½ million for exports and £21¼ million for imports. The average net exports of this trade in the last five years have been just over £4 million a year. There are, of course, other incidental financial advantages to this country as a result of our being such an important art centre.

Mr. Ramsden

I thought that the figure of £4 million was given by the hon. and learned Gentleman the other day in connection with the average growth which had taken place in the trade. Is he not confusing the two points?

Mr. MacDermot

I did not refer to the figure in terms of the average growth. I am referring to the average net exports in the last five years. The average growth in the same period can be judged from these figures; that in 1961 exports and imports were about £16 million, whereas last year the figures which I gave apply. We accept the importance of this market.

It is suggested that this tax will seriously prejudice our position as an art centre. One must look at the reasons why we have had this astonishing success and why London is paramount at present as an art centre. I have received two deputations from the trade and have gone into the matter with some care. I was also personally interested in the subject before.

I think it is accepted that the first reason is that London is unique for the large number of art dealers who can and do buy for stock and pay cash. This means that anyone who has an important work of art to sell has the great advantage of being able to bring it to London to sell it here, the dealers here not having to depend on inviting an individual customer who wants that particular work of art. Such a person knows that in the London art market the dealers will be prepared to offer a fair price. That is the first and most important reason.

The second is the acknowledged expertise and integrity of the London dealers. The third is the lower commission which they charge compared with other countries. The fourth is the tax advantage. Compared with other art centres, there is no tax here on art transactions, whereas in the leading other centres there are substantial taxes.

With the introduction of the Capital Gains Tax, and even at the point where it has reached its full weight—which, as the Committee will realise, will not be for 15 or 20 years, which is the figure we have given—still the burden of tax will be less here than it is in other art centres. For example, in France there is a turnover tax of 10 per cent., plus further taxation. In addition, the foreign buyer—remembering that a large part of this trade concerns foreign buyers—will not be subject to the Capital Gains Tax.

Sir C. Mott-Radclyffe

Does it not occur to the hon. and learned Gentleman that all that the French Government need do to recapture this market is simply to lower their own taxes?

Mr. MacDermot

That point has been suggested to me, but I do not accept it. If that was all that the French needed to do to recapture this market, considering that they have been anxious to do so, that would have been done, but they have not been successful in recapturing this trade for a multiplicity of reasons, which I have been outlining. I do not believe that that is the answer. In any event, we must consider and argue the matter as matters stand. If there is an alteration and it is seen to be affecting this trade, that is a matter which could be considered for revision in a future year.

What we are considering is whether it is proper to apply this tax now and whether, in present circumstances, it will seriously impede the London art market. For the reasons which I have given, and I have gone into the matter with some care, I do not believe that these fears are well founded.

I am sorry to take so long, but these are important matters and I have been asked many detailed points. The argument is put that because of the opportunities for evasion, there will be people who are dishonest and who will not want to include in their return their disposals of works of art worth more than £1,000, that they will therefore not lend their pictures for showing at public exhibitions, that they will not sell through the trade or the ordinary market but will sell through a subterranean method, and that a subterranean, dishonest trade will grow up to avoid Capital Gains Tax.

From the advice which I have had, I think that a certain amount of what might be called subterranean art dealing is already taking place for other reasons. I am also advised that people who choose to dispose of and sell through those channels, unless they have an ulterior motive which drives them to do it, are ill advised. They will not find the best price through those channels. Somebody who has a valuable work of art and who wants to dispose of it in this country would be much wiser to go to one of the reputable dealers or put it up at the well-known auction rooms, where he is much more likely to command the best price. This will continue to be the case. The tax—which is a tax on the gain, not on the total value of the chattel—will still leave every inducement to any sensible person to continue to dispose of his chattels openly and properly through the reputable trade.

We were asked how we would police these provisions and a large army of snoopers was referred to as part of the vast machinery for preventing loss of revenue. That is not the way the Bill will operate. There are provisions in the Bill whereby the Revenue can obtain returns from dealers, auctioneers, and so on, of transactions and it will be the duty of people to make returns of their disposals in their tax returns. I am sure that as the vast majority of our people are honest, the vast majority will make honest returns. There may be some evasion or escaping, but that is not a sufficient reason to exclude this field from the tax net altogether.

I was asked specifically about the tax on books and manuscripts and it was suggested that this conflicted with the U.N.E.S.C.O. agreement. I will gladly look further into this, but my advice is that that is not so. The object of the U.N.E.S.C.O. agreement is to avoid a tax on knowledge, on current books, whereas what we are dealing with in the Clause is rare books of great value. They have to be worth over £1,000, or a set of books over £1,000. We are not dealing in the ordinary way here with the kind of publications which, I am advised, were covered by the U.N.E.S.C.O. code. This is not intended to cover things which are analogous to expensive works of art.

It was suggested that the tax would have the effect of tending to break up a set of letters. I am not sure what a set of letters is. One may collect a collection of letters, but if somebody merely collects a lot of things written by the same person, that, as I understand the meaning of "a set", does not turn them into a set. In any event, that is not a matter for me to decide. It will be a matter of fact which, in the event of dispute, will be determined by the Commissioners.

3.30 a.m.

But let me take the point of substance. It will obviously apply to some sets. It is suggested that there will be an inducement to people who own a set of articles, each individual article being worth a little under £1,000 and the total set being worth several thousand points, to break up the set and dispose of the articles separately in order to avoid the tax. Surely the essence of these "set" cases is that it is precisely because the articles are a set that they have a much higher value than they would have individually. It is that value which the owner will want to realise when he disposes, and that is why he will dispose of them as a set.

The "set" provisions are an anti-avoidance device. They are aimed at seeing that when "A" disposes of a set of articles to "B" he does not avoid paying tax on the true value either by disposing of them through intermediaries or by making separate contracts direct between himself and "B" for particular articles. Because of this enhanced value of the set it still would be in the interest of the owner to dispose of his articles as a set rather than to break them up.

Mr. Walters

Would not the Financial Secretary agree that the yield from this tax will be absolutely tiny and that the damaging effect on works of literature and scholarship could be very considerable?

Mr. MacDermot

I am trying to be patient. I have not yet reached the question of yield. However, since the hon. Gentleman interrupts my train of thought with that question, I will deal with it. It is not possible to form any view of the yield of this tax on chattels, and no attempt has been made to do so. We are not putting forward the justice of this tax on the basis of yield. I have explained the reason why we have not only justified the inclusion of chattels but why we think it is essential to do so. I think I have dealt with all the main points raised by the right hon. Member for Harrogate who I know takes a very great interest in this subject.

Then I was asked in particular by the hon. Member for Cornwall, North (Mr. Scott-Hopkins) about the herd basis of taxation in relation to livestock. The hon. Gentleman put forward arguments which have been put forward to us in representations by the National Farmers' Union. The position is that in the ordinary case there will be considerable benefit to owners of herds from the fact that the application of the chattels exemption will result in a substantial part, if not all, of the capital gains realised by farmers and others on the disposal of their herds being tax-free. This is an advantage which they will get over many other people who are disposing of assets.

It has been represented that a tax should only apply to the disposal of the herd when the election to the herd basis was made after 6th April, 1965. It is claimed that the terms of the 1947 Act, that any gain on the sale of a herd would not be taxable, should extend to Capital Gains Tax as to Income Tax. But the 1947 legislation made it possible for farmers to deal with their herds for tax purposes in the same way as any other businessman treated his capital assets. There is no capital gain on the disposal of these assets as being assessable to Income Tax, though losses have, through the operation of capital allowances, been effectively relieved for some types of assets.

Farmers are not being singled out for special treatment here. They are in the same position as business men possessing capital assets. There is no retrospection involved in taxing for capital gains farmers who, like those in other businesses, up to now have escaped assessment.

It is also said that the imposition of the tax would be unjust to those farmers who elected for the herd basis, because it would be treating the owner of one type of productive herd differently from another. That is not so. The farmer who has not made the election has already been assessed at ordinary rates of Income Tax or Surtax on any gain he realises from the disposal of animals in his herd, but the only herds that could be affected would be pedigree herds, and it is not many of those that would have in them animals worth over £1,000 each.

To accept that Amendment, therefore, would be rather a gesture—as we made a bargain in 1948, and it was consolidated by a Government of the party opposite in 1952. But I know that there has been strong feeling on this matter, and I am quite willing to give the hon. Gentleman an undertaking to look further into it to see whether what I frankly say would be a gesture, which I feel, in strictness, has not a great deal of merit to it, could be justified. I will look further into that point.

The hon. Member for Ormskirk (Sir D. Glover) asked me to deal with the question of medals awarded for valour. I should like to look at this subject again, if I may. It is an argument and a case that arouses an emotive sympathy—one concedes that at once. It is also one that is difficult to justify in logic. What makes me want to look at it again is that the hon. Gentleman particularly pressed that he only wanted his exemption to go to the disposal of the medal by the family of the recipient.

If we can find a way to do that, I am sure that the Committee would be very glad. This is not, of course, what the Amendment as drafted would do. It would mean that anybody who was speculating—if that is not an abusive word to use—in these chattels would have the benefit of the Amendment. May I look at the point to see whether we can find words to meet what is sought? I cannot give an undertaking, because I know how difficult it is to define these things so as to limit them properly.

Sir D. Glover

The Financial Secretary has been very generous in what he has said. I realise that there are a lot of difficulties, but I am perfectly satisfied if he will look at the matter sympathetically, as he says he will.

