Clause 23.—(DEATH.)

HC Deb 26 May 1965 vol 713 cc621-73

Amendments made: In page 22, line 16, after "any", insert "allowable".

In line 26, after first "subsection", insert "allowable".

In line 31, at beginning insert "allowable".—[Mr. MacDermot.]

Mr. Peter Walker (Worcester)

I beg to move Amendment No. 260, in page 22, line 37, at the end to insert: (6) The provisions of subsection (5) shall likewise apply where a loss is sustained as a result of a disposal by the deceased's personal representative of any asset which but for that disposal would have been acquired by the legatee. This is the first of a number of Amendments to this Clause and to Clauses 24 and 25 which have regard particularly to the Capital Gains Tax to be applied at the time of death. On examination of the Clauses we have discovered what we consider to be a number of very important matters which do not follow logically from the general attitude of the Government to this question. This Amendment is to call the attention of the Committee to the fact that property which sustains a capital gain during the period that it is in the hands of the deceased's personal representative is taxed for a gain while no allowance is given for a loss.

Let me give two examples of this in operation. I think that hon. Members on both sides of the Committee will consider the effect to be obviously unfair. Take the case of a security which, at the time of the decease, is valued at £2,000 compared with its original value of £1,500. There will be Capital Gains Tax paid on the £500 worth of gain. If, during the period it is being supervised by the personal representative he has to sell the security for £1,500, a loss will have been sustained, but no loss will be allowable as against the gains in the previous two years. Or take the case of a security handed over at a cost of £2,000. During the period the personal representative is in charge of the security its value rises to £2,500: the personal representative will have to pay Capital Gains Tax.

So the present position is that if during the period the personal representative is in charge the total gains during that period of his administration are in excess of the losses the Capital Gains Tax will be paid on those gains, whereas if, during that period, the losses are more than the gains those losses will not be allowed to be set against the previous year's gains of the deceased, as is normally allowed under another subsection of the Bill. This is an obvious case of an injustice that would be done and I hope that the Government will be able to accept the Amendment.

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

From a purely personal point of view I find something fitting that the first Clause that we should be discussing today is entitled "Death". I hope that it is a Clause that we can dispatch in a speedy and painless fashion and not in a slow, lingering fashion. I can assist with this Amendment, and possibly others.

The hon. Member for Worcester (Mr. Peter Walker) has referred to a small but important point for those concerned. The Bill, as it now stands, provides, as he said, that where a loss is incurred between the period of the death and the disposal of an asset by a personal representative that loss can be set off against any gain in the same period which may have been realised. Equally, it could have been carried forward if the asset is distributed to a legatee because that does not count as a disposal and therefore the relief for the loss is available to the legatee.

However, if a situation arises where the asset is disposed of, say by sale of the personal representatives in order to realise funds, and there is no other asset against which they can set it, as matters stand they will not be able to set off against gains in a previous year or if necessary previous two years. I think that it will commend itself to the Committee as being right and fair that we should extend this provision for carry back and setting off losses against previous years and should extend it to this particular type of loss.

Mr. Peter Walker

I am grateful to the Financial Secretary, but I want to make the point that this is not a small affair—

Mr. MacDermot

I had better finish off. I have forgotten one of the points. This is on the form of the Amendment. In view of my assurance, I invite the hon. Gentleman to withdraw his Amendment because there are certain drafting difficulties which we would like to put right on Report.

Mr. Peter Walker

I will make the point that this is not a small matter by any means. On the occasion of death, as we know from the current penal level of death duties which applies, there is a very considerable liquidation of assets that has to take place on the part of the personal representative of the deceased. This is an Amendment which, if it had not been put on the Notice Paper by this side of the Committee, would have resulted in very substantial capital gains losses not having the benefit of the other part of the Bill relating to the gains made in the last two years.

It is surprising that seeing that there is so much realisation of assets taxable on the part of personal representatives, the Government did not cover this point in the original Bill. This is indicative of many parts of the Bill where an amendment is needed and has been spotted on this side of the Committee and is probably due to the hurried way in which the Bill has been brought to the Committee. There will be many things after the Bill is passed that will need major amendment of this kind.

We are grateful to the Financial Secretary for agreeing that the original Bill was badly drafted and in view of his remarks I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. MacDermot

I beg to move Amendment No. 292, in page 23, line 14, at the end to insert: (9) For the purposes of this section in its application to Scotland, where the deceased person was an heir of entail in possession of an entailed estate, whether sui iuris or not, or a proper liferenter of an estate, he shall be deemed to have been a person competent to dispose of such estate. This Amendment provides for the application of the charge on death in this Clause to two special Scottish cases, namely, the heir of entail in possession of an entailed estate and the proper liferenter of an estate. In respect of these two Scottish cases which do not fall within the definition in subsection 8 of Clause 23 of the property of which a deceased person was competent to dispose, they are valuable interests which pass on death and ought to be within the scope of the charge. This Amendment is designed to see that they do so.

Amendment agreed to.

4.15 p.m.

Mr. Peter Walker

I beg to move Amendment No. 244, in page 23, line 23, at the end to add: (10) Where the gains mentioned in subsection (2) of this section do not in the aggregate exceed five thousand pounds those gains and the following gains (hereinafter in this subsection called "trust gains") namely—

1. (a) gains accruing to a trustee on the disposal of settled property to a person who as against the trustee becomes absolutely entitled to the property on the death of the deceased, and
2. (b) gains accruing to a trustee on a disposal deemed to be effected in accordance with section 24(4) of this Act on the death of the deceased

shall be aggregated and only so much of the aggregate as exceeds five thousand pounds shall constitute chargeable gains of the trustee. Where the trust gains accrue to more than one trustee or set of trustees or accrue in respect of property which is not all held upon the same trusts immediately after the death the reduction in the amount of the trust gains which are to be treated as chargeable gains shall be apportioned as may be just. This, once again, is an important matter of principle because, as the Committee will be aware, under Clause 23, as far as the Capital Gains Tax is applied at the time of death, the Bill provides that the first £5,000 of such gains shall not be charged for the purposes of the tax. This is an important concession, but we do not consider that it is big enough. We are opposed to Capital Gains Tax being applied at all at the time of death, but this concession does apply upon the death of an individual, but does not apply as far as settled property is concerned.

This Amendment seeks to ensure that in the case of the death of a person which results in the disposal of the settled property the £5,000 concession shall be provided and goes on to provide that in the case of a life interest under a settlement that the £5,000 concession should be provided there. There can surely be no valid argument why property existing under a settlement should not obtain at the time of death exactly the same conditions as a property which is not under a settlement.

This is probably another case where the Government have failed to be logical in their approach to the Bill and I hope that now this side of the Committee has pointed out this important injustice that the Financial Secretary will be able to see his way to accepting this Amendment.

Mr. MacDermot

In view of the somewhat tart remarks made by the hon. Gentleman the Member for Worcester (Mr. Peter Walker) at the end of the discussion of our last Amendment, perhaps I should explain that our position in this matter was not a matter of oversight. There is a balance of consideration and a balance of argument. I will explain this briefly.

The £5,000 death exemption is really designed to serve two purposes. First, to meet the arguments that because an individual's assets are deemed to be disposed of on his death on their transfer to other persons, an unusually large amount of gains may accrue on the death with the result that for the person of moderate means the alternative basis of charge which we were discussing yesterday, which is available in the case of a disposal during a lifetime, is not valuable for disposal on death. This point applies to free property, but does not apply to settled property. The settled property on all occasions is subject to tax at the flat rate of 30 per cent. From that point of view there is a logical basis for distinguishing between the free and the settled property.

I think that the case made by the hon. Gentleman on the second point is stronger. The reason for the exemption is to provide, as far as one can, in what is known to be a somewhat rough and ready way, relief for the hardship which may sometimes arise in the case of a deceased person's widow or other dependants where they are of moderate means. Obviously, this is the basis of the Estate Duty exemptions and the second of those reasons, in a broad sense, is, I think, equally valid in relation to gains which are deemed to accrue to trustees on the death of an individual.

It does not follow that it will be a widow who will necessarily be deriving the benefit of the passing of the interest on death under a settlement. More often than not, if there is a widow, it will be, but, clearly, the considerations which are valid here for the free estate are valid also for the trust estate. So, on balance, and on reconsideration, we are prepared, if that is the wish of the Committee, to meet the Amendment and to allow any unused portion, as it were, of the £5,000 exemption on the free estate to spill over to the trust property. We would like to look at the precise wording of the Amendment, but if the hon. Gentleman is content to accept my assurance, I undertake to bring forward an Amendment on Report to give effect to what he wishes.

Mr. Peter Walker

Nobody gives concessions more reluctantly than the Financial Secretary. It is very difficult to discover, until almost his last sentence, whether he is giving a concession or turning down a request. He is so reluctant to give this one that I am almost afraid to leave him with the drafting of the revised Amendment, lest all the arguments that he posed against the Amendment come to bear during the intervening period, and he finally does not agree to it.

But, knowing that if that happened we could have a fierce debate on Report, and knowing that the successful debates that we have had so far are at last beginning to have their effect on the Government and they are beginning to realise, if too late, that it is wise to accept our Amendments, and in view of the hon. and learned Gentleman's last few reluctant phrases, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Geoffrey Lloyd (Sutton Coldfield)

I am very much alarmed at the effect of this Clause on the family business, and particularly the small business, and I should like the Financial Secretary to explain whether the effect is as serious as I believe it to be.

I speak in this matter very much with a Midland background. Birmingham and the Midland area generally are, in a way, par excellence the home of the small business. It has always been said in Birmingham, and it still is, that a man on the shop floor has a better chance of setting up his own business and ending up a rich man, and in some cases a millionaire, than in any other city in the country. I know several men who started on the shop floor and who are now rich, controlling important businesses which contribute particularly to the motor industry.

Lest it be thought that this is a passing problem in the days of very big companies, let me say that in Birmingham we do not believe that the day of the small man in industry is over; and I can give one very good reason why. It is that the very big companies which are engaged in massive assembly work still need the skill of the small man. This arises particularly with regard to parts which are too small for the big organisations to be troubled with. For example, one big motor firm in Birmingham gives out subcontracts of about £300 million a year to various smaller and medium-sized firms in the area.

In a small firm, and particularly a family firm, when death takes place there is a shock to the development of the business in any case, and this was recognised by a Conservative Government, who some years ago gave some concessions to help small firms. It is the effect of the Clause on the shock, which is in any case inevitable up to a point, in the development of small businesses about which I want to ask the Financial Secretary today.

Our Estate Duty has been considered to be fairly high, but it seems that because of this Clause the transfusion, the blood-letting, of money from a small business will be very much greater, and I should like to ask the Financial Secretary whether I am right in a particular case on which I have worked. Nobody at this stage of this Bill, with all its complications, can be sure that he is right in his figures, unless he has all the resources of the certificated and incorporated accountants of the United Kingdom working for him. We must, therefore, put forward our cases with some degree of diffidence, and I am really asking for assistance.

I want to examine the effect of the Clause on a small business. I am supposing that a small man started a business with £1,000, and when he died the business was worth £20,000. I have taken fairly easy figures. My calculation is that on the present basis of Estate Duty there would be 12½ per cent. to pay on the business and on the estate, which would come to £2,400.

Let us examine the position that would arise under the Clause. I take it that there is a capital gain in the first place of £19,000. He would be excused £5,000, and, therefore, the effective chargeable capital gain would be on £14,000. If he paid, as I imagine he would, at 30 per cent., that would be a charge of £4,200. He would then pay Estate Duty at 12 per cent. on the remainder. That would come to £504, and thus the total tax, if I am correct; and this is what I want to ask the hon. and learned Gentleman about—would be £4,704.

