Clause 26.—(MISCELLANEOUS EXEMPTIONS FOR CERTAIN KINDS OF PROPERTY.)

HC Deb 27 May 1965 vol 713 cc847-984

3.41 p.m.

The Chairman

May I thank the Committee for the fact that there are no starred Amendments affecting business which is likely to be transacted during the Committee stage today, and take the opportunity of warning the Committee that from now onwards I shall lean heavily against starred Amendments which are likely to affect the business of the day.

Sir Martin Redmayne (Rushcliffe)

I beg to move Amendment No. 367, in page 28, line 26, at the end to insert: (5) A gain accruing on the disposal of an asset by way of gift or accruing on a disposal on death of an asset bequeathed by the deceased, shall not be a chargeable gain, if the asset is agricultural land within the meaning of the Agriculture Act 1947 or fixed equipment as defined by that Act.

The Chairman

It will be convenient if, with this Amendment, we take Amendment No. 265, in page 28, line 34, after "vocation" insert: or compensation or payment received by a tenant farmer in respect of damage to his interest as a tenant whether arising out of a compulsory acquisition or otherwise".

Sir M. Redmayne

As you say, Dr. King, this Amendment is called for discussion with Amendment No. 265, which relates to compensation which may be received by a tenant farmer arising either from a compulsory purchase or from the dispossession of his tenancy in any other way.

I can save the time of the Committee if I do not go into any great detail on the matter, but ask two straight questions. Is compensation excluded from the assessment of a tenant's assets if he loses his tenancy? In any case, that question is closely related to Amendment No. 233, in page 28, line 35, at end insert: (7) It is hereby declared that a gain shall not be a chargeable gain if it accrues in consequence of an acquisition by compulsory powers (or by sale by agreement to an authority possessing such powers). which follows shortly, dealing with acquisitions by compulsory purchase. I hope that I need not go further into that point. Perhaps the Financial Secretary will be able to give an immediate answer to the question that I have just asked, if it is an easy answer, or thereafter, when we discuss Amendment No. 233.

I do not wish to take long over the Amendment, although it is of great importance to the farming industry and provides an opportunity to draw together some of the general arguments on agriculture and the land which have been very well put by my hon. Friends in previous debates. I make no apology for the fact that the Amendment asks for special consideration for agriculture in respect of capital gains.

It is certainly no fault of mine that I have to make this plea. It is no fault of Her Majesty's Opposition—and in that term I include the Liberal Party—who can claim to be those, alone in this House, who take a permanent, active and constructive interest in the future of agriculture. Nor is it the fault of the industry. It is rather the fault of circumstances in which the national interest, throughout the years, has created agriculture policies which have, in their turn, caused stresses and strains in the natural evolution of agriculture which compel sympathetic and special consideration when major changes in the tax system are proposed.

No other industry is subject to so many uncertainties. Nor is any other industry composed of so many small, but, nevertheless, efficient units. The British public should appreciate more actively that British farming, even though much of it consists of small units, is first-class in its efficiency. But the scale of the tax on capital gains, which can be sustained, however reluctantly, by other industries with some chance of survival, can deal a death blow to these small agricultural units, simply because of their smallness. In our consideration of a Capital Gains Tax farming must be regarded as holding an outpost position, which will be the first to be driven in if the tax is allowed to go forward in its present form and without any special consideration being given to the problems of the industry.

During the last 20 years vast sums have been invested in agriculture, and in February, 1965, bank advances to the industry stood at £500 million. This scale of advances would never have been possible if it had not been backed by the solid rise in the value of freehold land and buildings which has taken plate during those years. The extent to which taxation of capital values on change of ownership or on any other disposal of land can undermine the security of agricultural credit and the free capital available to agriculture is not only most serious in itself but presages yet further difficulties for this or any other Government, in respect of their agricultural policies.

There seems to be little joy in milking capital from the farming industry for the pleasure of replacing it later by Government intervention, yet that will assuredly have to happen if agriculture is to survive the cumulative effects of a Capital Gains Tax over even a short period.

It may be said that the same argument can apply to other small enterprises in other industries which require a high degree of capital, but the profit-making capacity of other industries—because they avoid the tight control which has customarily been placed upon agriculture—makes the accumulation of capital and the repayment of loans in those industries at least very much easier, if never as easy as one would like. If it is the object of the Government to kill small enterprises and to create a situation in which ownership can more readily fall into the hands of the State, the Bill as it stands is admirably designed to achieve this object.

I ask the Committee to take into account just one proposition. Forget for the moment those who already own land—although the impact of the tax upon them will be just as onerous—and take only the example of the young man who acquired a farm after this Budget. In 20 years he will require, as anyone would, to take his son into partnership. By that time he will have prospered, and that is good. But, almost inevitably, by that time he will have seen the value of his farm appreciate by the false values accruing through inflation.

Mr. Emrys Hughes (South Ayrshire)

Did not the previous Government make it extremely difficult for a young farmer to get any land?

Sir M. Redmayne

The hon. Gentleman knows perfectly well that even if that were true it is not relevant to my argument regarding a young man who, if the hon. Member wishes to put it in that way, had been fortunate enough to obtain a farm.

Such a young man will have seen the value of his farm increase by reason of inflation. At no time will he have been anything but short of capital. That is commonplace in the farming industry. But he will have made some progress, he will be less in debt than when he started, even if he is not firmly in credit. By 1985, he will desire to take his son into partnership and at that time the two will be required to produce, within three months in hard cash, about 30 per cent. of the capital accretion of those 20 years. Much of this may be false accretion arising from inflation.

The farmer need not hand over to his son. The boy could wait. The sad fact is that in such a case, and in thousands of similar cases, the death of the father—however long delayed, and however frustrating may be the situation for the son—may be the better tax bargain for the two of them; better than any arrangement which could be made during the lifetime of the father. What a way to run a country, to discourage the young man to start with, and what a splendid way to kill private enterprise.

Alternatively, the father and son may decide to take the plunge and pay the price. In a few years the farmer may die, and the son pays again. Nor need death strike only once in one generation. In such circumstances, if land values rise and inflation continues—under this Government it will certainly continue—and if farming prospers, the effect of Capital Gains Tax on farming after two or three disposals will seriously impair the chance of commercial survival for the inheritor of a farm. For these reasons the Amendment seeks to exempt farming land and the fixed equipment of farming from the tax. It may be said that the objective is too wide, although I do not think that it is.

Two other Amendments which were put on the Notice Paper and have not been called, asked for rather less. They asked that the liability for tax arising on any disposal should be deferred at the option of the younger or the older person. Perhaps that might be considered to be too wide, although, again I do not think that it is.

I ask that the Chancellor should earnestly consider how to devise a circumstance, even though it be limited to disposals between father and son or close relatives, in which there could be some leniency shown in respect of the punitive effect of the Capital Gains Tax. If the right hon. Gentleman will not accept that from the Treasury viewpoint, I will give him a compelling reason going beyond any commercial considerations. Farming families, rich and poor, have had a proud record of inheritance from generation to generation even in times—I suspect that this will strike at the heart of the Joint Parliamentary Secretary—when the survival of such an inheritance has not been easy.

The effect of the tax would be to cause that record to die and much of the spirit of rural England—I notice that the hon. Member for South Ayrshire (Mr. Emrys Hughes) has gone—and of Wales will die with it. I believe it well worth while for the Government, in the interest of the nation, to think seriously about this matter.

During our debates I have noticed that the Government and hon. Members opposite think only in what are quite apparently class-conscious terms. They speak only of the very small man, or the tycoon. These terms have been used constantly in the debate. It depends on what one calls a small man, but as the terms are used by the Government the small man or the tycoon are a minority in the community. I ask the Government to think about the real majority in the life of the nation, the vast, industrious middle-piece which is the real backbone of our national enterprise.

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

The right hon. Gentleman the Member for Rushcliffe (Sir M. Redmayne) has invited me to state the position of the Government in relation to this Amendment and the one which we are discussing with it. Perhaps it would be helpful if I did so at the outset of our discussions. The first Amendment proposes to exclude from the scope of the tax compensation received by a tenant farmer in respect of damage to his interests as a tenant. The right hon. Gentleman did not elaborate the specific cases he had in mind, and I will return to that in a moment.

The second Amendment proposes a complete exemption from Capital Gains Tax whenever a farm and the fixed equipment is passed by way of gift or death. This would be a very wide exemption, and an expensive one. At the stage of the full development of the tax it is estimated that the cost would be about £5 million. It would, of course, be an extraordinarily generous exemption, singling out farming for a favour in this respect which no other section of the community would enjoy. It is certainly not our intention to grant any such exemption and I cannot see any reason for it in principle nor in what has been argued.

The right hon. Gentleman, in general terms, sought to suggest that the whole of the farming industry was plunged into dire straits and could look forward to a bleak future. It is difficult to reconcile that with the references which have been made to the difficulty of acquiring another farm or a farm at all. We have heard that argued during these debates and it is relevant to some of the matters we have to consider.

There are specific problems and I should like to direct attention to them. First, the right hon. Gentleman asked us to consider the case of a farmer who acquires a farm as a young man, works it for 20 years and then decides to take his son into partnership. The right hon. Gentleman suggested that as a result of the Capital Gains Tax 30 per cent. would have to be paid on the whole of the capital gain, the increase in the capital value of the farm, so far as that fell subject to charge. That is not so. He would pay only on that part of the interest in the farm which was transferred to his son. If there were a 50–50 partnership, or if he made a gift of half of the farm to his son, that would be the occasion for a charge only on half of the total capital gain of the farm. If, later, the son acquired the remaining part, or on his father's death, he would fall liable to pay Capital Gains Tax on the remaining part, subject, in that case, to the death exemption of £5,000.

4.0 p.m.

We have heard about cases which particularly concern hon. Members. First was the case of a farmer who moves out of one farm and into another. It may be a question of the sale of one and the purchase of the other, or the exchange of one farm for another. In that case, as was said by my right hon. Friend when dealing with an earlier Amendment, that situation would he covered by the provisions of Clause 31, relating to the transfer of business assets. In that situation, the farmer who realises a capital gain on his first farm would be able to defer paying the tax by treating the acquisition of the new farm as a replacement of the old. He is then deemed to have acquired the new farm as a replacement for the old, to the extent, of course, that the acquisition of the new farm covers the amount which he has received in the disposal of the old.

Sir Charles Mott-Radclyffe (Windsor)

This is a very important point. To get the benefit of this accrued business asset under Clause 31, which has a direct bearing on the Amendment, can the farmer buy another farm in a completely different part of the country, of a completely different type and with completely different equipment? If so, how does the hon. and learned Gentleman think that the valuation of the farm which he is going into and that of the farm which he is leaving will be so close to each other that no claim for Capital Gains Tax will be made?

Mr. MacDermot They do not have to be so close to each other. The farm can be in any part of the country, provided that he is carrying on the same trade or business. He does not have to show that he is pursuing the same kind of activities in that trade or business, so there can be variation in the type of farm which he moves into. Suppose that the new farm, plus all the machinery—this covers plant and machinery as well—is more expensive than the one he has disposed of. It is to the extent that the cost of the new farm covers what he has acquired on the old that he can operate the transfer. There will be an apportionment, in other words—

Mr. Peter Bessel (Bodmin)

What of the case of two farmers who decide upon an amalgamation? If, upon valuation, there is discovered to be a cash advantage in the case of one farmer, the second farmer pays him the balance and the first then uses the money which he has acquired to buy additional agricultural machinery or equipment, would he be affected by this tax'?

Mr. MacDermot

I have not followed the hon. Member's example, but I would ask hon. Members to save time by allowing me to pursue the argument on one line at a time. The hon. Member for Bodmin (Mr. Bessell) has raised a different subject, that of amalgamations—

Mr. R. J. Maxwell-Hyslop (Tiverton)

On a point of order. I think that it would be most helpful to the Committee, Dr. King, if we could know the extent to which we shall be able to discuss Clause 31, which we have not yet reached, on this Amendment. I am becoming a little puzzled, as the Financial Secretary is going so deeply into Clause 31.

The Chairman

I must contribute to the hon. Gentleman's puzzlement. We cannot discuss Clause 31 on this Amendment.

Mr. Jasper More (Ludlow)

We are now discussing change of farm. Surely the Amendment deals with change of ownership of the same farm.

Mr. MacDermot

The reason that I raised this point is that I am coming to the question, on the first Amendment, of the compensation received by a tenant farmer. I was not sure which compensation the right hon. Member for Rushcliffe (Sir M. Redmayne) and his hon. Friends had in mind. For example, where a tenant farmer is protected under the Agricultural Holdings Act, he may be induced by his landlord to leave because the landlord wants to sell the vacant possession. He is paid a premium to do so, and this is a form of compensation. This is the realisation by him of the value of his asset, namely, his tenancy.

This could be the occasion for a charge to Capital Gains Tax. If he then wants to move into another farm, which he usually will, he will probably have to pay a premium again in order to be able to acquire the new farm. This seems to me to be related to the Amendment. This, also, would be covered by the provisions of Clause 31. We can discuss that in more detail when we reach Clause 31.

The Chairman

Would the hon. Member speak up a little?

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

Mr. MacDermot

I will give way at the end, if I have not covered points which hon. Members have in mind.

The other type of compensation which a tenant farmer may receive which is covered by the first Amendment is a case in which there has been an acquisition by an authority having compulsory purchase powers of a part of the land of which he has been the tenant, perhaps to drive through a road. He gets compensation for the value of that part of his interest and for the injurious affection to the remainder of his land. On the basis of the apportionment of the value of his interests, this may result in the realisation of a small capital gain, on which he is subject to charge.

If there is no question of his removing to any other farm, he will be subject to charge for that compensation. There will be no exemption and I cannot see any argument or reason that there should be. He is receiving a main payment for the realisation of a capital asset and there will be in the circumstances perhaps a liability to Capital Gains Tax for part of the cash payment.

Mr. F. V. Corfield (Gloucestershire, South)

Surely the Financial Secretary appreciates that the compensation in respect of injurious affection is in relation to the loss of profitability for the future. Surely it would be quite outrageous to regard this as a capital gain, particularly in the circumstance in which it has been forced on the farmer and in which he has no choice as to time and when he may not be able to find a farm within the year. Five years might be more sensible.

Mr. MacDermot

If that is the kind of intervention which hon. Members are to make, I shall abandon the practice of giving way as much as I have. The hon. Member for Gloucestershire, South (Mr. Corfield) wants to argue the case, going back to the major principles which we have argued already. He is now saying that involuntary realisation should not be subject to charge by way of Capital Cains Tax. In so far as that relates to compulsory purchase, it is the subject of a later Amendment to the Clause. I will gladly give way to answer particular points on what I have said, but I suggest that it will only prolong our discussions if interventions are only by way of argument—

Mr. Corfield

With all due respect to the Financial Secretary, he raised the question of injurious affection and this was the point to which I was directing my intervention.

Mr. MacDermot

Of course it was, and it was by way of argument. The hon. Member was saying that, because compensation for injurious affection is compensation in respect of rights which have a prospect of future profitability, it should not be subject to a Capital Gains Tax. If this argument is followed through, it will mean that anyone who disposes of land at a considerable profit, because of its prospective development value, which is one of the main ways in which capital gains are realised on land, should not have to pay any Capital Gains Tax—

Mr. Maxwell-Hyslop

Will the hon. and learned Member give way?

Mr. MacDermot

No, I will not.

The second Amendment is based on a case which we have considered a number of times in Committee and which has aroused a good deal of interest and sympathy, and it is one to which the right hon. Member for Rushcliffe referred again. That is the case of the disposal of a farm handed on, perhaps, by a farmer to his son. This is a particular example of something which we discussed yesterday, namely, the problem of the assessment for Capital Gains Tax on a passing on, on death, of a small business in circumstances in which the imposition of the tax at that stage could cause great financial difficulties to the person inheriting the farm, because of the difficulty, perhaps, in raising the finance to pay the tax.

I said yesterday that there was a real problem here and I said that I would look into it. We will be coming to the question of the man who disposes of a small business in similar terms—on retirement, perhaps to provide for his retirement—and there is obviously an analogy here. What I have in mind is that we should consider that in relation to this question of farming land. Apart from that—which, as I say, I regard as a special case—I do not see any reason or grounds why farming land as such, or an interest in farming land, should be singled out for special treatment compared with any other form of capital gain.

Mr. More

I strongly support the Amendment. Having heard the remarks of the Financial Secretary I must tell him, with respect, that I am glad to see on the Government Front Bench the Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food who, perhaps, is able to see not only the economic consequences of the Clause as drafted, but also the social consequences on traditional farming procedures in Britain.

Farming and agriculture, particularly the small family farmer, face a direct attack from the Bill. Harm will be done not to the man who sells, because anybody who is prepared to go out of farming knows that he will face Capital Gains Tax on the proceeds and can assess what the consequences of that will be. As values are today he can be fairly certain, with or without Capital Gains Tax, that he will come out reasonably well in the end. Damage will be done to the person who wants to stay in farming. That is the person we are trying to protect.

What will be the position of a man who, upon the death of his father, takes over the family farm? There will be superimposed on the death duty this additional tax. If the father decides to do the sensible thing and retire—rather than, as is so often the case, continue to work past what are regarded as the normal working years—and hands over his farm to his son, what will be the result then? The son must pay the Capital Gains Tax on that farm. If the father takes the sensible course and retires or if he dies, his son must pay the Capital Gains Tax either way.

Under the Bill as at present drafted a large cheque will have to be written to pay the tax and capital will be taken out of farming enterprises and passed to the Treasury. Since the war we have encouraged the agricultural industry to spend more and more money on modernising and improving. The Bill is a direct temptation to the farmer to say, "Let us chuck it up and sell the farm".

I hope that the Financial Secretary appreciates—for I am sure that his hon. Friend the Joint Parliamentary Secretary understands this—that small farms will pass to either businessmen with capital or large farmers who consider that they can manage their own farms more economically by taking an additional acreage. It will mean death for the small farming community in either case. I urge the Financial Secretary to realise the wider social and human aspects involved here and not to consider it merely as a Treasury matter. It is vital for the agricultural industry that the Clause should be amended and I hope that the hon. and learned Gentleman will take another look at this matter.

4.15 p.m.

Mr. Paul Hawkins (Norfolk, South-West)

Although the question of injurious affection is not my main topic today, and here I should perhaps declare my interest in that I am a valuer and chartered surveyor and come across these cases regularly. If a road is driven through a field, leaving what in Norfolk we call a "scutey" piece of land—which is more difficult to farm and is much less valuable—surely the Financial Secretary did not mean to suggest that that bit of compensation should rate for Capital Gains Tax?

If the Amendment is not accepted the small farmer will be the hardest hit. It will mean, in many cases, that when the son of the family takes over his father's farm he will have to sell off two or three fields to pay the Capital Gains Tax. This will result in a considerable fragmentation of some of the medium and smaller-sized farms.

Mr. Emrys Hughes

To whom will the small farmer sell his land?

Mr. Hawkins

Presumably to somebody else.

As I was saying, it will mean that the smaller and medium-sized farms will be split up. Has not the Ministry of Agriculture, Fisheries and Food been doing its best to prevent that from happening? Indeed, I understand that talks are now proceeding between the N.F.U. and the Ministry aimed at the establishment of larger rather than smaller farms.

Much has been said about compensation for goodwill. What will be the position of the goodwill of a tenant farmer who is affected by compulsory purchase? The goodwill at present applicable in such a case is already derisory and no tenant farmer can move into another farm on his present compensation—that is, even if he is able to find a farm at all to let. I understand that this is also the subject of discussions between the N.F.U. and the Ministry. To place an additional tax on such compensation is an injustice. I hope, therefore, that payments for goodwill of this sort will be exempted from Capital Gains Tax.

Mr. Bessell

The effect of the tax on people in the war west of England and constituences like mine in Cornwall, where there are about 2,000 small farms and where the whole economy of the county is largely dependent on the prosperity or otherwise of those farms, will be extremely serious.

Since the main argument has already been discussed by several hon. Members, I will confine my remarks to two points. First, what happens in the case of a widow who, on inheriting a small farm, finds herself unable to manage it and is compelled to sell it? Would she be in a position where she has to pay Capital Gains Tax on any profits made, because I believe in many cases this would cause serious hardship? There are cases where farmers' widows are quite unable to maintain the land themselves and are reluctantly compelled to sell it, perhaps to a neighbouring farmer.

The second point, which I tried to make during an interjection a few moments ago, is what happens in the case of two farmers, who, deciding upon amalgamation, are bound, in one case, to be in possession of a farm of greater value than the other?

Mr. MacDermot

By amalgamation does the hon. Gentleman mean that the two farmers decide to go into partnership and farm the two units as one?

Mr. Bessell

Yes. One farm is bound to have a greater value that the other and the owner of this obtains from the second farmer a sum of money in compensation. He decides to use that money for a joint enterprise, perhaps buying additional equipment. In this case, would he be subject to the tax?

I ask the Financial Secretary to give careful attention to this subject, especially in view of the effect that it is likely to have upon small farmers. I am sure my hon. Friend the Member for Cornwall, North (Mr. James Scott-Hopkins) would support my view that this is a matter which seriously affects us in the West Country.

Mr. Emrys Hughes

The right hon. Gentleman the Member for Rushcliffe (Sir M. Redmayne), who opened the debate, spoke rather emotionally about the son of a small farmer and the effect the Capital Gains Tax will have upon him. I too am interested in the sons of farmers in Ayrshire because one of the principal grievances is that when the sons of the farmers grow up they are unable to get farms. I do not think that the Capital Gains Tax is the main source of grievance here.

Mr. Peter Mills (Torrington)

Rents.

Mr. Emrys Hughes

I am amazed at the intelligence of the hon. Gentleman. He is far more perspicacious than hon. Gentlemen on the Front Bench, because in all these discussions so far there has never been one mention of the most indecent word one can mention in these discussions on farming questions—rent.

The Chairman

It is not only indecent. It is out of order.

Mr. Hughes

I understand that obscenity is out of order, but I can make an analogy. The analogy I make is between capital gains and rent because the argument is very much the same.

Mr. Geoffrey Wilson (Truro)

Does the hon. Gentleman appreciate that in a large part of the country, particularly in the West, there are no tenant farmers? They are owner-occupiers. The question which the hon. Member for Bodmin (Mr. Bessell) is raising is very pertinent.

Mr. Hughes

When the hon. Gentleman talks of the West he should not imagine that the west of the country is confined to that small and rather insignificant peninsula called Cornwall.

Hon. Members

Shame.

Mr. Hector Monro (Dumfries)

Would the hon. Gentleman not agree that the Scottish Milk Marketing Board which covers South Ayrshire has issued figures which show there are 44 per cent. tenants and 56 per cent. owner-employers?

Mr. Hughes

That is sufficient for my argument. I want to speak to the 44 per cent. When discussing the question of capital gains one inevitably comes across the question of rents. I want to introduce this element into the discussion because it is a far greater burden upon the farming industry than the Capital Gains Tax.