Mr. MacDermot

The hon. Member for Barkston Ash (Mr. Alison) referred to the special position of racehorses, in which I understand he takes a keen and constituency interest. It is fair to comment that the man who breeds racehorses by way of trading is already covered because he is taxed by way of trade. What we are concerned with here is the person who owns a racehorse or two and races them as a hobby, and who, up to now, has not been liable to tax. Again, we have first to approach the question of principle as to whether, if an individual buys a racehorse, races it successfully and then sells it again at a considerable gain, he should have that gain exempt from tax. In principle there seems to be absolutely no case for exempting a gain of this kind from the scope of the tax any more than a gain in relation to a valuable chattel.

Mr. Alison

This seems to me to be a crucial matter of principle. There is no difficulty in assessing the value of a racehorse on the date of acquisition and on the day of disposal. It is the nature of the way in which the enhancement of value occurs that is the point, namely the element of chance. There is just as much chance of gain by enhancement of value through the horse winning a race as there is the chance of winning £1,000 or more by backing the horse.

Mr. MacDermot

It is not unique in that respect. In works of art fashions change. I do not know how many hon. Members would have predicted that as a result of the "Early Bird" auction last night one of Sir Winston Churchill's paintings would have gone for £14,000. It was perhaps because of the element of chance that there happened to be a Texan millionaire who was interested in that sale. There are chattels which will fluctuate considerable in value from time to time, but that does not seem to afford a reason of principle that one should exclude those chattels from liability to Capital Gains Tax, particularly since someone who makes an unusually large gain can also take advantage of the situation if he makes an unusually large loss, in the sense that he is able to set that loss off against other forms of gain.

This led the hon. Member to say that there is "nowt in it" for the Treasury. That may or may not be so, but I am not arguing the case for taxing racehorses on the basis that this will be a great source of revenue to the Treasury. There is not a great deal of money at stake. The question is what is a fair way of introducing the tax, and if one starts on the principle that chattels over £1,000 are included it is for those who wish to have exemptions to show reason for them.

Mr. Alison

I am sure that the majority of the Committee will be bound to agree that there cannot be a distinction in principle as far as the element of chance is concerned between the farmer who acquires a horse in Ireland for £30 which happens to prove to be a Grand National winner which he then disposes of at a substantially increased capital value and the man who backs that horse as a complete outsider and makes a large sum of money.

Mr. MacDermot

There is the difference that when one bets one does not acquire an asset. There is no capital gain on an asset. We all know that there are people in the Committee who are interested in the idea of a gambling tax and my right hon. Friend has said that he is looking into it. It is a matter of great interest to me and almost of comfort as a Treasury Minister to see enthusiasm on the benches opposite for our introducing a gambling tax in my right hon. Friend's future Budgets.

The hon. Member for Barkston Ash also raised the question of computing allowable cost. I have no need to add to what I have said before. Maintenance cost as such will not be allowable. Costs which do not go to enhance the value will not be allowable. The hon. Member raised the interesting question whether training fees and expenses of training will come under the words "enhancing its value". I should not like to predict what the answer will be when the matter is tested.

Mr. Simon Wingfield Digby (Dorset, West)

Will the hon. and learned Gentleman deal with the question of travelling expenses and entry fees, which are a very large element in the cost?

3.45 a.m.

Mr. MacDermot

Those appear not to he costs to enhance the value of the animal. They are ordinary costs. If one has a race horse, one has it not pri- marily for capital gain but for the enjoyment one gets from racing. This is the use of the chattel, and the costs incurred in the ordinary way of use and enjoyment of the chattel or in the maintenance or preserving of it will not be allowable.

Mr. Wingfield Digby

How would one enhance its value unless one entered it in a race? Unless it wins a race, one cannot enhance its value.

Mr. MacDermot

One would have to see how that turned out when it was put to the test.

Mr. John Hall

At this hour of the night, perhaps I missed the answer which the Financial Secretary gave to a question I put earlier. I asked that the Committee be told the estimated increase in the staff of the Inland Revenue which would be required to implement the provisions of the Capital Gains Tax. If the hon. and learned Gentleman gave an answer, I did not hear it.

Mr. MacDermot

No, I did not give any answer. I have no figure for the estimated numbers. There will be additional numbers wanted, of course, and some people are already in training.

Mr. Ridley

rose—

The Parliamentary Secretary to the Treasury (Mr. Edward Short) rose in his place and claimed to move, That the Question be now put.

Mr. John Hall

I am very surprised that this Motion—

The Chairman

Order. It is not debatable.

Question, That the Question be now put, put and agreed to.

The Chairman

The Question is, That the proposed words be there in-King?

Mr. Robert Cooke

Am I entitled to speak now on the Amendment, Dr. King?

The Chairman

No. No speech can be made while I am putting the Question. The Question is, That the proposed words be there inserted.

Amendment negatived.

Sir Martin Redmayne (Rushcliffe)

I beg to move Amendment No. 395, in page 18, line 33, to leave out subsection 3.

In moving this Amendment, which, I think, goes with Amendment No. 332, in page 18, line 43, to leave out paragraph (b) and Amendment No. 396, in Clause 22, page 21, line 17, to leave out "and" and to insert "or", I wish to apologise for the fact that it was yesterday a starred Amendment, put down at short notice. This is, of course, always irritating to the Treasury Bench, but notice has had to be short in this Committee stage.

It has been pointed out to me that the Chancellor, in having this Clause drafted, has taken no note of problems which may arise in connection with the disturbance of land arising from mineral working, whether opencast or deep mining, or even from such minor disturbance as the laying of pipelines. In any such event, there would appear to be a notional disposal of assets, and in every case in which there was at least an expectation of gain, that disposal would be a part of a larger asset, say, a farm in the case of a pipeline or a whole estate in the case of mineral workings, even if those workings affected only some part of the estate.

Any such part-disposal, if there is expenditure involved in defence of rights, as there might well be, involves a valuation of the whole asset.

The second point is that, on the first occasion on which such a notional disposal takes place, a decision has to be taken by the owner as to whether the valuation is to be on the line basis or is to be as at 6th April, 1965; and that decision taken in respect of what could well be a trifling occurrence, perhaps the laying of a pipeline across a small part of land, is binding for the whole of the asset involved, binding for any further part-disposal of it, and—I think I am right in saying—binding for all time that it remains in the same ownership.

Therefore one has a situation when one might be negotiating for a sum of perhaps £10 for the laying of a gas pipe, or some other main, involving an enormous degree of trouble at the time and capable of having recurrent ill-effects throughout the tax payer's ownership of the property. As I understand it, the immediate transaction might show no gain at all because the value of the land undisturbed—that is before the transaction, would equal the value of disturbed land plus compensation. On the necessarily resulting valuation on the whole which must arise, there could well be inconvenience, anomaly and tax burden, at the time of the transaction and in the future. If it happened in the future it would bear no relation to the compensation received and would be wholly out of proportion with the original cost of it.

Time did not permit the drafting of a suitable Amendment to cover this point, but it might be that the drift of that Amendment should be that no compensation of the type I have described, arising from mineral working, large or small, caught or appearing to be caught by Clause 21(3) should in fact constitute a part disposal. It is certain that if Ministers do not wish the Bill in this respect to cause hardship and inconvenience out of all proportion to their avowed aims then they should come forward with an Amendment of some such sort on Report.

The second Amendment in my name deals with Clause 22. It is true that Clause 22(6) appears to avoid the need for a notional disposal if a loss arises, but I am informed that the drafting of the Clause in line 17 of subsection 6 of Clause 22, which deals with compensation for damage and restoration does not reflect common practice. In some cases restoration, in the case of the laying of a pipe-line for example, or on the larger scale, opencast working, rests as duty and is charged to the developer or the user of the rights for which compensation is paid. Therefore, the use of the word "and" combining damage and restoration would appear to invalidate the purpose of the subsection. In any case Clause 22 relates only to losses. In the main the sort of operation I have described, while probably neither at a loss or profit, would be expected to be at a profit and, as I have suggested, it should be excluded from the provisions of this Clause on that account.

The Chairman

In case some hon. Members have not noticed it, may I point out that this morning I added Amendments Nos. 449 and 451 to this group of Amendments.

Mr. Robert Cooke

I should like to say a word about Amendment No. 332 which stands in my name and which is being discussed with the Amendment moved by my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne). It seeks to exempt from the tax: capital sums received under a policy of insurance of the risk of any kind of damage or injury to, or the loss or depreciation of, assets. As we see it, it would appear that if a work of art suffers damage and insurance has to be claimed, or if it is lost through fire or through theft, or even if it is recovered, and the insurance moneys have been paid, the miserable collector who has lost his work of art is unable to replace it because the money that he has received for it, if it is over the value that appears in the Bill, will catch the Capital Gains Tax, so he will be unable to replace something which was lost through no fault of his and his new tax falls on it.

I could develop this argument at great length, but I shall not do so because there are many other things about which I wish to speak at a later stage. The Chancellor has not got a stony heart. I am sure that he would not want to see someone who has suffered the grievous loss of a work of art unable to replace it because he is taxed before he can provide the money to buy something else.

Sir Eric Fletcher

Perhaps I might reply briefly to the points raised by the right hon. Member for Rushcliffe (Sir M. Redmayne) and the hon. Member for Bristol, West (Mr. Robert Cooke), in connection with Amendment No. 395 and the four others being taken with it. I think that the right hon. Gentleman realises that the form of his Amendment, which is a starred one, is not very apt to enable him to raise the precise point which he indicated he wanted to raise. The Amendment in the name of the hon. Member for Bristol, West raises a somewhat similar point, but perhaps I could deal with it first.

In terms, the Amendment seems to delete subsection (3) from Clause 21, but I am sure that those who have studied the Clause will realise that subsection (3) is integral to the purposes of this part of the Capital Gains Tax. It would be anomalous if a sum arising to the owner of a chattel as a result of an insurance claim following a loss, or indeed any other capital sum arising by the sale of an asset such as copyright, was able to escape the liability for Capital Gains Tax which would arise on any similar disposal.