If that is so—and in a way I can hardly believe that my figures are correct—is it really the intention of the Government that an extra charge of well over £2,000—the difference between £2,400 and £4,700—should be levied on a small business of this character?

Mr. William Baxter (West Stirlingshire)

As I understand, on the £18,000 that would be due for tax under the Clause the rate would be 30 per cent., which would be £6,000. If there were an exemption of £5,000 the individual estate would be liable for only £1,000. I do not think that that is unreasonable.

Mr. Lloyd

I thank the hon. Gentleman for his intervention, which proves that the Committee would like to know from the Financial Secretary what really would be the amount of tax which a business of this kind would have to pay.

4.30 p.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

Unlike my hon. Friend the Member for Worcester (Mr. Peter Walker), I think that a night's rest has done the Financial Secretary no end of good. He has come here in a much more benevolent mood than yesterday. I hope that he will have another good night's sleep tonight, and that he will be in an even better mood tomorrow.

I have a particular point to raise on this Clause. In the first place, speaking generally, the Clause adds fresh terrors to death. As has been said, in many respects it may multiply the extent of death duty. As to the actual machinery, with which, of course, the Financial Secretary is greatly concerned, presumably the Capital Gains Tax will be paid by the estate before probate is granted. How are we to arrive at the appropriate capital gain to be taxed? It is only the very rare bird who keeps such infinitely careful records of capital transactions that the actual dates of the purchase of securities are registered.

There may be many cases where last in first out applies and so the actual figure on which Capital Gains Tax is charged is something not immediately ascertainable by applying to the bank for a list of securities. When it is necessary to get all this information, which, in many cases, may be very complicated, before it is possible to apply for probate, the hon. and learned Gentleman, from his experience at the Bar, will recognise that it puts a severe charge on the estate which is charged interest on the Estate Duty from the time of death. Whether that interest is paid to the revenue or the bank from which the money is borrowed, it still remains a charge on the estate. My first point relates to the particular difficulty of calculating the exact Capital Gains Tax to be levied while interest is running at such a penal rate against the estate as a whole.

My next point applies particularly to subsection (9) of the Clause. This is the machinery of relief in respect of a family rearrangement which may take place within 12 months of death. From knowledge derived from his experience at the bar I am wondering whether the Financial Secretary thinks it practicable to achieve such a family rearrangement within 12 months, taking into account that the actual amount of gain is not known, for the reasons which I have given, and the tax has not been accurately calculated; and also bearing in mind that there may be minority interests and that these things take a great deal of time to resolve. I feel that there should be power for the commissioners to extend the period of 12 months for a further 12 months, or to a convenient period, because as it stands now, that concession ends up by being valueless.

I began by saying that the Financial Secretary appeared to be refreshed by his night's sleep. I hope that he will admit that these are valid points which need consideration and that perhaps an instruction to the commissioners might help to meet the last point which I have raised.

Mr. Aidan Crawley (Derbyshire, West)

I wish to support what has been said by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd). This Clause contains provisions for a backhanded method of increasing death duty. It may be said that the £5,000 limit of exemption protects the small man, but the people who will be hardest hit are the medium men. I am thinking particularly of farmers and members of professional firms.

In the discussions which we have had on farming a good many people have assumed that the expenditure on buildings, and so on—which might be written off against a Capital Gains Tax—are the things which increase the value of a farm most. This is not so. The increase in the value of a small or medium farm is created by the skill of the farmer. I am sure that hon. Members can think of as many instances as I can of a bad farm having been taken over by a young man who, for 20 years, may have worked himself into the ground to convert it into a highly productive unit.

It is a question of good husbandry, cropping, proper rotation, herd management, and so on. Such a farmer would be the sort of man who, to reseed, would work half-way through the night by the light of tractor head lamps. At the end of 20 years the farmer may have doubled or trebled the value of his farm, having spent only a very small sum of money on buildings or anything of that kind which could be set off against this tax.

Why has he worked so hard? He may have hoped to retire, although there are Clauses in the Bill which make it much more difficult for him to do so, and probably he will hang on for longer than he should. He may be lucky enough to have a son farming with him who wishes to take over when he dies. It is possible that at the time of the farmer's death the capital gain, resulting from the causes I have mentioned, cauld be very much like the sum of £20,000 mentioned by my right hon. Friend the Member for Sutton Coldfield. The son would take over, no doubt having ideas of his own about expansion. It is at the critical time when he is taking over the farm that he is faced with the need to find £2,000, £3,000 or £4,000 in cash because of the way in which the provisions in this Clause, in effect, add to death duties.

The same is true in relation to a professional firm. I have talked with accountants and others who have partnerships in small firms. They contribute their work and their contacts to the firm, without any capital expenditure, in the hope that if they live long enough they may be able to retire in some comfort, or when they die, and have a son in the business, he may take over.

This Clause is a deliberate attack on the family business, as one of my hon. Friends has already said. It is a damaging attack on small and medium businesses run by individuals. From the point of view of hon. Members opposite the family business is anti-social. The family itself is anti-Socialist because it is a natural unit and independent of State control. I suppose that in the view of hon. Members opposite a family business is a form of social injustice because it gives a group of people independence from State control and because it allows that group of people to employ others to help with their ideas.

We are constantly hearing from hon. Members opposite that they attack the institution of private property in the interests of social justice. I make only one comment. There are far greater social injustices than come from any possession of property. Far the worst and most horrible forms of social injustice, particularly during this century, have come from the concentration of too much power into the hands of small groups of people who think that they have all the answers to the problems of society. That is what we are fighting in our opposition to the Bill, and the Government.

Mass murder on an unprecedented scale has been perpetrated during this century, and quite recently, in the name of the equality and social justice. I can only say that inequalities in property-owning is a very small price to pay for the liberty that a man can retain to oppose the concentration of power into the hands of small groups, which, inevitably, will misuse it because of the corruption which power exercises. I oppose the whole of the Clause and the whole idea of a backhanded increase in death duties. For the same reason I oppose the whole of the Bill.

Mr. W. Baxter

I do not wish to follow the sentiments expressed by the hon. Member for Derbyshire, West (Mr. Crawley). His past can well answer what he has said at present. It ill becomes us to look at what we have done in the past in order to try to justify our present actions.

This is a serious question and I think that the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) put his finger on a very interesting point. I would declare my interest, as I am one who has come from a shop floor and established a reasonably small business. Naturally, I am not opposed to other people following in my wake. I am very much concerned about the fact that taxation—of this nature or in the form of straight death duties—could, and has in the past, sometimes put businesses out of operation. It should not be the endeavour of any Government, irrespective of complexion, to frame taxation in such a way that it would, on the death of the principal of the business, cause that business to be liquidated. It that were so, it would dry up a terrific source of potential future wealth.

I am happy to see the concessions which have been made by my hon. and learned Friend on the last two Amendments. I took the opportunity of interrupting the right hon. Member for Sutton Coldfield. If my suggestion were accepted I think that it would be a more reasonable method of approaching this problem. I should have thought that taxation of a capital gain of £18,000 on a business of £20,000—after death duties—would make it prohibitive to keep that business going. I do not think that it would be unreasonable if that tax were based on 30 per cent. of the remainder of the business, the £18,000. A relief of 5 per cent. on that 30 per cent. would bring it down to a tax of roughly £1,000. Even at that—

Mr. Edward Heath (Bexley)

I am following the hon. Member's argument carefully, because it is interesting and important. I do not see how he reaches the figure of the tax paid of £1,000. If one takes 25 per cent. of £18,000, as he is suggesting, surely it is far larger than the figure which he reached.

Mr. Baxter

The right hon. Member for Sutton Coldfield stated a hypothetical case of a man who started a business from the shop floor with £1,000 of capital. That man expanded his business until he died. When he died it was valued at £20,000. In the right hon. Member's calculations of death duties of 12½ per cent., that leaves a total of roughly £18,000, which would be liable for Capital Gains Tax. If I have misunderstood the right hon. Member, I shall give way. I think he said that that would give that man a capital liable for Capital Gains Tax, based upon his interpretation of this Clause, of £18,000. He would be asked to pay Capital Gains Tax on that—

Mr. Geoffrey Lloyd

It was actually £19,000, as the man started with £1,000 and finished with £20,000, as a result of a lifetime of work.

4.45 p.m.

Mr. Baxter

He left £18,000, on which Capital Gains Tax would have to be paid. I have taken off £1,000, which leaves that man with £18,000 of capital gains—[Interruption.] Not at all. He has paid a certain amount in death duties. This is the case put forward by the right hon. Member, and, assuming that his facts and figures are correct, he has argued that the man will be paying Capital Gains Tax on £18,000. I have suggested that if that were so, that would be a wrong method of taxation, but that if the tax were 30 per cent. of the £18,000 on which he had to pay tax, that would be £6,000. If he is relieved, by the Amendment which has been agreed, of £5,000 of the total amount, he would be liable to pay £1,000 in Capital Gains Tax.

Mr. Peter Walker

I am sorry to interrupt the hon. Member in a complicated mathematical calculation, but the £5,000 is not a reduction from the tax; it is a reduction from the amount of the gain upon which the tax is charged. I agree with him that this excellent proposal makes a difference.

Mr. Baxter

I agree that, on a strict interpretation of the Clause, it can mean what one wants it to mean, but I understood that we had a concession from the Financial Secretary to redraft the hon. Member's Amendments. In the course of the redrafting of those Amendments, my hon. and learned Friend might satisfy the requirements of my argument. He needs only to say what the Capital Gains Tax would be or what the Capital Gains Tax—

The Chairman

So long as the hon. Member was explaining what he thought the tax meant, he was in order. He is not in order now in translating his argument into an Amendment to the Clause as it exists.

Mr. Baxter

I agree, Dr. King. I was, in passing, about to suggest that, at least, if this were redrafted, a little more rethinking could go into the whole question.

No Government should operate a system of taxation which would put out of operation businesses of national importance. I appeal to my hon. and learned Friend that, in the course of redrafting, he should give a little more consideration to the point which I have mentioned. Many of us have come into contact with people who, at the time of death, were small businessmen, and whose relatives have great difficulty in raising the funds to pay the death duties. At that time, a widow has great difficulty in getting a business to move in the proper way. She sometimes has to encourage very heavy expenditure—I have practical knowledge of this—by having to get some experienced person in to try to take up where the husband has left off. That can be extremely difficult.

While one has agreed that proper methods of taxation must be put into operation, we must have regard to the consequences of our action in undermining, in some way, the position of a very important member of our community, the small business person.

Mr. Peter Walker

This debate is of tremendous importance. I cannot emphasise enough the points made by my right hon. Friend the Member for Sutton Cold-field (Mr. Geoffrey Lloyd) and by my hon. Friend the Member for Derbyshire, West (Mr. Crawley) about the effects of the Clause upon small businesses. The remarks made by the hon. Member for West Stirlingshire (Mr. W. Baxter) show, I think, that he was genuinely shocked when he discovered that this was the position.

The hypothetical case mentioned by my right hon. Friend the Member for Sutton Coldfield was that of a person who starts a business into which he has put £1,000 of capital or even less. As the hon. Member for West Stirlingshire said, this is the common position of the person who starts a business absolutely from scratch and leaves his previous occupation to do so—the genuine, small businessman. I must declare an interest in this, in the sense that I started my business with no capital, and therefore, whatever its value now, would, if it had taken place after 5th April, be almost completely subject to Capital Gains Tax and to death duties.

This is the position of the majority of small businesses in this country. Many start off with very little money and the capital gain is almost 100 per cent. In the example of a man who has spent most of his life building up a business from a capital of £1,000 to £20,000, we are talking in the future. The position on 5th April applies to a person starting today with £1,000 and who, over the next 15 or 20 years, builds it up to £20,000. If the level of death duties remains as at present, he will pay 12 per cent. or £2,400 in death duty. This in itself is quite a heavy load.