The Chairman

Order. This may be true. I do not question the rightness of the hon. Gentleman's observation, but he must address his remarks to the Amendment we are discussing.

Mr. Hughes

The argument has been that the enterprising, industrious farmer is to be robbed by the ruthless, wicked Chancellor of the Exchequer. If these Amendments are carried it means that the Chancellor has £5 million less. If right hon. Gentlemen wish to show their goodness they can lead a movement in the party opposite, a self-denying ordinance that rents be reduced by £5 million to make this up. To that, there will be no response. The whole idea that hon. Members of the party opposite are the friends of the small farmer and are helping him is misplaced. Politically, they are the biggest enemies of the small farmer, because they are the party of the landlords.

Mr. Anthony Fell (Yarmouth)

Rubbish.

Sir Richard Glyn (Dorset, North)

Will the hon. Gentleman accept what the N.F.U. has repeatedly stated, that the cheapest capital available to any tenant farmer is his landlord's capital?

The Chairman

Whether he does accept the view of the N.F.U. or not, has nothing to do with this Amendment. I hope that hon. Gentlemen will not tempt the hon. Member for South Ayrshire (Mr. Emrys Hughes) to get out of order.

Mr. Hughes

I have already said that, like Oscar Wilde, I can resist everything except temptation. There is always a conspiracy on the part of hon. Gentlemen opposite to get me out of order.

Mr. Bessell

Before the hon. Gentleman leaves the question of landlords would he not accept that it is impossible for a landlord to charge a high rent to a tenant farmer today. If he did the tenant farmer would simply quit because he would be unable to pay it on his present income.

The Chairman

Order. I wish hon. Gentleman would take notice of what the Chair is saying. We are not debating rents. We are debating an Amendment about taking the capital gains of farmers and the hon. Gentleman who has the Floor must keep to that question.

Mr. Bessell

Further to that point of order. May I point out that the hon. Gentleman was specifically referring to landlords and tenants in relation to this particular Amendment. I was seeking to reply to it.

The Chairman

If the hon. Member will cast his memory back, I have already drawn his attention to the fact that he was out of order and had asked the Committee not to encourage him to be out of order.

4.30 p.m.

Mr. Hughes

I may have been wrong, but I thought that I heard an impassioned and emotional appeal for the small farmer's son who, as a result of the Capital Gains Tax, will be forced to sell his land, or leave farming altogether. The hon. Member, who declared an interest—

Mr. Archie Manuel (Central Ayrshire)

How many sons has he got?

Mr. Hughes

I shall not go into that. I am interested in the exodus from the land, not in Genesis. An hon. Member opposite said that small farmers would be ruined by this tax and would have to sell their land to someone else. I asked him to whom they would sell the land—

Mr. Maxwell-Hyslop

Might they not sell it to someone who wanted to buy an estate to be a hobby farmer, like the Minister of Housing and Local Government?

Mr. Hughes

Hobby farming is causing a great deal of anxiety in the agricultural industry at present. I object to hobby farming. I want the land to be used for the benefit of the country, and not treated as a hobby.

I am anxious about the farmers' sons. What will be the future of the farmer? Are they likely to be worse off or better off as a result of the Capital Gains Tax? That tax is not the anxiety in the minds of farmers in Scotland at present. It would do hon. Members opposite good to read carefully the pages of the best agricultural paper there is—the Scottish Farmer. There they will see that the main question being discussed is security of tenure. That is the real issue that is perplexing the farmer's son today—

The Chairman

Order. Again, that may be true, but the hon. Gentleman must raise it on some other occasion, and not on this Amendment.

Mr. Hughes

The occasion was opened out to me, Dr. King, by various remarks on the other side of the Committee. I was trying to explain the point of view of my constituents.

Mr. Henry Clark (Antrim, North)

Would not the hon. Member be better employed in instructing his farmer constituents of the dangers into which the Bill is taking them, rather than advertising their appalling ignorance in the Mother of Parliaments?

Mr. Hughes

I do not think that my farmers can be accused of appalling ignorance. They are the best farmers in this country, and they know their difficulties. If the hon. Gentleman seeks enlightenment, I advise him to study the columns of the Scottish Farmer. Someone there gives the reply to hon. Gentlemen who say that the Capital Gains Tax will bear hardly on the small farmer. The writer says: A farmer has now even less security than the tenant of a council house, and it is high time, in my view, that the Act was sufficiently amended to allow a son to benefit from the expenditure and the improvements which may have been effected on the farm by his parents. I suggest to hon. Gentlemen opposite that instead of concentrating their argu- ments on the Capital Gains Tax they should co-operate with those of us who want to remedy a grievance by amending that Tory Act—

The Chairman

Order. Again, that may or may not be true, but the hon. Gentleman must raise his alternatives on some other occasion than this Amendment.

Mr. Hughes

I quite understand the difficulty, Dr. King, when trying to pick up some of the arguments brought out by the other side. I have been trying to deal with such arguments, but I suppose that I shall have an oportunity of developing them later.

I want to argue, as I argued yesterday, that there are capital gains of small farmers and of big farmers which should be taxed, and I should like hon. Members opposite, if they can to give me their views on the following case. I have referred to two sheep farms, comprising 2,128 acres, which have recently been sold for £97,750. I do not see any injustice at all in my right hon. Friend the Chancellor of the Exchequer telling the person who got the £97,000 that he is entitled to pay back to the community in the form of Capital Gains Tax some of the money he has collected. That is the essence of the argument—

Mr. James Dance (Bromsgrove)

Does not the hon. Gentleman think that if a man takes on a farm that is in a bad state, farms it well, puts a lot of money into it and subsequently makes a profit, he is entitled to retain that profit, when he has farmed the land well as opposed to someone who lets the land run down and, obviously, cannot get the same value at the end?

Mr. Hughes

I do not see why, when a farmer puts a lot of labour and energy into the land, the landlord should be entitled to a huge profit without having to pay a good deal of it back in the form of Capital Gains Tax. This is the absolute argument that has to be answered. Sheep farmers on the hills of Lanarkshire have toiled year after year building up their industry and then those two farms of 2,128 acres are sold for the fabulous sum of £97,750 as a result of the labour of the farmers—

Mr. Timothy Kitson (Richmond, Yorks)

That represents £40 an acre. Could the hon. Gentleman say what was paid for the land? I think it rather a low figure.

The Chairman

Order. May I make two observations? One, which I made late last night, is that many hon. Members are getting into the habit of not speaking up. Even I did not hear that question. The other is that many interventions prolong speeches.

Mr. Hughes

You cannot accuse me of not trying to speak up, Dr. King.

Mr. Kitson

The hon. Member is surely quoting very strange figures. This land was sold at only £40 an acre. As that does not seem very much, I am asking what the farmers paid in the first place?

Mr. Hughes

These are hill farms. I am sorry to have to explain elementary facts to the hon. Member. These are Lanarkshire hill farms on which they rear sheep, and they were owned by the Leader of the Opposition. If the hon. Gentleman would like it, I will conduct him round the farms, and he will then see the justice of my case. The farms in question are situated within 30 miles of where I live, and what has gone on there has been the subject of one of the most interesting discussions in agriculture in south-west Scotland for the last 10 years.

Are farmers and their sons to work hard in order to make substantial gains for landlords? That is precisely what is going on. All this talk about the Chancellor of the Exchequer being the exploiter of the small farmer is so much humbug. The exploiter is the rich landlord who is typified by the Leader of the Conservative Party. [HON. MEMBERS: "Oh."] I know that you do not like it—I am not speaking of you, Dr. King, perhaps you do. I am putting this argument in a way that people in the southwest of Scotland would understand.

Mr. Dance

Do not believe it.

Mr. Hughes

Is there a case to be made for an idle absentee landlord making an enormous sum of money when a young farmer wants to buy land? That is the real burden on agriculture. There can be no argument that these gains should be taxed in the interests of the community. All this talk about the poor, struggling small farmer being ruined by the Chancellor is so much humbug and hooey. The real enemy of the small farmer is the exploiting landlord.

Sir Tatton Brinton (Kidderminster)

Have the somewhat disorderly ramblings of the hon. Member for South Ayrshire (Mr. Emrys Hughes) any relationship to the two Amendments we are discussing? It would appear, Dr. King, that he must be willing to vote for Amendment No. 265 and against Amendment No. 367. Will you allow a separate Division on Amendment No. 265?

The Chairman

Order. What the hon. Member of South Ayrshire (Mr. Emrys Hughes) has said is not a point of order at all.

Sir T. Brinton

Is it not in order to ask whether you will allow separate Divisions on the two Amendments?

The Chairman

I thought that the hon. Member was asking the hon. Member for South Ayrshire what he would do.

Sir T. Brinton

No, Dr. King, I was asking, in view of the obvious difference, whether you would allow a separate Division on Amendment No. 265.

The Chairman

A speech of an hon. Member does not necessarily compel the Chairman to change his mind about Amendments which are selected.

4.45 p.m.

Mr. Aidan Crawley (Derbyshire, West)

I want to speak only shortly and not to engage in a debate with the hon. Member for South Ayrshire (Mr. Emrys Hughes), who seems to be under the impression that no small farm is bought by a small farmer. In my part of Derbyshire, where there are as many small farms as in any part of England, the opposite of what he has suggested is true. Most of the farms of 25 or 30 acres coming on to the market will be bought by small farmers, not by large farmers. Large farmers bid for them, but over and over again they are bought by small farmers and a very small percentage are amalgamated with larger farms in West Derbyshire.

Mr. Emrys Hughes

Is it not a fact that the farms are bought at a greatly increased price?

Mr. Crawley

No, sometimes the prices are fairly constant. What is surprising is that small farms are bought by people who wish to continue small farming, difficult though they may find it. The situation in my part of England is exactly the opposite of what the hon. Member has described as happening in Ayrshire.

I support everything which was said by my hon. Friend the Member for Ludlow (Mr. More). I do not want to repeat the arguments used last night. I understood that the Financial Secretary is to look at the question which arises when a farm is sold or the farmer dies and Capital Gains Tax comes into play. I ask if the hon. and learned Gentleman is aware of how compensation or compulsory payment for roads and other things works. I shall give an example of what happened to me. I had a small farm in Buckinghamshire. I do not have it now so I do not have to declare an interest in this matter. The electricity board wanted to put a transformer into a field on that farm. It paid me a small sum—I forget now how much. Then a transformer had a faulty earth.

Mr. MacDerrnot

Is the hon. Member assuming that the whole of the payment he got would be a capital gain?

Mr. Crawley

That is what I understood the Financial Secretary to suggest. If not, I shall be glad to hear it. This was compensation for inconvenience. I had understood that such a payment would be subject to Capital Gains Tax.

Mr. MacDermot

The payment would be compensation for loss in the value of the land as a result of the acquisition. If that compensation resulted in the hon. Member realising a capital gain, that is to say, a gain compared with the price or the apportioned part of the price apportioned to that piece of land on which it was paid, it would be subject, but it does not follow that there would be a gain at all.

Mr. Crawley

That is the whole difficulty. How could one calculate what the gain would be?

Mr. Joel Barnett (Heywood and Royton)

The hon. Member for Derbyshire, West (Mr. Crawley) is under a misunderstanding. If he received a compensation it would be not because the electricity board took the piece of land, but be- cause it put him to inconvenience and loss of profit incurred through that inconvenience. The fusing of the wiring would be subject to normal compensation.

Mr. Crawley

The payment was, in fact, both and part would be subject to capital gains and part to ordinary income. The transformer was faulty. I awoke one morning to find four of my best cows were dead because they had been grazing near the transformer. Luckily, neither I nor my children had been there, or we might have been killed. Then the question of compensation arose. The compensation was below the market price, but it could have been argued on some grounds that it was above the market price and there could have been a capital gain. How would the Financial Secretary assess these things?

Sir Richard Glyn

I do not propose to detain the Committee for more than a few minutes. I hope that presently the Financial Secretary will clear up some of the points which have been raised and perhaps also dispel the fog of Scottish miasma which flowed from the speech of the hon. Member for South Ayrshire (Mr. Emrys Hughes). A great many people, both in the Committee and outside, are very seriously worried about the application of Capital Gains Tax to freehold farms which change hands, not through the choice of the owner and not through a deliberate sale—a case could be made for that—but on death or compulsory purchase.

In my constituency the great majority of small farms are owner-occupied. In many cases, they have been in the same family for generations, indeed for centuries, and handed down from father to son. Because of the fall in the value of money over the years, each time such a farm changes hands it would be valued at a higher price, not because the farm is intrinsically of more value but because the £ is worth less. If it be the case that each of these involuntary changes added a higher price in terms of money, the transaction would be subject to Capital Gains Tax and the heir taking over would have only one option, to sell the farm or part of it. He has no other money. In these cases the whole family fortune is in the farm. Often it is worked on a mortgage or an overdraft.

What can such a person do? He can go out of farming altogether—which is the last thing he would want to do as he has been farming for years and is not equipped for any other work—or he can sell a portion of his farm. In most cases, it would be bought by a farmer whose land adjoins the farm, or it would be snapped up by someone who wants to start as a small farmer. That would be done by the aid of a bank.

We shall then have in this country, what we have avoided for centuries, namely, fragmentation of farms. This has been the curse of the whole of the Continent. For reasons which I need not go into now, because I might be out of order in doing so—they are reasons connected with inheritance laws—there has been constant fragmentation of farms all over the Continent, and they are busy now at enormous expense and with great difficulty—it is a great social problem—trying to amalgamate the farms which have been fragmented.

This tax will result in farms being fragmented. This will introduce a wholly unfortunate and undesirable factor which must have the effect of fragmenting farms some of which are already too small. During the period of the last Socialist Government there was a pilot scheme in Somerset, not far from my constituency, to bring together farms which, in the dim ages, had been fragmented. They tried to bring them together. They saw the necessity of doing it. The attempt was not very successful. Now the Labour Government are to do the very thing which they know to be wrong, if they insist upon imposing a so-called Capital Gains Tax every time a farm changes through death—not because the farm has appreciated in value, but because the £ will have depreciated.

The same thing will happen if a farmer has his farm taken from him by compulsory purchase. I ask the Committee to think about that situation. A farmer owns his farm. His whole fortune is in it. It is his business. It is all he has. It is taken from him for the purpose of building or for some other public purpose. This is being planned all over the country, particularly in my constituency. It is being planned on a large scale. The farmer will be given the market value of his farm, which would enable him, if he kept all of the money, to buy a comparable farm and set up in business somewhere else. If the Government say, "You are being given more than your farm was worth on such a date"—

Mr. MacDermot

Was not the hon. Gentleman here when I made my speech?

Sir Richard Glyn

Yes, I was.

Mr. MacDermot

I dealt directly with this point.

Sir Richard Glyn

I am following on from this. If this point is conceded, I am happy. I am simply saying that it would prevent that farmer from buying a comparable business somewhere else if some of the money was taken in Tax. That must be the effect. If some of the money is taken in Capital Gains Tax, the farmer will be unable to buy a comparable business.

Mr. MacDermot

I was trying to make clear that this is just what will not happen. If the farmer buys another comparable farm within 12 months of the disposal of the first, or he can buy the new one 12 months before he gets out, if the Committee accepts an Amendment which we shall reach later in those circumstances that will be regarded as a transfer under Clause 31 and he will not have to pay the tax.

Sir Richard Glyn

I am coming to that. I am seized of that point. The suggestion that the farmer could buy another farm before he has sold his own farm simply does not arise, because what would he buy it with? He has no capital. It often takes two or three years' hard work to find a new farm when a farmer has been dispossessed by compulsory purchase. I know cases of farmers who were dispossessed two years ago and who still have not found anything comparable which they can buy.

The last Socialist Government offered farmers the alternative of the herd basis structure. If they wished to have their breeding cattle on the herd basis, it was not to be subject to any taxation. Farmers stood the risk of loss; if they showed a loss they carried it. If they showed a gain, they could keep it. I want to know how this stands under the Bill. People are very seriously worried about this. I say at once that I have no appreciable interest in this. I sold my herd almost completely during the last two years. I am speaking for other farmers who are seriously concerned about this and who would like an assurance.

I want to spend a few moments dealing with the points raised by the hon. Member for South Ayrshire. We have got into a position now where in Great Britain as a whole—Scotland seems to be lagging behind on this, as it does in so many things—the great majority of farming land is owner-occupied. [Interruption.] These facts are published. They are in the Government statistics. If the hon. Member for South Ayrshire does not like it, he must argue about it with his hon. Friends. The great majority of farm land is owner-occupied. The great majority is farmed by the owner. There is no question of tenants in their case.

The hon. Member for South Ayrshire is obsessed by the question of landlordism. I am told that he was for a long time closely associated with an organisation which was itself a large landlord in Scotland, and this perhaps has coloured his thinking. I assure him that, agriculturally speaking, in the country as a whole the owner-occupier farmer is a much more typical example.

Mr. Emrys Hughes

It is possible to ramble all over—[HON. MEMBERS: "Oh."] I mean all over the country. I am talking about the country, not about the rules of order. The question is whether my argument applied to Scotland. I do not pretend to speak for the south of England. I say that my arguments were relevant to the south-west of Scotland. If I am wrong, could the hon. Gentleman deny one fact and reply to my argument about the big landlord getting all that money for two farms?

Sir Richard Glyn

In Scotland, as in England, the tenant farmer could hardly manage if it were not for his landlord's capital. I am talking about capital, and I hope that I am in order in doing so. If it were not for the capital which the landlord provides so much cheaper than the bank, the tenant farmer could not succeed.

The Earl of Dalkeith (Edinburgh, North)

Would my hon. Friend bear in mind that Scotland certainly does not lag behind in these matters? I am sorry that my hon. Friend should think that it does. Further, would he in future dismiss from his mind what he hears from the hon. Member for South Ayrshire (Mr. Emrys Hughes), because the hon. Gentleman's every utterance on the subject of land shows how totally out of touch he is with the facts of life? The imagination boggles to think that there are so many people in South Ayrshire who go on electing the hon. Gentleman time after time.

Sir Richard Glyn

I apologise if I have been led into a misunderstanding. I have been judging Scotland by the remarks of the hon. Member for South Ayrshire. I apologise to the rest of Scotland. What I said must be confined to Ayrshire only.

The Chairman

We now get back to the Amendment. Captain Orr.

Mr. Emrys Hughes

On a point of order. I am rather doubtful about a point I put earlier in the debate, whether a speaker in this debate should not declare his interest. I raise this matter because the last speaker is one of the biggest landowners in Scotland.

The Chairman

I answered that question when the hon. Gentleman asked it yesterday or the day before.

Mr. Hughes

The hon. Gentleman should have declared his interest.

The Chairman

I refer the hon. Gentleman to the OFFICIAL REPORT and the answer to his own same question there.

Captain L. P. S. Orr (Down, South)

The hon. Member for South Ayrshire (Mr. Emrys Hughes) is at his most amusing when he seeks to delay the proceedings of the Committee and to prolong our debates. He may amuse us in this Committee, but, if his contributions to the debate were heard by some of the small farmers in Northern Ireland that I represent, there would be some very hollow laughter indeed. This is a very serious matter to us. The hon. Gentleman spoke about landlords and tenant farmers. It may not be realised that Northern Ireland has probably the highest proportion of owner farmers in the whole of the United Kingdom. There are very few tenant farmers. We have the most productive agricultural community in the world. They are mostly small farmers.

As I understand it, this proposal, if it is not amended in some way, will be almost catastrophic in its effect upon small farms in Northern Ireland. I am deeply disappointed in what the Financial Secretary said. After a very long time, he has come to the Committee and said that he will concede two questions. I should have thought that he had had plenty of time to consider them before now. I am deeply disappointed that he has not had something concrete to say upon this.

I wonder whether the hon. and learned Gentleman would clear my mind about what he said, because I am not quite clear. It is common form in Ulster for a small owner farmer who comes to what he thinks is a reasonable retirement age after a lifetime of work on the farm, in which one or more of his sons has been helping him, to hand the title deeds of the farm over to a son.

5.0 p.m.

As I understand, at present that transaction will attract Capital Gains Tax. The farmer does not have to die. He simply has to hand the title deeds over to his son and Capital Gains Tax will be attracted on the improvements on the value of the farm. I take an example, not quite typical, of a farm of 250 acres which in Ulster would be a large farm. Let us say that the value of the land is now about £100 an acre and the man who is at present farming it decides to retire in 30 years' time. It is reasonable to assume that in that time the farm would have doubled in value and would be worth £50,000.

Am I not right in thinking that at that point, in 30 years' time, when that farmer passes the farm over to the son and simply hands over the title deeds and there is no other consideration between them, except the understanding that the father will live on the farm for the rest of his life, there would be approximately £8,000 to be found by the son, somehow or other? The tax takes no account of improvements or any capital investment that may have taken place on the farm in the meantime. The son cannot find that money without selling a portion of the farm. My hon. Friends are absolutely right in saying that this will lead to the further fragmentation of farms. May I have the Financial Secretary's attention?

Mr. MacDermot

The hon. and gallant Gentleman has my attention. He is asking me questions and he appreciates that I want to be able to answer them accurately.

Captain Orr

I am obliged. I was not accusing the hon. and learned Gentleman of any discourtesy. I just wanted to be absolutely sure that he knew what I was asking.

When the hon. and learned Gentleman says that he will look again at this subject, will he also look at this problem and not confine his future considerations to what happens on death? It is not only what happens on death that is important but what happens also on retirement. The hon. and learned Gentleman appears to be nodding his head. I conclude from that that he will consider this point, but I wish that he would say something more concrete.

There is great anxiety at the moment about this. It is common form that farmers in Ulster insure against Estate Duty. I am not sure whether they can insure against Capital Gains Tax, but however they meet it this will be an almost intolerable burden on highly efficient and productive small-farm agriculture in Ulster. I hope that the hon. and learned Gentleman will have something more concrete to say to us before the debate is over.

All I can say to farmers in my constituency is that they should not worry too much. I do not think that the Government will last very long. If this intolerable burden is placed upon the farmers, my hon. and right hon. Friends will speedily readjust it when they return to office.

Mr. Dance

I would remind my hon. and gallant Friend the Member for Down, South (Captain Orr) that if we have Price Reviews of the kind that we had recently the value of land in Ulster possibly will not go up to the extent that he thinks it will.

I want to emphasise the words of my hon. Friend the Member for Dorset, North (Sir Richard Glyn) about the appalling situation which will affect owner-farmers farming on land which is compulsorily acquired. This applies in my constituency, where we are to have the new town at Redditch and many farmers are extremely worried about the future.

It is all very well to say that if they find a farm within a year the Capital Gains Tax will not apply. Already farmers in my constituency are looking round and cannot find alternative farms. They may have to wait two or three years before they find a farm which will take the place of the one acquired from them much against their wishes. Even if they find one they may have to pay at an enhanced rate over the compensation which they will receive. How wrong it is that they should be compelled to pay Capital Gains Tax on any profit which has accrued during the time they have owned the farm.