In the case put by the hon. Gentleman, he will realise that if the owner of a valuable work of art, or any other chattel, were to sell it, there would arise a claim to Capital Gains Tax on the difference in the value between the date of acquisition and the date of disposal. It would be unfair if an owner lost it, through his own negligence or because it was stolen, and he received a capital sum from the insurance company and then found himself in a different position from a person who sold it.

4.0 a.m.

Sir C. Mott-Radclyffe

But the owner has paid an annual insurance premium over a number of years, and the rate of premium has been assessed in accordance with the total sum for which the object was insured.

Sir Eric Fletcher

That may well be, but precisely the same consideration arises if an owner has insured it over a number of years and then sells it. He has paid a premium, and it would not be reasonable for him to be able to offset the amount of the premium paid while it has been in his ownership against the amount of capital gain which has arisen.

Mr. Anthony Barber (Altrincham and Sale)

If a person owns a chattel which is involuntarily destroyed and there is a genuine replacement of that chattel, it cannot be right that the Capital Gains Tax should be chargeable. Assume that someone owns a chattel valued at £2,000 which is destroyed involuntarily and that he purchases with the £2,000 a precisely similar chattel. It seems grossly unfair that this can give rise to a charge of capital gain.

Sir Eric Fletcher

On reflection the hon. Member will see that it is not unfair. Consider the man who loses a chattel which is not insured. He incurs a capital loss which he can offset against capital gains arising during the same accounting period. One has to take the rough with the smooth. To ensure a state of equity between those who have and those who have not insured, it must follow that if a person loses something either through his own negligence or otherwise and thereby receives a capital sum, he is in precisely the same position with regard to other comparable taxpayers as if he had sold it. It is not a relevant consideration to inquire what he does with the insurance money. He is free, if he sells the chattel, to purchase another chattel or not to do so; and if he loses a chattel and receives a sum from the insurance company, he is in precisely the same position. He is free to use the insurance money in the same way as the purchase price, and it would be wrong to place one in a more favourable position than the other.

Sir J. Foster

In many insurance policies there is a right to exact replacement. Does he think his argument right in a case where an article is destroyed by fire and the insurance company can insist on it being replaced?

Sir Eric Fletcher

I am familiar with that provision in insurance policies, but if the hon. and learned Member will look at subsection (3) of Clause 21, which this Amendment is proposing to delete, he will see that it deals not merely with capital gains received under a policy of insurance, but capital sums by way of … compensation for any kind of damage or injury to assets … so that one has to consider any sum recovered from a third party and not simply from a policy of insurance. It concerns capital sums accruing from the exploitation of assets and covers, for example, the sale of copyright, or receipt of a capital sum for the surrender of a covenant. It would be wholly inconsistent with the policy of capital gains taxation if sums received in any of those ways were relieved from the liability to capital gains taxation.

Mr. Robert Cooke

Before the hon. Gentleman leaves that point, I would suggest that he is obsuring the argument. When a person sells a painting, he presumably makes a profit; but when he loses it by fire or from other causes he will want to replace it; but he is taxed.

Sir Eric Fletcher

What is proposed in this Amendment would involve the deletion of subsection (3), and that subsection is an integral part of the Bill and is essential to the whole object of capital gains taxation. If deleted it would relieve a whole series of persons who on any consideration of equity and justice should incur the same kind of Capital Gains Tax as they would if they had sold or otherwise disposed of an asset.

I was asked about Amendment No. 396 which suggests that Clause 22 would be better drafted if the word "and" was deleted and "or" was included. This Amendment was put down only late yesterday or the day before, and so far as my researches have gone at the moment I think that there is some substance in the argument adduced and I will undertake that we will consider, between now and the Report stage, whether there are good and sufficient grounds for making a provision in the alternative way suggested.

Mr. Alick Buchanan-Smith (North Angus)

I think the case which the Government have put forward is utterly monstrous in that it is forcing a person involuntarily into a position of having to pay tax. I put forward the case where someone has received chattels through a family gift of sentimental value, and in which there is no commercial interest at all. This chattel, say, is lost by fire. For sentimental reasons he wants to replace it with something similar, but because he is forced to pay tax he may not be able to replace it. This kind of possible repercussion should be borne in mind. This is a real intrusion upon personal freedom of choice, where somebody has quite involuntarily got himself into this position. It was said that people must take the rough with the smooth; with this Socialist Government it seems to be rough all the way.

My second point concerns the original Amendment, concerning the case where, on land of one sort or another, damage has occurred through pipelines or electricity power lines, and compensation is paid, part of which is on capital value. Over the last two years I have had experience of this in the area where I stay, and other people round about have had the same experience. A huge power line has run right across the countryside, and there has been a certain element of compensation for disturbance and physical damage, but also an element of capital payment.

In relation to the rate of compensation and to the tremendous amount of work which individual landowners have to go to in negotiating this compensation, what is gained out of the body concerned, in terms of capital value, is often very small compared with the damage done or the capital value lost. To put on a further tax in addition to everything else that is involved in terms of worry and trouble, quite apart from financial considerations, provides a case for excluding this from the Capital Gains Tax.

Sir C. Mott-Radclyffe

I am not sure that I have quite understood the purpose of the hon. Member's remarks. Is he saying that if a car—which is an asset or a chattel if it is worth more than £1,000—is insured for £1,500 and is written off completely in a smash, or because it is completely burnt out, £500 of the £1,500 paid out by the insurance company is regarded as a capital gain? Will this apply to a house?

Mr. Ramsden

Motor cars are exempt.

Sir C. Mott-Radclyffe

I am not talking about vintage cars. What about a caravan? What about a combine harvester? What about a house? Let us suppose that the contents of a house, let furnished, are insured for £2,000 and that the whole house is burnt out at night. It may be one of a whole row of houses which catch on fire. Is the hon. Gentleman saying that if the insurance company pays the owner the sum for which the contents of the house were insured—and it may be part of the man's livelihood to let this as furnished accommodation—anything over £1,000 will be taken into account as a capital gain? I cannot believe it. I beg the hon. Gentleman to explain how wide this nonsense goes.

Mr. Ramsden

I do not believe that the significance of what the hon. Member has told the Committee tonight has been appreciated outside. I believe that these Amendments were put down by my hon. Friends for the purpose of seeking clarification and to elicit answers which hon. Members on both sides expected would be given in relation to these insurance cases. What the hon. Member has said will come as a complete bolt from the blue both to hon. Members and to the world outside. It seems to me to make no sense in logic, in law or in common-sense. Perhaps the hon. Gentleman can tell me straight away what representa- tions he has had from the insurance companies about this. Has he had any representations from them? I believe that the significance of this matter has not been appreciated outside the Committee, or inside it, until the very moment of this debate. This is not surprising, because this is a highly technical and complicated Bill, and it is likely that such points as these may be overlooked.

4.15 a.m.

Our discussions have underlined the gravity of this problem, and I do not believe that the hon. Gentleman's arguments have convinced hon. Members on either side of the Committee. I think that the hon. Gentleman and the Government owe it to us and to the insurance companies, who are vitally concerned in this matter, to say that they will look at this again, that they listen to the representations from the insurance companies and other interested bodies, reconsider the Clause, and bring in an Amendment on Report. I hope that the hon. Gentleman will feel that this is a reasonable course of action. The answer which he has given has taken hon. Members completely by surprise. We are far from convinced that what he has said makes any sense or has any foundation in equity or justice.

Mr. Peter Bessell (Bodmin)

The hour is late and minds may be somewhat be-fuddled, but I find it difficult to believe that the Chancellor of the Exchequer can seriously have considered the implications of this Clause. I should like to support the Amendment in the name of the hon. Member for Bristol, West (Mr. Robert Cooke). It is surely the height of injustice to penalise somebody who has not sought to make a profit nor to sell the asset of his home. If, when someone expropriates his property, or it is destroyed by fire, he honestly sets out, with no intention of making a profit, to replace his asset, his property, he suddenly finds that he cannot do so, because he is penalised by a tax which surely cannot have been designed to apply in such an instance.

The case of the family heirloom has been mentioned, as has that of the motor car, though I think that there may be a difference in the latter case. But there is the case of the ordinary family, who, finding their house burned down and all the contents destroyed, may have among the contents things which are of considerable value, which have been carefully insured against such an eventuality. When they come to refurnish their home, they find that they are unable to do so, because the full amount of the insurance money which they have claimed is not available to them. They are therefore penalised in this way.

I beg the Treasury to look at this matter again. I would beg the Minister without Portfolio to look at it again, if necessary to make it a condition that the money should be used to replace the goods which have been destroyed, stolen or burned. I cannot feel that it is the intention of the hon. Member and his right hon. Friend the Chancellor of the Exchequer to create a situation which would be a montrous injustice, and which has come as a considerable shock to hon. Members on both sides of the Committee.

Sir J. Foster

This subsection also applies where a capital sum is paid, although there is no asset. This should be reconsidered. I think that the hon. Gentleman will see that, if an asset is only injured and a capital sum is then paid by the insurance company, if that capital sum is applied to restoring the asset, that is undoubtedly an expenditure wholly and exclusively attributed to enhancing the value of the asset.