Under the Clause, £19,000 of gains will have deducted from it before the tax is charged the sum of £5,000, and, therefore, the tax will be applied to the balance of £14,000 and he will pay a Capital Gains Tax of £4,200. That tax will be deducted from the total value of the business for the purpose of payment of death duties. For payment of death duties, therefore, his estate will be £15,800, on which he will pay 10 per cent. or £1,580, making a total payment of death duties and Capital Gains Tax of £5,780 as opposed to the present £2,400.

If these figures are not correct, I hope that the Financial Secretary will say so. If they are correct, this is the result of the Bill upon a person who has built up a business in his lifetime; and in his case the major factor of capital gains is the goodwill of the business which he has built up. On that relatively small business this man's Estate Duty will have been trebled by the application of the Clause. I do not think that the country are aware how heavily this Clause will affect the small family business, the farmer and others of a similar character.

I ask the Financial Secretary to recognise that on the smaller estates he has made a penal increase in Estate Duty. It is less so on the bigger estates, because they are already paying a rate of death duty well above the 30 per cent. level. In proportion, therefore, the increase is not as heavy on the bigger estates. But on the smaller estates, where there is a large factor of gain over the lifetime of the person concerned, there is an enormous increase in the level of Estate Duty. In the example which I have given, Estate Duty has been trebled as a result of the application of the Clause.

There are other disadvantages connected with this imposition of the Capital Gains Tax at the time of death. There is the argument advanced by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) that this is a tax which should be imposed on people who can bear the burden of the tax; he would prefer a wealth tax to this proposition. In Estate Duty we have the type of tax which the hon. Member for Cheetham admires levied on the total wealth of the person. But it is proposed to distort this tax by adding to it a charge which can be of considerable proportions, depending upon whether the assets have been static in value during his life-time or whether through his work during his life-time he has added to them and has attracted Capital Gains Tax in this way. If a person were left £20,000 of assets, added nothing during his lifetime and left £20,000 on death, he would be charged £2,400. If a person had worked hard during his lifetime and had built up an estate of £20,000, he would be taxed £5,780 at the time of death.

I suggest that this is one of the most disgraceful elements in the Bill. The Government have added to death duties an element whereby a man who has enhanced his fortune during his life-time pays a heavier level of tax than the man who has not enhanced his fortune during his lifetime. This is an incredibly bad principle to work. It adds further to the general incidence of death duties in this country.

Continually throughout the discussions my right hon. Friend the Member for Bexley (Mr. Heath) has emphasised the important aspect of international comparisons in a world where trade is international and where the young executive and the man of enterprise travel extensively. Comparisons are important. Our levels of death duty are very much higher already than in such countries as the United States, and very much higher on people with small estates. To add this not inconsiderable burden of increased taxation at the time of death will make the young entrepeneur who wishes to establish a business and build it up for his family consider very carefully where he should establish that business.

There are persons who would not normally pay Estate Duty at all because of the size of their estate. If a person has an estate of £5,000 at the time of death, no payment of death duty will be made at all. But if that £5,000 contains a substantial element of gain during that person's lifetime, tax will be charged at 30 per cent. on part of whatever he leaves at death. This is a wrong imposition upon people with smaller estates. I ask the Government to recognise that this is a fundamentally wrong Clause. If they want to apply a Capital Gains Tax, certainly apply it at the time of realisation or spending by the individual, but to apply it at the time of death when the person is leaving the estate to his widow or his son, and to apply it at the penal levels outlined here to the man building up a small business, will attract the very fierce disapproval of the country.

Mr. Harold Lever (Manchester, Cheetham)

I must, first, declare an interest in that, contrary to the suppositions of the Whips' Department, I believe myself to be mortal, and hence I imagine that the provisions of the Clause could come into operation against myself. Being anxious to accept the invitation of my hon. Friend the Member for South Ayrshire (Mr. Emrys Hughes) to speak with candour, I think that I should declare that interest.

The Financial Secretary will be relieved to know that I propose to express strong support for him. It is true that it will take the form of inviting the Government to drop the whole proposition of making Capital Gains Tax payable on death. But I think that, on reflection, they will come to the conclusion that there is a good deal to their advantage in the invitation, which they may well accept, to be big about this and not merely to content themselves with a useful Amendment, but to throw out the whole miserable idea of bringing Capital Gains Tax to bear on death. That is my view unless I am persuaded otherwise—and I, at any rate, regard myself as an open-minded person.

I have spoken to many persons of all shades of political opinion and all parties about death duties, and I have yet to meet anybody who does not regard the present level of duty on estates of all sizes, big and small, as being already at a rate so penal that they could not conceivably with equity be increased.

I therefore want to know why it should be thought desirable, on the death of any person, who automatically thereby brings his assets within the grip of the most ruthless, penal and progressive rates of Estate Duty, at that point of time to inflict Capital Gains Tax before assessing Estate Duty. It seems to me that some explanation is owed to the Committee on this point, and I invite the Minister to give it. Does he agree that an estate which comes within the grip of our present level of Estate Duty is already bound to pay the present progressive rate of tax, a rate as steep as anybody would consider reasonable and bearable?

5.0 p.m.

The objection to the present level of Estate Duty is the fact that very few people pay it. But, ex hypothesi, the Clause will bear on those people who do pay it. The people who avoid and evade it will not bear the Capital Gains Tax on their estates. I am, therefore, not talking about them because the Clause will not apply to them. The Clause will apply only to those whose estates fall within the grip of what is already recognised by all shades of political opinion to be an exceedingly penal rate of tax. I therefore beg the Government to look at the matter again with an open mind because I believe that to do so would be in their interest.

All intelligent people would agree that it is easy to come to a wrong conclusion on a matter of this sort. That is why I urge the Government to reconsider the matter. One sees that the Government were minded to introduce this proposal to deal with possible avoidance devices of Capital Gains Tax and the like. They should realise that the only people who will be affected by the Clause are those whose whole estates come within the grip of the already penal level of Estate Duty. It is, therefore, difficult to support the case for putting a Capital Gains Tax on top of this Estate Duty.

I wish that hon. Gentlemen opposite would not impute to the Government stupid, juvenile, malicious and spiteful motives. It does not add to the mature level of debate for us to have to listen to talk of that kind. Hon. Gentlemen often complain that my views and arguments are not always followed by my voting in a similar direction. I will dispose of that rather juvenile and immature argument in advance on this occasion by saying that an hon. Member who believes in what the Government are doing must want to keep them in office.

Mr. Danied Awdry (Chippenham)

Is the hon. Gentleman implying that if the Government lost a Division on an Amendment of this sort they would have to leave office?

Mr. Lever

I did not say that. In deciding how to cast his vote an hon. Member must decide whether or not he has general support for the Government. While I may not regard the Government as a compost of all the perfections possible in Government, considering the alternative Government displayed to me I have no hestitation in wishing to sustain the present one in office. On the other hand, criticism is free. A supporter of the Government must, when considering how he will vote, bear in mind all the matters relating to his Government and not base his thoughts on the merits of a single Amendment, Clause or even Bill.

Mr. Heath

If the hon. Gentleman maintains that we should not be allowed to use such words as "stupid", "spiteful" and "immature" can he suggest any reason why the Government have introduced this proposal?

Mr. Lever

I would not presume to curtail the arguments of hon. Gentlemen opposite. It is up to them to say what they wish to say. That is a matter for them to decide in relation to what it is proper, reasonable and fair to say. However, if they want my opinion as to how this proposal came into being, I suggest that it came about because of extreme pressure on the Government as a result of the disgraceful inactivities on the part of the former Administration, who left the present Government with a huge deficit of matters to be attended to, particularly in the sphere of taxation.

The Government had to undertake rapid action to put things right, including a comprehensive fiscal programme. They were concerned that their proposals should take effect and not be avoided or evaded too readily. Thus, they came forward with this Measure, which is open to correction, addition, subtraction and comment. I believe that the Government came to this conclusion because they were troubled about the possibility of tax avoidance.

I hope that, on reflection, my right hon. Friend the Chancellor will come to the conclusion that since Estate Duty already takes care of all these matters, including deferment, and also because of the severity of the proposal, the matter should be set at rest and the Amendment accepted. It should not be said that because the Government are prepared to accept an Amendment that implies that the original Clause was spiteful or malicious. It has often been known for previous Governments to accept Amendments without it being inferred that they had been stupid, dishonest or motivated by base intentions.

It has been said that the Government are motivated by passionate, fanatic egalitarianism and that that is the sort of passion for equality which caused mass murder in the past. That sort of thing comes ill from hon. Gentlemen opposite, most of whose arguments have proceeded on the basis that they are spokesmen for a small investor farming marginal land, missing one leg and encumbered by innumerable sick dependants. Every part of the Bill has been subjected to a supposition of that kind. I have not made my plea for small estates, marginal hill farmers, and so on. I have referred to all those who are subjected to the present high levels of Estate Duty.

The Financial Secretary's history is of a rather selective kind. A great many of the millions of people who have been murdered in the past and who entered mass graves did so because of racialist and other differences between man and man and not because of any passion for equality. One chastening word, because I do not wish to preach; we might hear a little less xenophatic wisecracking from hon. Gentlemen opposite. That might help matters a lot.

Sir John Foster (Northwich)

When my hon. Friend the Member for Worcester (Mr. Peter Walker) referred to the figure of £5,000, I thought that he had in mind—

Mr. Peter Walker

Before my hon. and learned Friend goes any further, it might help if I point out that I made a mistake when I mentioned the figure of £5,000. Of course the exemption figure will apply.

Sir J. Foster

I rise merely to ask the Financial Secretary to explain the meaning of subsection (8), which deals with … references to assets of which a deceased person was competent to dispose are references to assets of the deceased which (otherwise in right of a power of appointment or of the testamentary power conferred by statute to dispose of entailed interests) he could … have disposed of by his will, assuming that all the assets were situated in England and if he was not domiciled in the United Kingdom, that he was domiciled in England". I do not understand the last part of that subsection and I wonder why it was not drafted simply to read that if he was not domiciled in the United Kingdom it was assumed that he was not so domiciled. Obviously if he was domiciled in England he would obviously be domiciled in the United Kingdom, so I do not see the necessity for the present drafting.

The Minister without Portfolio (Sir Eric Fletcher)

There is also Scotland.

Sir J. Foster

That is so, in which case it could have referred to Great Britain and Northern Ireland. It is assumed that he is domiciled in the United Kingdom—and Scotland is in the United Kingdom—and therefore I do not see why the subsection should proceed on the assumption that because he was domiciled in the United Kingdom, remembering that that covers Scotland as well, we could not simply say, "It must be assumed that if he was not domiciled in the United Kingdom he was not domiciled in England". If one is domiciled in England one is obviously domiciled in the United Kingdom, so I do not see why we have the phrase: … if he was not domiciled in the United Kingdom, that he was domiciled in England". The Clause applies upon the death of an individual and one must assume that the individual would have been subject to the Capital Gains Tax anyway. Therefore, such an individual would be ordinarily resident in the United Kingdom; and this bears on Clause 19(7), which refers to … individuals resident or ordinarily resident but not domiciled in the United Kingdom …". Am I right in thinking that during their lifetime people resident and ordinarily resident in the United Kingdom but not domiciled in the United Kingdom pay Capital Gains Tax only on the disposal of assets situated outside the United Kingdom? If they received the gain inside the United Kingdom—and I think this is common ground—does not the subsection have the effect of bringing in those people's capital gains on death whether or not received in the United Kingdom? If so, it is a very big change, because the process of argument is as follows.