I realise that the Financial Secretary has given some assurances and I ask him to make it absolutely positive and clear to the farmers in my constituency and the people in Redditch what he means and how they will be placed. If they do not find another farm with a year, will they have to pay the Capital Gains Tax, or will that be held over until they have found the farm? I hope that the hon. and learned Gentleman will give a true, forthright and categoric answer.

Mr. Peter Mills

I should like to refer, first, to what the hon. Member for South Ayrshire (Mr. Emrys Hughes) said and to put the matter right. It is absolutely monstrous to talk about Cornwall as an insignificant part of the country. In my experience, if anybody can farm in Cornwall he would make a fortune anywhere else; and this is quite something for a Devonian to say because we do not normally have friendly relations.

Landlords have been much maligned today. I know many good landlords who have given young men the chance of farming. I pay tribute to them. The hon. Member for South Ayrshire has not only a bee in his bonnet about landlords, but his mind is particularly warped on the subject. I am sorry that he is not now here to hear me say it.

The Capital Gains Tax will have a serious effect on small farmers and particularly on their sons. It will mean a great reduction in the number of young people who enter farming. It has not been easy for them to enter farming during the last five or six years and pos- sibly longer. As I said, the Capital Gains Tax will mean a further reduction in their numbers. This is a great pity. When I go round villages in my constituency one of the first questions that I am asked is about what I intend to do about opportunities for young people to enter farming. In future many more farmers' sons will not have the opportunity of entering agriculture.

Another problem is that of the farmer who is about two or three years from retirement. Perhaps he has a large overdraft, and he will now have to find a considerable sum of money for Capital Gains Tax. What will happen? The bank manager will start to withdraw his overdraft and things will become extremely difficult for him. It will be a real embarrassment. I hope that the Financial Secretary understands the point that I am putting. In such circumstances, the farmer will have to go out of business. The Financial Secretary knows that many farmers today are working on substantial overdrafts, and he must address his mind to the man approaching retirement as well as to the farmer's son.

Mr. Maxwell-Hyslop

The Financial Secretary has shown that he becomes angry when anyone argues a point of principle on an Amendment, but points of principle ought to be argued and he ought to be composed enough to listen with interest to what is said.

The Bill as drafted looks after lawyers. Clause 26(6) makes certain that no Capital Gains Tax is levied on a lawyer who is injured and who receives compensation for his injury. No one says to the Financial Secretary that, because his practice and standing and the amount of money he can get for going into court to represent people have grown over the last 10 years, Capital Gains Tax must be imposed upon any damages he receives if he is unable to follow his profession because someone has injured him. It would be said, rightly, that that was an involuntary tragedy which had overtaken the hon. and learned Gentleman—or some other lawyer, and it ought not to be taxed. But the farmer who does not ask someone to drive a road through his land, who does not ask someone to deprive him of his means of livelihood, but who is forced to sell nevertheless is called upon to meet this tax. In many cases, of course, a man will have to move.

The Financial Secretary has put the whole Committee in a very difficult position by pleading Clause 31 in defence of his rejection of Amendment No. 265. We have not reached Clause 31, so we cannot consider whether this Amendment should not be taken, because the hon. and learned Gentleman claims that Clause 31 makes it unnecessary. Yet he does not want the points of principle to be argued and gets angry about it. Angry he will have to be. He has put the Committee in an intolerable position.

This is an essential pair of Amendments. It is not good enough to suggest that the whole of the rest of the country is composed of professional men and that, so long as no professional men suffer in damages, everything is all right. All we are asking for is elementary justice for people whose livelihood depends on their land. If the Financial Secretary will do the same for them as he is doing for lawyers, for his own breed, we shall be happy on this side of the Committee.

Mr. David Webster (Weston-super-Mare)

I endorse what has been said about the fragmentation of agricultural property. There are many small fragmented farms in my part of Somerset. In fact, this Capital Gains Tax is a capital levy for these people because, with inflation, the value of their farms has not increased at all. There has simply been a decline in the value of money. Since the last Price Review, there is no more capital-intensive enterprise than agriculture, particularly dairy agriculture as practised in my constituency. To put it in another way, there is no other means of livelihood which earns less on the capital invested. There is an exceptionally small return on capital, and now it is alleged that the value of the properties is rising simply because of the decline in the value of money. On top of that, taxation is to be imposed on these hereditaments after compulsory loss of the property.

There is injustice at both ends. One hears about burning the candle at both ends, and for the agricultural community of Somerset this is what is happening. My farmers have to be in dairy farming because the land is suitable almost entirely for that type of production. The fields are often half a mile or a mile apart, and they have to be worked with a great deal of movement of cattle from one field to another. Inevitably, in the future, farmers in my constituency will have to dispose of more of their holdings if this tax is imposed. There will be more fragmentation and more distress in the agricultural community. I repeat that it is not a Capital Gains Tax but a capital levy at a time of decline in the value of money as a result of the inflation which is going on now and can be seen coming in the years ahead.

5.15 p.m.

Mr. Fell

I should like to know how the Government will get their money from this source. Our proposal that certain things should not be chargeable gains in respect of small farms is resisted, or almost entirely resisted, by the Financial Secretary. I have heard most convincing speeches from my hon. Friends, and, watching the hon. and learned Gentleman, I think that he has been strongly influenced by them as well. What worries me is that the man who is responsible, the Chancellor of the Exchequer—at least, one presumes he is responsible—is not here to hear all these speeches. If he were, he would be led to reconsider the whole question of these chargeable capital gains.

What will happen if the Financial Secretary is unable to move the Chancellor to accept this Amendment, or something like it, for farmers? He will not get his money. Presumably, the finances of the nation will become even weaker than they are rapidly becoming already. People will have less money. Banks will get tighter with advances. The Agricultural Credit Corporation and the Agricultural Mortgage Corporation will hardly be likely to finance farmers for this sort of purpose. The position will be as my hon. Friends have explained it. They cannot all be wrong. [Laughter.] It is all very well for hon. Members opposite to laugh, but, with the exception of the hon. Member for South Ayrshire (Mr. Emrys Hughes)—I wish he were here for me to tell him something—not one of them has even bothered to make a contribution, except for the very intelligent observation made by the hon. Member for Heywood and Royton (Mr. Barnett) a short time ago.

I have not heard all the Finance Bill debates, but I regard this Amendment as particularly important. The Chancellor of the Exchequer has not listened to all the debates on the Finance Bill, but he certainly ought to be here to listen to the Capital Gains Tax debates and to the other debates which are to take place.

We are in an astonishing situation in which it is clear to any reasonable-minded person that, if one is to have a Capital Gains Tax of this kind at all, the worst possible time to have it is during a very tight credit squeeze which, we are told, is to get tighter. How are the small farmers to get money to pay for the capital gains? I am sure that the hon. and learned Gentleman will do everything possible—I see that he is having his arm jogged all the time and I am sure that it is in the right sense—to find a way out of this situation.

It is all very well being sceptical about what we are saying, but he will come the most awful cropper on capital gains unless he listens to our sensible arguments. If the Government persist in this course they will either fragment small farms into smaller units or will bring them together into big farms for great corporations which might be able to afford to buy them. Certainly, fragmentation is the opposite of the Government's agricultural policy, which is to have larger and larger farms. I am against that, but that is neither here nor there.

Perhaps the answer is that the Government want to drive the small farmers out of business and into great amalgamations financed by the great corporations. If that is so, it is a perfectly understandable proposition. Whether we agree with such a policy or not is perhaps neither here nor there at the moment, but at least let the Government be frank about it. If it is their view that, by the impost of capital gains on small farms, they will drive these people out of business by fragamenting their farms or pushing them into larger units, we should be told.

The sooner they tell us that, the sooner the Government will go out of business themselves—quicker than the small farmers, one hopes. I hope that the hon. and learned Gentleman will have the greatest possible success in conveying the case to the Chancellor, who will not have had time to read any Finance Bill debates at the moment. The hon. and learned Gentleman is faced with unanimity from this side and a complete lack of interest among hon. Members opposite although, to be fair, there are more of them here than has been usual during the proceedings in this Bill. I hope that the hon. and learned Gentleman will have the greatest success in explaining to the Chancellor that he must give way on this Amendment.

Mr. Anthony Stodart (Edinburgh, West)

I find the Clause most inconsistent with the general trend of agricultural policy, supported by both sides of the Committee during the last few years, in which one of the great features has been the injection of capital into agriculture in the form outstandingly of farm improvement grants and drainage schemes, all of which, as hon. Members will agree, have proved a first-class investment for the nation as a whole.

Despite the injection of this capital, there is a considerable shortage of liquid capital today, as can be seen by the figures of bank advances to agriculture. I was most disturbed when I heard the figures quoted by my hon. and gallant Friend the Member for Down, South (Captain Orr) about the possible amount of capital that would have to be found on a 250-acre farm on the farmer handing over to his son. My hon. Friend said the figure would be £8,000 and I have no reason to doubt that calculation.

But when a son succeeds his father, it is almost certain, as agriculture has evolved, that he will want to change the production lines. Farming depends on the evolving of new ideas and this leads to production of a certain amount of new capital. I farm more than 200 acres—indeed, three times as much, although, perhaps on the hillsides of Scotland, it is not quite so worth while as on the rich lands of Ulster. I assure the hon. and learned Gentleman that if I were asked to find £8,000 in liquid capital today I could not do so. Certainly, if I wrote a cheque for it, the bank would not honour it, particularly with a credit squeeze on.

The result of a son having to find an amount of this kind could be twofold. Either he could sell off part of the farm or, more likely, instead of continuing to farm high, which would be to the benefit of the country but which would tend to take more capital, he could cut back production and reduce expenditure on fertilisers and generally start farming low. Productivity would fall. That could be the disastrous result of this tax when succession takes place.

I believe that the hon. and learned Gentleman is anxious to appreciate these points. I hope earnestly that he will give most serious consideration to them. I believe that if what has been suggested did happen it would do the greatest harm not only to the agricultural industry but to the nation.

Mr. J. Bruce-Gardyne (South Angus)

I was surprised to discover that the hon. Member for South Ayrshire (Mr. Emrys Hughes) convinced me that there might conceivably be some justification for this Clause in some instances. He has inherited a business and Socialist clap-trap from his father-in-law. He certainly provided good reasons for charging Capital Gains Tax when he inherited that business.

I want to refer to the problem of the farmer who takes his son or anyone else into partnership. That practice has occurred quite frequently in my part of Scotland. The Financial Secretary was kind enough to assure us that if a farmer took his son into partnership with him on the farm he would not have to pay the tax on the whole value on Budget day but only on the difference in value on that part of the interest he surrendered. I presume this is regarded as a generous concession.

I have made a brief calculation. Supposing the farm was valued at £20,000 on Budget day. After 10 years, the farmer takes his son into partnership on a fifty-fifty basis. At that stage, the farm is valued at £40,000. There will have been a gain of £20,000 and the capital gain on half will be £10,000, giving a tax of £3,000.

5.30 p.m.

Where on earth is the farmer to get that money? We have heard a good deal about this already, but, presumably, there are only three ways in which he can get it. He can get it by selling a small part of the farm, parcelling out his land, in direct conflict with the whole tenor of the Labour Party's own policy, which is to encourage farm amalgamations and not the separation of farms into small and smaller units. Alternatively, as some of my hon. Friends have said, he can raise the £3,000 needed to take his son into partnership by a bank overdraft or mortgage.

Some of us recently visited Brittany where we saw what happens in farming because of the French system of inheritance by which, if one son takes on a farm from his father, he has to compensate all his brothers and sisters for the value of their shares in the farm for which, under French law, they are entitled to claim compensation. The result is that every farmer in Brittany who starts farming operations on inheritance is saddled with an enormous debt to the bank to meet his obligations to his brothers and sisters.

In this country we have been fortunate to have inheritance laws which escape this position, but the Government say that they must immediately rectify this and land small farmers, owner-occupier farmers, with an enormous bank debt, further increased by the Government's financial activities, on death, or retirement, or when the farmer takes his son or another relative into partnership.

In the end the result will be the same, because in the end the burden of debt built up to meet these claims on the farmer will be such that he will have to sell off part of his land. Whether he sells it immediately or ultimately, it will result in further parcelling out of the land of the country, in direct conflict with the declared policy of the Labour Party. I only hope that the Government will try to bring the Clause into line with their declared agricultural policy before we have to do it for them when we return to power.

Mr. MacDermot

We have been debating the Amendment at some length and perhaps the Committee would now like me to reply to some of the questions put to me. I should like first to comment in general on the debate and to say that some hon. Members have been a little irresponsibly using very violent language about the supposed effect of this tax on the farming community. I do not know whether those remarks are intended to strike the headlines of their local newspapers—I have no doubt that some will—but those who have characterised the tax as having a catastrophic effect on farming have subsequently made comments and asked questions showing that they failed to understand the scope of the tax and how it will apply. Some hon. Members have suggested that the result of the tax will be the complete fragmentation of our agriculture. Other hon. Members have said exactly the opposite and have declared that it will drive out the small farmers and result in great amalgamations. [HON. MEMBERS: "No."] Hon. Members should make up their minds.

The Amendments propose exemption on the transfer of agricultural land by gift or on death, and I will deal first with the issues arising in that instance. I said earlier that I could not see any grounds in principle for giving favoured treatment to agriculture compared with the rest of the community and other people carrying on other forms of trade or business, and I have not heard any arguments suggesting the contrary. What we have had has been a particular plea on behalf of particular interests and particular types of case.

I was given a number of hypothetical examples of the position of a widow who, the tenant farmer having died, took over the farm. The hon. Member for Bodmin (Mr. Bessell) asked me to imagine the example of a widow who did not herself carry on the farming and who was compelled to sell. I was asked whether she would have to pay tax on any profit which was made. I assume that by "profit" the hon. Gentleman meant any gain subject to charge under the tax. The answer is that she would, but I remind the hon. Gentleman of the qualifications.

If we are dealing with the widow of a small farmer—and I do know what sort of sum the hon. Gentleman had in mind, but imagining a farm worth £15,000 or £20,000—it is unlikely that the capital gains would exceed the death exemption limit of £5,000. If the gain were £6,000, no tax would be payable on the first £5,000 and, at a rate of 30 per cent., the liability on the remaining £1,000 would be £300. That is assuming that the whole of the gain was made since Budget day, because this tax begins to operate only from Budget day.

One hon. Member said that it was irresponsible to introduce this tax at a time of a very tight credit squeeze, but I could not see the relevance of that. People will not be going to their bank managers during the time of the present credit squeeze to raise money in order to pay off Capital Gains Tax. On the kind of figures which hon. Members have been contemplating, with a death exemption limit of the first £5,000, this will not begin to operate for many years to come.

Secondly, many hon. Members opposite have suggested that one takes merely the figure paid for the farm originally and the value on death or disposal 20 or 30 years later, assuming that the gain would be the difference between the two, between the disposal figure and the acquisition figure. One hon. Member said in terms that no account was taken of capital investments and improvements. But that is not so. If hon. Members will look at paragraph 4(1,b) of Schedule 6 they will see that there is allowable expenditure for expenditure incurred in enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal. Further capital which has been put into the farm and improvements which have enhanced its value will be expenditure taken into account before arriving at the base, at the net amount subject to charge, and there then has to be deducted the £5,000 for the death exemption.

Captain Orr

My example of the figure of approximately £8,000 after 30 years did not take account of the capital injected and the improvements made because of the considerations which the Financial Secretary has just mentioned

Mr. MacDermot

I have not followed the hon. and gallant Gentleman's intervention.

Mr. John Hall (Wycombe)

I know that the hon. Gentleman has been very patient, but the argument which he has been following does not take us very far. After the passage of time, there will be an increase in value which will be a capital gain even after allowing for all the other items which the Minister mentioned.

Mr. MacDermot

There may be, I am assuming that there is. We are dealing with a case where there has been an increase. I hope that hon. Members will understand and make clear to their constituents interested in this subject that the tax is not levied just by taking the purchase price and the eventual disposal price and finding the difference between those two figures. One hon. Member assumed the acquisition of a farm at £20,000 today which is disposed of in ten years' time at £40,000. This amounts to a doubling of the capital value of the farm in ten years. I should imagine that there would be some pretty intense capital development in the meantime—unless the hon. Gentleman is assuming that the value of farms will double in the next ten years. Certainly this is something which must go to counter some of the gloom which hon. Members opposite think is hanging over agriculture.

Mr. Bruce-Gardyne

On a point of order. Is it in order for the Financial Secretary to give an entirely misleading and corrupted interpretation of what I said?

The Temporary Chairman (Mr. Grant-Ferris)

That is not a point of order.

Mr. MacDermot

I was asked to consider the transfer of a farm, or part of a farm, from father to son. This point was raised in one form or another by a number of hon. Members. One hon. Gentleman asked me whether the statement which I made that we would gladly look into this problem extended to the problem when it arises on the retirement of the father as well as on the death. The answer is "Yes". I suggested that precisely this problem should be considered during discussion of an Amendment on the Notice Paper covering retirement generally.

If one is assuming the position of a father who hands over to his son—the hon. and gallant Member for Down, South (Captain Orr) said that it is a common practice in his constituency—I imagine that in many cases the incentive for doing that is in order to avoid, not in any disparaging sense, liability for death duties. This is an obvious incentive for such an arrangement. We are here coming back to the general question which we discussed yesterday: is it right that death should be an occasion of charge for Capital Gains Tax? One of the large number of arguments adduced by hon. Members dealt with another major principle which we discussed yesterday which is whether any inflationary element in a gain—the difference between the so-called real gain and the money value—should be the subject for charge to Capital Gains Tax.

These are main questions of principle which we have discussed and which we have reached decisions upon. I have stated my arguments on them, and I do not think that the Committee would wish me to repeat them. We do not see any reason on these accounts for special treatment of gains made on agricultural land compared with any other type of capita' gain.

I turn to the second Amendment, which deals with compulsory purchase. We have two considerations here. One is the compulsory purchase of an entire holding. Probably discussion about that is more relevant to a later Amendment which deals with compulsory purchase as such. Let us imagine one of two things—either that the farmer whose land is acquired acquires another farm, or goes out of farming. The hon. Member for Ludlow (Mr. More) agreed, and so did other hon. Members, that it was fair that the farmer who goes out of farming completely should pay a tax on his capital gain.

Mr. More

I did not say that.

5.45 p.m.

Mr. MacDermot

I made a note of what the hon. Gentleman said. He agreed that when a person sold up and went out of farming completely it was fair that the tax should be paid upon it. We can look at his exact words in HANSARD.

Mr. More

I said that it was unfair that he should be forced out of farming.

Mr. MacDermot

I was not seeking to attribute to the hon. Gentleman something which he did not say. He was referring to a voluntary sale at the time that he made that remark.

The point that I am making is that we do not believe that it is right that when a person realises the value of his holding, including any capital gain, as a result of compulsory purchase, there should be any different treatment from the point of view of Capital Gains Tax. This is one of the main principles which we have discussed. If we are not continually to repeat the same arguments, we cannot discuss these matters on every Amendment. I appreciate that hon. Members bring them into their speeches by way of argument.

Some hon. Gentlemen opposite take the view that there should be a Capital Gains Tax only in the case of a voluntary realisation, and that there should not be in the case of any form of involuntary realisation. This is a broad question of principle which divides us. There is no reason for different treatment of that issue in respect of agricultural land from any other form of asset. But the farmer who acquires another farm will have the benefit under Clause 31 of not having to pay tax on the gain in respect of the first farm.

One hon. Member raised the question that one year may not be enough because of the difficulty of acquiring another farm. The farmer will have more than a year because, naturally, he does not dispose of his farm to a public authority the moment that that authority decides that it wants it. The authority has to serve notice to treat; there are negotiations; and there may be appeal procedures. It will be in the experience of hon. Members that quite a considerable period elapses as from the time of the notice to treat. All this time will be spent by the farmer in seeking to find another farm. The period of one year will run from the date of the conveyance.

Mr. Dance

I know of a recent case of compulsory purchase in connection with a new town development. The land was taken over and the owner was paid, I think, £200 an acre, which may sound quite substantial. He has not been able to find another farm because the price of alternative farms, particularly when a lot are taken over at one moment, rockets to £300 or £350 an acre. It may be quite a long time before he can find a reasonably comparable farm at a price which he can afford to pay.

Mr. MacDermot

That is a point which it would be in order for us to discuss in detail on Clause 31, which deals with that problem. I will be glad to listen to arguments which may be adduced on it.

The other type of compulsory purchase which we have been considering is of limited interest in the land which does not result in the disposal of the farm—cases of injurious affection, the acquisition of land for road building which may lead to the "scutey" piece, which we were told about in Norfolk language. I was asked whether these would be subject to tax. We must first inquire whether in such a transaction there is any capital gain. It by no means follows. If there is, a relatively small amount of money will be involved in most cases.

In the example given by the hon. Member for Derbyshire, West (Mr. Crawley) from his own experience of the transformer which was put upon his land, it is not the total compensation price which is received which will be subject to Capital Gains Tax. It is only on the extent to which, by that transaction, he has realised a capital gain that there would be anything which was subject to charge at all. If somebody does that, I see no reason why there is any injustice in his paying tax on that gain which he has realised, and realised in the form in which it is easiest of all to pay the tax, namely, payment in cash.

Sir M. Redmayne

We discussed this point the other night. Am I not right in saying that a part disposal counts as a disposal of the whole and that, therefore, even if the compensation was for a small part, there has then to be a valuation of the assets of the whole farm and the whole estate?

Mr. MacDermot

I should like to check that point instead of answering off the cuff. In this kind of case we are assuming a compulsory purchase of a small parcel of land. Whether there would then have to be an assessment to tax on any capital gain up to that moment on the whole farm, I will inquire and let the hon. Member know. There will, no doubt, be an opportunity to let the Committee know also.

I was asked by the hon. Member for Bessell—I am sorry, the hon. Member for Bodmin. Somebody suggested earlier that I was a little weary. No doubt the hon. Member's constituency will be named after him one of these days, and then I will have it correct. The hon. Member asked a specific point about amalgamation. If I understood his question aright, he is afraid that if two farmers amalgamate and form a partnership, this would result in each of them, because they each acquire a half share in the other's land, becoming subject to tax for half the gain. I am not sure whether that was the hon. Gentleman's question; if not, I will study his words more carefully. In any event, I am advised that the point may be met under the provisions of Clause 31(4), but it is something that we will come to more properly on that Clause. In the meantime, I will gladly look into the point.

I have, I think, covered the specific points with which I was asked to deal. In so far as I have failed to argue further the general points, it is because I feel that we have already argued them very fully.

Mr. James Scott-Hopkins (Cornwall, North)

We have had a comprehensive debate and by this time the Government and the Financial Secretary should be fully seized of the feelings of my right hon. and hon. Friends concerning their dissatisfaction with the answers which we have had.