If one has a picture which is damaged and if the cost of its acquisition was, say, £100 and it is injured to the extent of £40, the insurance company pays the £40, the picture is sent to the restorer, who restores it for £40 and one is back to where one started, without any Capital Gains Tax being paid. If, however, the picture is entirely destroyed and the insurance company pays out the insured sum, Capital Gains Tax must be paid on that sum and one cannot replace the picture because the true value of the asset is not available. Thus, on an involuntary disposal—because we are considering fire or theft—the Government tax the amount involved. There might be some logic in the Government proposal if the money recovered on, say, the loss of a picture were applied in acquiring something other than a picture, but that is another argument. Obviously if the insured article is to be replaced at the market value, then unless no Capital Gains Tax is applied it cannot be replaced.

I imagine that it would be possible to get round the change. If the insurance policy provided an option to the assured for the asset to be replaced, no Capital Gains Tax would be paid because there would not be a capital sum involved. I suggest, therefore, that insurance policies should have such an option up to the value of the amount of the insured so that the asset could be replaced. In that way the Capital Gains Tax could be avoided.

Mr. Paul Hawkins (Norfolk, South-West)

The only point I wish to raise concerns an estate owner with farm buildings and cottages. If those buildings are burnt down they must be replaced so that the business can carry on. It seems extraordinary that while those buildings, which might have been erected 50 years ago, must be replaced at present-day costs, there will be a Capital Gains Tax charged on the capital amount involved. The same applies to, say, a pair of cottages. I feel that this has not been fully looked into by the Treasury and I trust that the Department will have second thoughts about it.

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

If we were debating this important matter at a reasonable hour and if the Government reply which we have so far received were published in the Press, there would be such a sharp reaction of public opinion that the Government would have to change their mind. I assume, therefore, that the Government will change their mind.

I do not wish to delay the Committee, except to ask the Minister to assist the Government to change their mind by considering the cases where the Government themselves are the destroyers of property and the payers of compensation. I refer to the destruction of herds of cattle in the foot and mouth slaughter and compensation policy. That will impinge directly on the cattle kept on a herd basis, which the Financial Secretary said he would study further. I do not have great confidence in the Financial Secretary's capacity to deal with such a wide range of difficulties quickly. I am, therefore, soliciting the assistance of the Minister.

Sir L. Heald

It is now getting lighter outside and it is getting darker inside. I wonder whether the Minister without Portfolio would consider suggesting that we might have the opportunity of looking at the matter again. We do not want to be unreasonable or unkind at this time of the morning and, rather than the hon. Gentleman committing himself to something that he might later feel had been a mistake, it would be much better if we deferred consideration of the matter and had a chance of looking at it again.

Mr. Barber

The Minister without Portfolio will have appreciated the genuine and strong feelings of the Committee on this subject. I recognise the difficulty with which the hon. Gentleman is faced, but if one looks at the question from the point of view of the individual taxpayer, this surely must be unjust.

One of my hon. Friends referred to a caravan. Many road engineers live in caravans as they travel around in the course of their work. I understand that as the Clause is drafted, if a road engineer were living with his family in a caravan valued at £1,200 and it was destroyed by fire and replaced by another caravan, also valued at £1,200, nevertheless Capital Gains Tax would be payable by that person.

That is not social justice. It is scandalous and it cannot be what the Government intended. It is quite different from the example given by the hon. Gentleman of a voluntary disposal. The obvious case which we all wish to cover is the case where insurance moneys are genuinely used to replace an asset which has been involuntarily destroyed. I hope that this point, and also the point raised by my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne), who moved the Amendment, will be considered again by the hon. Gentleman. I have no wish to press the matter further if we can have that assurance.

Sir Eric Fletcher

This discussion has been valuable. If it has done nothing else, it has shown that there is a large variety of cases that require consideration. One thing which emerged is that there is a complete difference between the case in which an article is completely destroyed and insurance money is paid, and the case in which an article is damaged and insurance money is paid.

To take an illustration, if the house in which a person lives is burnt down, no question arises because the matter is outside the Capital Gains Tax in any event. Suppose, however, that a house which is owned by somebody and which is let is burnt down. Suppose that the house had cost, say, £3,000 and that at the time of the fire it is worth £5,000, and that it was insured for that time and the owner receives £5,000 from the insurance company. It is difficult to see why, in equity, he should be treated any differently on the receipt of the £5,000 from the person who had sold the house for £5,000, because in either case they would be free either to replace the asset by purchasing another one or to refrain from doing so and keeping the money.

In the event of the insurance policy providing as a condition of the policy that the money should be spent on a replacement, a sum of cash would not be received by the insured and there would be a replacement. Therefore, no problem would arise.

The Committee must also remember that if a person suffers a loss of an asset by fire, as a result of subsection (3), which states the occasion of the entire destruction, dissipation or extinction of an asset"— and that covers the case of destruction by fire—a loss arises because that is treated as the disposal of an asset and the individual is entitled, as a result of that loss, to set off that loss against any capital gain. Therefore, in that situation being provided for by Section 22, it would be quite inequitable if he could both set off the loss and also not incur any liability when he received a payment from the insurance company.

4.30 a.m.

I was about to add that different circumstances arise where there is not total destruction of an asset but where there is damage to an asset as a result of which a sum is received from the insurance company and is used to repair that asset. In that case there might be a loss or there might not be, but I recognise the force of the argument that the sum received from an insurance company to repair damage to an asset ought not to be brought into account for calculating Capital Gains Tax unless at the same time one takes into account the sum spent on the repair of the asset.

In view of what has been said on this subject, particularly with regard to the Amendment that we have last been discussing, Amendment No. 499, I will certainly, with my hon. Friend, consider this matter between now and Report to see whether any Amendment is required to the provisions of this subsection.

Mr. Kitson

Will the hon. Gentleman also consider the point in so far as it relates to a tenant of property? He might find himself in great difficulty. I hope the hon. Gentleman will consider the matter in that light as well.

Sir Eric Fletcher

I will, but it is difficult to see how a tenant of a house can incur any capital losses as a result of the destruction of the house.

Mr. Kitson

The tenant might find that his landlord was loth to replace the loss or damage.

Mr. Michael Jopling (Westmorland)

The whole Committee has been shocked by the implications of this Clause, and I think we are all worried about it. I urge the Minister, when he looks at the matter again as he has promised us, to look at it closely in terms of the small man. There are many thousands of small shopkeepers and, for instance, small haulage contractors whose assets are tied up with one thing. Take the case of a small man whose whole savings, together with borrowings from the bank, are tied up in one lorry. Suppose that that lorry is completely destroyed. On whatever amount that man is able to get back from the insurance company he has to pay Capital Gains Tax.

There is no question but that a man in those circumstances will be bankrupt. If the Clause is allowed to continue in its present form there will be many thousands of small men who will be placed in jeopardy of complete bankruptcy and ruin, should their asset be destroyed overnight by terrible act of God such as fire or some similar occurrence.

Mr. Robert Cooke

Do I take it that the Minister's assurance to look at this matter again before Report covers the point which I raised about the unfortunate person who suffers a grievous loss and finds that he is unable to replace the work of art or whatever the article may be, because he is caught by the Capital Gains Tax? The Minister has gone over this matter and has somewhat bemused us with a variety of argument, some of which he has retracted. May we take it that he will cover this point in his thoughts before Report?

Mr. Barber

I think we might have an answer to that question. I understood that the point that my hon. Friend raised was also to be covered.

Sir Eric Fletcher

I thought I had made it clear that while the Government adhere to the principle of this subsection, the deletion of which is proposed and the deletion of which we resist, I have undertaken that in respect of a number of somewhat unrelated points which have been raised, my right hon. Friend will consider what has been said, and we will see whether any Amendments are required between now and Report to cover any of the points which have been raised in the debate.

Mr. Robert Cooke

But my point on paragraph (b) is quite separate from the main body of the Clause.

Amendment negatived.

Mr. Diamond

I beg to move, in page 19, line 7, to leave out "by" and to insert "to".

This Amendment deals with a very minor error in the wording, and I do not think I need delay the Committee further on it.

Amendment agreed to.

Mr. Diamond

I beg to move, in page 20, line 5, to leave out from the beginning to the first "the" in line 6 and to insert: (8) An asset shall be treated as having been acquired free of any interest or right by way of security subsisting at the time of any acquisition of it, and as being disposed of free of any such interest or right subsisting at the time of the disposal; and where an asset is acquired subject to any such interest or right. The purpose of this Amendment is to clear up any doubt about a possible ambiguity in subsection (8) which, as it stands, clearly implies that the whole of the asset is being transferred. As I say, the Amendment is intended to put the matter beyond any doubt. If the Committee wishes me to explain it at length, I will gladly do so, but I think that it is a perfectly simple point of which the Committee is fully aware.

The Chairman

With this Amendment we can discuss Amendment No. 267, in page 20, line 9, at the end to insert: For the avoidance of doubt, a tenancy, easement, profit à prendre, or other unsecured interest in land shall not be a charge or encumbrance for the purposes of this section.

Mr. Jasper More (Ludlow)

I am sure that in a Finance Bill that has more than 200 pages, the Committee will not jib at having three lines added to subsection (8) of this Clause in order to obtain greater clarification, as the Chief Secretary has explained to us. My Amendment No. 267 was put down to obtain clarification, the point being that it was desired to be certain that there was in this context an entire distinction between what might be called secured and unsecured interests in land.

As will appear from the debates that may take place on later Amendments, important questions may arise in regard to the values and valuations of tenancies and land, and it was therefore of great importance to establish in this Clause that tenancies, easements, profits à prendre or other unsecured interests in land should not be a charge or incumbrance, as the Clause was originally drafted. If the Chief Secretary can give an assurance that that will be the case in the amended draft, it would be very acceptable.

Mr. Diamond

I can give that assurance. It is no longer necessary, although it might have been necessary in the earlier draft. If the words proposed to be inserted are inserted, what the Opposition seek is already secured. I therefore hope that they will not think it necessary formally to move the Amendment.