The Clause applies to an individual who dies. The individuals must be those classes of people subject to capital gains. There are two classes—those ordinarily resident in the United Kingdom and domiciled there, and those ordinarily resident but not domiciled there. Therefore the wording covers both classes of those people subject to Capital Gains Tax. The difference between them is that the people resident and ordinarily resident in the United Kingdom and domiciled there have to pay Capital Gains Tax on all their assets. The people resident and ordinarily resident there but not domiciled in the United Kingdom only pay on capital gains remitted to this country.

We then see that Clause 23 deals with the death of an individual, so I have assumed that the death of the individual applies to this class of people. We then have to ask what assets we cover. By Clause 23, on the death of the individual, we cover all the assets of which he was competent to dispose. Turning to subsection (8), we find that the assets which the deceased was competent to dispose are all his assets, on the assumption that they are all situated in England and that the deceased was domiciled in England.

Let us take, as an example, Mr.X, who lives in Australia, who is domiciled in Australia and resident and ordinarily resident in England during his lifetime. He sells his small business in Australia. This is not the big sheep farm of which the hon. Gentleman makes a debating point. He speaks of the big sheep farm and every hon. Member behind him says, "How dreadful". Therefore, let us take the small business, which the man sells during his lifetime. He does not remit the proceeds to England. All his assets are deemed to be in England, he is deemed to be domiciled in England, and I think that he pays capital gains on the sale of the small business although he has not remitted the proceeds to the United Kingdom.

Mr. MacDermot

The hon. and learned Member for Northwich (Sir John Foster) has asked me some specific technical points, so let me try to answer them while they are fresh in my mind. I say at once that I have such respect for the hon. and learned Member's knowledge of this branch of the law that if he says that the subsection is not clear to him it makes me at once want to look again at the drafting, because I then wonder to whom it would be clear, if not to him.

The intention of the provision relating to England is that, in order that the extent of the liability on death should not vary with variations in the law of other countries about the deceased person's right to dispose of immoveable property, the subsection provides that the assets of which he is competent to dispose should be, as it were, on the footing that the assets were in England and he was domiciled in England. That is the purpose of the provision, and the reason for it—

Sir J. Foster

I was asking why the Clause was not drafted that he was not "so domiciled", because if he is domiciled in England he is domiciled in the United Kingdom.

Mr. MacDermot

This is a drafting point. I am telling the hon. and learned Gentleman what the intention was, but I shall certainly be glad to have the drafting looked at to see whether—if the hon. and learned Gentleman agrees that it is a proper and right intention to attain—we can achieve it by a less ambiguous form of words, if the present form is ambiguous.

5.15 p.m.

The hon. and learned Gentleman also expressed concern lest the effect of this provision would be that a person resident but not domiciled here would, under the provisions of the Bill, only be liable to Capital Gains Tax on gains outside the United Kingdom in so far as they were brought here and remitted to this country. He was afraid lest this wording should result in all gains, as it were, being deemed to be remitted to this country. That is not the intention. It is intended that the provision shall govern only the method of assessment and not the liability to charge. But, again, I assure the hon. and learned Gentleman that I will have the wording looked at in order to see whether we can improve its form, and put these matters beyond doubt.

I turn now to the main subject of debate, which is whether or not this Clause should stand part of the Bill. Perhaps I could remind the Committee that this is what we are discussing. We are discussing whether or not death shall be an occasion of charge to Capital Gains Tax. Perhaps in a moment I could deal with certain specific questions, particularly those in relation to small businesses, but let us be careful, whilst attaching importance to the particular, not to argue from the particular to the general. We are here concerned with the general.

I believe it to be general common ground in the Committee that it is desirable to introduce a long-term Capital Gains Tax. In any event, the Committee did not divide on Clause 18, which decided that matter. I do not know whether we are agreed upon what the objectives of the long-term tax are and what purpose it is intended to serve. We have formulated our reasons for introducing it and the objects we are seeking to achieve, and we would be interested to know to what extent right hon. and hon. Members opposite share those objectives with us.

Having stated our objectives—I will not weary the Committee by repeating them; we have stated them many times—the general pattern that we have thought it right to develop for this tax is, broadly speaking, that the occasions of charge should be the occasions of transfer of capital assets from one person to another. That can occur in many ways; not only by sale but also, and essentially for the effective working of the tax, by gift and upon death. Because we are now discussing transfer on death, hon. Members end to compare it with, and perhaps even think of it as, something similar to Estate Duty. That is a misconception that I should like to try to clear away at the outset. The two are entirely different things, serving an entirely different purpose and levied upon different things. The Capital Gains Tax on death is levied on capital gains, and levied only upon capital gains which are realised on the death, and in the normal case will constitute only a relatively small part of the total estate. The total estate passing on death will not constitute net capital gains to a large extent—

Sir Douglas Glover (Ormskirk)

How does the hon. and learned Gentleman differentiate? They will all be capital gains.

Mr. MacDermot

Tens of thousands of people in terms of the number of people who die in the community are small numbers compared with the total. I am coming to the question of the small business, but cannot hon. Gentlemen manage for a moment to take a rather broader view and look at the effect of this tax in order to compare it with Estate Duty as this generally falls to be levied? I know there are special cases, and hon. Members have been arguing about a special case which I shall come to, but in the ordinary way on an ordinary estate when one adds up the amount of the estate it is surely incontrovertible that in the majority of cases the amount of capital gains in the estate will certainly not be anything like the figures we heard in the example put before the Committee this afternoon.

The Capital Gains Tax is a tax on those capital gains realised at this time and disposed of, in the legal wording. Estate Duty is something quite different. It is a duty on the total value of the wealth of the deceased person passing at the time of the death. There is no comparison between the two and no relation between the two, except in so far as Capital Gains Tax which is to be levied on the occasion of the death falls to be paid out of the estate. It naturally therefore comes into the reduction of the net estate for the purpose of assessing Estate Duty.

If we were to omit death altogether as an occasion of charge, as hon. Members opposite suggest, we would be driving a very large hole and making a very large gap in the whole system of the tax. They do so in the United States. It is known for this reason as "the death gap", and that is what it is, a major gap in the whole taxation system. If the object is to see that on grounds of equity capital gains should be subject to tax at whatever is thought to be the fair rate, if we allow a gap of this kind it would mean that a very large amount of capital gains would escape tax, not merely temporarily. It would not be a matter of being deferred, but it would escape completely.

Mr. Harold Lever

My hon. and learned Friend is not suggesting that tax avoidance would be sought in this manner if he gave way on this suggestion?

Mr. MacDermot

What I am seeking to convince my hon. Friend of is that the proper way to levy this tax and bring it into existence is not to bring it in with a large built-in gap of this kind which would result in a very large avoidance of the duty.

There are, of course, many kinds of property which, if they were not subject to Capital Gains Tax at death, would in effect escape the tax completely because they do not get transferred by means of sale. An obvious example is a controlling shareholding in a family company which can pass on death to members of the family and would never be subject to tax at all. This does not happen only in relation to small businesses. This can happen in relation to very large concerns indeed. If hon. Members think it right that those people should be privileged and able to go on accumulating and building up capital gains without ever being subject to Capital Gains Tax, well and good, let them say so, but this would be the effect of exclusion of charge on death.

Mr. Raymond Gower (Barry)

How can the hon. and learned Gentleman say that it is a great privilege when, as his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) has pointed out, when a person dies a very heavy death duty has to be paid? Does he regard that as sufficient?

Mr. MacDermot

I told the Committee yesterday that my experience is that the more I give way the more is the length of my argument. If hon. Members will be patient I assure them that I intend to meet this point.

Let us come to the special argument put forward and the pleading made on behalf of the small man. I was asked by the right hon. Member for Sutton Cold-field (Mr. Geoffrey Lloyd) whether I accepted the arithmetic of an example he gave. I think he has been corrected by his hon. Friend the Member for Worcester (Mr. Peter Walker), who put forward the correct figures on the supposition which was made. Let us get clear what the supposition is. I am not saying that it is a case which does not occur. It does and can occur many times, but it is a rather special case.

It is the case of a man who builds a business starting with a very small amount of capital indeed. The example given was that of a capital of £1,000 and presumably over a large part of the man's working life the business was built up to a point at which it was worth £20,000. The assumption is that he has not put anything more into the business in the meantime. He has not ploughed back profits into the business or acquired fresh capital; it has been entirely built up by his own exertions, and the greater part would be the result of his goodwill and in that sense quite clearly the result of his own personal efforts.

In that special case of course I accept on the figures which have been established that this would result in a very substantial difference in the position on death, or at least it would do so when the Capital Gains Tax reaches its full effect, which will not be for another 15 years. The immediate effect of the incidence of Capital Gains Tax will be only on gains since Budget Day. So to start with the incidence will be minor.

Mr. Peter Walker

Surely what the hon. and learned Gentleman said, which will go on the record of this Committee, is not so. He has given the impression that this would not apply until the end of 15 years. If one started a business today and it increased in value in the next five years from £1,000 to £20,000 and then the person died, this would apply.

Mr. MacDermot

The hon. Member is quite right. I was assuming that the man had built up the business over a lifetime of work. I quite agree that if it was built up over five years the full effect would be felt within five years.

In the case of a business built up by the more normal process where there is a ploughing back of assets and other moneys are put in, there would of course be considerable allowable expenditure for the purpose of assessing Capital Gains Tax. One would arrive at a very different figure for the amount for which the man with the estate would be liable for Capital Gains Tax and the amount liable for the purposes of Estate Duty. This serves to emphasise what tends to be lost sight of, especially when one talks of a case of this kind, that these are different taxes levied on different things.

Mr. Geoffrey Lloyd

Would it be possible for the Financial Secretary to tell us what would be the effect on a business if it were ploughing back the 40 per cent. allowed under the closed company provisions later in the Bill? Is that too much to ask now?

Mr. MacDermot

It would be too much for me; I am not an accountant. I do not know whether anyone else will be able to come to the assistance of the right hon. Member, but I shall try to get examples of that kind.

Mr. W. Baxter

rose—

Mr. MacDermot

I should appreciate it if hon. Members would allow me to finish with this point. I shall gladly give way when I have completed the argument as a whole. On the whole I find that tends to enable me to be quicker.

We come to the special case of the man who has built up a business on his own account. I indicated to the Committee yesterday that we wanted to look at and discuss this special case with the Committee in relation to an Amendment which is on the Notice Paper for discussion later. That deals with the case where he does not hold on to the business until death and then pass it on to his son, but where on retirement he sells the business in order to realise in effect what is the fruit of his life's work, perhaps to provide for the retirement of himself and his wife.

5.30 p.m.

I have indicated that we think that this is a case that deserves further consideration by the Committee. It would not be in order to discuss that now. All I can say is that I am very impressed personally by the arguments I have heard today about the not incomparable case of the man who has built up a business by his own work but who does not sell it in those circumstances but, instead, bequeaths it to his son. I do not want it to be thought that I am giving any kind of assurances or undertakings. I personally would like to consider these two matters together. We have heard the same argument raised in relation to farmers. The hon. Member for Derbyshire, West (Mr. Crawley) raised it today. It was raised by another hon. Member yesterday. Again, we will have an opportunity, hope later today, to discuss that case on another Amendment.

All I would say to the Committee is that the way my mind is moving is to think that these are special cases that we ought to look at and see what is the right and fair way to deal with them; but I personally would resist very strongly any argument that, because of that, one should throw out the baby with the bath water, as it were, and sweep away death as an occasion of charge altogether.

I come to the argument advanced by my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever). I got the impression that he did not object so much to the idea of death being an occasion of charge to Capital Gains Tax. He was concerned with what would be the effect of the inter-action of this with Estate Duty. My hon. Friend is obviously very critical of the operation of Estate Duty and thinks that this is something to which my right hon. Friend's reforming zeal should be turned. I will certainly draw my hon. Friend's remarks to the attention of my right hon. Friend the Chancellor of the Exchequer. I am sure that the Committee will feel after the exertions of the past few days that my right hon. Friend has bitten off quite a sufficient area of our taxation system to seek to reform at this time.