The Financial Secretary accused my hon. Friends of exaggerating in some of the things they have said. I should have thought—indeed, the hon. Member for South Ayrshire (Mr. Emrys Hughes) thinks so, too—that these matters raise grave and fundamental problems which will be of great interest and can cause great difficulty to the farming community in the years ahead. One of the things that the Financial Secretary said in refering to a point made by the hon. Member for Bodmin (Mr. Bessell) was that the immediate impact of the tax upon widows would be small. As the Committee will realise, however, we legislate not simply for what is happening today but have to take into account the general effect of any new tax imposition. This can be of quite considerable importance. Indeed, I am sure that it will be.

I do not want to run round all the arguments which have been put forward extremely competently by my hon. Friends. The Committee will be fully seized of the reasons why we consider them to be so important. I despair of being able to convince the Government, particularly the Financial Secretary, of the special position that farming holds. It is an industry which is completely controlled by the Government. It is extremely difficult for the farmer to accumulate capital and yet, by these capital gain provisions, although the effect may be small in the initial stages, it will be cumulative.

The Financial Secretary mentioned a figure of £5 million as the cost of the concession. I doubt the hon. and learned Gentleman's mathematics. The figure might well be higher. This is extremely damaging on an industry which has such difficulty in accumulating capital and which is so controlled by the Government at the same time. This is the basic fundamental point of trying to convince the Government why these Amendments should be accepted. The industry cannot stand this kind of imposition.

I am sure that the Committee will accept the points made by my hon. Friends concerning father and son and inheritance or handing over of property. The Financial Secretary has made a small concession by saying that he will look into the position concerning the small man and the inheritance of the small business or farm which has been built up over the years. This was the point of one of the Financial Secretary's concessions, and rightly so. How he will define a small farm, goodness only knows. That, however, is something. Having accepted the principle that there is a need, the hon. and learned Gentleman can be assured that problem goes much wider, as my hon. Friends pointed out. There was then the point of valuation concerning amalgamation. This is another issue which the Financial Secretary has, perhaps, ignored.

I must advise my hon. Friends that the reply which we have had from the Financial Secretary and the Government is unsatisfactory. The position of the industry has not been borne in mind. This tax will bear harshly upon it in the years ahead. It is not a fair tax. It is not dealing correctly and properly with the industry. A strong and powerful case has been made by my right hon. and hon. Friends about why exceptions should be made for the agriculture industry. The Government, as well as we on this side, want the industry to continue to flourish and prosper. The imposition of this tax will make certain or will help to see that it does not, if the hon. and learned Gentleman and his right hon. and hon. Friends continue in Government. That it why I must advise my hon. Friends to support

the Amendment, if necessary, to a Division.

Question put, That those words be there inserted:—

The Committee divided: Ayes 192, Noes 201.

Division No. 149.]	AYES	[5.58 p.m.
Agnew, Commander Sir Peter	Goodhew, Victor	Murton, Oscar
Alison, Michael (Barkston Ash)	Grant, Anthony	Neave, Airey
Allan, Robert (Paddington, S.)	Gresham Cooke, R.	Noble, Rt. Hn. Michael
Amery, Rt. Hn. Julian	Griffiths, Peter (Smethwick)	Nugent, Rt. Hn. Sir Richard
Anstruther-Gray, Rt. Hn. Sir W.	Grimond, Rt. Hn. J.	Onslow, Cranley
Astor, John	Gurden, Harold	Orr-Ewing, sir Ian
Atkins, Humphrey	Hall, John (Wycombe)	Osborn, John (Hallam)
Barber, Rt. Hn. Anthony	Hamilton, Marquess of (Fermanagh)	Page, R. Graham (Crosby)
Batsford, Brian	Hamilton, M. (Salisbury)	Pearson, Sir Frank (Clitheroe)
Beamish Col. Sir Tufton	Harris, Frederic (Croydon, N.W.)	Peyton, John
Bennett, Sir Frederic (Torquay)	Harris, Reader (Heston)	Pickthorn, Rt. Hn. Sir Kenneth
Berkeley, Humphry	Harrison, Brian (Maldon)	Pounder, Rafton
Berry, Hn. Anthony	Harrison, Col. Sir Harwood (Eye)	Powell, Rt. Hn. J. Enoch
Bessell, Peter	Harvey, Sir Arthur Vere (Macclesf'd)	Price, David (Eastleigh)
Biffen, John	Hawkins, Paul	Prior, J. M. L.
Biggs-Davison, John	Hay, John	Pym, Francis
Birch, Rt. Hn. Nigel	Heald, Rt. Hn. Sir Lionel	Ramsden, Rt. Hn. James
Black, Sir Cyril	Heath, Rt. Hn. Edward	Rawlinson, Rt. Hn. Sir Peter
Blaker, Peter	Hendry, Forbes	Redmayne, Rt. Hn. Sir Martin
Bossom, Hn. Clive	Hiley, Joseph	Renton, Rt. Hn. Sir David
Box, Donald	Hill, J. E. B. (S. Norfolk)	Ridley, Hn. Nicholas
Boyd-Carpenter, Rt. Hn. J.	Hirst, Geoffrey	Ridsda[...]e, Julian
Boyle, Rt. Hn. Sir Edward	Hobson, Rt. Hn. Sir John	Roberts, Sir Peter (Heeley)
Brinton, Sir Tatton	Hopkins, Alan	Robson Brown, Sir William
Bromley-DavenportLt.-Col.SirWalter	Hordern, Peter	Russell, Sir Ronald
Brooke, Rt. Hn. Henry	Hornby Richard	Sandys, Rt. Hn. D.
Brown, Sir Edward (Bath)	Hornsby-Smith, Rt. Hn. Dame P.	Scott-Hopkins, James
Bruce-Gardyne, J.	Howe, Geoffrey (Bebington)	Sharples, Richard
Buck, Antony	Hunt, John (Bromley)	Shepherd, William
Burden, F. A.	Hutchison, Michael Clark	Sinclair, Sir George
Carlisle, Mark	Iremonger, T. L.	Smith, Dudley (Br'ntf'd & Chiswick)
Cary, Sir Robert	Irvine, Bryant Godman (Rye)	Smyth, Rt. Hn. Brig. Sir John
Chataway, Christopher	Jenkln, Patrick (Woodford)	Spearman, Sir Alexander
Chichester-Clark, R.	Johnson Smith G. (East Grinstead)	Stodart, Anthony
Clark, William (Nottingham, S.)	Jopling, Michael	Stoddart-Scott, Col. Sir Malcolm
Cooke, Robert	Joseph, Rt. Hn. Sir Keith	Studholme, Sir Henry
Cooper, A. E.	Kimball, Marcus	Summers, Sir Spencer
Cooper-Key, Sir Neill	King, Evelyn (Dorset, S.)	Talbot, John E.
Corfield, F. V.	Kitson, Timothy	Taylor, Edward M. (G'gow,Cathcart)
Costain, A. P.	Lancaster, Col. C. G.	Thompson, Sir Richard (Croydon,S.)
Craddock, Sir Beresford (Spelthorne)	Langford-Holt, Sir John	Thomeycroft, Rt. Hn. Peter
Crawley, Aidan	Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfie[...]d)	Thorpe, Jeremy
Curran, Charles	Lloyd, Ian (P'tsm'th, Langstone)	Tiley, Arthur (Bradford, W.)
Dalkeith, Earl of	Lloyd, Rt. Hn. Selwyn (Wirral)	Tilney, John (Wavertree)
Dance, James	Longbottom, Charles	Turton, Rt. Hn. R. H.
Davies, Dr. Wyndham (Perry Barr)	Longden, Gilbert	Vickers, Dame Joan
d'Avigdor-Goldsmid, Sir Henry	Lubbock, Eric	Walder, David (High Peak)
Dean, Paul	McAdden, Sir Stephen	Walker, Peter (Worcester)
Dodds-Parker, Douglas	McLaren, Martin	Walker-Smith, Rt. Hn. Sir Derek
Doughty, Charles	Macleod, Rt. Hn. Iain	Walters, Dennis
Elliot, Capt. Walter (Carshalto[...]n)	McMaster, Stanley	Ward, Dame Irene
Elliott, R. W.(N'c'tle.upon-Tyne,N.)	Marples, Rt. Hn. Ernest	Weatherill, Bernard
Errington, Sir Eric	Marten, Neil	Webster, David
Eyre, Reginald	Maude, Angus	Whitelaw, William
Fell, Anthony	Maudling, Rt. Hn. Reginald	Williams, Sir Rolf Dudley (Exeter)
Fisher, Nigel	Maxwell-Hyslop, R. J.	Wilson, Geoffrey (Truro)
Fletcher-Cooke, Charles (Darwen)	Maydon, Lt.-Cmdr. S. L. C.	Wise, A. R.
Foster, Sir John	Meyer, Sir Anthony	Wolrige-Gordon, Patrick
Fraser,Rt.Hn.Hugh(St'fford & Stone)	Mills, Peter (Torrington)	Woodnutt, Mark
Fraser, Ian (Plymouth, Sutton)	Mills, Stratton (Belfast, N.)	Wylie, N. R.
Gammans, Lady	Miscampbell, Norman	Yates, William (The Wrekin)
Giles, Rear-Admiral Morgan	Monro, Hector	Younger, Hn. George
Gilmour, Sir John (East Fife)	Morrison, Charles (Devizes)
Glover, Sir Douglas	Mott-Radclyffe, Sir Charles	TELLERS FOR THE AYES:
Glyn, Sir Richard	Munro-Lucas-Tooth, Sir Hugh	Mr. MacArthur and Mr. More.
NOES
Abse, Leo	Armstrong, Ernest	Barnett, Joel
Albu, Austen	Atkinson, Norman	Bence, Cyril
Allaun, Frank (Salford, E.).	Bacon, Miss Alice	Benn, Rt. Hn. Anthony Wedgwood
Allen, Scholefield (Crewe)	Bagier, Gordon A. T.	Binns, John
Bishop, E. S.	Howarth, Robert L. (Bolton, E.)	Oswald, Thomas
Blackburn, F.	Howell, Denis (Small Heath)	Owen, Will
Blenkineop, Arthur	Hoy, James	Padley, Walter
Bottomley, Rt. Hn. Arthur	Hughes, Cledwyn (Anglesey)	Page, Derek (King's Lynn)
Bowden, Rt. Hn. H. W. (Leics,S.W.)	Hughes, Emrys (S. Ayrshire)	Palmer, Arthur
Bray, Dr. Jeremy	Hunter, Adam (Dunfermline)	Pargiter, G. A.
Broughton, Dr. A. D. D.	Hunter, A. E. (Feltham)	Park, Trevor (Derbyshire, S.E.)
Brown, Hugh D. (Glasgow, Provan)	Hynd, H. (Accrington)	Parker, John
Buchanan, Richard	Hynd, John (Attercliffe)	Parkin, B. T.
Butler, Mrs. Joyce (Wood Green)	Irving, Sydney (Dartford)	Pavitt, Laurence
Callaghan, Rt. Hn. James	Jackson, Colin	Peart, Rt. Hn. Fred
Carmichael, Neil	Janner, Sir Barnett	Pentland, Norman
Carter-Jonea, Lewis	Jay, Rt. Hn. Douglas	Popplewell, Ernest
Chapman, Donald	Jeger, Ceorge (Goole)	Prentice, R. E.
Coleman, Donald	Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Probert, Arthur
Conlan, Bernard	Jenkins, Hugh (Putney)	Redhead, Edward
Corbet, Mrs. Freda	Jenkins, Rt. Hn. Roy (Stechford)	Rees, Merlyn
Cousins, Rt. Hn. Frank	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)	Reynolds, G. W.
Crawshaw, Richard	Jones, J. Idwal (Wrexham)	Roberts, Albert (Normanton)
Crosland, Rt. Hn. Anthony	Jones, T. W. (Merioneth)	Roberts, Goronwy (Caernarvon)
Crossman, Rt. Hn. R. H. S.	Kelley, Richard	Robinson, Rt. Hn. K.(St. Pancras,N.)
Dalyell, Tam	Kenyon, Clifford	Rodgers, William (Stockton)
Darling, George	Kerr, Mrs. Anne (R'ter & Chatham)	Ross, Rt. Hn. William
Davies, Harold (Leek)	Kerr, Dr. David (W'worth, Central)	Sheldon, Robert
Davies, Ifor (Gower)	Ledger, Ron	Shinwell, Rt. Hn. E.
Dell, Edmund	Lever, Harold (Cheetham)	Shore, Peter (Stepney)
Dempsey, James	Lever, L. M. (Ardwick)	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Diamond, John	Lewis, Arthur (West Ham, N.)	Short, Mrs. Renée (W'hampton,N.E.)
Dodds, Norman	Lewis, Ron (Carlisle)	Silkin, John (Deptford)
Donnelly, Desmond	Lipton, Marcus	Silkin, S. C. (Camberwell, Dulwich)
Driberg, Tom	Lomas, Kenneth	Silverman, Julius (Aston)
Duffy, Dr. A. E. P.	Loughlin, Charles	Skeffington, Arthur
Dunn, James A.	Mabon, Dr. J. Dickson	Slater, Mrs. Harriet (Stoke, N.)
Edwards, Robert (Bilston)	McBride, Neil	Slater, Joseph (Sedgefield)
English, Michael	McCann, J.	Small, William
Ensor, David	MacColl, James	Smith, Ellis (Stoke, S.)
Evans, Albert (Islington, S.W.)	MacDermot, Niall	Snow, Julian
Evans, Ioan (Birmingham, Yardley)	McGuire, Michael	Soskice, Rt. Hn. Sir Frank
Fletcher, Sir Eric (Islington, E.)	McKay, Mrs. Margaret	Strauss, Rt. Hn. G. R. (Vauxhall)
Fletcher, Ted (Darlington)	Mackenzie, Gregor (Ruthergi[...]en)	Summerskill, Hn. Dr. Shirley
Fletcher, Raymond (Ilkeston)	Mackie, John (Enfield, E.)	Swain, Thomas
Floud, Bernard	McLeavy, Frank	Taverne, Dick
Foot, Sir Dingle (Ipswich)	MacMillan, Malcolm	Tinn, James
Foot, Michael (Ebbw Vale)	MacPherson, Malcolm	Urwin, T. W.
Ford, Ben	Mahon, Peter (Preston, S.)	Varley, Eric G.
Freeson, Reginald	Mallalieu,J.P.W.(Huddersfield,E.)	Wainwright, Edwin
Garrett, W. E.	Mapp, Charles	Walden, Brian (All Saints)
Garrow, A.	Mason, Roy	Wallace, George
George, Lady Megan Lloyd	Mayhew, Christopher	Weltzman, David
Ginsburg, David	Mellish, Robert	White, Mrs. Eirene
Gourlay, Harry	Mendelson, J. J.	Whitlock, William
Greenwood, Rt. Hn. Anthony	Mikardo, Ian	Williams, Alan (Swansea, W.)
Gregory, Arnold	Millan, Bruce	Williams, Mrs. Shirley (Hitchin)
Grey, Charles	Miller, Dr. M. S.	Williams, W. T. (Warrington)
Griffiths, Will (M'chester, Exchange)	Milne, Edward (Blyth)	Willis, George (Edinburgh, E.)
Gunter, Rt. Hn. R. J.	Molloy, William	Winterbottom, R. E.
Hamilton, William (West Fife)	Morris, Alfred (Wythenshawe)	Woodburn, Rt. Hn. A.
Hannan, William	Morris, Charles (Openshaw)	Woof, Robert
Hart, Mrs. Judith	Newens, Stan	Wyatt, Woodrow
Hazell, Bert	Noel-Baker,Rt.Hn.Philip(Derby,S.)	Yates, Victor (Ladywood)
Heffer, Eric S.	Oakes, Gordon	Zilliacus, K.
Henderson, Rt. Hn. Arthur	O'Malley, Brian
Holman, Percy	Oram, Albert E. (E. Ham, S.)	TELLERS FOR THE NOES:
Houghton, Rt. Hn. Douglas	Orme, Stanley	Mr. Lawson and Mr. Harper.

Mr. Bessell

I beg to move Amendment No. 118, in page 28, line 28, to leave out "not".

The Temporary Chairman

I think that it will be convenient to discuss also Amendment No. 119, in page 28, line 31, leave out "not".

Mr. Bessell

The purpose of the Amendment is to ensure that profits obtained as a result of gambling are included in any tax which is in the form of Capital Gains Tax. It is very important that this matter should receive the careful attention of the Committee.

I am not one of those who believe that a Capital Gains Tax is a bad thing in principle. On the contrary, I believe that it has great merit. For example, I think it right that a tax should be levied which ensures that those who do the least work, but who have the sharpest wits, pay the highest price, while those who do the most work are taxed the least amount. As has already been said during our debates, the United States of America has a lower level of taxation, both in relation to Income Tax and to Capital Gains Tax. It is probably true to say that the reason for the lower rate of Income Tax in the United States is the existence of the Capital Gains Tax, which has enabled the Treasury there to reduce the level of Income Tax.

Therefore, if we are to have a Capital Gains Tax it follows that the exceptions from that tax must include only those cases where real hardship is caused. That is the motive behind a number of Amendments that have been put down to this part of the Bill, dealing with the tax. These Amendments seek to eliminate hardship wherever it is shown to exist. If the principle is accepted that the only exceptions should be those where real hardship is caused it must also follow that there must be no exception in respect of which there is a speculation resulting in a very considerable financial gain to the speculator.

In those circumstances, it is incredible that there should be no provision to levy Capital Gains Tax on the proceeds of betting. It is even more incredible that the Bill should be drafted in such a way as to provide a specific exemption from the tax in the case of betting. This must be troubling the minds of many hon. and right hon. Gentlemen opposite, not only because it is illogical but because it presents a completely new principle.

If I were fortunate enough to possess a Renoir, a Steinway piano, or a large block of Government bonds, and I happended to sell them and make a profit on them some years from now, I would have to pay tax on the transaction. I may have acquired them as a result of careful saving over many years. If, on the other hand, I were fortunate enough to win £93,000 on an investment of 1s. 9d.—which happened this week to a very fortunate lady—I would go off scot-free and would be able to spend my winnings as I liked, with no obligations to the Chancellor. The logic of this is incredible.

I ask the right hon. and learned Gentleman to consider one aspect of the case very carefully. It is true that over the years it has been difficult for any responsible body to assess the amount of money spent annually on gambling, and even more difficult to arrive at any figure in respect of the total amount of winnings from gambling of all forms. The only evidence which I will call this afternoon is that which is to be found in an article in the New Statesman of 3rd April, 1964, under the heading "Britain a Nation of Gamblers" and which contains many quotations from the investigation carried out by the Churches' Council on Gambling.

It admits that it is difficult to arrive at an accurate assessment of the figure involved, but states that certainly no less than £1,000 million was spent on gambling during 1963. The amount which accrued to the speculators is even more difficult to assess, but a number of figures have been suggested, the lowest of which is £300 million. It may be that the real figure is closer to £450 million.

It is worth noting that if the Capital Gains Tax had been levied on this sum in 1963 the amount which would have accrued to the Exchequer would have been between £75 million and £150 million.

Mr. William Shepherd (Cheadle)

How can the hon. Gentleman make any sense of these ludicrous figures? Before these figures make any sense we must know how many sums were staked over and over again, and what the net wins and losses were. Otherwise, the figures are useless.

Mr. Bessell

I have said that this is a difficult figure to assess, and that the only source which can be regarded as having any authority is the investigation which was carried out by the Churches' Council on Gambling. It is worth noting that its assessment has been accepted as reliable by a number of responsible bodies and individuals, and it forms the basis of the authoritative article which appeared in the New Statesman.

Mr. Barnett

Does not the hon. Member agree that if there are net winnings in the hands of punters there must be net losses in the hands of bookmakers?

Mr. Bessell

That is so, but the amount invested in gambling was not less than £1,000 million. It has been suggested—although I have not quoted this figure before—that a more accurate assessment would be £1,300 million in the year in question. It has been estimated, from such information as it is possible to glean from all sources, that the result of that investment has been a return to the gamblers of £300 million—not necessarily a net profit, but, nevertheless, a return upon the money invested.

Mr. Barnett indicated dissent.

6.15 p.m.

Mr. Bessell

The hon. Member shakes his head, but week after week and month after month we read in our newspapers of very substantial winnings on the football pools. Take only the case of football winnings. Let us not beg the question; there is no doubt what kind of profit it is. If I invest 1s. 9d. and it returns £93,000 it is a substantial and handsome capital gain, but I am not called upon to make any kind of contribution to the Exchequer from that amount—

Mr. Eric Lubbock (Orpington)

What was worrying the hon. Member for Heywood and Royton (Mr. Barnett) was the fact that my hon. Friend was not talking about the net figure. Will he make it clear that the Amendment does not suggest that there should be any offset for losses? We are talking about the gross figure, not the net winnings.

Mr. Bessell

What we are talking about is the amount of winnings. We are not concerned about offsetting any losses. I see no reason why we should be. We are talking about gambling. It is a capital gain in the sense that the money which has been spent has produced a very high return. To that extent it should be—

Mr. Shepherd

rose—

Mr. Bessel

I shall return to the hon. Member in a moment.

It is reasonable that this should be made subject to tax. If it is not, many people will be very surprised. This afternoon, we have not been privileged to see many Members on the benches opposite, but I find it difficult to believe that at least some of them will not find difficult to reconcile with their consciences a Bill which specifically excludes from its many provisions any tax upon gambling.

Mr. Shepherd

The hon. Gentleman has repeatedly said that there is no tax on gambling. If he has put down 1s. 9d. and wins £75,000 he has paid one-third of the win in tax before he receives it.

Mr. Bessell

The hon. Gentleman does not follow my argument. It may be my fault. It is possible that I am not putting my case clearly. I am talking about a tax on winnings resulting from gambling. That is a very different matter from a tax on betting as we have it now.

I promised the Financial Secretary that I would be brief, and I will keep my word. Throughout the whole of this debate we have had many references to Alice in Wonderland. As I read the Bill I am not entirely surprised that the works of Lewis Carroll should spring to the minds of many hon. and right hon. Members in relation to gambling and winnings from gambling and a Capital Gains Tax. If the Chancellor expects that as a result of the introduction of this form of Capital Gains Tax he will be greeted by the country in the words used about the slaying of the Jabberwock, Come to my arms, my beamish boy", he will be very much mistaken.

If the right hon. Gentleman is not proposing to attack, but, indeed, to penalise, the speculator who gambles in any way whatsoever, the whole tax becomes nonsense. Moreover, I would say that if the croquet mallet which he is using to attack the speculators is in a form which permits him to exclude gambling he will find, like another character in "Alice in Wonderland", that the croquet mallet has turned into a flamingo.

The Solicitor-General (Sir Dingle Foot)

I can answer this Amendment in a very few words. The argument addressed to the Committee by the hon. Member for Bodmin (Mr. Bessell) was in support of the proposition that in some way or other the large sums hazarded each year in betting and gaming should be the subject of a tax.

That is an argument with which I have a certain amount of sympathy, but the proposal we have to consider on this Amendment is whether betting and gaming winnings should be treated as capital gains. It may well be that the taxing of betting is a subject which will need further study in the future. It has often engaged the attention of Chancellors. Ever since I can remember there have been discussions about ways in which it might be possible to extract a considerable revenue from winnings made from lotteries, or betting on racing, or whatever it may be.