Amendment agreed to.

Sir M. Redmayne

I beg to move Amendment No. 398, in page 20, line 9, at the end to insert: (9) Where in the interests of good husbandry or sound estate management agricultural land is exchanged between different owners, and the exchange is the sole or principal consideration given or received by the owners, the exchange shall not be treated for the purposes of this Part of this Act as involving any acquisition or disposal of assets, and for the purposes of this section agricultural land means land used for agriculture as defined by subsection (1) of section 94 of the Agricultural Holdings Act 1948.

The Deputy-Chairman

We can also discuss with this, Amendment No. 343 in page 38, line 40, at end insert: and the expression 'trade' shall include an agricultural or forestry enterprise".

Sir M. Redmayne

I hope that this will prove of some interest to the Committee. At least it will be a change of thought and atmosphere because it relates solely to a farming problem. The Price Review White Paper contained a somewhat vague reference to the desirability of voluntary amalgamations of farms. The purpose of Amendment No. 398 is in a sense related to that general objective but deals with a more precise problem which is of considerable importance in some agricultural areas. This is the problem of trying to secure the better integration of scattered farm holdings.

This was in my mind a short time ago on a visit with other hon. Members to a number of small farms in a Yorkshire dale. In that dale there had been at one time a good deal of lead mining. By virtue of the fact that men employed in that industry at that time had acquired small parcels of land and, as the industry had died, had disposed of that land haphazard, the result is that the ownership of the land by farmers is now haphazard too.

I recollect particularly one small farm, farmed single-handed by a young son of a widow, who found himself working 70 hours a week. He had 90 acres lying in six different parts of the parish, as a result of which part of his working day was spent trudging or tractoring from job to job round the parish looking after his stock and trying to carry out some organised work in an extremely difficult situation. This was an admirable young man, "working like a black" and making out of it far less than it was worth.

On inquiry I found that his neighbours suffered the same handicap. Indeed, it was widespread elsewhere. The National Farmers' Union in Darlington had made for me a large-scale map of that parish, which unfortunately is too large to bring to the Committee even if it were in order to do so. It is lying on the floor of my room in Bridge Street and one would think that it was a genuine patchwork quilt. The key to it shows 17 to 19 different colour patterns showing the ownership of farms in that parish. I assure the Committee that they could not be more kaleidoscopic on the map if it had been done by an artist rather than by natural evolution of ownership.

This problem of the fragmentation of farming land is not solved by waving a wand, and certainly not in this Committee, but it would be a pity if the Capital Gains Tax acted as a further disincentive to the process of integration which is hard to achieve in any case. It may be said that the problem is of small proportion and therefore negligible in the scope of all this additional burden of taxation which the Government are imposing upon us, but I ask the Treasury to treat this point with some sympathy.

As I understand, the exchange of one field of one farm for another field of another farm, since it can never be an exact balance, must entail a notional disposal of the whole farm. If the resulting assessment of gain for either farm, or for both, created a liability for tax of just a few pounds or as much as £100 or so, the consequences for the sort of farmer I have been describing, of whom there are many, would be disastrous.

One does not need to argue the point only on that kind of marginal example. Exchanges are equally desirable for the outlying acres of larger and more prosperous units, and precisely the same problem would arise. Therefore, there is a strong case for exempting exchanges of farming land.

4.45 a.m.

In considering this Amendment, I have from time to time been persuaded that I ought to find the answer elsewhere in the Bill. For instance, it might be said that in an exchange no profit can arise and, therefore, no liability for tax; but, as I read Clause 21, the fact that there can be no profit in the exchange does not avoid the circumstance that a disposal of part of the asset is a disposal of the whole, and the whole thus made liable to assessment might involve a crippling payment of tax on the appreciation of the whole over some years, based on the original exchange. Equally, the Minister may seek to find the answer in Clause 31, in that exchange of field for field is only a nominal reinvestment of assets; but here again the assessment of the whole asset necessitated on partial disposal may disclose capital gains which, since they themselves are not to be reinvested, are immediately liable for tax.

Compared with the scale of what we have been discussing hitherto, this is a matter of no significance to the Treasury, but I am sure that I shall have the support of the Parliamentary Secretary to the Ministry of Agriculture, whom I am glad to see in his place, in pressing the Amendment on the Government. The policy of trying to get a better integration of farming land in this country is of great importance to agriculturists, and this particular way of helping should have a sympathetic reception from the Government.

Sir Eric Fletcher

The Committee will realise that this also is a starred Amendment, and the right hon. Member for Rushcliffe (Sir M. Redmayne) observed that, when it was put down, he was not sure whether the point was covered by a later Clause. He and his supporters are, quite properly, concerned with the desirability of facilitating the exchange of farming land and they wish to ensure that there is nothing in the Bill adverse to that desirable end, in which my right hon. Friend the Minister of Agriculture also is deeply concerned.

The point which has been raised is met by Clause 31, as the right hon. Gentleman half recognised. That Clause provides that where there is an exchange of assets there is no question of capital gains, and the position is that although an exchange of two pieces of land would count as a disposal of one and the acquisition of another there would be no Capital Gains Tax payable on the exchange to the extent that the whole of the consideration received from one piece of land was re-invested in the other, as would presumably be the case automatically in a situation in which two pieces of land were exchanged without any cash passing.

Subsection (6) makes it quite clear that a trade includes a farmer, and asset includes land used for farming. Therefore, in the case supposed by the right hon. Gentleman of an exchange of agricultural land between two farmers, there would be no question of any liability for capital gains arising. I ought to emphasise the fact that I am dealing specifically with farmers, because different considerations might arise in the case of dealings by landlords who were not also engaged in trade as farmers.

Sir M. Redmayne

I do not think any of us have quite understood to what section of the Bill the hon. Gentleman is referring. He spoke of Clause 31(6), but this refers to exchanges in various forms. There is nothing in the Clause to suggest that, as far as I can remember. Is he referring to some part of the Schedule?

Sir Eric Fletcher

No. I was referring to Clause 31 which deals with the replacement of business assets, and I was saying that the replacement of business assets is so defined, particularly in subsection (6) of Clause 31, as to make it quite clear that land is included under the definition of assets and a farmer is included as a trader. I am advised that the provisions of Clause 31 are adequate to meet the point which the right hon. Gentleman has in mind. Therefore his Amendment is unnecessary, but since it was a starred Amendment and put down at a very late stage and in view of the difficulty which I am sure he has had, and some of us have had, in appreciating the position I will certainly verify my impression between now and the Report stage.

Mr. Kitson

Would the hon. Gentleman clarify this? Is he not saying that this would apply only in a case where there was no involvment of any exchange of two portions of land, because this Amendment goes a good deal further than that? In some areas it is almost impossible to get farmers to swop without sums of money being involved and I think he is misleading the Committee a little if that is what he is saying.

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

Would the Minister answer one technical point? Supposing the parties to this transaction are not actually engaged in farming. One party may be a land owner, the land being let to a tenant and we want to be clear that all the parties—the owner who is to make the transaction—will be included.

Mr. Scott-Hopkins

My right hon. Friend the Member for Rushcliffe (Sir M. Redmayne) put forward the case of an exchange of farm land taking place. By the very fact of the exchange there is bound to be a notional valuation, and in that case there will be a liability to Capital Gains Tax.

I do not believe that there is anything in Clause 31, and particularly in subsection (6), which gives an exemption in this case. This is a separate case. I accept what the Minister has said, namely, that he will look at this again. I believe that the case made by my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne) is without challenge. I believe that the notional value which is bound to be set up when exchanges are made should, and must, be exempted. The Minister accepts that they should be exempted, because he thought that they were under Clause 31. I think he will find that they are not, and I hope that on Report he will table an Amendment to exempt them, because I think that he and the Committee are at one in wanting to help the agricultural industry to develop and rationalise where possible, and in wanting to help the Minister of Agriculture to carry out his policy with regard to the industry. If the Minister finds that Clause 31 (6) does not cover the point put forward by my right hon. Friend, I hope that he will deal with the matter on Report.

Sir C. Mott-Radclyffe

If the hon. Gentleman had the proper brief, he could have answered this point satisfactorily when it was put to him by my right hon. Friend the Member for Rushcliffe (Sir M. Redmayne). [Interruption] I do not know why anybody should object to me or any other hon. Member speaking. I want to put another question to the Minister. I presume that that is the purpose of the Committee stage of a Bill.

The Minister says that he will look into this before Report. I want him to bear in mind the point made by my hon. Friend the Member for Richmond, Yorks (Mr. Kitson) that if, in the interests of sound estate management and good husbandry, it is necessary or desirable that there should be a swop of fields, it is no good the hon. Gentleman saying that this can happen provided only that there is no difference in the value, because the mathematical odds of finding two fields belonging to farmer A coinciding in acreage and value with two fields belonging to farmer B, are very long indeed. Therefore, there is almost bound to be a minor financial difference between the value of one holding and of the other, and in that respect there is an asset set up.

That is the point which is worrying some of us, and I was not certain from the hon. Gentleman's reply whether he fully understood it. It was for that reason that I rose to reinforce the point made by my hon. Friend, and I hope that on Report the Minister will be able to give us a clearer answer to a very technical point than he has been able to give hitherto.

5.0 a.m.

Sir Eric Fletcher

I do not think that I can add anything to what I have said. I have said that the point raised in the Amendment is effectively dealt with by Clause 31. Certain other points have been raised during the discussion, and it is my impression that they are covered as well, but, as we are discussing a starred Amendment, I have undertaken to consider what has been said, and if I find that further words are necessary, I shall deal with the matter between now and Report.