As I pointed out, it is not as though the full impact of the Capital Gains Tax and the full impact of the Estate Duty law will immediately be felt together or come into collision, or whatever is the right word, because the introduction and operation of Capital Gains Tax will be fairly slow and gradual as a consequence of its taking effect upon gains only since Budget Day.

I hope that, for these reasons, the Committee can proceed to agree to the Clause or, if the Committee is not agreed, can at least come to a decision on the main general question whether death should be an occasion of charge and then pursue at a later stage the special cases to which hon. Members have referred.

Mr. Charles Fletcher-Cooke (Darwen)

The Financial Secretary has referred to the two examples, one given by my right hon. Friend the Member for Sutton Cold-field (Mr. Geoffrey Lloyd) and the other by my hon. Friend the Member for Derbyshire, West (Mr. Crawley), as in some sense exceptional. The hon. and learned Gentleman would be deluding himself if he thought that he can deal with them by some exceptional treatment. They are in fact absolutely typical cases of what happens if it is sought to charge Capital Gains Tax on an involuntary occasion.

The Clause offends against what should be an absolute principle, namely, that Capital Gains Tax should not be charged, except on the beneficiary; not on a company or on a trust or anything like that, but only upon a beneficiary, upon a human being. Secondly, it should be charged only when that human being voluntarily disposes of an asset. After all, what is the object of the Capital Gains Tax? The Financial Secretary asked us to answer that question. I think that its object was put very well by the hon. Member for Colne Valley (Mr. Duffy) yesterday. He said that the object of the Capital Gains Tax was to satisfy the wage earner and the salary earner that those who have capital are not disposing of their capital and making an untaxed profit which they spend on loose living, or whatever it may be, whereas he, the worthy wage or salary earner with no capital, is taxed by P.A.Y.E., often at very high rates. That is a rough way of putting it, but it is a very good way. I accept that.

If that is so, the only occasion when the Capital Gains Tax ought to attach is upon an individual when he voluntarily disposes of an asset. The Clause offends against both those propositions. When somebody is forced to dispose of his asset—there is nothing more forcible than death—the wage earner or the salary earner does not think that that should be an occasion when he should be mulcted. He is mulcted quite enough in Estate Duty, if he is a moderately rich or a rich man, as it is. Why should he be mulcted again? That is the simple question. The Financial Secretary says that they are different taxes and raised on different principles, but they hit the same man at the same time. They hit not only the man. They hit even more his widow and his children.

Nothing that the Financial Secretary has said shows the need for this tax.

It is not shown that it fulfils the objects of this tax when it is on the occasion of an involuntary disposal. If the Financial Secretary and his hon. Friends were to cling to these two principles—that it should attach only to an individual, only to a man who can spend the money in the way that is so objected to, and only when he realises assets—they would find that the rest of the Bill concerned with Capital Gains Tax would go through much more easily, because there we agree with the hon. and learned Gentleman. It is on the question of this being in the interests of administrative efficiency or in the interests of what I regard as some bogus theory of equalisation or equality that the Government run into these difficulties. The Financial Secretary has run into them already. He will run into them again. If he were to cling hard to the two principles I have just enunciated, a very few hours would pass before we disposed of the whole of this part of the Bill.

Mr. Joel Barnett (Heywood and Royton)

I, too, would like to declare an interest, though perhaps not the same sort of interest as was declared by my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), although death comes to us all. I hope that for the sake of my wife and family, the chief whip, and not least for myself, my demise and, therefore, the application of this Clause will be long delayed. The type of example my hon. Friend gave referred particularly to myself. I should therefore declare an interest in it. I have been able to build up a moderately successful professional practice and the Clause would apply to me, although, as I say, not, I hope, for a long time.

I wish to disassociate myself from many of the words used by hon. Members opposite on the Clause. To describe my hon. Friends as anti-social and to use such words as "corruption" is madly to over-state a case. The case has also been overstated, at least to this degree. In the capital growth of this type of business or of other businesses which have been referred to there is the retained profit element. Then there is the goodwill element. This is why I was particularly pleased to hear that my hon. and learned Friend the Financial Secretary is prepared to look again and to think again about this latter element. I am not opposed to the idea of taxing capital gain as such when there is a growth of retained profit, but I am certainly not happy at the idea of having a tax on this type of goodwill, particularly to a moderate degree. I feel that this will come very hard in the case of many comparatively small and medium-sized professional firms.

I feel that present death duties are to a large extent evaded and avoided because of the enormous tax. If they were applied at a slightly less steeply progressive rate there might be less evasion and avoidance and the Government might very well receive more in revenue. As I said yesterday, evasion and avoidance and the incidence of tax are to my own knowledge closely correlated. I should like therefore to see a lower rate being applied. I hope that when my hon. and learned Friend considers this matter, even though he cannot go all the way with me, he will look favourably on it, particularly in relation to professional and similar types of business.

Finally, may I say that whilst I have discussed with people the matter of avoidance of tax I have never suggested yet to a client that the best thing he can do to avoid tax is to drop dead. My hon. Friend the Member for Manchester, Cheetham referred to this Clause having been included in the Bill to prevent avoidance. I have never considered death to be the sort of method one could recommend for this purpose. Certainly it is hardly likely to be taken seriously by the recipient of such advice. However, I would once again express the hope that my hon. and learned Friend will at least consider seriously the possibility of excluding the type of goodwill I have described from this tax.

Sir D. Glover

Most of the arguments have been stated, but I ask the Financial Secretary to realise that he is not talking about exceptional cases. He is talking about the greater part of family businesses, individual businesses and businesses established for anything up to 25 years. If this pattern continues, these will be exactly the sort of people who will be affected by Capital Gains Tax at death. The hon. and learned Gentleman said that Capital Gains Tax and death duties have nothing to do with each other. This is rather like saying that when Sonny Liston had a left and a right from Cassius Clay they had nothing to do with each other, but they had an effect on Liston.

The family firm to which reference has been made was having to find nearly £6,000 in taxation and would inevitably have to liquidate. It would not be able to borrow the money. It probably already has an overdraft in the bank to carry out ordinary business transactions. The family will not want to sell the business. Even the party opposite is surely not trying to do away with this sort of business, but if the Financial Secretary cannot put forward a worth while Amendment that is exactly what the Government will do in this Clause. I hope that it will be made quite clear by my right hon. Friends that if the Clause is not satisfactory then we shall amend it when we come to power.

5.45 p.m.

Mr. Gower

I must emphasise to the Financial Secretary that some of us are astonished at his attitude to this matter. Apparently he will have many occasions of nightmare when he will be worrying about the tiniest gaps in this capital gains structure. He has had ample evidence in the debate that the Clause is objectionable, and if he does not accept our evidence he must have noticed the very apposite objections of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and the hon. Member for Heywood and Royton (Mr. Barnett).

My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) made a most valid statement about the position of small firms particularly in the Midlands, but I would remind him that this is not limited to the Midlands. He is probably aware that there are many feeder firms throughout the country. We have in South Wales small firms which feed the big motor car industries and other industries. I am sure that there are similar firms in Scotland where the people would like to see many more, and the same applies in East Anglia, Lancashire and particularly Merseyside. These are the kind of firms par excellence which are suited in size and type for the implementation of the development area policy about which the Financial Secretary and the Government have said so much.

In many parts of the country which have suffered in recent years from above average unemployment the available labour force is not sufficiently large to accommodate a great major industry, but it can accommodate and provide the labour for the sort of small company which is particularly threatened by this Clause. The Clause runs completely at variance with the development policy to which the party opposite has given so much support.

We were told many years ago that the concept of a Welfare State was a policy of social welfare from the cradle to the grave. I begin to wonder whether the new vision which the party opposite has is of excessively heavy taxation from the cradle to the grave. Indeed, the Financial Secretary is disturbed and horrified at the thought that the slightest gap may exist in this great structure of capital gains legislation. Hon. Members opposite have accused us on this side of the Committee of being extravagant in our description of the effects of the tax and of the fears in the minds of many people, I can assure Ministers, and the Financial Secretary in particular, that those to whom I have spoken about the tax, and they are not necessarily keen supporters of my party, feel that this is almost a Labour declaration of war against the smaller and medium-sized companies.

They are alarmed at the tendency displayed in the Clause and in the Bill. They are most despondent about the future prospects of their kind of smaller family undertaking. This is not limited to the smaller industrialist, but extend, as we have been reminded by my hon. Friend the Member for Derbyshire, West (Mr. Crawley), to the person who has a small or medium-sized firm and to those who are engaged in the practice of accountancy or the law. They are concerned because the person who builds up a small business or a practice of that kind has generally spent a lifetime not only in the work of building it up but in paying heavy taxation to the State all that time. At the end of such a career, he is to be mulcted in death duties and in this pernicious addition of the Capital Gains Tax as well.

The Financial Secretary asked us what kind of Capital Gains Tax we had in mind when we discussed and assented to the concept some years ago. We had in mind a tax which would do for capital in the hands of the entrepreneur or the ordinary person what the Income Tax does for the person earning income. We did not have in mind a tax operating on an involuntary and tragic happening such as death. We could not conceive of that as part of the tax.

I hope that the hon. and learned Gentleman will realise that we object to the basis of the Clause. We object to it in principle. We accept the broad idea of a Capital Gains Tax, but we do not accept that it should apply on death. It ought not to be employed as a back door method of supplementing or increasing death duties. I hope, therefore, that the Committee will emphatically reject the Clause, or, if not, that we on this side will take an early opportunity to revoke it.

Mr. J. Grimond (Orkney and Shetland)

I am glad that the Financial Secretary has said not only that he will give the concessions which he mentioned earlier, but that he will look again at the very powerful case made about the man who builds up a small company to, say, the value of £20,000 and then finds himself badly caught by the Clause.

I hope that the hon. and learned Gentleman will review the whole impact of the Clause. He said that the Capital Gains Tax was quite different from death duties, which is true, but he added that they were levied on different things. Admittedly, the tax will not be levied on all the assets which come under charge for death duties, but it is certainly true that everything that comes under charge for capital gains will come under charge for death duties, so to that extent they will be levied on the same assets.

The hon. and learned Gentleman suggested that his hon. Friend the Member for Manchester Cheetham (Mr. Harold Lever) really wanted a reduction of the death duties. The hon. Gentleman certainly said that he thought that death duties were high, but I did not understand him to say that they ought to be reduced. His argument was that, as they were so high—it would be out of order on this Clause to suggest that they should be lower—it was wrong to impose on the same asset a further tax in respect of capital gains. That seems to be eminently sensible and compelling.

As the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) said, the whole principle of the Capital Gains Tax is that, when a person realises the asset which has gained in value, he comes under charge for tax. From now on in the Bill, this principle will be departed from more and more. In this and subsequent Clauses, we have to consider not a Capital Gains Tax but a wealth tax. There may be something to be said for a wealth tax, but it is a quite different matter and should not be imported in this way.

As has been said, many people nowadays, foreseeing death duties, dispose of their assets long before death, and the person who will be caught by the full impact of both the Capital Gains Tax and death duties will be the man who is run over or who is quite fortuitously killed, leaving his family in extremely awkward circumstances, with no provision against his death. Whether he is a small business man or not, whether he is a rich man or a poor man, Parliament ought not to bring in legislation which will almost certainly have this effect in addition to the other effects.

This is a total departure from the principle of the Capital Gains Tax. No one has hitherto suggested that, at a moment when the level of Stock Exchange quotations is very high, people should be compelled to realise their profits and assets. The amount payable in death duties is notoriously arbitrary, according to the value of the assets at the moment of death, and the value of capital gains will be extremely arbitrary, too. I do not suggest that this is a new difficulty, but it is certainly an additional one in this context.