I have to submit to the Committee that this form of personal revenue is not in any way an apt subject for a Capital Gains Tax. Indeed, that was the proposition put forward on Second Reading by my hon. and learned Friend the Financial Secretary. The essential feature of a Capital Gains Tax is that the taxpayer has an asset which he first acquired and of which he afterwards disposes. That is what is always involved. There is an acquisition and the disposal of an asset, whether it consists of stocks and shares, a chattel, a parcel of land, a dwelling-house or whatever it may be; something to which it is possible to attach an original value and something to which may be attached another value to see whether there has been a gain or a loss.

A sum of money placed as a bet with a bookmaker or in a lottery does not acquire anything. The person concerned has engaged in an entirely different form of transaction. All that he has is a chance either that the horse or dog will win, or that he will draw a prize in a lottery.

Mr. Bessell

I wonder whether the learned Solicitor-General would agree that if he or I went to a bookmaker and placed a bet on a horse we should in fact, for our investment, receive a ticket and that on returning that ticket to the bookmaker, we should find that it had acquired an entirely new and very high value in the event of the horse having won? Would not that be a capital gain on our investment?

The Solicitor-General

No, because there would be no asset in the first place on which it would be possible to place any value at all. There is only one sense in which it might be said that there was a capital asset. It is the only exception to my argument. That happens when someones buys a ticket for the Irish Sweepstake or any other sweepstake. The punter acquires a ticket which he can dispose of, or he can dispose of part of it. Except in that sense there is no analogy between the sort of transaction which the hon. Member for Bodmin has been dis- cussing and a capital gain which involves, first, the acquisition, and then the disposal of an asset.

Sir Douglas Glover (Ormskirk)

I am not disagreeing with the argument advanced by the Solicitor-General, but I think that he is wrong in one respect. If I have a ticket which I acquire on a racecourse for a particular race, and I meet the hon. Member for Bodmin (Mr. Bessell) who offers me £1 for the ticket, he is proving that it has some value

The Solicitor-General

I am not saying that the ticket has no value. I am saying that it is not an asset in the sense in which we are concerned when considering a Capital Gains Tax.

The language used by bookmakers and pool promoters is sometimes a trifle misleading. For instance, when a bet is placed there is often a reference—indeed, the hon. Member for Bodmin used the term himself a moment ago—to the placing of an investment. We hear of dividends being paid out on football pools, but I think that the Committee will agree that they are not investments or dividends in the sense in which we are now considering investments or dividends. They represent something entirely different.

Mr. Maxwell-Hyslop

Would not the hon. and learned Gentleman agree that the best analogy is an option, which may be valueless because a person may not take it up, and the ticket may not win? An option is covered by the Capital Gains Tax.

The Solicitor-General

There might be some analogy where there is a ticket such as a ticket for a sweepstake. Apart from that, I submit that there is no analogy when a bet is placed on a horse, or dog, or whatever it may be. There is not something which may be valued at the outset. We cannot put a value on the ticket and then a further value if it is a winning ticket. It is impossible to draw the sort of comparison which has to be drawn when one is seeking to impose a Capital Gains Tax.

There is a further difficulty to which the attention of the hon. Member for Bodmin was drawn during his speech. If we are to treat winnings as capital gains, what are we to do about losses? Apparently, this caused the hon. Member for Bodmin no difficulty. He said that no allowance would be made for losses. That, I submit, would be a rather novel principle to introduce into our tax law. We cannot take account of gains, but take no account of losses.

How often would a person be taxed and over what period of time? Would it be over six months or 12 months? Would the taxpayer be allowed to make a return only on his winnings and not be allowed to set off his losses against them? The only way in which this could apply in the realm of a Capital Gains Tax would be to make the losses deductible from the other capital gains of the taxpayer. That would, I submit, produce a most inequitable result.

Suppose a man made a capital gain in the way suggested, and was a wealthy man. At the end of the year, or whatever the period might be, he could set off the whole of his betting losses against his normal capital gains. The capital gains may be made on property, stocks and shares, or anything else and the wealthy man may say, "If these gains are to be treated as capital gains for the purposes of the Capital Gains Tax I will, under the Amendment, reduce it, perhaps extinguish it altogether, because of my betting losses over the appropriate period".

6.30 p.m.

That would happen for a man with other capital gains, but a great many people who bet on lotteries and other forms of gambling do not have other capital gains. Of the many workers in this country, while some may have capital investments a great many do not. A great many of them are not even assessed for tax purposes by other than the P.A.Y.E. system. Thus, they do not have any capital gains against which their betting losses could be set. The same could be said of old-age pensioners and people living on small incomes, many of whom, obviously, bet on football pools and other things.

If the Amendment were accepted there would be another unjust result.

Mr. Lubbock

Had the Government been prepared to accept an exemption limit of £400, as we proposed earlier, the Solicitor-General would not now be worrying about old-age pensioners.

The Solicitor-General

The hon. Gentleman cannot escape the unjust result that the man who has no capital gains, and who is assessed under P.A.Y.E.—including old-age pensioners and others—would not be able to set off his gambling losses in the way that the man with capital gains would. Therefore, the comparatively wealthy punter who has capital gains could take advantage of such a system. Indeed, it would not matter much to him how much his betting losses were, up to the total of his capital gains. The P.A.Y.E. man and the pensioner would not be in that fortunate position and we would be creating not only an unjust, but a fantastic state of affairs.

It may be desirable—and I think that this is the purpose behind the Amendment—to find a way of imposing further taxation on betting and gambling, but I suggest that the Amendment is manifestly not the way by which that should or could be done. Obviously, if one is to have such taxation it must be done not on the basis of the punter, but the bookmaker and pools promoter. We have in the last few years imposed a form of taxation of this kind. We passed the Betting Duties Act, 1963, under which a pools betting duty is imposed and under which bookmakers must pay licence fees. By the Finance Act, 1964, that system was extended to fixed-odds betting. I am informed that the revenue from these sources is now about £32 million a year, so it cannot be said that this form of activity escapes taxation.

It may be that future Chancellors—perhaps my right hon. Friend, in a future Budget—will want to devise other methods of taxing betting and gambling, but, for the reasons I have given, the proposition which has been suggested is not satisfactory and I invite the Committee to reject it.

Mr. Frederic Harris (Croydon, North-West)

When I listened to the remarks of the hon. Member for Bodmin (Mr. Bessell) I did not think that his proposal was likely to be a Liberal winner. Nor would it be particularly popular with the public, a large number of whom like to have an occasional gamble. With the Derby coming along next week, this would not be a particularly appropriate time to introduce such a scheme.

Mr. Bessell

Is the hon. Gentleman suggesting that before proposing an Amendment to any Bill one must consider whether or not it will be popular in the country?

Mr. Harris

I am not suggesting that. I leave it to the hon. Gentleman to work it out. Perhaps the Liberals are indeed following the wind of change. I admit that it seems illogical that for a few pence a person can win £100,000 or even £200,000 and not be subject to Capital Gains Tax, yet a person can, after concientious saving over many years, realise a profit on an asset and be subject to the tax.

The bulk of gambling takes place on horse racing. [HON. MEMBERS: "No."] I am sure that it does. In any case, we must remember that, by and large, the bookmaker and not the punter profits in the end. Thus, any attempt to introduce a tax of the sort proposed—and I regret that the Solicitor-General hinted that if the Government produced another Budget they might think in terms of another sort of tax—would only add to the complexities of our tax system.

One should regard expenditure on horse racing as pleasurable. People like to spend a pound or two or a few shillings on a bet and when the losses are added up at the end of the week or month the average punter considers that he has spent money on gambling just as he might have spent it on going to the cinema or doing something else. [Interruption.] I hear hon. Members talking about bookmakers' profits. Those profits are already taxed. This is rather a vicious circle. Indeed, the more I think about this business the more I am coming to the conclusion that it is regrettable that the Government introduced Capital Gains Tax in the first place. Further complexities arise with every word that is said. I suggest that the best answer would be for the Government to scrap the tax, particularly since it seems that the Liberals wish to attract even more Capital Gains Tax than the Government. I hope, therefore, that my hon. Friends will press the Amendment.

Mr. James Ramsden (Harrogate)

I listened with interest to the speech of the hon. Member for Bodmin (Mr. Bessell). I regret that I could not go the full length and support all his arguments. I could not follow his suggestion that anybody who happens to buy a ticket from a bookmaker when betting on a horse, or who invests in a football pool is necessarily, by that transaction, acquiring an asset. All my personal experience is against that idea.

I never thought that I would hear a Solicitor-General—and we know that the present one is a man of undoubted gravity and wisdom—seriously having to refute the proposition that the purchase of a betting ticket or the filling in of a football coupon was an investment.

Sir D. Glover

I do not disagree with my right hon. Friend's main argument, but if I buy a ticket to bet on a horse, ante-post, running in the Derby at odds of 50 to 1 from a bookmaker and my right hon. Friend wishes to buy a half share in it, he will probably pay twice as much for his half as I paid for the whole ticket—and that before the race has taken place. Is it, therefore, not an asset until the race is over?

Mr. Ramsden

I would have thought that only a very contingent asset on that argument. I was saying I thought the hon. Gentleman's Amendment did deserve a word or two of sympathy because it does at least underline the difficult position in which the Committee has been placed by the introduction of a Capital Gains Tax, of this extremely comprehensive type and more especially by being asked to agree to exemptions of the type which are the subject matter of this Clause.

I am in complete agreement with my hon. Friend the Member for Croydon, North West (Mr. Frederic Harris). We have been told that the purpose of the tax is to promote a climate of social equity and justice and in pursuance of this aim the Committee has been brought to the position where an ordinary collector's piece, the stock in trade of the collector, is realised as a gain subject to the Capital Gains Tax. However, where the most esoteric and unusual of items in the collector's trade is concerned, the vintage motor car, it is not subject to Capital Gains Tax. The Financial Secretary made no attempt when he replied to an earlier debate, to justify this position.

The position is even more ridiculous on betting. We were told earlier in these debates that chattels were included within the ambit of this tax because people might read in the newspapers of the enormous gains accruing to others on the realisation of chattels and this might upset the trade unions and jeopardise the success of the Government's income policy. It is my experience, and I think that it will be the experience of many hon. Members of the Committee, that when people read of these gains there is no widespread feeling of resentment that they should have occurred. They are accepted as windfalls.

The Temporary Chairman

The hon. Member must not go back to earlier Amendments, but must keep closely to the business before the Committee.

Mr. Ramsden

I do not think that this type of gain incurs widespread resentment, any more than it provokes resentment among people when they read of a very large win by people on the football pools. I think the general feeling when we have a tax as widespread and comprehensive as this is simply that it is absurd to leave out betting.

We are told that those who gain from the sale of works of art are in some way privileged people. The Financial Secretary said that privileged people are those who by their study had acquired the knowledge to engage themselves in collecting in the art market and eventually to make a profit by so doing. We now have the position where a young man, studious and well-behaved, uses his spare time to acquire knowledge of works of art and makes a collection and eventually a profit, is considered privileged to pay Capital Gains Tax. Another young man who may spend all his spare time sucking his pencil and filling in football pools coupons may make a gain as a result of this, but he will be privileged to be exempt from the tax.

We are now appearing to be rather foolish. What price the candy-floss society now? It must be extremely painful for Treasury Ministers to have to defend these kind of propositions. They betray a sense of values which I should have thought it was very difficult for in- telligent and educated men, as they are, to accept. No wonder that before the introduction of the Bill the Treasury abdicated its former responsibilities for the arts and no wonder that, throughout the debate, we have not seen any signs of the Minister who is responsible for the arts.

6.45 p.m.

Mr. Harold Lever (Manchester, Cheetham)

The hon. Member for Croydon, North-West (Mr. Frederic Harris), who criticised the hon. Gentleman for Bodmin (Mr. Bessell) because his Amendment was not going to be a popular one, is mistaken as to the consequences of the Amendment if accepted, although they were certainly not the intention of the mover. The Liberal Party, as should be known, never courts popularity. Its main concern is to court meritorious dislike. That is its main activity, and in pursuit of it this Amendment is placed on the Order Paper. The Liberal Party and not a few others seem to suppose that the Budget is mainly concerned with correcting the moral imperfections of their fellow citizens.

They think that those who draft and drive the Finance Bill along do so in order to secure a significant moral betterment in the population. They believe that such vices as the population is prone to will be curbed while such virtues as may be obtained from it will be encouraged. This is not primarily the motive of the Finance Bill. The Finance Bill's main concern, although one would hardly believe it if one listened to the debates in this Committee, is not to correct the tyrant's stroke of fate and the cruelties of life—

The Temporary Chairman

Order. I think the time has come when the hon. Member ought to address himself to the Amendment.

Mr. Lever

If this Amendment were accepted, contrary to the supposition of those who moved it, far from there being a net gain on tax there would be an enormous loss to the revenue. I commend the Government for putting in this Clause because, although it appears to be a gift to the gambler, it is in fact a protector of the revenue. Without this Clause net losses on gambling would be set off against the capital gains incurred which would be liable to tax.

The provisions of the Bill differ somewhat from the arithmetic of the hon. Member for Bodmin. As I understand it, he said that £1,300 million is staked, £300 million is given back and this represents £300 million of winnings to be taxed. It is extraordinary arithmetic which, fortunately, is not adopted by the system of capital gains in this Bill.

Mr. Bessell

I made it clear that we are quite ruthless about this. We do not propose that we should offset losses against winnings. In other words, it is the winnings we are concerned with. We are concerned that the Treasury and the nation shall have some benefit from them.

Mr. Lever

The ruthlessness is not given effect to in the framing of the Amendment—

Mr. Lubbock

That does not matter. It is a triviality.

Mr. Lever

The triviality is of such dimensions that, were the Government to yield here and accept this Amendment in any conceivable form that I can think of, the net loss to the revenue would be immense.

In the circumstances, I think that the Liberal Party merely makes itself ridiculous in attempting to bring into the argument something that is not relevant to capital gains. Any form of drafting that attempted to tax gambling winnings within the framework of the Capital Gains Tax would inevitably mean a loss to the Revenue, and not a gain. Rejection of the Amendment has a serious consequence, because it can be used as a stick with which to beat the Government, and as a means whereby the Liberal Party can contrast the tax on business gains, and so on, with the Government's supposed inability to tax gambling winnings.

The short answer to the Amendment is that it is a lot of bunkum. Gambling winnings may be susceptible to tax, but they are not susceptible to the Capital Gains Tax, because a net loss to the Revenue will be produced. The Government are entirely right in keeping it to the words used in the Bill, and the Amount must be rejected with contempt.

Mr. Lubbock

The hon. Member for Manchester, Cheetham (Mr. Harold Lever) chooses to make party political points about a perfectly serious Amendment. I take issue with him in this quarrelling so much with the drafting, because what is intended is quite clear, and my hon. Friend the Member for Bodmin (Mr. Bessell) explained it in his excellent speech. My hon. Friend made it quite clear in reply to an intervention from an hon. Member opposite—who has since left the Chamber—that it was not proposed to offset losses against winnings. That has had to be repeated several times, until I think that it must be penetrated even the skull of the hon. Member for Cheetham—

Mr. Harold Lever

I know that I am particularly stupid, unlike the hon. Member for Orpington (Mr. Lubbock), but I dealt with that point when I said that no conceivable form of drafting could give effect, within this Bill, to the purpose in the Amendment.

Mr. Lubbock

Of course there is. The hon. Member is talking absolute nonsense. It would be quite possible for the Government, if they were to accept the Amendment, to say that losses were not to be offset against winnings—

Mr. John Hall

The hon. Member for Orpington (Mr. Lubbock) will know that the Government do precisely that in subsection (2) of Clause 37. They charge a person resident in this county on his gains, without taking losses into account.

Mr. Lubbock

I thank the hon. Gentleman for his intervention. Perhaps I should have looked at that Clause, when we might have incorporated the same words in our Amendment. Were the Government prepared to accept the spirit of the Amendment, that is what they could do.

I was disappointed by the Solicitor-General's reply, because I have heard Chancellors of the Exchequer say on previous occasions that this is something that requires further study. We have this vast amount of money being staked in gambling—as much as £1,300 million, according to the report of the Council of Churches—yet no attempt made by the Government to get any benefit from that for the nation as a whole, and for other taxpayers who suffer from the very severe impositions in the Finance Bill.

I must make it absolutely clear, since the hon. and learned Solicitor-General also misunderstood, that we are talking of the winnings and not of the sums hazarded. We are thinking of the person getting a very large gain from, perhaps, a very small stake, and we believe that the very large gain should be taxed. I am not against gambling as such, although I bet only on certainties. If anyone doubts that statement, let him ask Ladbroke's, because I have never lost a bet with Ladbroke's—[HON. MEMBERS: "You have never had one."] In fact, I have had two—both an Roxburgh, Selkirk and Peebles.

I believe in a taxation system based on ability to pay—a fundamental principle that has been lost sight of in this debate. If someone wins £300,000 on a football pool, does the Solicitor-General say that the whole of that sum should go scot-free? Is it not more sensible that the taxation system should take account of it and relieve the winner of some of his gain? I am not concerned with legalistic arguments about whether or not any asset is involved, but I think that the hon. and learned Gentleman ignored options on stocks and shares which are taxable under this Bill. That seems to be very much the same thing. The person does not have an asset until he decides to take up the option, and this would be precisely the same as the ticket to which my hon. Friend referred.

A tax of 30 per cent. on winnings of £300,000 on the football pools would be quite reasonable. The winner would pay £90,000 in tax, and have £210,000 left. No one could suggest that he would find that any hardship. On the other hand, some people will find it almost impossible to get together the money necessary to satisfy Capital Gains Tax provisions. Yesterday, we were talking about the position of trustees of family companies, where very great hardship will undoubtedly result. Such an argument, however, cannot be applied to the person winning £300,000 on a football pool.

What the Government propose to do all the way through this Finance Bill is to penalise enterprise and initiative, but by rejecting this Amendment they are encouraging the gambler. Practically the only people who will in future he able to accumulate money will be those who win very large sums on the football pools.

Sir Charles Mott-Radclyffe (Windsor)

I find this a very entertaining discussion. The Solicitor-General was, no doubt, quite right in saying that on technical grounds it would be very difficult to apply this particular form of tax to the particular form of gambling which the Liberal Party has in mind. Nevertheless, the Amendment has hit the Government at the weakest point in the whole of their philosophy.

Time and time again during these discussions on Capital Gains Tax we have asked for various exemptions—works of art, agricultural land, and so on—and each time we have been told that the whole philosophy is that the tax must apply as universally as possible in order to make it as fair as possible. If, for one's retirement, one cashes in hard-earned savings—Capital Gains Tax applies. If one improves property, and realises it—Capital Gains Tax applies. There are even a number of cases in which the tax applies to assets that have not yet been disposed of. This is what is called the notional disposal and notional gain, though nobody knows how to work out that gain.

The night before last, the Financial Secretary gave a remarkable answer to a question about the amount of revenue he expected from Capital Gains Tax on works of art. He replied that he did not know and that this was not the point. It had to apply to works of art because, if it did not, there would be all sorts of disreputable gambling in works of art. It is quite clear now that as a result of this strange philosophy of the Government there will be a completely new form of gambling on a vastly increased scale, because that is the one way in which anyone will be able to hold on to any gains.

It will not just be gambling on horses or the Stock Exchange—something quite new will creep in. People will no longer gamble on the Stock Exchange—they will ask a bookmaker for odds on the movement of share prices in the next fortnight or three weeks. There are all sorts of extremely interesting contingencies on which one can bet with a bookmaker. I say it with hindsight—I never thought of it at the time—but I only wish that a fortnight or three weeks ago I had asked a bookmaker for odds on the Chancellor of the Exchequer and Mr. Kaldor between them achieving this morning something which Hitler never succeeded in achieving—closing down gilt-edged dealings on the Stock Exchange.

7.0 p.m.

Mr. Shepherd

This debate has not only been entertaining; it has been revealing. There was a statement by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) that there was no moral purpose behind this Finance Bill at all. I find that a rather refreshing and frank comment.

Mr. Harold Lever

I did not say anything of the kind.

Mr. Shepherd

I invite the hon. Member to read HANSARD tomorrow morning. He will see his words displayed there very clearly indeed.

I do not think the Liberal Party is holding a winning ticket in this matter. They have a purpose although I do not share the party's puritanical views, in that many of these gains could not be taxed. It is very bad indeed to put a tax into operation when it cannot be uniformly collected. Can we imagine people who have been sitting at murky little "chemmy" tables in London saying, "I have won £10,000 on 'chemmy' let me have a Capital Gains Tax certificate at once"? We know that this would not happen and that this proposal is impracticable.

Mr. Bessell

Surely the hon. Member recognises that if people defraud the Revenue by refusing to declare their income on their returns they are breaking the law? The same could apply if people sold something which they had possessed and did not return that gain. One has to assume that the law would be enforced.

Mr. Shepherd

The possession of a physical asset which is sold and from which a capital gain is derived is a very different proposition from that of winning money at a "chemmy" table and not declaring the profit.

I take the view that we should get more revenue out of gambling. The proper way to do it is to put very heavy annual licence duties on the items which are con- nected with gambling. I have suggested £5,000 annually on possession of a "chemmy" table, £1,000 on every betting shop and £500 on every one-armed bandit. That would have the effect of gaining revenue for the community and shutting down the excessive sources of gambling which are available. I do not want to see roulette tables in every mining town in the country, but if every roulette table had a tax put on it that would bring in more money.

It would be optimistic to think that we collect all the money which could be collected from betting shops. The practical way is to tax the items used in these newer forms of gambling and to get revenue for the country in consequence. I hope that the Solicitor-General will convey these sentiments to the Chancellor, but I take the view that the suggestion made in the Amendment is wholly impracticable.

Sir D. Glover

The Committee should thank the Liberal Party for bringing this Amendment forward. I do not think it is practicable and I do not think it has been brought forward for that purpose. I think this was done for the purpose of Liberal hon. Members being able to say that they were the one party who put down an Amendment to net casual winnings on football pools and gambling. Make no mistake, if this Bill becomes law every person who has to pay for a capital gain will say to his Member of Parliament, "It is absolutely scandalous." A constituent may say, "Here am I paying on £3,000, yet only yesterday I read in the newspaper of someone who had gained £90,000 in a football pool."

The Government are in a dilemma. They were returned to power to produce a dynamic society and they have spent the last two years talking about a "candy floss society", yet the net result is that effort, energy and thrift are to be hit while the speculator and the gambler goes free. As my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) said, I do not think we could incorporate these gains in the capital gains provisions of the Bill. I viewed with some alarm the suggestions of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), because I do not like putting imposts on people for the sake of putting imposts on them. I believe in using imposts to raise revenue which the State needs for a given purpose.