Amendment negatived.

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

Mr. Robert Cooke

I must rise even at this late hour to attack the Clause with all the vigour that I can command. Subsection (3,b) contains one of the most iniquitous provisions that I have encountered in more than 10 Finance Bills through which I have sat in this House. We see here that someone who, through misfortune, loses a valuable and cherished work of art will be unable to replace it because the Capital Gains Tax will fall on the money that he receives by way of insurance.

I am glad that the Financial Secretary has returned to the Committee because earlier he made one or two statements which should be challenged. He said that the purpose was to catch those capital gains which had received widespread publicity. But gains which receive widespread publicity are very large gains, and he could easily have got out of his difficulty by raising the limit from £1,000.

He said that the difficulty of valuation on Budget day could be overcome by the victim of the tax opting to be charged on a time apportionment basis, but he has a right to elect to be charged on the value on Budget day. I suggest that in certain instances it would be impossible to discover what was the value on Budget day 1965. The Financial Secretary himself used the phrase "a fluctuating market". The taxpayer has a right to elect to be charged under this provision but it will not be possible to find a proper value. The other day we discovered that the short-term gains tax produced no yield and caused everybody a great deal of misery. Many questions were unanswered. There will be a monumental total of questions unanswered—

The Chairman

Order. The hon. Member cannot go back to a previous debate. He must confine himself to what is in the Clause.

Mr. Cooke

You will understand, Dr. King, that I am under extreme provocation, and it is difficult to restrict myself to the Clause when I have been frustrated by what happened earlier.

Looking at the Clause one might be beguiled into thinking that the Government are out to stop speculation in works of art. From time to time one reads of big profits but one seldom hears about the big losses. In his attempt to catch occasional successful speculation—and there must be many unsuccessful speculators—the Chancellor will destroy our position in the art markets of the world and will drive out of public sight works of art at present available to the public. He will remove much of the romance and interest in the collecting of works of art and he will create a new criminal class. That is what will happen with those who believe that this is an immoral tax and that it will not be an immoral act to seek to avoid it—[Interruption.]—it is no use hon. Members opposite shouting "Oh", because this is a point which has been made again and again, although I realise it is out of order to refer to it.

There is a great slab of prejudice written by Dr. Kaldor in his book on the expenditure tax. I do not think the Committee would want to hear all that sort of thing again, but in that book the point is made that, unless we have the provisions of what is contained in Clause 21, with taxation of works of art, there will grow up a false complacency about the progress of the arts; that living art will be stifled. I say that an artificial state of affairs will be created by this Clause in the work of living artists. Anyone thinking of buying a painting by a living artist who is successful, and whose works consequently may gain in value, will think twice about it. They will be discouraged by the provisions of this Clause.

We have had discussions on the effect on the art market in London and it must not be forgotten that we reached our present position by hard work, unhampered by restriction. This Clause will restrict and hamper the free working of that market. To carry out the provisions of this Clause, and to collect this tax, the Government will have to employ auctioneers and valuers and dealers of one kind or another who will be the unwilling agents of the Inland Revenue.

Then there will be the question of cost. Enormous cost will be involved in paying all the people necessary to make all the valuations. There is the point that if the Government have destroyed confidence in the London market by introducing this tax, others will be very ready to leap into the gap, and we shall never get back our pre-eminent position. Nobody will pay this tax willingly—[Interruption.]—hon. Members may shout "Nonsense", but with this tax in operation there will be a reluctance to sell, although some people will be forced to do so; but, they will try to find a way around the tax, and the availability of works of art on the open market will be sadly and savagely reduced.

There will be higher costs of administration in the sale rooms, resulting in higher commissions, low turnover, and the law of diminishing returns in full operation and flourishing—or, perhaps, a new Clause of MacDermot's law. The Socialists seem to have an aversion against golden geese, but this is a goose which should be cultivated and not have its throat cut.

We come on to the cultural effect, because this Clause will have a very bad effect on our cultural heritage—[Interruption].

Mr. Barber

On a point of order. I think we all want to make progress, but if these continual interruptions go on we cannot proceed. I listened to all that may have been said by hon. Members opposite, and I think that they should give my hon. Friend a hearing.

The Chairman

I think that the point of order is a reasonable one. Even at ten past Five in the morning hon. Members ought to be willing to listen to opinions which they do not share.

Mr. Cooke

I am very grateful for your protection, Dr. King, even if I did not ask for it. I am glad that you have made that observation; it might help us to get on with the proceedings. I realise that some of the things that I am saying are controversial, and that some hon. Members opposite may not like them.

If the Clause is agreed to the tax will go on. I would remind the Committee that the vast majority of our great national collections owe their origins to private individuals who have made collections in times gone by, unhampered by the petty restrictions here mentioned. A jealous Government, in the shape of an unwilling tax collector, is now to breathe down the necks of private collectors, and collections like the Wallace Collection and the Courtauld Institute, and private collections like the Methuen Collection, the Weld Collection and the Banks Collection, in the West Country, all of which are accessible to the public, will never again be made, because under the provisions of the Clause a collection is likely to remain static.

Collectors will not be able to change their minds about an article, once it is bought, without incurring tax, so they will tend to become magpies and to build up miscellaneous collections of valuable objects. None of the specialists in scholarship who have built up the great collections of the past will be allowed to continue their work.

Hon. Members opposite laugh about this. They seem to think that it is a small point, which does not matter. They probably take the view that these collections are sufficient, and that the nation does not need any more of them. There is a great prejudice among hon. Members opposite against works of art of times gone by, and a great emphasis on modern art. They should remember that the later nineteenth century works of art still have to be collected and classified, and preserved for the future. Under these provisions it will be very difficult to do that, because it is a field where experiment and change in collections is necessary.

Because of the restriction imposed by this tax on collectors all the great national institutions and local art galleries will suffer severe hardship. It is from the partnership between the private collector and the public institution that the public benefits. The private collection is seldom a public loss; it is seldom hidden away. But under the provisions of this Clause there will be a tendency for collectors and owners to hide their works of art so that they will not be caught by this iniquitous provision.

Hon. Members opposite seem to take the view that private collectors already hide their collections away. That argument is not a valid one. If we look back into recent history we see that private collectors have always been generous in showing their works of art to the public. One of my predecessors in Bristol had a great collection—the Hart-Davis Collection, bought by Miles, another Member for Bristol, and exhibited to the public on Thursday afternoons all through the 19th Century—[Interruption]—throughout the whole of the 19th Century. The collection was again sold, and passed into the hands of another great collector—

5.15 a.m.

The Chairman (Dr. Horace King)

Order. The hon. Member is not in order in going into detail about the Thursday showings of the 19th Century.

Mr. Cooke

I am very grateful. My trouble was that it was very difficult to get off the Thursdays when hon. Members opposite were interrupting me.

The point which I was making was that the private collector has never been anything but generous in allowing the public, and students and scholars, to enjoy his collection. The restrictive provisions of the Clause and the imposition of the tax will mitigate against the public enjoyment of works of art.

The other important point about this tax is that it would prevent the rationalisation of collections of works of art. In the case of a historic house and its contents, it may be a rather large house; part of it may be surplus to requirements and may have to be demolished; the money from the demolition may be used to repair the permanent part of the house which should be preserved for the nation; the surplus collection may be sold. In all those cases, it can be caught by Clause 21. If the surplus part of the collection is sold, it catches the Capital Gains Tax, which would also apply in the case of the demolition materials from the surplus part of the house, and if the original part of the house is improved by the demolition of the surplus part, it will be caught by this tax.

This sort of thing is against the public interest, and that is why I oppose the Clause. The sort of thing which the late Duke of Bedford did in demolishing part of his historic house and rebuilding it would be stopped by the Capital Gains Tax. The public will be the losers all along the line. We have heard very little about this evil, and about the fact that all this trouble will not be worth it in the end. [An HON. MEMBER: "Read on."] This tax encourages owners of buildings to sit in them and let them rot—[Interruption]—instead of trying to use some of their resources to repair the buildings, so that they will be enjoyed in another generation—[An HON. MEMBER: "The hon. Gentleman is reading very well."]

The Chairman

Order. I must ask hon. Members to remember the dignity of Parliament.

Mr. Cooke

I am very grateful to you, Dr. King. I realise that, at this time in the morning—

The Chairman

I hope that the hon. Member will not comment on the comments I have made, and that he will get back to the Clause.

Mr. Cooke

I did not mean to put it in that way, Dr. King.

Perhaps I might reply to one of the interjections from a seated position from the other side of the Committee, to say simply that, perhaps, after a long night with very little to do—hon. Members opposite have not contributed much to the debate—they may find it a little difficult to listen to some of the things which some of us have waited a long time to say.

The restrictive provisions of the Clause will cause the hiding away of works of art. That, in addition to the other effects which I mentioned, will result in the prevention of loan exhibitions of one kind or another. Many of the finest exhibitions, a great number of them for charitable purposes, are put on as a result of works of art being loaned from historic houses and other private sources. They will not be available if people know that by showing their works of art—[Interruption]—the Inland Revenue will be watching for them, looking to see if certain people still have them. The same applies to the owners of books. Works of scholarship—

Mr. Hugh Delargy (Thurrock)

Still reading.

Mr. Cooke

—will be impeded because people will not be able to draw on the wealth of material which people are willing to share. Many people will not be prepared to let the Inland Revenue know where such works of art are. If the Inland Revenue is to administer these provisions properly it will have to go into considerable detail, discover where works of art are located, and so on. That will mean contacting not only individuals but seeking out catalogues and looking up past records. Someone may have had an assorted boxful of labels, perhaps—

Hon. Members

Get on with it.