The hon. and learned Gentleman distinguished the practice in America, and he said that there is there what is called the "death gap".

Mr. MacDermot

I pointed out that, so much is it recognised as a gap, it has been nicknamed the "death gap".

Mr. Grimond

My impression is that the rate of death duties in America is very much lower than it is here, and, if there is a gap, there will not be the same sort of gap in this country because people will be caught through death duties.

The major and more serious point which the hon. and learned Gentleman made was that there could be evasions through transfer of controlling shares in private companies. I am not quite clear how this is relevant to the Capital Gains Tax, but let us assume that it is. In other parts of the Bill there are very stringent measures against the operation of private companies, for instance, in the distribution of their income, and people will not be able to salt away large capital gains in private companies nearly so easily as they might have done a year or two ago. It is important to look at the whole effect of the Bill on private companies, not simply picking out particular parts.

We are grateful to the hon. and learned Gentleman for looking at various points again, but the principle of the Clause is suspect on the very arguments which the Government themself have used. They have insisted that the Capital Gains Tax is a matter of principle, founded upon principle, and not a wealth tax. If that is so, it is a serious departure from principle to treat involuntary transfer on death as the same as a deliberate realisation of gains.

Mr. Marcus Kimball (Gainsborough)

I want the Financial Secretary to look at this matter not just in the context of the small farm and small estate about which my hon. Friend the Member for Derbyshire, West (Mr. Crawley) spoke. If it is unfair to add Capital Gains Tax to death duties for the small business and small estate, it is even more unfair to do it for larger businesses and larger estates.

It is important that the Financial Secretary should realise that this iniquitous addition to death duties does not apply in the United States of America. People are not made to pay Capital Gains Tax in addition to death duties there. Moreover, rates of death duties in the United States are a great deal lower than they are here. On 250,000 dollars 32 per cent. is paid, and in this country 32 per cent. is paid on a total estate of £45,000. Now, there will be the additional burden of the Capital Gains Tax iniquitously put on top.

The Financial Secretary said that he would look at the case again. I hope that he will not look at it just below the bogey of £20,000 which has been talked about today. If it is unfair below that bogey, it is equally unfair above it.

6.0 p.m.

Sir Harmar Nicholls (Peterborough)

The theory of the Committee stage is that we pool our experience in order to help legislation, having settled the point of principle. I wish to make a small contribution arising out of what the Financial Secretary said. It was clear that he wanted to be helpful. He said that he was apprised of the point and had full authority to say that the Government would look at it.

What worries me about his statement and what caused me to feel that my experience, added to the experience of others, should be brought into the Committee was his allusion to exceptions. The example that was produced by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), of a person building up a small business from nothing, which does not have new capital put into it but which reaches a value of £15,000 to £20,000 over, say, 20 years, is not an exception.

The exception is the bigger concern which has capital injected into it and goes through the paraphernalia of being organised as a big company. I assure the hon. and learned Gentleman that, while the whole tenor of his remarks gave the impression that this matter concerns the minority, it is, on the contrary, the majority. If the hon. and learned Gentleman goes to any town or city or district he will see, for very established firms of some considerable size, two or three concerns built up on the lines described by my right hon. Friend—the small wholesaler dealing with retail outlets and the sub-contractors who service the bigger firms, for instance.

These concerns are an important part of our engineering strength. If he tours the Midlands, visiting perhaps Wolverhampton and Birmingham and my new City of Peterborough, which is developing into a precision engineering centre, he will see in every little area firms of this description. If it is that the hon. and learned Gentleman has in mind making an amendment to omit what he calls the exceptions, I suggest that he is going the wrong way round. It would be better if he made the main framework of the Bill capable of taking this into account and making the exceptions those who do inject their capital and could come under a different sort of rule from the one he has described.

The hon. and learned Gentleman's words hold out hope and if it is that they were based upon real understanding of the position I would feel that we would perhaps get some satisfaction out of it, but as long as he and the Government approach this matter with the idea that the sort of case quoted by my right hon. Friend is an exception, they are bound to give the wrong answer.

If we can approach it from the point of view that we are not talking about exceptions—even in large numbers—but about the norm, and if it is that legislation irritates them and mitigates against them, then it is mitigating against the majority of business. I believe that it would be better for the main framework of the Bill to take into account the fact that it is the others which are the exceptions. If that is done, it will prove a better way of getting out of this dilemma.

Mr. Geoffrey Lloyd

I started this debate by putting to the Financial Secretary a hypothetical case. I ventured to put forward calculations of the effect of the Clause as compared with what such a business would pay under existing law. I did so with some diffidence because, as I said, it is difficult for the average citizen and for the average Member of Parliament, even with advice, to be sure that he will get his calculations right under the Bill.

In his reply, for which I thank the hon. and learned Gentleman, he confirmed the fact that I had underestimated the increased charge that will be payable by £1,000. My hon. Friend the Member for Worcester (Mr. Peter Walker) had already corrected me, but the fact is—and it is just as well to bring it out towards the end of the debate on the Clause—that, instead of paying £2,400 as under existing law, such a man would pay £5,780. That is obviously a very considerable added burden.

It is quite clear from the debate that many hon. Members on both sides feel that something wrong is being done by the Clause as it stands and that we would be making a charge upon a small business passing at death, which goes against the instincts of this Committee and the country because they know that it will do harm.

I found it difficult to follow the hon. and learned Gentleman when he tried to argue that there was no relevance—that on the one hand, we were dealing with estate duty and, on the other, dealing with a quite different tax, the Capital Gains Tax. It is extraordinary to me that, as a Member of Parliament if not as Financial Secretary, he could not understand that the amount of money that has to be found by the family at the point of death is the thing that matters to the ordinary citizen.

I find myself in some difficulty. I would like to thank the hon. and learned Gentleman for the fact that he has made a half-concession, without going very far, in saying that he will look at the Clause again. But I find it difficult to do so although I would like to on purely personal basis because he charms us with his efficiency and the way in which he tries to help. But we are entitled to say to all the small businessmen, and to all those men working on the shop floor and in other circumstances who are looking forward to setting up on their own, that, if it had not been for the alertness of hon. Members on this side of the Committee, this injustice would have gone straight through the Committee stage.

This is one further example of the fact that this is a most ill-considered Bill to which not nearly enough time has been given to the Revenue to consider these proposals so that they shall not bear hardly on the citizens.

Mr. Awdry

I understand that the Financial Secretary has not even given a half-concession. He said that he had listened to the arguments, that there was a case in them that he personally would support, but that he could give no assurance. Flow can one possibly make law like that? We are here dealing with new law that will be in effect for many years.

In a debate of this kind, one hopes to see a great many hon. Members on both sides of the Committee making their contributions. However, on the benches opposite below the Gangway, there are about six hon. Members present, although we have had three excellent speeches from them. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) says that when the time comes he cannot vote for us on this because, otherwise, the Government may be put in difficulty. But the Government will not fall if one single Clause of this frightful Bill is improved.

Surely, if we can show in argument the strength of our case and he admits its strength, he should support us. He says that we might impute motives. I do not impute any motives to the Chancellor or to the Financial Secretary, but this is a very important Clause and it is no use saying that there is a subtle difference between an estate duty and a capital gains tax. What is the use of saying to a widow who is writing out a cheque for duty, "Do not worry. Half is for Estate Duty and half is for Capital Gains Tax"? This is a scarcely thought out tax with great injustice and I hope that the hon. Member for Cheetham will support us.

Mr. Victor Goodhew (St. Albans)

I warn the Financial Secretary that, if he turns down the Amendment and accepts the Clause as it stands—

Mr. MacDermot

To which Amendment is the hon. Gentleman referring? We are now debating the Question, That the Clause stand part of the Bill.

Mr. Goodhew

I beg the hon. and learned Gentleman's pardon. If the Clause is accepted as it is, the Government will be admitting that, in their anxiety to stop up any loopholes, they are prepared to indulge in double taxation. This is not the first occasion in the Bill when we have come across double taxation. Although the hon. and learned Gentleman looks wearied by my argument, I hope that he will accept from me that people do not like paying tax twice on one item. Is the Estate Duty which is assessed on the death of a person assessed at the point after Capital Gains Tax has been paid or before? This could have a big bearing on the value of the estate for Estate Duty purposes.

Mr. MacDermot

It is a pity that the hon. Gentleman was not here at an earlier stage of the discussion when this point was made clear. Liability to Capital Gains Tax falls on the estate. Therefore, when calculating the net estate for purposes of levying Estate Duty, naturally a deduction is made for the sum paid by way of Capital Gains Tax.

Mr. Goodhew

I am grateful to the hon. and learned Gentleman. I hope that he is not castigating me for not being here during the whole of the Committee stage. We have all done our best to attend and to take a keen interest. I hope that he will think very carefully about this principle of double taxation, which seems to be cropping up again and again on this Bill.

Mr. Harold Lever

I wish to deal briefly with the point made by the hon. Member for Chippenham (Mr. Awdry) and then very briefly with what my hon. Friend the Financial Secretary said.

The hon. Member for Chippenham must bear in mind that hon. Members on this side are at least as much concerned about people who are in difficulties upon death as hon. Members opposite. I am prepared to accept their sincerity in this matter. They must accept the sincerity of hon. Members on this side who will vote for the Clause, even though a little sadly, because we hope that later it will disappear from the Bill.

As I have said before, we are faced with a choice of evils. Nobody can compare the small evil which will be perpetrated if the Clause remains in being with the evil of almost immeasureable magnitude which would occur if the Government were to fall and were replaced by the Conservative Party. We simply cannot do anything which might risk the prospect of having another what are already known classically as 13 wasted years. I beseech hon. Members—

Mr. Anthony Berry (Southgate)

The hon. Gentleman says that the Clause will disappear. Would it not be right for him to disappear while the vote is taking place?

Mr. Lever

There are certain disadvantages which might result from accepting the hon. Gentleman's impartial guidance.

I have every sympathy with the Financial Secretary when he says that what should have been reformed in relation to small business long ago—in the 13 wasted years—was the penal rate of Estate Duty which bears on the owners of small businesses. It is only right to say that my complaint arises from the piling of Pelion on Ossa, but Ossa was the responsibility of Members opposite.

I am grateful to my hon. Friend the Financial Secretary for the unfailing courtesy and resilience which he shows when criticised on these matters. I assure him that I did not trouble the Committee on this point without realising that Estate Duty was one thing and Capital Gains Tax quite another. The point which he makes is that if the two together bear harshly and oppressively on the citizens of this country, the thing to do is to reform Estate Duty. With great respect, we are dealing with Capital Gains Tax, and he has not given me an answer to my question, and I should like him to do so, if only metaphorically with his hand on his heart. Does he think that the present rates of Estate Duty are such that on estates, big and small, and without having regard to Capital Gains Tax, the amount paid by the beneficiaries of the estate is already high enough?

Secondly, I know that avoidance is the origin of the Clause, but it is as well to remind the Treasury that these Bills are drafted for human beings and not for lemmings.

6.15 p.m.

Mr. Heath

As befits this Clause, this has been a very sober-minded debate. It has been one of the most impressive debates we have had during the Committee stage of this long Bill. I do not think that any of the Treasury Ministers or the Minister without Portfolio can be under any misapprehension about the immense strength of feeling on both sides of the Committee about this Clause. Apart from the speeches of my hon. Friends, we have had speeches from three hon. Members opposite—one an accountant, one a lawyer, and one a Member who has built up his own business from nothing. No one could be better experienced than those three Members to express a view on this Clause. Every one of them was hostile to the Government and expressed criticism of the Clause.