I am not a killjoy. Nor do I think that we should do these things because that would be popular with someone else. The fact remains that in football pools, sweepstakes on the Derby and so on, people make these gains and they are not looked upon by the rest of the nation with great favour. There is no great animosity shown towards them, but when others are hit by this Bill it will be said: There is something rotten in the State of Denmark and that the Government have got their priorities wrong. The Solicitor-General should report to his colleagues that the theme of the debate on this Amendment is that there is something wrong when the purpose of the tax is to levy an increasing burden on energy, thrift and effort and yet to allow these massive gains to go through without let or hindrance.

Perhaps because of his nonconformist background, I think that the SolicitorGeneral—I also thought that this had something to do with the Liberal Amendment—said that there was no asset when one made a bet on a horse or on a dog. There is an enormous asset when one bets on a horse. If, in January, one draws a ticket for a horse in the Derby, and the price is 50 to 1 and £10 is paid for it, one stands to win £500. Subsequently, that horse runs in some races and, although the price comes down, it may start favourite at 5 to 1. The ticket could be sold on the market next day for £250. Of course it has a value, and it keeps that value until the first horse passes the winning post.

Mr. Kitson

Probably there is a better example. If a man buys a tote treble ticket and his horse wins the first race at 33 to 1, and then he is lucky on the second leg of the treble at the same sort of odds, he may be in a position of bein able to pick up the whole pool. Then he can go to the tote window and see that his ticket is worth £1,000. If the pool was worth £2,000, and he has one of the remaining two tickets, before the last race, it is wrong to say that the ticket, in those circumstances, has no value.

Sir D. Glover

I am grateful to my hon. Friend for his interruption, for he has far more experience than I have. I am glad that he gave a very good example. The Solicitor-General should not go away with the idea that these tickets could not be considered as asset. To use that argument is complete nonsense, because when one buys a ticket one certainly has an asset until the race has been completed.

Amendment negatived.

Mr. John Hall

I beg to move Amendment No. 233, in page 28, line 35, at the end to insert: (7) It is hereby declared that a gain shall not be a chargeable gain if it accrues in consequence of an acquisition by compulsory powers (or by sale by agreement to an authority possessing such powers).

The Deputy-Chairman (Sir Samuel Storey)

With this Amendment we can also discuss Amendment No. 353, in page 28, line 35, at end insert: (7) It is hereby declared that a gain shall not be a chargeable gain if it accrues in consequence of the acquisition by compulsory powers (or by sale by agreement to an authority possessing such powers) of an interest in land or buildings.

Mr. Hall

This Amendment seeks to protect persons who are forced into the position of securing what is a theoretical capital gain against their will. It affects many people. It affects farmers, householders, people with investment in property, businessmen and a whole range of citizens.

In the remarks I intend to make in support of the Amendment I shall confine myself to the effect, on the whole, on property owners of one kind or another. I shall not attempt to cover the effect on agricultural land. I am certain that that will be taken up by those of my hon. Friends who have a more specialised knowledge of the effect on agriculturists as a whole.

I gather that the Minister without Portfolio is to reply to the debate. I had hoped at one stage that it might be the Financial Secretary, but I can quite understand that he has been carrying a heavy burden over the last few days. He has had to work very hard and must be extremely tired. Perhaps I shall get a rather more helpful answer in his absence, because up to now the Financial Secretary's financial philosophy has not been very encouraging to my hon. Friends and I.

Only the other night there was enunciated to the Committee a new law which will go down in history as "MacDermot's law", which, perhaps, I can sum up as a slight variation on an old verse which will be familiar to many hon. Members on both sides: Higher taxes have higher taxes upon their backs to ride 'em; And higher taxes have higher taxes, and so on, ad infinitum". That sums up the "MacDermot law" which was expounded to the Committee the other night.

It was followed by the Financial Secretary telling us that we were returning to the past in our search for methods of enforcing tax law. He said this in justifying the power which has been given to inspectors to invade our private homes under Schedule 9. He justified that by referring to the Finance Act, 1894. Are we to expect a return to even earlier methods of tax enforcement? If we are, perhaps I can draw attention to one or two methods which proved very efficacious in the past, if we go back far enough. I have heard that the rack was a very good method of persuading reluctant taxpayers to stretch their resources to the utmost. I am also told that the Iron Lady was used to squeeze obstinate taxpayers to death. No doubt, there are many other such methods. As we have not got the Financial Secretary answering the debate now, perhaps we shall get a more helpful reply.

All hon. Members will have had experience in their own constituencies of the effects of compulsory purchase. In many cases the procedure is formidable. Often it is very protracted, although, in passing, I may say that perhaps our procedure is preferable in that respect to that which operates in many countries where a State takes what it wants for what it regards as the benefit of the community and argues about compensation afterwards.

When the whole procedure of compulsory purchase is gone through and, as is usually the case, the application for a compulsory purchase order has succeeded, the owner finds that his property has been taken from him. In some cases he might be willing to dispose of it. In other cases he becomes resigned to it. In other cases he might be bitterly antagonistic. In any case, his property has been taken from him compulsorily. [HON. MEMBERS: "And paid for."] I am not arguing about payment. Whether the owner wants to get rid of it or not, he has to sell it on a compulsory purchase order in return for an agreed sum of compensation.

As the Minister without Portfolio knows—he knows this better, perhaps, than many hon. Members—there is often a good deal of debate and discussion about the compensation. Even when the compensation is eventually fixed by the district valuer and after consultation between the district valuer and the advisers of the property owner, very often the owner is left feeling that he is not getting a fair sum. This is not the argument I shall develop on the Amendment.

7.15 p.m.

Let us suppose that in the case of a compulsory purchase the sum that has been agreed as compensation yields some element of capital gain. Some persons will not suffer, if I understand the Bill correctly. I do not think that anybody could place his hand on his heart and say that he understands the Bill completely. I am absolutely sure that the Ministers do not understand it. That has become quite clear from the speeches we have heard over the last few days. I may not be right in this, but it seems to me that owner-occupiers who receive compensation, if their house is compulsorily acquired for some purpose, will probably be able to claim relief under Clause 28. In those cases they will not pay tax on any gain arising from the compensation sum paid to them.

There are many cases where hardship will occur. Let me give some examples—it is always best to give personal examples, if one can—from what is happening in my own constituency. In Wycombe, that very thriving and go-ahead area set amongst beautiful countryside in Buckinghamshire, there has been a need for very many years for a by-pass. Anybody who has had to drive along the road from London to Oxford will be relieved to hear that the by-pass is now in course of construction. During the next year or two a splendid new by-pass will be built, like a motorway, which will enable the motorist to pass through the attractive, but, nevertheless, slightly irritating town of High Wycombe.

There is another project within the town itself called the inner relief road which will involve the demolition of a great de al of property in order to provide further traffic relief. In both cases there has had to be the acquisition of quite a lot of property. Some of it has been farm land. Some of it has been gardens. Some of it has been private houses. Some of it has been businesses.

I will quote just three typical examples of the type of case which is arriving and which will arise in my constituency. The first case is of two elderly spinsters who have for some years been living on the rental income of a row of three non-rent-controlled houses. As I understand it, they will not be able to claim exemption under Clause 28 on any gains arising out of compensation sums paid to them for the acquisition of those three houses. Therefore, they will find themselves with a smaller capital sum in real terms, after deducting the capital gains payment at the rate of 30 per cent. on the gain, than they had before. This is likely to affect the income that they get from that sum.

The second case is of a man of 62 running a small business. His property is to be acquired. As is the case with many development schemes in town centres, other shop premises are to be built in a nearby area where the development is taking place. This man is being offered another shop, but at a rental which he cannot possibly afford. It is well known that in all these new developments in town centres, especially in old towns, the rentals which are being asked for shop property in newly developed areas are very high. A shop proprietor who is dispossessed and whose property is demolished and replaced by modern, up-to-date and highly expensive buildings, is faced with a rental which it is quite beyond his capacity to pay. He just cannot see how he could possibly meet it.

In these circumstances, he will have to find premises elsewhere, probably in an unsuitable area and probably of an entirely different type. This is a man of 62 who had looked forward to continuing in his business, earning a modest income from his trading for probably another five to eight years, retiring perhaps when he reached 70, selling his business at the age of 70, and then probably having to pay a Capital Gains Tax, but, in the intervening period, earning a reasonable income from the business.

Now he will find himself with a sum of money which he is not able to invest in another business. He cannot face the struggle of looking round for other premises and starting all over again somewhere else. He will be faced with the position where he has a sum of money less the deduction of 30 per cent. upon the estimated capital gain. His income will be seriously affected.

The third case is that of a small limited company. The company I have in mind, which is having its business premises taken over, has to find premises elsewhere. It cannot find suitable premises in the same town. It must move away to some other area. In this case the only way in which the people concerned find that they can keep in business is to buy another business.

If I understand the Bill correctly, under Clause 31 if a sum realised on an asset is reinvested in one of the four classes listed in that Clause no Capital Gains Tax is payable. But in the case of a business which has had compensation for goodwill and is having to buy another business, for which it is having to pay for goodwill and is having to buy other assets, such as fixtures and fittings and assets which do not come under the heading of fixed plant and machinery, it will be found that the sum which the business will receive in compensation will be subject to Capital Gains Tax at 40 per cent. on some part at least of the element of compensation which is regarded as capital gains. This happens although it will have to pay for the new business that it wants to acquire a sum at least equal to the gross compensation paid to it when its own business was taken over.

The Minister without Portfolio looks puzzled, but I hope that I have made it clear. I am sure that my hon. Friends can produce other examples of hardship which will be suffered if, as a result of compulsory acquisition, compensation is paid which will be liable to a Capital Gains Tax. If it is assumed that the compensation paid is fair and reasonable and is sufficient to replace the asset loss and all other things being equal, will yield the same income, what is happening is that through no choice of the individual affected by the compulsory purchase order, Capital Gains Tax will reduce the value of the asset by 30 per cent. for the individual or 40 per cent. for the small company.

It is bad enough, in all conscience, to have a compulsory purchase order imposed which forces one out of one's property in which one has lived or traded for many years and which one does not want to leave. This causes a great deal of heartache and hardship, but insult is added to injury by imposing a Capital Gains Tax on a theoretical gain which has arisen as a result of compulsory purchase. Surely this is going too far.

I am certain that whoever drafted this legislation did not intend to impose hardship of this kind. This is not a question of talking about big tycoons, great landowners, people with plenty of money, and gamblers. These are small businessmen, owners of a little property with no great resources who, being forced to move somewhere else, must have a sum of money to replace the asset which they have lost. This is all they ask for. They are not asking for an additional gain, but enough to replace the asset lost and to put more money towards replacing the property, whether it is houses or a business.

I leave the question of the effect on farmland to my hon. Friends. There is an important problem which affects that as well. I hope that even if the Minister is not prepared to accept the Amendment as drafted and is able to show that the effect of it is not quite what we intended will, nevertheless, accept its spirit. Reasonable man as he is, I am certain that he understands the type of case that I have presented to the Committee, and I am certain that he can find a method of relieving hardship in cases of this kind. I anticipate with confidence, and I trust that that confidence will not be misplaced, that when the Minister replies he will be able to meet us on the Amendment.

Several Hon. Members

rose—

The Minister without Portfolio (Sir Eric Fletcher)

It is always a great pleasure to reply to the hon. Member for Wycombe (Mr. John Hall). He always presents his arguments persuasively and eloquently and although I noticed that a number of his hon. Friends rose to support the Amendment I doubt very much whether any of them would have been able to give greater force to the admirable way in which it was presented.

Mr. John M. Temple (City of Chester)

The hon. Gentleman may have overlooked the fact that another Amendment in my name was selected with this Amendment and I have not had the opportunity of putting the case for that Amendment at all.

Sir Eric Fletcher

I was not intending to disparage anything that the hon. Member for the City of Chester (Mr. Temple) might want to say. I was trying to pay a compliment which I hope the hon. Member for Wycombe will not think ungracious. I was trying to express my admiration for the eloquent way in which he had presented the case for this Amendment, because I know how devoted he is to the very pleasant part of Buckinghamshire which he represents. I appreciate also the great concern that he feels for the constituents whose cases he quoted and who he thinks may well be adversely affected by this part of the Bill about which he is now complaining. I thought therefore that the least I could do was to respond immediately to his request to me to see whether it was possible to meet in an accommodating spirit the suggestion which he has so amiably put forward. I therefore feel that it is my duty to explain the difficulties, which the hon. Member will appreciate, that stand in the way of acceptance of the Amendment.

A great deal of the hardship about which the hon. Member complains does not arise from anything in the Bill. In so far as hardships arise at all in all the cases that he quoted, they arise from the fact that from time to time local authorities have to rely on compulsory purchase powers for the acquisition of property. No one doubts that it is often a matter of great inconvenience and hardship to persons, whether it is a case of agricultural land or of houses, if they are dispossessed as a result of the exercise of compulsory powers, but Parliament granted these compulsory powers at the request of both political parties. Therefore, we cannot on this occasion complain about the effects of compulsory acquisition. The only matter to which we can devote our attention on this Amendment is to whether it would be reasonable or unreasonable to exempt from liability to Capital Gains Tax those who realise a capital gain by reason of a compulsory acquisition.

The Committee has adopted the principle that a Capital Gains Tax should be introduced. The Committee has also adopted the principle that liability to Capital Gains Tax should not be limited to a voluntary disposal of property. The Committee has agreed that liability will arise, for example, on death. It follows that if we are to have liability not limited to the voluntary disposal of property it is logical that the liability should also arise if there is a capital gain resulting not from a voluntary disposal of property but from a compulsory acquisition of property. In both cases, the individual concerned has, in fact, realised a capital gain. He may have realised it involuntarily. He may complain that he has not had enough compensation. If he has not had enough and he has not had a capital gain, he has no complaint arising under the Bill although he may complain about the compulsory acquisition.

Several Hon. Members

rose—

7.30 p.m.

Sir Eric Fletcher

I must just finish the logic of it. I am always ready to give way, but it is much simpler to finish one's argument and then give way; otherwise, one's train of thought is unnecessarily interrupted and the proceedings are delayed.

If, on a compulsory acquisition, a person receives a large payment of compensation for his property—and that does happen—he has nothing to complain about and he is as well off or, perhaps, better off than if he had sold his property. Some people get as much when their property is compulsorily acquired as when they sell it voluntarily. If, as a result of such a transaction, that person has made a substantial or even a modest capital gain, there is no reason why it should not be taxed. In fact, it would be an injustice to all other citizens if it were not so. That, in a nutshell, is the reason why it would be quite impossible for the Government to accept the Amendment.

Mr. John Hall

The point on which I wished to intervene has gone past, but perhaps I may put this now to the hon. Gentleman. He compared the compulsory acquisition of property with involuntary dispoal on death when, automatically, Capital Gains Tax may arise. Quite apart from the fact that, when one is dead, one is, thank heavens, free from taxes, if the hon. Gentleman takes that point he ought, perhaps, to consider applying the £5,000 relief to compulsory purchase.

Sir Eric Fletcher

That is another matter which does not arise on this Amendment. This is a very simple point. Hon. Members can repeat almost ad nauseam their objections to a Capital Gains Tax in principle, and they are free to continue to do so; but, if there is to be a Capital Gains Tax it ought to be one which operates fairly and equitably among all citizens. It does not make sense or do justice to their arguments if, once the principle of the Capital Gains Tax is accepted by the Committee, hon. Members put forward all kinds of people as deserving exemption from it. If that argument is pursued, it must result in injustice, and what I am trying to show here is that there is no injustice suffered under the Capital Gains Tax to persons who, in fact, realise substantial capital gains as a result of compulsory acquisition. Any grievance they might have against the community arises from the whole theory of compulsory acquisition, but that is a very different matter and has been accepted by Parliament for many years.

Mr. Edward Heath (Bexley)

The hon. Gentleman is not dealing with the point which concerns most hon. Members of the Committee. He will accept that, although he speaks of the Committee having accepted the various matters which he describes, we have bitterly opposed very large parts of them because we consider that, far from establishing justice, the Government's proposals establish injustice.

The point I make at this stage is that this is a forcible realisation. Leaving aside all question of whether a person thinks he has got the right amount of Money or not, in many circumstances he may wish to replace what is being forcibly realised. His shop is taken. He wants to replace that shop. But he cannot do so because the Government take 30 per cent. of it. This is the simple point about compulsory acquisition, and all we are saying is that there is no justice in the State forcibly acquiring a man's shop and then the man not having the money to replace it somewhere else.

Sir Eric Fletcher

The problem of replacement is not limited to the case of a person whose property is acquired. Plenty of people sell their property voluntarily with a view to replacement or moving elsewhere, and there are provisions in the Bill about that in the case of traders. It is common to all citizens, whether they sell their property or whether it is compulsorily acquired, that they have the problem of acquiring something to take its place. There is no distinction between the two cases on which to found that argument.

Mr. Heath

The Minister will recognise the difference between doing something voluntarily, when one has to accept the consequences of one's action, and something being forced upon one by the State through compulsory acquisition. Surely, even the Minister in his most courteous mood can recognise that.

Mr. Temple

I am extraordinarily puzzled by the Minister's attitude. He has argued the case on the basis that we think there is something wrong with the compulsory purchase procedure. We do not think that at all. My hon. Friend the Member for Wycombe (Mr. John Hall) had a splendid grip of this aspect of the Bill. He seemed to play the Bill as though he was playing a piano, picking on this provision and that with enormous skill. He had the Minister himself puzzled throughout almost the whole of his speech because it was so intricate and brilliant.

I have taken part in the Committee stage of many Bills since I have been in the House, and I cannot recollect an occasion when an Opposition Front Bench spokesman has said that he was making the case with the exception of the most important part and that he would leave that to one of his hon. Friends. In fact, my hon. Friend knew perfectly well that there was an Amendment down in my name which dealt with, I think, the most delicate and important part of this subject.

The Minister without Portfolio said that he wanted a Capital Gains Tax which was fair and equitable. I draw his attention to the precedent set by my right hon. and learned Friend the Member for Wirrall (Mr. Selwyn Lloyd). When he introduced his Capital Gains Tax, he added a special provision to cover land and buildings acquired compulsorily. My right hon. and learned Friend is a man of very fair judgment. When he introduced the Finance Bill of 1962, there was no special provision to deal with this matter. It was put forward as a special case in Committee and accepted in principle by my right hon. and learned Friend. Then my right hon. Friend the Member for Hampstead (Mr. H. Brooke), then Chief Secretary to the Treasury, accepted the argument on Report and brought forward what is now paragraph 16 of the Ninth Schedule to the Finance Act, 1962.

I admit that, before the Minister without Portfolio spoke, I had it in mind to make a comparatively short speech just to put the case on behalf of farmers, but he has given me no encouragement whatever to put the case shortly. It is a powerful case, and I shall do by best to see that it is presented very fully to the Committee.

My right hon. and learned Friend the Member for Wirral precedented the case for a special exemption being given under Capital Gains Tax in the event of land and buildings being compulsorily acquired. My hon. Friend the Member for Wycombe said that there were cases in which parts of agricultural holdings would be acquired. I believe that this case rests not only on the case of the whole of a farm being taken—that is unusual—and the more powerful arguments arise in the event of partial acquisition of a farm.

I shall have to give one or two examples. Take the case of a 100-acre farm which has, say, 10 acres taken from it for the construction of a new bypass or trunk road, or for some other purpose. The farmer, if he is the owner-occupier, gets full compensation and may get additional compensation from the acquiring authority under the Agriculture (Miscellaneous Provisions) Act, 1963. But my argument does not rest on the case that he either gets too much or too little, but on the fact that he gets compensation and that, with that compensation, he is required, under Clause 31, to reinvest the money, if he is to avoid the Capital Gains Tax, in a similar form of investment.

Here is the great difficulty. The small farmer, or even the large farmer, has practically no chance of acquiring another 10 acres of land adjacent to his holding. If he wishes to acquire a similar investment the only thing he can do is go to another part of the county or of the country to find a somewhat similar piece of ground, possibly not of the same acreage but of the same value. A holding today is normally managed by the farmer and one worker, or possibly by the farmer himself alone. It is unrealistic to think that a farmer can run two holdings fragmentated just because he has to reinvest the money that he has acquired through the compulsory acquisition of his land.

If the Minister pursues his argument and insists upon these conditions in Clause 31 he will bring about the fragmentation of holdings and will succeed in sending farmers round the country in order to acquire a similar type of object—in this case, a piece of agricultural land—so that they can avoid being caught by Capital Gains Tax by reinvesting like with like.

If the hon. Gentleman pursues his argument, anyone who has agricultural land or buildings compulsorily acquired will immediately have to set about acquiring, for a similar value, agricultural land or buildings in another part of the country—it will not matter where because he will be able to do it within a wide area. He will then look for a holding that he really wants. When he finds that, he will be able to sell the holding he had to acquire quickly as a result of compulsory purchase and set himself up once again.

I must point out that it is extraordinarily difficult today to get an agricultural holding at all. It is even more difficult to get a holding which is comparable in size and value with the one from which one has been dispossessed. I have made the case with regard to the whole of a holding, but the case is in- finitely more difficult where there is a partial acquisition.

The Minister of Housing and Local Government addressed a Women's Institute conference in London this week. He informed the assembly that it would be necessary to acquire a great deal of land, particularly in the South-East, for housing the enormous amount of overspill he expects. So this is not an imaginary problem. It will face not only the South-East, but the North-West as well. I see that my hon. Friend the Member for Runcorn (Mr. Carlisle) is here. Runcorn is an important new developing town, very close to the City of Chester. This is a problem which will affect many parts of the country.

I cannot believe that the arguments of the Minister in rejecting the Amendment would be as valid if they were deployed specifically against my Amendment No. 353, which would limit the scope of the application of this exemption specifically to land and buildings. The case for the exemption of land and buildings is almost overwhelming and I hope very much that the hon. Gentleman will address himself to the serious case I have put forward, which is well precedented in the 1962 Act.

While I am referring to the 1962 Act, perhaps I may say that it was a pleasure to get hold of an Act which runs to about 35 Clauses and a few Schedules. How much better and wiser it would have been for the Government not to have embarked on this enormous Bill. I do not believe that the Ministers in charge understand the whole of its ramifications.

The Deputy-Chairman

Order. The hon. Gentleman is getting away from the Amendment.

Mr. Temple

I was about to say, Sir Samuel, that they do not understand the ramifications of the Bill, particularly the ramifications of the effects of compulsory purchase. I hope very much, therefore, that we shall have a more satisfactory reply, addressed specifically to Amendment No. 353.

7.45 p.m.

Mr. R. H. Turton (Thirsk and Malton)

I am sorry to say that the Minister without Portfolio, I thought, dealt with this very serious Amendment with a degree of levity. This is one of the most difficult parts of the Bill. The compulsory purchase payment has many elements. There is the element of the replacement of land. There is the element of severance. There is the element of disturbance. One cannot validly compare the April, 1965, value or the value when acquired with the amount of the compulsory purchase payment, because one is comparing unlike with unlike. We have to find a solution for the problem.