Mr. Cooke

—with the names of old masters—[Interruption]—and the Inland Revenue will be confused by all these things.

Mr. Delargy

Yet another page.

Mr. Cooke

The hon. Gentleman says, "Yet another page". I have three more pages of notes to go, but if hon. Gentlemen opposite will stop interrupting while seated I will conclude my remarks. [HON. MEMBERS: "Hear, hear."] My remarks would have been shorter and more intelligible to the Committee had certain hon. Gentlemen opposite chosen to listen to me. I am used to such behaviour from them. I was about to say that not only are such matters misleading to the Inland Revenue, but in addi- tion to examining catalogues and so on there is a lot of published material about certain art collections in our historic buildings. All forms of property are mentioned at the beginning of the Clause and there is no doubt that if the Inland Revenue is to carry out its duties thoroughly it will have to go into considerable detail in these matters, including guide books, catalogues and so on to see where these art treasures are located.

I could go at length into the question of identification and valuation for the purposes of the tax, but that has already been covered by my hon. Friends. I could also go on at length into some of the detailed questions of how one might get around the provisions of the Clause. Since I would be doing a disservice to many people who, no doubt, regard it as not immoral to try to avoid paying this tax, I will not do that.

I turn, instead, to the question of exchanges. There is bound to be a market in barter of works of art. There is also the question of Inland Revenue staff valuers, how they are to be trained and how long will be spent in training them. The provisions in the Clause produce the maximum intrusion into private life, interference with the private citizen, the maximum administrative cost, unwilling agents in the form of auctioneers and dealers, and it will produce a ludicrously low yield, no benefit to the community and the public will get less of a chance to look at many of the works of art attacked in the Clause. The continuing process of sharing in culture—[Interruption]—will be seriously hampered by the Capital Gains Tax.

It is no use the Chancellor shrugging off the vast weight of criticism which has been levelled against these provisions, because what I have said is what this is all about. That is why I have made this speech. I could have gone to my bed hours ago—[HON. MEMBERS: "Hear, hear."] I thought that would invite that sort of response from hon. Gentlemen opposite. My hon. Friends and I feel strongly about this matter—[Interruption.]—and when hon. Gentlemen opposite read the speeches on the Clause they will realise that, perhaps inadvertently, they are doing a serious disservice to something which they themselves care about. It has been suggested that this is a rich man's tax, but it will affect the position of the poorest in the land and take away from their education and cultural enjoyment.

Mr. Delargy

Greedy.

Mr. Barber

On a point of order. I think that the hon. Member for Thurrock (Mr. Delargy) is ill, Dr. King, or there is something very peculiar about him. He is continually intervening.

The Chairman

What the right hon. Gentleman has said is not a point of order.

Mr. Cooke

The rate of this tax is purely arbitrary and it paves the way for a future Chancellor, without the humanity of the right hon. Gentleman whom we know so well, perhaps with an even more sinister set of advisers to egg him on from behind, to make this tax an even more crushing burden in the future.

For all these many reasons, after the many years of experience which I have had in the House of Commons and in local government and various other fields in this matter of the arts and public enjoyment of the arts, I am utterly convinced that this tax will do nothing but harm to the general public. It has nothing to do with the rich man. The poorest in the land will suffer as a result of this tax. Their enjoyment will be taken away. If the Chancellor really meant what he said about concessions, here is one that he ought to make.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I was in two minds as to whether to seek to catch your eye, Dr. King, in the debate on the Question, "That the Clause, as amended, stand part of the Bill", but hon. Members who have come here to listen to the debate did not, perhaps, hear all the excellent speech of my hon. Friend the Member for Bristol, West (Mr. Robert Cooke). They were making such a noise that it seemed to me that some of his points could well bear repetition in view of the performance of the last half-hour.

I regret very much that the hon. Lady the Member for Cannock (Miss Jennie Lee), the Joint Under-Secretary of State for Education and Science, has not been present in the Chamber during this debate. The Clause does more to affect the arts than any other part of the Finance Bill or than any Finance Bill before. The fact that the hon. Lady has not graced our proceedings and taken part in our debate is a matter of great regret to all of us on this side.

Sir Geoffrey de Freitas (Kettering)

She has been here.

Mr. Ridley

It is a typical example of the double-talk of the Government that on the one side they put out a White Paper dealing with their imaginative plans for the arts while, at the same time, they stab them in the back with the Finance Bill. This is typical of the sort of thing that we have come to expect from the party opposite.

I want to say something further about works of art. This is not a true field for the speculator. Nobody thinks that it is. The Financial Secretary has dismissed the idea of trying to get revenue from this tax, so small is it in amount. He could not tell us how much be expected to get or where it is to come from. He could tell us little about the review and he has relied upon the fact that very large financial gains are being made which could bring the whole of the Capital Gains Tax into disrepute.

5.30 a.m.

It is established that this tax is not being imposed on works of art from the viewpoint of somehow trying to stop the speculator. It is hard to imagine a speculator, the traditional top-hatted cigar-smoking character whom hon. Members opposite raise up as a bogy all the time—the man who is very good at dividend stripping, bulls, bears and handling hot money, the capitalist thug which he is always made out to be. He is not the sort of man who will come into the art market and buy with discrimination and discernment, and then keep what he has bought for 30 years until it appreciates in value and he can make a profit. He is not going to have the knowledge or the time to do that. Nor will he be able to recognise a budding young artist and buy his works in the early part of his career and keep them till they are worth thousands of pounds. That is not the sort of thing that a speculator will try to do.

I suggest that there are two forms of gain which might happen. The first form of gain could arise when a work of art appreciates in value, when it is suddenly discovered, for instance, that a painting in a person's possession is a Guardi or some such valuable picture which will rocket up in price. The Financial Secretary, who is now fast asleep, brings in a Finance Bill and keeps us sitting all night. Now he has dropped off.

Mr. MacDermot

The hon. Member can rest assured that I am listening to every word he says and as soon as he says something which has not been said before I will open my eyes.

Mr. Ridley

If a large profit is made in the circumstances that I have outlined, this is a windfall, a gambling win. It is a piece of luck. When the Financial Secretary was challenged on the difference between a gambling win, a windfall, and a profit on a work of art, his only answer was that an asset, a piece of property, was concerned. I ask the Committee: why should one pay Capital Gains Tax when one makes a profit on a transaction involving an item, when one is not asked to pay any tax at all on a transaction which does not happen to concern property? This seems to me to be the most extraordinary piece of reasoning that I have ever heard.

I am not particularly in favour of a tax on gambling. I am not particularly in favour of Capital Gains Tax, but surely the position is insupportable when a windfall is taxed if it concerns a picture or a pedigree herd or shares but not a win on Premium Bonds or football pools or a horse race or bingo or any of the other forms of speculative gain.

I have mentioned one possible way in which tax would be paid under this Clause. The other way is simply through the accretion of value due to the effects of inflation. I do not propose to go over the whole inflation argument again, but I believe that over many years works of art more or less hold their real value. One can go back 200 years and ascertain the prices obtaining for pictures in that period, and one can find that the value is not greatly dissimilar from the rise in the cost of living, or the fall in the value of money, whichever way one cares to look at the question.

The two things which the Chancellor is taxing are, first, the windfall appreciation which is very rare and is in the nature of a gambling win, and, secondly, the normal appreciation in value due to the increase in the cost of living. All the results of this policy have been mentioned and discussed fully by my hon. Friends. It will do damage. It will affect the London art market. It will affect auctions. It will do damage left, right and centre.

I wonder whether the objective of hon. and right hon. Members opposite is really worth all this damage? Is it worth risking all that has been claimed in this field for the sake of what is known as social justice carte blanche? There is no attempt to link this damage to the good that it might possibly do. As my right hon. Friend the Member for Harrogate (Mr. Ramsden) asked: is there any evidence that this announced decision in the Finance Bill, including this Clause, which will do great damage, will instil a sense of co-operation and fair play in people who are putting in wage increases which are far more valuable?

The risk that has been taken by the Chancellor of the Exchequer is one that he should not have taken. He should exempt from this tax chattels and works of art which have played a very great part in our past, and should play an equally great part in the future. I hope that even at this late hour—or early hour, as it now is—the Chancellor will still have second thoughts about the desirability of his policy. Country after country has dropped this provision from their capital gains tax; the warnings are everywhere to be seen.

Why do hon. Members opposite think that they are sitting there so late? It is not because we on this side are filibustering, but because we have a genuine fear that a mistake is being made here. Has not the lesson of this long vigil tonight taught hon. Members opposite that some of us on this side care about these things?

Miss Harvie Anderson (Renfrew, East)

Most of us on this side of the Committee have listened to this debate for rather longer than others. We have listened to the whole of the argument. While it is true that the Financial Secretary has been obliged, regrettably, no doubt, to him—to listen to the arguments also, I suggest that we have done so out of some concern for what is being discussed while he and his colleagues in the Government have done so by compulsion. It is very curious but it is the fact that almost none of the hon. Gentlemen opposite has sat there throughout the earlier part of the debate.

From our earlier arguments, we got three replies from the Financial Secretary. The first was to the effect that it was not relevant to discuss on this Clause how much money the Treasury would gain and what would be the cost of collection. It is true that that is often a discredited argument, but it is very relevant when related to this Clause.

The second argument put to us by the hon. and learned Gentleman was that if there were to be certain exemptions they would bring a certain discredit, because the principle of exemptions was not acceptable as it aroused a degree of doubt about whether they would be in order or would merely draw attention to the more flagrant examples, which are rare, whilst at the same time, as many of my hon. Friends have made clear, all the gambling and betting gains are to be regarded as exemptions in fact. It seems a curious argument to say that there can be no exemptions under this Clause whilst accepting the exemptions in these other fields.