What I propose to do is to give the same sort of wholehearted support to the Financial Secretary as the hon. Member for Manchester, Cheetham (Mr. Harold Lever) did, which is to advise him to drop the Clause. We shall, in any case, divide the Committee against it. We all understand the position of the hon. Member for Cheetham. He must not mind if we point out that his vote differs from his voice. We understand the reason for it. If it is a question of either having his vote with the Government and hearing his voice or not having the latter, I must say that we would rather have both. We should prefer to see him vote with the Government and express his views frankly, because they are very valuable and serious and entirely on our side.

The hon. Gentleman asked for an assurance from the Financial Secretary. He said that the present rates of Estate Duty are high enough, and, therefore, the deduction which I make—[Interruption.] The hon. Gentleman's phrase was "high enough". Therefore, he was implying that if we pile Capital Gains Tax on top of Estate Duty, we should reduce the Estate Duty. The Financial Secretary cannot possibly give such an assurance because it would undermine the whole of his intellectual argument in supporting the Clause. The intellectual argument is that these are two entirely different and separate things. The fact that it wrecks one's firm, breaks up one's trust or ruins one's family is nothing to do with it because in the mind of the Financial Secretary and his colleagues they are two entirely separate and different matters. That is why the Financial Secretary could not give the undertaking for which the hon. Gentleman rightly asked. On his present basis, he could never give such an undertaking.

We have two objections to the Clause. There is, first, the objection of principle and, secondly, there is the objection of practice. Both have been discussed in the Committee. I can deal with the objection of principle quite briefly. It is that after deduction of the £5,000 allowance and of the amount of the Capital Gains Tax, there is double taxation on the estate. Hon. Members opposite are prepared to accept this. For our part, we strongly object to it. The introduction of double taxation is most objectionable. This is the argument of principle and I do not believe that it can be denied, although I accept that perhaps even the hon. Member for Cheetham is not greatly concerned with the argument of principle. He is, however, concerned with the argument of practice.

Mr. Harold Lever

I shook my head because this is no double taxation which I ventured to define the other day, namely, where the same tax is applied to the same corpus. Here two different taxes apply to the same corpus. It is not double taxation any more than to put a tax on beer is double taxation when the money used to buy it has already borne Income Tax.

Mr. Heath

One is an expense and one an Income Tax. The hon. Gentleman is falling for the same fallacy as the Financial Secretary.

The Financial Secretary made a great deal of the alleged death gap in the United States. We are beginning to think that he views any death gap as being one between the estate and what the Treasury gets from the estate. That is the death gap to which he objects. In the United States there is one tax in life and one tax in death. There are the normal taxes in life and there is Estate Duty on death. In life there are the Capital Gains Tax and Income Tax. What we are getting now is one lot of taxes in life and then both lots in death. It is this to which we object and to which the hon. Member for Cheetham has objected. So we are agreed on this point.

The Financial Secretary has tried to diminish the point of this by saying that it will be a slow and gradual process. This is the reverse of the hon. and learned Gentleman's argument last night. When asked to give figures for the cost of the tax, he promptly said £45 million, with the implication that it would happen straight away. This, however, is to be slow and gradual. We are beginning to be impressed by the fact that the Government have introduced the Bill in the frame of mind that it will take a long time to come into effect and that they will not get it anywhere near right to begin with, so that they will slap it on and, as the Chancellor has said, they can go on amending it year after year until they get it right.

That is not the frame of mind in which to introduce a major item of taxation such as this. It is even less justifiable for Corporation Tax, which is to come into effect straight away and many of the results of which can be catastrophic. I cannot accept that because this will take effect over a period—although, as my hon. Friend the Member for Worcester (Mr. Peter Walker) said, it can be a comparatively short one in the case of building up a business and a man's sudden and unexpected death—this is any justification for the hon. and learned Gentleman's attitude.

Now, we come to the arguments in practice. These have been put by my hon. Friends and by hon. Members opposite in great detail. The Financial Secretary to the Treasury indicated rather that the small man was a special case. Even when giving the figure of 10,000, he said that that was very small compared with the number of people who die each year. The fact that 10,000 is a small figure compared with those who die each year does not, however, alter the fact that from the viewpoint of firms, family businesses, the impact on industry and, above all, the impact upon those who should be building up for the future, it is an item of major importance.

The hon. Member for Heywood and Royton (Mr. Barnett) emphasised from a professional point of view the importance of goodwill in this matter. I entirely agree; this is an important element. We also have the practical example from the hon. Member for West Stirlingshire (Mr. W. Baxter) of an entirely different type of business which will be affected in exactly the same way. There are a very large number of these small businesses. My family was concerned with a small one of this kind. I have no interest in it myself, but it is a good example of exactly how these businesses will be hit.

The way in which this tax has been introduced, in addition to the present Estate Duty, means that for the first part it has become a regressive tax. It will hit the small man and the medium man very hard indeed where there is an element of capital gains of any consequence. However much one criticises the present level of Estate Duty—and I would not differ in doing that—one can at least say that it is a progression, although it may be very steep. The effect of combining these two taxes, however, is to produce, particularly in the sort of level which we have been discussing, the £20,000, £30,000 or £40,000 business, a vicious regression. This is something to which we object.

The Financial Secretary has today accepted two Amendments to the Clause, he has introduced one of his own which the Committee has accepted and he has offered an undertaking to look at the question of the reaction of this tax on the small business. The hon. and learned Gentleman said that he was impressed with the argument. What must strike the Committee is the number of times that we raise these specific cases when the Government suddenly say, "Of course, we now realise that there is a point here." It indicates the other thing underlying the Government's attitude.

I am prepared to accept the view of the hon. Member for Cheetham concerning the sincerity of the Government's motives, but they are obsessed with dealing with the large estates. That is the trouble. They have a neurosis about it. It goes right back into the history of the party opposite, way back to 1931. They are obsessed with high estates and duchesses. They thought that it was duchesses who brought them down and they are always afraid of the same thing happening. Now, they are afraid of large estates. The result is that they do not take time to look at the consequence for the small or middle man.

However much the Government are obsessed with great estates, the numbers of small and middle men are infinitely greater, and in industry and in the economy they are infinitely more important. This is the great weakness of the present Administration in their approach to policy and in their formulation of legislation. That, I believe, is the real explanation.

I also find difficult to understand the Financial Secretary's point about the controlling interest in the company, because that is liable for Estate Duty just as much as anything else, unless he tries to imply that there is value in the element of control as apart from the sharing interest. This becomes a complicated matter, as we all know. I cannot see that the hon. and learned Gentleman has any justification for saying that this would be a case of evasion. I am prepared to accept the word of the hon. Member for Cheetham, who is an expert on evasion as used by other people—I give him full marks for that.

I take the hon. Member's word upon it that those who make other arrangements, who are usually those with considerable wealth, will not be affected by this proposal. It is the middle and smaller people, who, because of the level of wealth, cannot make prior arrangements, who will be particularly affected by the combination of the Capital Gains Tax and Estate Duty.

I have one other point to put to the Financial Secretary. Under the Married Women's Property Act one can settle so that an estate is split up between the wife and the children and the rate is then charged at a lower rate. Again, on capital gains one cannot do this. Therefore, this again will bear particularly hardly in these circumstances.

Finally, I come to the high level of this tax and its consequences when combined with Estate Duty. In the United States, in the case about which we were talking, the equivalent of £20,000 is free of Estate Duty. I realise that the Financial Secretary's argument will be that according to "MacDermot's law" this is a strong argument for having a much higher level of Capital Gains Tax. A we have our Estate Duty starting at a much lower level, we are really highly sinned against. This is altogether rather undesirable but, nevertheless, as we have it, we also must have a much higher Capital Gains Tax to go with it. That was the essence of the hon. and learned Gentleman's argument last night. I believe that this in itself is part of what is becoming penal taxation and, on the small man, almost confiscatory in its consequences.

The Financial Secretary's argument was that these were two different taxes and that, therefore, we must look at them separately. I believe that the hon. and learned gentleman has become the prisoner of a logical system, and his colleagues with him. We see this on the Corporation Tax, also. They have become the prisoners of a so-called intellectual logical system. What we are having to do all the time is to point out to hon. Members opposite as forcibly as we can the practical consequences of this. We are being helped by hon. Members on the other side. Each time, the Financial Secretary says that he will make a special arrangement and all these things point to the fact that the system itself is unsatisfactory. This is fundamentally what is wrong in this case.

Because of the arguments of principle and of the consequences in practice, we are opposed to the imposition of capital gains in the case of death. I accept that the Financial Secretary will look at the case of the small business and, of course, I accept his good motives. It comes back to my mind, however, that on Second Reading of the Finance Bill I pointed out the effect that the 10-year review would have on trusts and on small businesses. I said that where they exist for a family company"— they could— be damaging and lead to the break-up of family companies on death. HANSARD then reports the Chief Secretary to the Treasury as saying And about time. In fairness to the hon. Gentleman, it was not the Chief Secretary, but the Joint Under-Secretary of State, the Department of Economic Affairs, who interjected "And about time". That indicated the Government's approach to the small business. It indicated clearly that it would be damaged and broken up.

I went on to say that what the Labour Party want to do is to damage and break up family companies even where they are efficient and growing."—[OFFICIAL REPORT, 10th May, 1965; Vol. 712, c. 72.] I should have said: particularly where they are efficient and growing". because this is the consequence of the combination of these two taxes. When we have that voluntary explosion from that Front Bench—saying, "It is about time" that companies were broken up—one asks oneself: can we have any confidence in the Government's undertaking to see these small business men are fairly dealt with?

6.30 p.m.

For these reasons, of both principle and of practice, we object strongly to the Capital Gains Tax being combined with Estate Duty. We do not believe that it ought to be applied in these circumstances. The Financial Secretary has been asked to review this. I believe that he