I can give instance after instance in my area where, quite clearly, to apply this Clause without amendment will cause great injustice to small people. I can think of one case where, at present, there is the project of a by-pass round the town and a small market gardener is refusing to vacate his market garden until the compulsory purchase order comes, because he cannot find anywhere else to carry on his trade. Eventually, when the order goes through, he will be given compensation not only for his land but for disturbance. But he will then have a 30 per cent. Capital Gains Tax levy on that.

Mr. Donald Chapman (Birmingham, Northfield)

But Clause 31 will allow a further 12 months in which to find alternative land for his holding, and that need not be in the immediate area. It is not right to say that this man will have no option when dispossessed but to pay this tax.

Mr. Turton

I am grateful for that intervention. It is what I expected. In this case, the market gardener has for three years been trying to find some place else to have his market garden. It is not easy, especially in developing areas such as the North-East, to find land for market gardens.

Mr. Dance

Surely the hon. Member for Birmingham, Northfield (Mr. Chapman) has missed the point—that one does not necessarily find an alternative farm or accommodation within the same area. My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) is bringing out this point extremely well.

Sir Eric Fletcher

On a point of order, Sir Samuel. It might be for the convenience of the Committee if I put this point to you. The speech of the right hon. Member for Thirsk and Malton (Mr. Turton) is directed at the moment to the difficulty of finding a replacement as alternative accommodation following a compulsory purchase order. On Clause 31, which deals with replacements, there are a number of Amendments to be considered designed, inter alia, to extend the period. Perhaps it might be more convenient to deal with this matter when we reach Clause 31.

Mr. Turton

Further to that point of order, Sir Samuel. That would not be a satisfactory way of dealing with this. I am not dealing with replacements but with the compensation of people who cannot get any replacements. That is the difference. There are three factors in a compulsory purchase—the land, the severance and the disturbance. There are many cases when people have no way of using Clause 31 in mitigation, and so we return to this Clause.

Let us consider severance. With all the improvements of the Great North Road through my constituency there have been farmers who, most unwillingly, have had to give up areas of their farms because the road cut right through the farms. They have had enhanced compensation because of the disturbance to their farms. They cannot go and find three acres to add to the farm to try to get a unit, and so they get compensation. I may add that the payment is usually not assessed until some three years after the road has been built, and I have known of one case in which it was six years. This is one of the difficulties which will have to be dealt with. It is quite wrong to assess a tax on the difference between the acquiring value, or the 1965 value, and the payment actually made by a local authority for a parcel of land.

When this proposal is compared with the way in which the Committee has already dealt with similar compensation under subsection (6), the inequity becomes even greater. Under subsection (6), anyone who receives compensation for injury to his person or vocation generally is to be exempted from paying Capital Gains Tax on it. I presume that the "golden bowler" will not be subject to the tax, but my little farmer with the road thrust right through his farm will be.

The right way to deal with this matter is to try to extract from the compensation payment that part attributable to severance or disturbance, and like could then be compared with like. I hope that the Minister will address himself more seriously to what may constitute a very great inequity to many people who will find it very hard to bear.

Mr. Chapman

The argument of hon. Members opposite is misguided. If there is a case—and I very much doubt it—the right way to correct the matter is by an Amendment to Clause 31, which I shall not debate now. What the right hon. Member for Thirsk and Malton (Mr. Turton) has said is that there may be cases, and in his knowledge there are, coming under Clause 26 where a man, once dispossessed, cannot find a piece of land or business which is in the same class of asset as defined in Clause 31 and in which he can reinvest his money within 12 months.

If that is true, and I shall be interested to listen to the case with a perfectly open mind, the right answer is to broaden the class of assets within which he may change the disposition of his money within the 12-months' period under Clause 31. That and not the way of the right hon. Gentleman is the right way to deal with this matter. What the right hon. Gentleman is suggesting would drive a coach and horses through the whole concept of the realisation of capital gains.

What I have suggested would be a much more logical and fair way of doing it and would give greater leeway in these difficult cases, more room for manoeuvre, if it could be proved to be needed when we reached Clause 31. At the moment, we should be very misguided if we accepted the Amendment.

Mr. Mark Carlisle (Runcorn)

I cannot accept the view of the Minister without Portfolio that as a Committee we have already in principle accepted that tax should be paid on assets which are disposed in this way. There is a complete difference of principle between the voluntary disposal of assets and the disposal of assets unwillingly, involuntarily and as a result of administrative decisions by the Government, or a local authority. It cannot in any way be social justice for a person whose livelihood is taken from him against his will by an administrative decision to be told that nevertheless he is to be taxed on any gain which may have accrued.

I want to deal with the Amendment as it affects my constituency. As a new town, Runcorn is concerned with a new town development corporation and, because of this, many farmers in the area are about to have their land compulsorily purchased. They do not want to give it up and they do not want to lose the livelihood. I am sure that they accept that, the decision having been made that the new town is necessary, they will lose their land, but it is not sufficient to say that they can avoid taxation by turning to Clause 31—if they succeed in understanding it—to see how they can be exempted from taxation.

Firstly, as it stands—and we do not know what will happen to Amendments to Clause 31—the Clause says that money has to be reinvested within a period of 12 months. As my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) said, many of these people cannot easily acquire other farmland. In Cheshire, for example, farmland is not easy to acquire at the moment and although they might like to acquire a similar farm elsewhere and to reinvest their money it it, in practice many of these people will not be able to do so.

On top of that, it is absolute nonsense to limit the time in which a person should be able to avoid taxation on the paper gain from the sale of the asset by reinvesting it in a similar asset when the whole working of the new town development corporation is on the basis that a man is encouraged to dispose of the asset in advance of the time when he will have to leave the farm. The purpose of the Amendment is simply to allow him longer to look around for an alternative farm. As things stand, a man is being encouraged to negotiate to dispose of the assets to the corporation in advance of the time when it is required for development, but, having done that, he will be unable to take advantage of Clause 31, because the time limit will have been passed before he gets to the stage of reinvestment, even if he is able to find a similar farm.

The second consideration affects not so much the man who loses his whole farm as the man who loses part of his land, the example to which my hon. Friend the Member for the City of Chester (Mr. Temple) referred. Someone near a new town area may have part of his land acquired—it may be a farmer part of whose land is acquired for the purpose of building a new road, or something of that nature, a socially necessary acquisition of the land by the community, but thoroughly awkward and annoying for the man concerned. He is paid compensation, and that compensation has three elements. He is compensated for the value of the land, for the severance which may have occurred and, most important, for the injurious effect on the remaining part of the holding due to the loss of part of the farm. In other words, if a man with a Cheshire farm of 80 acres loses 30 of it, in calculating the compensation for those 30 acres I understand that the fact that he has only 50 acres left is taken into account in assessing the effect on his livelihood. Surely it cannot be seriously suggested by the Government that that part of his compensation is a capital gain accruing to his farm.

8.0 p.m.

Is the farmer not only to lose part of his land and to have his means of earning a livelihood reduced, but in addition to be taxed on compensation give against future loss of income? Even under this Government and the recent Price Review, surely a farmer is entitled to expect, as the return for his work on the farm, to get something more than merely the equivalent return which he would get by investing the money in some form of security. It is wholly wrong in principle that involuntary dispositions of land should attract taxation by the Government.

When one considers the Clause in detail, one realises that it is full of injustice. It is not a question, as the Minister suggests, of getting social justice by putting one's brush over the full area of capital gain. In fact, it leads to injustice. I hope that if the Minister is concerned, as the Chancellor of the Exchequer has said on many occasions that he is concerned, to institute a Capital Gains Tax which is socially just he will reconsider the speech which he made on this issue and accept this Amendment or some Amendment later which will deal with the points which we have raised.

Mr. Bessell

There is one point which I should like to raise in supporting the Amendment, which I believe is a very important Amendment and which I hope will have the very careful consideration of the Minister without Portfolio and the Chancellor of the Exchequer. It concerns a person who owns a business or a farm and who has to part with his possession under a compulsory purchase order and then, because he is unable to buy a similar business or farm, reinvests his money in a business of a different type.

The Financial Secretary was unequivocal the night before last in stating that when an individual sold a business of a particular kind and reinvested the money in a different business he would be subject to a Capital Gains Tax. Are we to understand that somebody whose business is taken from him, at however equitable a price, under a compulsory purchase order and who is unable to reinvest his money in a similar business will find himself in the same position as a person who makes a voluntary sale? If so, I believe that there is a very grave injustice which must be corrected.

There is often a very long delay between the notification of a compulsory purchase order and its execution. I have a case in my constituency at the moment of someone who was notified two years ago that his house would be acquired under a compulsory purchase order when a road widening scheme took place. He has not been able to do anything with his property. He has not been able to sell it, quite understandably, and I do not want to enter into the rights and wrongs of that case.

But if the Clause goes through unamended I can foresee a situation in which somebody is notified of a compulsory purchase order and a long delay—perhaps as much as five or six years—takes place before the order is executed, during which time he suffers a considerable loss on the value of his property. Nevertheless, any increase in its value which may have taken place in the intervening years which he might offset against that loss he would again lose by virtue of this tax being applied under the compulsory purchase order.

Mr. Chapman

How could he lose money over a period of years as a result of the threat and the property at the end be worth more?

Mr. Bessell

It is normal—and I am sure that the hon. Gentleman realises this—that when the value of the property is assessed for the purposes of the compulsory purchase order to take it at approximately current market value. But during the intervening period the owner will not have had the benefit of his money which he might have had if the compulsory purchase order had been executed at the time that he was notified. There is no question about this. There are many examples of this injustice. If the hon. Gentleman wishes, I will be pleased to supply him with a number of examples.

There are two points which must be clear to most hon. Members, even if they are not clear to the hon. Member for Birmingham, Northfield (Mr. Chapman). What is the position of the person who is compelled to sell his business and is unable to reinvest his money in an identical business? Secondly, what is the position of a person who suffers delay in selling his property by virtue of a compulsory purchase order which is not executed for some years? These are important issues which must be cleared up. I trust that the Opposition will press this Amendment to a Division.

Mr. Corfield

I must admit that when I saw the second eleven, so to speak, on the Treasury Bench I hoped that we should have a more realistic approach to the Amendment. Earlier, when the Financial Secretary was here and I made an intervention during discussion of a similar Amendment, I was taken to task for using argument. That is what we are here for. This is what I propose to endeavour to develop.

The Minister without Portfolio seemed to take the view that, good as the speech of my hon. Friend the Member for Wycombe (Mr. John Hall) was, he had said all that there was to be said, that he, the Minister, did not agree with it and did not intend even to consider that something more could be said which was worth listening to. I hope that that does not sum up his attitude, because we on this side of the Committee feel strongly that there is a distinction in this type of disposition.

The whole basis of compensation for the compulsory acquisition of land is that the land concerned should be left neither worse off nor better off. In other words, the purpose is that he should not make a profit. Therefore, on the face of it, to charge a tax on a gain, which is another word for a profit, would appear to be a nonsense from the outset.

The Minister went on to say that we had accepted this Capital Gains Tax, and my right hon. Friend the Member for Bexley (Mr. Heath) properly pointed out that that was a slight euphemism of the English language, whatever it might mean in strict constitutional terms. But, having saddled the country with this tax, we have a situation in which the Minister says, "But we have extended this to involuntary dispositions on death. Therefore, it is logical to extend it to every other involuntary disposition".

None of us has control over the date on which we die or the state of our affairs at the time. Throughout our law there are distinctions as to the way in which we deal with the estates of deceased persons and the way in which people manage their affairs while they are alive. The great distinction is that in all other cases it will be entirely open to the individual to manage his affairs so that he has a choice as to when a disposition of an asset takes place on which Capital Gains Tax might be levied.

This is one of the main differences. There is no choice of timing. This again, I suggest, is something which gives rise to a prima facie case which, on its own, wants special consideration.

My hon. Friend the Member for the City of Chester (Mr. Temple) has dealt with some of the agricultural problems. He might have added, as I am sure was at the back of his mind, that the very fact that all this land is lost every year, with approximately the same number of farmers seeking it, means that it becomes increasingly hard to find alternative premises. The Minister suggested that this should be cured by extending the time under Clause 31. That, however, is only a small part of

the problem, because the chances are that the man must buy at a higher rather than a lower price, bearing in mind that a great deal of the purposes for which land is acquired in the countryside are purposes in which the basis of compensation is agricultural value and agricultural value only.

The point which I wish to take up is that touched upon by my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) that the compensation figure in a normal case, to which my hon. Friend the Member for the City of Chester referred, is divided into several elements: compensation for the land taken, compensation for disturbance and compensation for severance from, and injurious affection to, the land that is left.

In my earlier intervention, the Financial Secretary seemed to think that it was almost puerile to suggest that one would not pay capital gains on the element of compensation due to injurious affection. Even if that is so and if the Government can deploy an argument to support it, how does one calculate it? This is an element of compensation which arises from the damage done to the land that is left as a result of the other land being taken away. The basis of compensation, both for severance and for injurious affection, is, so to speak, the difference between the before and after values: the value of the land before the severance compared with the value of the land that is left after severance. How on earth is one to tie that to anything on which a capital gain can be based? Must one go back and say that when the man bought the farm, the severance would have resulted in a lower figure of injurious affection and that, therefore, be pays Capital Gains Tax on the difference?

If that is done, what sense does it make? The whole purpose of this compensation is to compensate the man for the loss of profit on that which is left. It is something which will, one hopes—it seldom does—compensate him for the loss of profits over the years to come. To tax him at that point defeats the whole object of the exercise.

I suggest to the Minister without Portfolio—I hope that he is not now also the Minister without a brief—that he should tell us how this will be done and, if he does not know, that he should take the matter back and examine whether it makes sense to include in particular these elements of compensation which are directly payable for the severance or injurious affection, let alone the disturbance which is paid to meet actual outgoings which the man has to find as a result of his disturbance.

I hope, therefore, that the hon. Gentleman will advert to this point. The fact that it is not an easy point calls for a full explanation from the Treasury Bench, including the reasons why right hon. Members opposite think, if they still do, that the Financial Secretary was right in saying that this was an element on which capital gains would be payable.

8.15 p.m.

Mr. More

The argument has been so ably argued by my colleagues on this side that I would not wish to add anything but for the fact that this is a problem which directly affects my constituency. We have in the Ludlow constituency the largest new town in England in course of early development and we are to have hundreds of examples of farms being bought compulsorily either in whole or in part.

I was glad to hear the explanation given by my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), because it bears out how grossly inappropriate in the context of compulsory acquisition appears to be the formula under the Bill for calculating values and calculating the chargeable gains. The first thing that the Minister without Portfolio must do is to look at this formula in the light of compulsory acquisition.

The case which has been referred to by my hon. Friends the Members for the City of Chester (Mr. Temple) and Runcorn (Mr. Carlisle) of partial acquisition, which is of great importance, is something which I constantly see in my constituency. Farmers do not like being dispossessed. If they can hold on to their farmhouse, which is their home, they will do so but they might be losing 20, 50 or 100 acres of farm. To suggest that all they have to do is to go out and replace them by buying another 20, 50 or 100 acres is nonsense and not a reality. If they could find it at a distance, it would still not be a businesslike proposition. It means that they are faced with the choice of losing their homes or facing permanently a reduction in the scale of their business.

When one considers that in the light of what has been so clearly expounded by my hon. Friend the Member for Gloucestershire, South as regards the compensation provisions and the whole basis on which it is calculated, the Comrnittee must realise that there can be no real fairness in the way the Bill is drawn.

Sir Eric Fletcher

I do not know whether it would be convenient at this stage if I tried to answer the questions which have been raised by hon. Members. I assure them that no discourtesy whatever was intended when I rose immediately after the hon. Member for Wycombe (Mr. John Hall), who moved the Amendment, because at that time I hoped, in answer to his request, that T should be saving the time of the Committee.

I appreciate that a number of serious problems have been raised by the right hon. Member for Thirsk and Malton (Mr. Turton), the hon. Member for Gloucestershire, South (Mr. Corfield) the hon. Member for Runcorn (Mr. Carlisle), the hon. Member for the City of Chester (Mr. Temple) and others and I am anxious to deal with the points which they have made. I must, however, preface my remarks by repeating that, although there are these cases in which difficulties arise, nothing that has been said in this debate leads me to modify in any way the conclusion which I expressed when I spoke earlier giving the reasons why it would he impossible for the Government to accept the Amendment.

The principle must remain that if anybody enjoys a capital gain as a result of a compulsory acquisition, he should be subject to the same Capital Gains Tax as if he had made a voluntary disposition. One reason is that apart from the particular cases which hon Members have in mind, and the circumstances of which I do not deny, there must be a whole range of other cases in which these problems do not arise. To make a general rule that nobody should be subject to a Capital Gains Tax if his property is compulsorily acquired and he derives the benefit of a capital gain would be irresponsible.

On the other hand, one recognises that there are special problems in connection with agricultural land. They do not arise, however, in connection with a great many other instances of compulsory acquisition in which people derive substantial capital gains which, in our view, on principle should be taxed.

I intervened earlier because it seemed to me that if this principle is accepted and if the Amendment is either withdrawn or negatived, it will be reasonable when we reach Clause 31—that was why I thought it premature to deal with it at this stage—and even more so when we come to paragraph 7 of the Sixth Schedule, to deal with some of these problems.

I will explain why. The hon. Member for Bodmin (Mr. Bessell) said that if somebody is dispossessed by virtue of a compulsory purchase order, he has difficulty in finding an alternative place to carry on his agriculture or his trade within 12 months. Amendments have been put down to Clause 31 to deal with that problem. There is an Opposition Amendment suggesting that the period should be extended from 12 months to three years. The Government realise the difficulty, and my right hon. Friend the Chancellor of the Exchequer has put down an Amendment which in certain cases will enable a delay beyond three years to take place. Therefore, that point is conceded.

Mr. Bessell

Would the hon. Gentleman address himself to the point that I made? What about the person who is dispossessed of his business under a compulsory purchase order, and is then compelled, in order to obtain a livelihood, to buy a different kind of business because he cannot buy a similar one? He is the person who will be badly penalised if the words of the Financial Secretary the other night are to be accepted.

Sir Eric Fletcher

I must be candid about this. At the moment, if somebody cannot rehabilitate himself in a similar business, he will not get the benefit of Clause 31, but we have not come to that Clause. There are a number of Amendments down to it. No doubt we can have a useful discussion about them, when we come to that Clause, and the point can be made then. It can be argued that there ought to be some extension of that Clause, but that does not arise on this Clause.

Mr. Temple

Fragmentation would never be dealt with under Clause 31, however long the period of grace. I addressed myself to the problem of fragmentation.

Sir Eric Fletcher

Let me deal with that. Fragmentation arises more directly under Schedule 6(6) on page 130, about which we shall no doubt have a useful discussion when we reach that part of the Bill.

It may well be that problems of compensation and the incidence of Capital Gains Tax will arise where part only of an agricultural holding is compulsorily acquired. I think that it was the hon. Member for Runcorn who gave the illustration of a person with a holding of 80 acres, of which 30 were compulsorily acquired, and said that Parliament must make some provision for calculating the basis on which Capital Gains Tax is charged on any compensation resulting from that compulsory acquisition.

The Government's proposal is that that problem shall be solved by applying the formula set out on page 130. Admittedly it involves an algebraic calculation, but these matters are inevitably complicated. The Government have attempted to meet the situation by proposing a formula for arriving at the calculation of compensation which is fair and equitable. I have no doubt that Amendments will be put down to that part of the Schedule when we come to it, but it seems to us—and this is the basis of the Government's proposals on the subject of fragmentation—that if part of a person's land is acquired, two things have to be done: first, we may have to divide the compensation, and I shall come back to this, because I appreciate that compensation may include something for the value of the land, something for the severance, and something for injurious affection.

Let us assume a simple case in which there is only one element, a straightforward figure of compensation for—

Mr. Temple

Why not consider a complicated case?

Sir Eric Fletcher

I thought that it would be easier to deal first with a simple case, and then come to a complicated one.

In a simple case in which, as the hon. Member for Runcorn suggested, 30 out of 80 acres are acquired, one has first to ascertain the basic value of the whole 80 acres, either at the 1965 price, or, if subsequently, the price at which they are acquired, because there is no price for the 30 acres. One has to ascertain the price of the whole. Then, if one looks at paragraph 7 of Schedule 6, one does a sum whereby one takes the compensation for the 30 acres, values the remaining 50 acres, calculates what represents the sum of compensation, and divides that by the compensation plus the then market value of the remainder. One then ascertains, by comparison, the original value of the whole, and one sees what is the appropriate capital gain applicable to the 30 acres which have been compulsorily acquired. We think that in that way a fair result is achieved. That is the simple case.

Mr. Corfield

rose—

Sir Eric Fletcher

In view of the many taunts that we have been receiving over the past few days that Ministers at this Box do not understand the Bill, I think it is important that occasionally we should show that we have made a thorough study of it and understand in complete detail how it works.

Mr. Corfield

The hon. Gentleman said that the case he gave was a simple one, in preparation for a more complicated one. Will he give us an assurance that all these valuations will be paid for by the empowering authority?

Sir Eric Fletcher

I would not have given way if I had thought that that question was to be asked.

Mr. Corfield

It is an important point.

Sir Eric Fletcher

Nevertheless, it interrupts the flow of my argument.

The right hon. Member for Thirsk and Malton, and the hon. Member for Bodmin asked a somewhat different question which will complicate the illustration which I have given, and that will arise where the amount of compensation is divisible as to part expressly for the value of land, and in part for disturbance, and so forth. This may well affect negotiations that take place in future under our compulsory acquisition procedure. Where a sum of compensation was payable as a result of compulsory acquisition, it would not be reasonable for any Capital Gains Tax to be paid except upon that part of the compensation which was payable in respect of capital. If some part of the compensation is payable or can be properly appropriated to a non-capital element of the property acquired there will be no question of a capital gain arising on that part of the compensation.

Having stated that, it would be a mistake for me to pursue the matter in detail at this stage, because there are related matters which will flow from this decision that there should be capital gains on compulsory acquisition. They are matters which do not arise on this Clause but which arise partly on a later Clause and partly on a Schedule, and they may be the result of future negotiations arising out of compulsory acquisition.

I have done my best to explain the reasons why the Government cannot accept the Amendment, and I must ask my right hon. and hon. Friends to resist it.

8.30 p.m.

Mr. Dance

One of the greatest problems faced by hon. Members on this side of the Committee is that Ministers seem to have no idea what agriculture means—or do not want to take any interest in it. Until the Minister without Portfolio replied I had hoped that I would have got a more satisfactory answer from him about tenant farmers and the compulsory acquisition of their land than I heard previously from the Financial Secretary to the Treasury.

What is not realised is that the whole life of a tenant farmer has been built up in farming. His whole living has been in farming, and that is probably the case with his children. He probably has no other skilled knowledge, but his knowledge of farming is skilled. If his farm is compulsorily acquired he will, therefore, try to find another farm. A tenant farmer of mine has built up an extremely valuable milk round, starting from nothing. That is in addition to his farm. People like to buy his milk. It is not sold through the Milk Marketing Board; it is his own milk.