The Financial Secretary's third point—and I do not think that he has referred to it again—was that there would be no cause within the terms of the Clause for foreign buyers to leave the country's markets. As I understand it, there is in a wide range of goods an additional tax which foreign buyers will now have to pay if they bring into markets here goods under 100 years old but over £1,000 in value.

Mr. MacDermot indicated dissent.

Miss Harvie Anderson

I am glad if that is not so. There is certainly considerable misunderstanding on this point if it is not so.

The other point which has not been set out clearly in relation to the Clause is the question of inheritance. At this late hour I do not propose to go into that, beyond emphasising what was said by the Chief Secretary earlier—that special provision for inheritance on death will be considered on a later Clause. I only hope that this is so, because the provisions in this respect are not clear in the earlier part of the Clause.

It would be out of order for me to mention the details of the Schedule which arises from the Clause, but cumulatively the effect of the Clause is such that it makes it wholly reprehensible in the view of many of my hon. and right hon. Friends and myself. I hope that the Financial Secretary will think over the full implications of the content of the Clause, because I believe that it will contribute considerably towards the corruption of public morals.—[HON. MEMBERS: "Oh."]—Yes, because in the opinion of many of us this Clause is unenforceable in law. It is therefore a bad service to the public to enact it. If we proceed with it we shall be taking a step towards the lowering of public morals which we have no right to take in this Committee.

The second and more important point, and with respect to the Financial Secretary, this has not been mentioned in the debate, is that the Clause will destroy pride of possession. Hon. Members opposite may laugh, but I am thinking of the difficulties which our young people face and the many things which we have to seek to make them appreciate. We can do this to some extent through that very pride of possession which this Clause seeks to destroy, and for that, if for no other reason, I would resist the Clause. I hope that the Financial Secretary will seriously reconsider it.

Mr. MacDermot

I think that the Committee will be aware that I have been following the debate very closely and that I have tried to answer all the points which have been put forward. I addressed the Committee somewhere about three o'clock for a space of nearly a half-hour during which I dealt at some length with all the points relating to the effect of the Clause on works of art, the art market and kindred questions. I have been listening attentively to the last three speeches. Every single point, with one exception, was made in earlier debates on the Amendments, and every single one I answered to the best of my ability, including the point raised by the hon. Lady the Member for Renfrew, East (Miss Harvie Anderson), which she said was new, namely, the position of the foreign buyer. A person from abroad who brings works here to be sold or who comes here and buys works will not be liable to Capital Gains Tax because it does not apply to people who are not resident.

The only exception was a point made by the hon. Member for Bristol, West (Mr. Robert Cooke), who made the surprising and, to my mind, immoral suggestion that, when the Bill became law, it would not be immoral for a person to seek to avoid the tax. That is a surprising view to hear any hon. Member of the Committee express. If the hon. Member really holds it, it destroys his own argument and the argument of so many of his hon. Friends that the effect of the Clause will be to corrupt morals.

5.45 a.m.

Sir J. Foster

The Bill is very complicated and several technical points arise. Those which have been dealt with have been only those raised by Amendments, and I have two further points to put to the Financial Secretary. The first arises on subsection (4,a) and comes from the Association of Certified and Incorporated Accountants. I think that the Association's fear may be ill founded, but I want to be reassured because it may well be right and the Government and I may be wrong. The subsection provides that a person's acquisition of an asset and the disposal of it … shall be deemed to be for a consideration equal to the market value and there is then a specific reference to in particular where he acquires it by way of … distribution from a company in respect of shares in the company". The Association's fear is that that subsection, as drafted, would mean that scrip issues of fuly paid shares would be subject to Capital Gains Tax before they were realised. If that were so, I am sure that it would not be the intention. The reason I say that is that, when a scrip issue of fully paid shares is made, one is only dividing the shares in the company. If there is a one for one issue, no one gets anything extra. A person with 50 shares in the company will in the end have 100, but his aliquot part of the company remains the same. Therefore, it would be wrong to charge Capital Gains Tax on fully paid shares before they were realised.

I think that the Association may have based its apprehension on the assumption that the original share was, so to speak, split into two—in America it is called a split—and that that was a disposal of the share. I myself feel that its fear is misplaced and that a scrip issue would be liable to the tax only when it was disposed of. However, the point was raised in a memorandum by this learned and responsible Association, and I am sure that the Financial Secretary will wish to consider it.

The other point deals with the now rather famous subsection (3) in Clause 21 read with Clause 22(5). I interpret the subsection as saying that if a house, for instance, is burned to the ground the Clause says that a person "may"—and one does not know whether it must be so or may be so, because in law "may" can be either "must" or "may"—divide the building from the land. The land is then deemed to have been re-sold, disposed of and re-acquired by the owner. It seems a strange way of proceeding, but there it is. That raises a capital gain. The land was acquired for, say, £100, then the building was destroyed. The land is deemed to have been disposed of at market value of £150 and gone back to the owner.

If that is right a position arises where, assuming there is no capital gain in the insurance on the building—and hon. Members who heard me earlier will remember that the effect of subsection (3) is to render a person liable for Capital Gains Tax if insurance money paid on property destroyed produces a capital gain—a loss is turned into a capital gain in some cases.

The building and the land were worth together £200. The building is worth £50 and the land £150. When the building is destroyed there is no capital gain upon it. But by Clause 22 the land is deemed to have gone out at £150, so the unfortunate person has his building destroyed and a site worth more when it is cleared of the building and he is liable to Capital Gains Tax. I hope that the Financial Secretary will tell me if my analysis is correct and, if it is, whether the fact is as I stated it; and, if it is, whether he thinks it is just.

Mr. J. E. B. Hill

The Financial Secretary said that the tax on chattels was not so much concerned to raise revenue as to reduce envy. In other words it was not a rational reason but an emotional one. He said that this was because on balance it appeared that some people were repeatedly carrying out transactions in works of art and deriving therefrom an income with which they expanded their general standard of living, and this gave rise to a sense of unfairness in the ordinary man. If that is so I would have thought that such people should be classified as carrying on a trade under the existing law and that the Government's job would be to strengthen the Inland Revenue and put it in a position to enforce the law and stop such evasion.

Instead of doing that, which seems to be the sensible thing to do, this tax has been imposed. It has been shot to pieces from both sides of the Committee, because there has been speeches against it from the other side, too. There have not been many such speeches, but they have been effective.

This new tax will require further Inland Revenue staff, hard enough to recruit, to administer it, and the Financial Secretary has admitted that this in turn will breed more evasion. He does not know the measure of it, but there will be some. It is therefore a safe assumption that such Inland Revenue staff as can be recruited will be fully occupied in checking on all the honest returns that are made, and inspecting all the pictures which are disclosed, and so on, and they will not have time to catch the evasions. Thus, the ultimate position will probably be rather worse than the present one, plus all the damage that will be done.

Having heard this long debate, I cannot see why the Government have brought in this tax, unless it is that the Lobby Correspondent who spoke to me about nine hours ago was right when he said that he thought this tax had been added to the Bill to act as a sort of buffer in time against bringing in the Steel Bill, on the ground that the Government wanted to have no room for it.

I turn now to deal with a new point—treasure trove. Can the hon. and learned Gentleman tell us what the position is there, because this matters in East Anglia? Every ploughman hopes that as he ploughs a bit deeper he will have the luck to find another Mildenhall treasure, or something else of great value. It is rather the same idea as winning on the football pools. These treasures are valuable, and it is the usual practice of the Treasury to repay to the finder the full value of such objects as are found, which the Crown then retain for the nation.

That value may be considerable, and only last week some valuable Saxon gold ornaments were turned up in Norfolk. This sort of thing happens quite frequently, and, as I say, it is the ploughman's hope that one day he will hit the jackpot. At the same time there would appear to be an acquisition and a disposal very quickly, because by law he is obliged to disclose his find, and I should like to know whether it is taxable, and, if so, at what rate—the long-term rate, or the short-term rate? This is a matter of some moment. If the lucky finder is going to be severely penalised, I hope that the Financial Secretary will tell my constituents just what a Labour Government are going to do to their luck.

Mr. MacDermot

I am grateful to the hon. and learned Member for Northwich (Sir J. Foster) for having relieved the tedium by raising some new points. The first point is a simple enough one to answer. It is whether distribution by scrip issues will be subject to Capital Gains Tax before they are realised. The simple answer is "No", and the explanation of the answer will be found in Schedule 7, paragraph 4 (2).

The hon. and learned Member's second question was related to fires. I am beginning to think that I am learning to thread my way through the maze of the Bill, because I arrived at the right answer before I received a helpful note. What needs to be appreciated is that the sole purpose of subsection (5) of Clause 22 is to ensure that a person will not be deprived of a relief. It is to ensure that a person whose building has been burned down is not prevented from claiming relief under subsections (3) or (4) of Clause 22 merely because the value of the site is never negligible. Subsection (5) says that the building may be divided from the site but that the loss on the building is to be offset by any increase in value of the site.

6.0 a.m.

Sir J. Foster

It is optional.

Mr. MacDermot

It is optional in the taxpayer's favour.

I was asked about treasure trove. If it is right—and I do not know the answer to this—that in law there is immediate acquisition and disposal, then disposal follows upon acquisition so quickly that there is no alteration in value to give rise to a claim by the Revenue for a gain or by the taxpayer for a loss.

Mr. Edward Short rose in his place and claimed to move, That the Question be now put:—

Question, That the Question be now put, put and agreed to.

Question put accordingly and agreed to.

Clause, as amended, ordered to stand part of the Bill.