Division No. 139.]	AYES	[6.31 p.m.
Abse, Leo	Hamilton, William (West Fife)	Park, Trevor (Derbyshire, S.E.)
Albu Austen	Hart, Mrs. Judith	Parker, John
Allaun, Frank (Salford, E.)	Hattersley, Roy	Parkin, B. T.
Allen, Scholefield (Crewe)	Hazell, Bert	Pavitt, Laurence
Armstrong, Ernest	Healey, Rt. Hn. Denis	Pearson, Arthur (Pontypridd)
Atkinson, Norman	Heffer, Eric S.	Pentland, Norman
Bacon, Miss Alice	Henderson, Rt. Hn. Arthur	Prentice, R. E.
Barnett, Joel	Herbison, Rt. Hn. Margaret	Price, J. T. (Westhoughton)
Baxter, William	Hill, J. (Midlothian)	Pursey, Cmdr. Harry
Bellenger, Rt. Hn. F. J.	Hobden, Dennis (Brighton, K'town.)	Randall, Harry
Benn, Rt. Hn. Anthony Wedgwood	Holman, Percy	Rankin, John
Bennett, J. (Glasgow, Bridgeton)	Houghton, Rt. Hn. Douglas	Redhead, Edward
Binns, John	Howell, Denis (Small Heath)	Rees, Merlyn
Blackburn, F.	Hoy, James	Reynolds, G. W.
Blenkinsop, Arthur	Hughes, Emrys (S. Ayrshire)	Roberts, Albert (Normanton)
Boardman, H.	Hunter, Adam (Dunfer[...]line)	Robertson, John (Paisley)
Boston, T. G.	Hunter, A. E. (Feltham)	Robinson, Rt. Hn.K.(St. Pancras, N.)
Bottomley, Rt. Hn. Arthur	Hynd, H. (Accrington)	Rogers, George (Kensington, N.)
Bowden, Rt. Hn. H. W. (Leics S.W.)	Hynd, John (Attercliffe)	Rose, Paul B.
Boyden, James	Irving, Sydney (Dartford)	Ross, Rt. Hn. William
Braddock, Mrs. E. M.	Jackson, Colin	Rowland, Christopher
Brown, Hugh D. (Glasgow, Provan)	Janner, Sir Barnett	Shinwell, Rt. Hn. E.
Brown, R. W. (Shoreditch & Fbury)	Jay, Rt. Hn. Douglas	Shore, Peter (Stepney)
Buchanan, Richard	Jeger, George (Goole)	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Butler, Herbert (Hackney, C.)	Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Short, Mrs. Renée (W'hampton.N.E.)
Butler, Mrs. Joyce (Wood Green)	Jenkins, Hugh (Putney)	Silkin, John (Deptford)
Callaghan, Rt. Hn. James	Jones, Dan (Burnley)	Silkin, S. C. (Camberwell, Dulwich)
Castle, Rt. Hn. Barbara	Jones, J. Idwal (Wrexham)	Silverman, Julius (Aston)
Coleman, Donald	Jones, T. W. (Merioneth)	Slater, Mrs. Harriet (Stoke, N.)
Conlan, Bernard	Kelley, Richard	Slater, Joseph (Sedgefield)
Corbet, Mrs. Freda	Kenyon, Clifford	Solomons, Henry
Craddock, George (Bradford, S.)	Kerr, Dr. David (W'worth, Central)	Soskice, Rt. Hn. Sir Frank
Cronin, John	Lawson, George	Stones, William
Crossman, Rt. Hn. R. H. S.	Lee, Rt. Hn. Frederick (Newton)	Strauss, Rt. Hn. G. R. (Vauxhall)
Cullen, Mrs. Alice	Lever, Harold (Cheetham)	Swain, Thomas
Dalyell, Tam	Lewis, Arthur (West Ham, N.)
Darling, George	Lewis, Ron (Carlisle)	Swingler, Stephen
Davies, I for (Gower)	Lipton, Marcus	Taverne, Dick
Davies, S. O. (Merthyr)	Lomas, Kenneth	Thomas, George (Cardiff, W.)
Delargy, Hugh	Loughlin, Charles	Thomson, George (Dundee, E.)
Dempsey, James	Mabon, Dr. J. Dickson	Thornton, Ernest
Diamond, John	MacColl, James	Tinn, James
Dodds, Norman	MacDermot, Niall	Tuck, Raphael
Doig, Peter	McKay, Mrs. Margaret	Urwin, T. W.
Driberg, Tom	Mackenzie, Gregor (Rutherglen)	Varley, Eric G.
Dunn, James A.	Mackie, John (Enfield, E.)	Wainwright, Edwin
Dunnett, Jack	Mahon, Simon (Bootle)	Walden, Brian (All Saints)
Edwards, Rt. Hn. Ness (Caerphilly)	Manuel, Archie	Walker, Harold (Doncaster)
English, Michael	Mapp, Charles	Wallace, George
Ennals, David	Mellish, Robert	Wells, William (Walsall N.)
Ensor, David	Mikardo, Ian	Whitlock, William
Evans, Albert (Islington, S.W.)	Miller, Dr. M. S.	Wigg, Rt. Hn. George
Fernyhough, E.	Molloy, William	Wilkins, W. A.
Finch, Harold (Bedwellty)	Monslow, Walter	Williams, Alan (Swansea, W.)
Fletcher, Sir Eric (Islington, E.)	Morris, Charles (Openshaw)	Williams, Albert (Abertillery)
Floud, Bernard	Mulley,Rt.Hn.Frederick(SheffieldPk)	Williams, Mrs. Shirley (Hitchin)
Foot, Sir Dingle (Ipswich)	Murray, Albert	Willis, George (Edinburgh, E.)
Foot, Michael (Ebbw Vale)	Neal, Harold	Wilson, Rt. Hn. Harold (Huyton)
Fraser, Rt. Hn. Tom (Hamilton)	Newens, Stan	Wilson, William (Coventry, S.)
Freeson, Reginald	Noel-Baker, Francis (Swindon)	Woodburn, Rt. Hn. A.
George, Lady Megan Lloyd	Noel-Baker,Rt.Hn.Phillp(Derby,S.)	Woof, Robert
Ginsburg, David	Ogden, Erlo	Wyatt, Woodrow
Gourlay, Harry	O'Malley, Brian	Yates, Victor (Ladywood)
Greenwood, Rt. Hn. Anthony	Owen, Will
Gregory, Arnold	Padley, Walter	TELLERS FOR THE AYES:
Griffiths, David (Rother Valley)	Page, Derek (King's Lynn)	Mr. Joseph Harper and
Gunter, Rt. Hn. R. J.	Palmer, Arthur	Mr. William Howie.
	Parg[...]ter, G. A.

should do more than review it. He should get rid of this Clause. We shall do our utmost to help him to do so now, by dividing the Committee against it.

Question put, That the Clause, as amended, stand part of the Bill:

The Committee divided: Ayes 197, Noes 193.

NOES
Alison, Michael (Barkston Ash)	Gilmour, Ian (Norfolk, Central)	Meyer, Sir Anthony
Allason, James (Hemel Hempstead)	Gilmour, Sir John (East Fife)	Mills, Peter (Torrington)
Amery, Rt. Hn. Julian	Glover, Sir Douglas	Mills, Stratton (Belfast, N.)
Anstruther-Gray, Rt. Hn. Sir W.	Godber, Rt. Hn. J. B.	Mitchell, David
Astor, John	Goodhew, victor	Monro, Hector
Atkins, Humphrey	Gower, Raymond	Morrison, Charles (Devizes)
Awdry, Daniel	Grant, Anthony	Mott-Radclyffe, Sir Charles
Baker, W. H. K.	Grant-Ferris, R.	Munro-Lucas-Tooth, Sir Hugh
Balniel, Lord	Gresham Cooke, R.	Murton, Oscar
Barlow, Sir John	Griffiths, Peter (Smethwick)	Nicholls, Sir Harmar
Batsford, Brian	Grimond, Rt. Hn. J.	Nugent, Rt. Hn. Sir Richard
Beamish, Col. Sir Tufton	Hall, John (Wycombe)	Orr, Capt. L. P. S.
Bennett, Sir Frederic (Torquay)	Harris, Frederic (Croydon, N.W.)	Orr-Ewing, Sir lan
Berry, Hn. Anthony	Harris, Reader (Heston)	Page, John (Harrow, W.)
Bessell, Peter	Harrison, Brian (Ma[...]ldon)	Pearson, Sir Frank (Clitheroe)
Biggs-Davison, John	Harvey, Sir Arthur Vere (Macclesf'd)	Peyton, John
Birch, Rt. Hn. Nigel	Harvey, John (Walthamstow, E.)	Pickthorn, Rt. Hn. Sir Kenneth
Black, Sir Cyril	Hawkins, Paul	Pitt, Dame Edith
Blaker, Peter	Heald, Rt. Hn. Sir Lionel	Price, David (Eastleigh)
Box, Donald	Heath, Rt. Hn. Edward	Prior, J. M. L.
Boyd-Carpenter, Rt. Hn. J.	Hendry, Forbes	Ramsden, Rt. Hn. James
Boyle, Rt. Hn. Sir Edward	Higgins, Terence L.	Redmayne, Rt. Hn. Sir Martin
Brewis, John	Hill, J. E. B. (S. Norfolk)	Ridley, Hn. Nicholas
Brinton, sir Tatton	Hirst, Geoffrey	Robson Brown, Sir William
Bromley-Davenport,Lt.-Col.SirWalter	Hobson, Rt. Hn. Sir John	Russell, Sir Ronald
Brooke, Rt. Hn. Henry	Hogg, Rt. Hn. Quintin	Sharples, Richard
Bruce-Cardyne, J.	Hooson, H. E.	Shepherd, William
Bryan, Paul	Hopkins, Alan	Sinclair, Sir George
Buchanan-Smith, Alick	Hordern, Peter	Smith, Dudley (Br'ntf'd & Chiswick)
Bullus, Sir Eric	Hornsby-Smlth, Rt. Hn. Dame P.	Smyth, Rt. Hn. Brig. Sir John
Buxton, Ronald	Hunt, John (Bromley)	Spearman, Sir Alexander
Campbell, Gordon	Iremonger, T. L.	Stanley, Hn. Richard
Carlisle, Mark	Irvine, Bryant Godman (Rye)	Steel, David (Roxburgh)
Chichester-Clark, R.	Johnson Smith, G. (East Grinstead)	Stoddart-Scott, Col. Sir Malcolm
Clark, William (Nottingham, S.)	Johnston, Russell (Inverness)	Studholme, Sir Henry
Cole, Norman	Jopling, Michael	Summers, Sir Spencer
Cooke, Robert	Kaberry, Sir Donald	Taylor, Edward M. (G'gow.Cathcart)
Cooper, A. E.	Kerby, Capt. Henry	Taylor, Frank (Moss Side)
Cooper-Key, Sir Neill	Kilfedder, James A.	Teeling, Sir William
Cordle, John	Kimball, Marcus	Temple, John M.
Costain, A. P.	King, Evelyn (Dorset, S.)	Thatcher, Mre. Margaret
Cruddock, Sir Beresford (Spelthorne)	Kitson, Timothy	Thompson, Sir Richard (Croydon,S.)
Crawley, Aldan	Lagden, Godfrey	Thorpe, Jeremy
Crowder, F. P.	Langford-Holt, Sir John	Tiley, Arthur (Bradford, W.)
Curran, Charles	Legge-Bourke, Sir Harry	Tilney, John (Wavertree)
Currie, G. B. H.	Lewis, Kenneth (Rutland)	Tweedsmuir, Lady
Dalkeith, Earl of	Litchfieid, Capt. John	van Straubenzee, W. R.
Davies, Dr. Wyndham (Perry Barr)	Lloyd,Rt.Hn.Geoffrey (Sut'nC'dfield)	Walder, David (High Peak)
d'Avigdor-Goldsmid, Sir Henry	Lloyd, Ian (P'tsm'th, Langstone)	Walker, Peter (Worcester)
Deedes, Rt. Hn. W. F.	Lloyd, Rt. Hn. Selwyn (Wirral)	Walters, Dennis
Digby, Simon Wingfield	Longden, Gilbert	Ward, Dame Irene
Dodds-Parker, Douglas	Loveys, Walter H.	Weatherill, Bernard
Douglas-Home, Rt. Hn. Sir Alec	Lubbock, Eric	Webster, David
Elliot, Capt. Walter (Carshalton)	McAdden, Sir Stephen	Whitelaw, William
Elliott, R. W. (N'c'tle-upon-Tyne.N.)	MacArthur, Ian	Williams, Sir Rolf Dudley (Exeter)
Errington, Sir Eric	Mackenzie, Alasdair (Ross&Crom'ty)	Wills, Sir Gerald (Br[...]dgwater)
Eyre, Reginald	Mackie, George Y. (C'ness & S'land)	Wilson, Geoffrey (Truro)
Farr, John	McLaren, Martin	Wolrige-Gordon, Patrick
Fell, Anthony	McMaster, Stanley	Woodnutt, Mark
Fletcher-Cooke, Charles (Darwen)	McNair-Wilson, Patrick	Yates, William (The Wrekin)
Fletcher-Cooke, Sir John (S'pton)	Maginnis, John E.	Younger, Hn. George
Foster, Sir John	Marples, Rt. Hn. Ernest
Fraser, Ian (Plymouth, Sutton)	Mathew, Robert
Galbraith, Hn. T. G. D.	Maude, Angus	TELLERS FOR THE NOES:
Gammans, Lady	Maxwell-Hyslop, R. J.	Mr. Francis Pym and Mr. Jasper More
Gibson-Watt, David	Maydon, Lt.-Cmdr. S. L. C.