I have been fighting for compensation for this man, and I hope that he will receive an adequate sum. What do the Government propose to do about him? When he hands over the milk round he will, quite rightly, have made a capital gain. Will it be subject to the tax of 30 per cent? It has taken him years to build up this milk round. Let us assume that he finds another farm. It will take him years to build up another milk round on comparable lines. That important point must be considered. I hope that the Government will take action in the matter, because this question is vitally important.

When my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) was a Minister I fought for proper compensation for tenant farmers whose land was compulsorily acquired. Redditch is scheduled to be a new town, and many farmers in the area will be dispossessed in the near future. It is absolutely iniquitous that if these people make a small capital gain they should be charged on it. It is all very well for the hon. Member for Birmingham, Northfield (Mr. Chapman) to say that they can find another farm within a year. They cannot. I have said it twice and I will say it again; these farms just do not exist, and it is especially difficult when many farmers are dispossessed at the same time in the same area.

Such a farmer may be able to go into Wales, into a hill farm, but the question of good husbandry has to be borne in mind. A tenant farmer may have farmed his land really well for years, and may have made it productive. He may receive reasonable compensation when he is dispossessed. If he succeeds in finding another farm it is certain that it will not be in the same nick as his own. He will have to put in a lot more capital and money to bring it up to the same agriculture productivity as that of the land that he has has to give up.

Mr. Barnett

The farmer is not selling the land. The increase is in the manurial value, in which case he would have had to pay Income Tax before. He is not affected by the Capital Gains Tax. Under the old law he would have had to pay Income Tax.

Mr. Dance

That is the whole point. Hon. Members opposite do not understand farming or farmers. The farmer receives compensation when he goes out. If he has to pay tax on it, that is wrong. In any case this is not profit. This is compensation for disturbance. In my opinion, he should retain every penny and not be robbed of the 30 per cent. which the Government are taking. When listening to the explanation of this most complicated formula which was given by the Minister without Portfolio I wondered whether he had added in at the end the Hungarian.πr²

Sir Richard Glyn

I wish to ask my hon. Friend whether he has considered that if it be right that there are circumstances in which compensation is liable for Income Tax it would still be liable to Capital Gains Tax, also?

Mr. Dance

That is perfectly true.

The point I am trying to make, whether it be in respect of farming or businesses, is that we are being milked enough at present in respect of Income Tax without having this iniquitous tax which the Government suggests. It really is too much. I hope that this matter will be reconsidered. The tenant farmers are the backbone of our country. They save us millions of pounds which otherwise might be spent on imports. They should be protected and not milked in the way the Government propose.

Mr. Scott-Hopkins

I consider that the answer of the Minister without Portfolio was disappointing. He did not answer any of the points made by my hon. Friend the Member for Wycombe (Mr. John Hall) and it was not until my hon. Friend had intervened that he turned his attention to the main point of the argument and the basis of the whole case which we are advancing.

The Government have adopted the same attitude in this debate as to the other matters which we have discussed. The Minister's argument is that the principle of the Capital Gains Tax must apply regardless of equity and the damage which it may do and regardless of the consequences it will have not only on the farming industry, but on everyone concerned.

The Minister does not seem to be able to appreciate what we have been saying about these cases of compulsory purchases, where the person whose land or property is being acquired does not wish that to happen. I hope that the Minister will accept that there is a difference between a voluntary disposal of an asset, from which any gain would be liable to be taxed, and a compulsory purchase. We have heard several informed speeches from my hon. Friends and I do not intend to go over the whole argument again.

I ask the Minister to pay particular attention to the speech of my hon. Friend the Member for Gloucestershire, South concerning the splitting of the compensation factor. He has not answered the case which was advanced by my hon. Friend. I do not expect the Minister to intervene again, but I hope that he will study in the OFFICIAL REPORT what has been said so that perhaps at a later stage an Amendment may be brought forward that would be acceptable.

The arguments advanced by my hon. Friends the Members for the City of Chester (Mr. Temple) and Runcorn (Mr. Carlisle), concerning fragmentation, have not been answered properly. Where a part of a farm is hived off, a farmer is expected to reinvest the resulting capital within a period of a year. It may be that it will be expended in two or three years on a similar type of asset, but, as has been pointed out by my hon. Friends, it will be extremely difficult to do that. Farming land is becoming more scarce all the time, yet we are told that farmers should, when their land is compulsorily purchased reinvest in similar types of farms. I hope that the Government will realise how incredibly difficult it is for farmers to obtain other farms in these circumstances.

I agree that when the Minister dealt with the question of apportionment it appeared that he had done his homework. Certainly, he read his brief remarkably well. However, he did not answer the main burden of the argument adduced by my hon. Friends about the grievance that farmers have and the fact that it is almost impossible for them to find comparable farms.

The hon. Member for Bodmin (Mr. Bessell) spoke about compensation payments which were below average, yet the Minister did not attempt to reply to that point. I could give many other illustrations of arguments being adduced and the Minister not replying to them. He cannot consider that he answered the discussion fully. It goes to show that the Government have not faced up to what they are doing. It is obvious that the Minister and his colleagues do not understand the implications of their actions on the farming industry and on other property and businesses. This is particularly true when we consider the Capital Gains Tax in relation to compulsory purchase orders.

My hon. Friends and I consider that the Government are being unjust by imposing this tax on people whose property and land is compulsorily acquired. I hope that after the amount of time and work we have put in on the Bill good sense will prevail and the Government will agree to consider this matter afresh. If not, I must advise my hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 160, Noes 173.

Division No. 150.]	AYES	[8.43 p.m.
Agnew, Commander Sir Peter	Gurden, Harold	Murton, Oscar
Allan, Robert (Paddington, S.)	Hall, John (Wycombe)	Neave, Airey
Astor, John	Hamilton, M. (Salisbury)	Noble, Rt. Hn. Michael
Atkins, Humphrey	Harris, Frederic (Croydon, N.W.)	Nugent, Rt. Hn. Sir Richard
Barber, Rt. Hn. Anthony	Harris, Reader (Heston)	Onslow, Cranley
Batsford, Brian	Harrison, Brian (Maldon)	Osborn, John (Hallam)
Beamish Col. Sir Tufton	Harrison, Col. Sir Harwood (Eye)	Page, R. Graham (Crosby)
Bennett, Sir Frederic (Torquay)	Harvey, Sir Arthur Vere (Macclesf'd)	Peyton, John
Berkeley, Humphry	Hawkins, Paul	Pickthorn, Rt. Hn. Sir Kenneth
Berry, Hn. Anthony	Hay, John	Pounder, Rafton
Bessell, Peter	Heald, Rt. Hn. Sir Lionel	Powell, Rt. Hn. J. Enoch
Biffen, John	Heath, Rt. Hn. Edward	Price, David (Eastleigh)
Biggs-Davison, John	Hendry, Forbes	Prior, J. M. L.
Birch, Rt. Hn. Nigel	Hiley, Joseph	Pym, Francis
Black, Sir Cyril	Hill, J. E. B. (S. Norfolk)	Ramsden, Rt. Hn. James
Box, Donald	Hirst, Geoffrey	Rawlinson, Rt. Hn. Sir Peter
Boyd-Carpenter, Rt. Hn. J.	Hobson, Rt. Hn. Sir John	Redmayne, Rt. Hn. Sir Martin
Boyle, Rt. Hn. Sir Edward	Hopkins, Alan	Renton, Rt. Hn. Sir David
Brooke, Rt. Hn. Henry	Hordern, Peter	Ridley, Hn. Nicholas
Brown, Sir Edward (Bath)	Hornby Richard	Ridsdale, Julian
Bruce-Gardyne, J.	Hornsby-Smith, Rt. Hn. Dame P.	Roberts, Sir Peter (Heeley)
Buck, Antony	Hunt, John (Bromley)	Robson Brown, Sir William
Burden, F. A.	Hutchison, Michael Clark	Russell, Sir Ronald
Carlisle, Mark	Iremonger, T. L.	Sandys, Rt. Hn. D.
Cary, Sir Robert	Irvine, Bryant Godman (Rye)	Scott-Hopkins, James
Clark, William (Nottingham, S.)	Jenkin, Patrick (Woodford)	Sharp[...]es, Richard
Cooke, Robert	Johnson Smith G. (East Grinstead)	Shepherd, William
Cooper-Key, Sir Neill	Jopling, Michael	Sinclair, Sir George
Corfield, F. V.	Joseph, Rt. Hn. Sir Keith	Smith, Dudley (Br'ntf'd & Chiswick)
Craddock, Sir Beresford (Spelthorne)	Kerr, Sir Hamilton (Cambridge)	Stodart, Anthony
Crawley, Aidan	Kimbail, Marcus	Stoddart-Scott, Col. Sir Malcolm
Curran, Charles	King, Evelyn (Dorset, S.)	Studholme, Sir Henry
Dance, James	Kitson, Timothy	Summers, Sir Spencer
Davies, Dr. Wyndham (Perry Barr)	Lancaster, Col. C. G.	Talbot, John E.
d'Avigdor-Goldsmid, Sir Henry	Lloyd, Rt. Hn. Selwyn (Wirral)	Taylor, Edward M. (G'gow,Cathcart)
Dean, Paul	Longbottom, Charles	Thatcher, Mrs. Margaret
Deedes, Rt. Hn. W. F.	Lubbock, Eric	Thomas, Rt. Hn. Peter (Conway)
Doughty, Charles	MacArthur, Ian	Thompson, Sir Richard (Croydon,S.)
Elliot, Capt. Walter (Carshalton)	McLaren, Martin	Turton, Rt. Hn. R. H.
Elliott, R. W.(N'c'tle-upon-Tyne,N.)	Macleod, Rt. Hn. Iain	Walker, Peter (Worcester)
Errington, Sir Eric	McMaster, Stanley	Walker-Smith, Rt. Hn. Sir Derek
Eyre, Reginald	Marples, Rt. Hn. Ernest	Ward, Dame Irene
Fell, Anthony	Marten, Neil	Weatherill, Bernard
Fisher, Nigel	Maude, Angus	Webster, David
Fletcher-Cooke, Charles (Darwen)	Maudling, Rt. Hn. Reginald	Whitelaw, William
Foster, Sir John	Maxwell-Hyslop, R. J.	Williams, Sir Rolf Dudley (Exater)
Fraser,Rt.Hn.Hugh(St'fford & Stone)	Meyer, Sir Anthony	Wilson, Geoffrey (Truro)
Ciles, Rear-Admiral Morgan	Mills, Peter (Torrington)	Wise, A. R.
Cilmour, Sir John (East Fife)	Mills, Stratton (Belfast, N.)	Wolrige-Cordon, Patrick
Clover, Sir Douglas	Miscampbell, Norman	Woodnutt, Mark
Goodhew, Victor	Monro, Hector	Wylie, N. R.
Crant, Anthony	Morrison, Charles (Devizes)	Younger, Hn. Ceorge
Griffiths, Peter (Smethwick)	Mott-Radclyffe, Sir Charles
Grimond, Rt. Hn. J.	Munro-Lucas-Tooth, Sir Hugh	TELLERS FOR THE AYES:
		Mr. Ian Fraser and Mr. More.
Abse, Leo	Harper, Joseph	Orme, Stanley
Albu, Austen	Hazell, Bert	Oswald, Thomas
Allen, Scholefield (Crewe)	Holman, Percy	Padley, Walter
Atkinson, Norman	Houghton, Rt. Hn. Douglas	Page, Derek (King's Lynn)
Bacon, Miss Alice	Howarth, Robert L. (Bolton, E.)	Palmer, Arthur
Bagier, Gordon A. T.	Howell, Denis (Small Heath)	Pannell, Rt. Hn. Charles
Barnett, Joel	Hoy, James	Pargiter, G. A.
Bence, Cyril	Hughes, Cledwyn (Anglesey)	Park, Trevor (Derbyshire, S.E.)
Benn, Rt. Hn. Anthony Wedgwood	Hughes, Emrys (S. Ayrshire)	Parker, John
Binns, John	Hunter, Adam (Dunfermline)	Parkin, B. T.
Bishop, E. S.	Hunter, A. E. (Feltham)	Pavitt, Laurence
Blackburn, F.	Hynd, H. (Accrington)	Peart, Rt. Hn. Fred
Bottomley, Rt. Hn. Arthur	Hynd, John (Attercliffe)	Pentland, Norman
Bowden, Rt. Hn. H. W. (Leics,S.W.)	Irving, Sydney (Dartford)	Popplewell, Ernest
Brown, Hugh D. (Glasgow, Provan)	Jay, Rt. Hn. Douglas	Prentice, R. E.
Buchanan, Richard	Jeger, George (Goole)	Probert, Arthur
Butler, Mrs. Joyce (Wood Green)	Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Redhead, Edward
Callaghan, Rt. Hn. James	Jenkins, Hugh (Putney)	Rees, Merlyn
Carmichael, Neil	Jenkins, Rt. Hn. Roy (Stechford)	Roberts, Albert (Normanton)
Carter-Jones, Lewis	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)	Roberts, Goronwy (Caernarvon)
Chapman, Donald	Jones, J. Idwal (Wrexham)	Robinson, Rt. Hn. K.(St. Pancras,N.)
Coleman, Donald	Jones, T. W. (Merioneth)	Rodgers, William (Stockton)
Conlan, Bernard	Kelley, Richard	Ross, Rt. Hn. William
Corbet, Mrs. Freda	Kenyon, Clifford	Sheldon, Robert
Cousins, Rt. Hn. Frank	Kerr, Mrs. Anne (R'ter & Chatham)	Shinwell, Rt. Hn. E.
Crawshaw, Richard	Lawson, George	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Dalyell, Tam	Ledger, Ron	Short, Mrs. Renée (W'hampton,N.E.)
Darling, George	Lever, L. M. (Ardwick)	Silkin, John (Deptford)
Davies, Harold (Leek)	Lewis, Arthur (West Ham, N.)	Skeffington, Arthur
Dell, Edmund	Lewis, Ron (Carlisle)	Slater, Mrs. Harriet (Stoke, N.)
Dempsey, James	Lomas, Kenneth	Slater, Joseph (Sedgfield)
Diamond, John	Loughlin, Charles	Small, William
Dodds, Norman	Mabon, Dr. J. Dickson	Smith, Ellis (Stoke, S.)
Donnelly, Desmond	McBride, Neil	Snow, Julian
Driberg, Tom	McCann, J.	Soskice, Rt. Hn. Sir Frank
Duffy, Dr. A. E. P.	MacDermot, Niall	Strauss, Rt. Hn. G. R. (Vauxhall)
Dunn, James A.	Mackenzie, Gregor (Rutherglen)	Summerskill, Hn. Dr. Shirley
Edwards, Robert (Bilston)		Swain, Thomas
Ensor, David	McLeavy, Frank	Tinn, James
Evans, Albert (Islington, S.W.)	MacMillan, Malcolm	Tuck, Raphael
Evans, Ioan (Birmingham, Yardley)	MacPherson, Malcolm	Urwin, T. W.
Fletcher, Sir Eric (Islington, E.)	Mahon, Peter (Preston, S.)	Varley, Eric G.
Fletcher, Ted (Darlington)	Mallalieu,J.P.W.(Huddersfield,E.)	Wainwright, Edwin
Fletcher, Raymond (Ilkeston)	Mapp, Charles	Walden, Brian (All Saints)
Foot, Sir Dingle (Ipswich)	Mason, Roy	Wallace, George
Foot, Michael (Ebbw Vale)	Mayhew, Christopher	Weitzman, David
Ford, Ben	Mellish, Robert	White, Mrs. Eirene
Fraser, Rt. Hn. Tom (Hamilton)	Mendelson, J. J.	Williams, Alan (Swansea, W.)
Freeson, Reginald	Mikardo, Ian	Williams, Mrs. Shirley (Hitchin)
Garrett, W. E.	Millan, Bruce	Williams, W. T. (Warrington)
Garrow, A.	Miller, Dr. M. S.	Willis, George (Edinburgh, E.)
Ginsburg, David	Milne, Edward (Blyth)	Winterbottom, R. E.
Gourlay, Harry	Molloy, William	Woodburn, Rt. Hn. A.
Greenwood, Rt. Hn. Anthony	Morris, Alfred (Wythenshawe)	Woof, Robert
Gregory, Arnold	Morris, Charles (Openshaw)	Yates, Victor (Ladywood)
Griffiths, Will (M'chester, Exchange)	Newens, Stan	Zilliacus, K.
Gunter, Rt. Hn. R. J.	Oakes, Gordon
Hamilton, William (West Fife)	O'Malley, Brian	TELLERS FOR THE NOES:
Hannan, William	Oram, Albert E. (E. Ham, S.)	Mr. Ifor Davies and Mr. Grey.

Mr. John Hall

I beg to move Amendment No. 345, in page 28, line 35, at the end to insert: (7) In the event of the winding up of a body corporate or the bankruptcy of an individual the capital gains tax payable in consequence of and during the course of the winding up or the bankruptcy shall not exceed the amount (if any) by which the assets vested in the liquidator or the trustee in bankruptcy exceed the sums owing to the creditors of the body corporate or of the bankrupt. I shall be brief, because the logic and justice of the Amendment are self-evident. I know that to say that is to invite rejection of the Amendment, but I press on, hoping for the best. The present position on the winding-up of a body corporate or the bankruptcy of an individual is that should any assets realised during the disposal of a bankruptcy produce a capital gain the State will impose a Capital Gains Tax in the case of an individual in bankruptcy at 30 per cent., and in the case of a company or corporation at 40 per cent., even though the final proceeds of the liquidation may be insufficient to pay the creditors 20s. in the £. This may be of very little concern to the company in liquidation or to the individual in bankrutpcy, but it is of very great concern to the creditors, and it seems incredible that the State should be so grasping.

I assume that the argument is that the State is a preferred creditor in respect of Income Tax or other tax on profits or income and should, therefore, be a preferred creditor in respect of Capital Gains Tax, but the circumstances seem to be quite different. In the first place, outstanding tax on profits or income relates to past earnings and is, I think, restricted to one year. The claim of the State arises in respect of past debt, and I accept it as reasonable that the State should rank with the other creditors in this case. I would not even say that it should not rank as a preferred creditor in respect of such outstanding debts on Income or other tax.

Capital Gains Tax is a quite different matter. Liability to the tax cannot arise until the company enters into liquidation or a bankruptcy order is served on the individual and the assets have to be disposed of under such an order. It is not until the assets are disposed of that the gain can be measured. It must be wrong that gains which arise on the selling of assets on liquidation or in bankruptcy should be liable to Capital Gains Tax in addition to the debt owing to the State or any Income Tax or other tax which might be payable when the realisation of all the assets of the individual or company are insufficient to pay the creditor the full 20s. in the £.

Why should the State place itself in such an extremely favourable and advantageous position against all other creditors in this respect? If Capital Gains Tax had arisen before liquidation or bankruptcy there might conceivably be some point in this exercise. There would be a debt due to the State because it had accrued before the event of liquidation, but to charge after liquidation when an asset is sold seems to be rubbing salt into the wound which the other creditors will suffer. It is both just and logical that where assets are insufficient to pay 20s. in the £ the State should forgo any capital Gains Tax and take it only if the assets exceed the sum needed to pay 20s. in the £ to all creditors.

Mr. Barnett

I have some sympathy for this Amendment, particularly in the case of a limited company which goes into liquidation, although I am sometimes surprised and appalled at the incredible way in which businessmen can be so naïve as they sometimes are in giving credit to companies without making adequate inquiries.

There are many instances in which credit is given on a calculated risk, but there are often also flagrant cases of almost outright robbery in cases of liquidation in particular. It is strange that we send people to gaol for stealing a few shillings, but that there are cases of companies going into liquidation in ways which, clearly, are something which I hope we shall deal with soon, after we have considered the Jenkins Report on reframing company law. I should be stretching the bounds of order by moving into that field, but I hope that we shall soon have an opportunity to deal with company law, because it is a rather more important aspect of this matter than that dealt with by this Amendment.

The small point of the Amendment to give relief to creditors who are not paid 20s. in the £, should be conceded. The Revenue is a preferential creditor in those cases, but there are liquidations in which preferential creditors too are not paid in full and this would not cost the Revenue as much as may be thought.

Losses made on the sale of other assets by a liquidator are, for Income Tax and Profits Tax purposes, allowable as a set-off against any profit which a liquidator makes. Invariably, on a liquidation, there are substantial losses. It is, therefore, reasonable to ask that gains made by way of the sale of an asset should not be subject to Capital Gains Tax until after creditors have been paid in full. I should not like to see any surplus returned to shareholders. The Amendment does not ask for that. I believe that the Amendment is reasonable and should be accepted.

9.0 p.m.

The Solicitor-General

The hon. Member for Wycombe (Mr. John Hall) moved the Amendment with commendable brevity. I will endeavour to follow his example in replying. I regret that I cannot accept the Amendment. Before I give my reasons, I should say something about the way in which the matter will work. When an individual debtor is adjudged bankrupt, his property vests in the Trustee in Bankruptcy for the benefit of the creditors. This vesting will be a disposal for Capital Gains Tax purposes and Capital Gains Tax will be chargeable by reference to the market value of the assets at vesting date. Disposal by the trustee will also be chargeable to Capital Gains Tax if the disposal is for more than the market value of the asset when it was acquired by the trustee. This happens after the vesting.

When a company is in liquidation, any vesting of its assets in the hands of the liquidator, or any disposal of its assets by the liquidator, will similarly attract liability to Capital Gains Tax. The Amendment would restrict the amount of tax payable in those circumstances simply to the amount by which the value of the assets vested in the trustee or the liquidator exceeds the sums owing to the creditors of the company concerned.

I appreciate that on the face of it it is an attractive proposition. Although the hon. Gentleman did not mention it, an exception of this kind is contained in the 1962 Act. That dealt with a short-term Capital Gains Tax designed to deal with speculative transactions. For reasons I shall state, it seems to me that such a provision as is here proposed was justifiable in the case of the short-term Capital Gains Tax. Somewhat different considerations arise in the case of a long-term Capital Gains Tax. In the case of a short-term Capital Gains Tax one naturally looks more kindly at the involuntary disposition, because the liability to a short-term tax depends on the two transactions happening within a certain period of time. An acquisition takes place and then a disposal takes place within six months or three years, as under the 1962 Act, or within a period of 12 months, as we propose in the Bill. In such a case it would be a hardship on the other creditors to take it against tax when the disposal is an involuntary one, because the owner of the property has at that period of time become insolvent. If that is done, the bankrupt's liability is added to because of circumstances beyond his control and, indeed, beyond the creditors' control, and the amount which is available for the other creditors is reduced.

I submit to the Committee that rather different considerations arise in the case of a long-term tax. When one is dealing with a long-term tax one is not dealing with something fortuitous. One is dealing with something which eventually is inevitable. Long-term tax must be paid sooner or later.

In these circumstances, we have thought that when one is dealing with long-term tax, different considerations arise from those which arose under the 1962 Statute and we can see no reason why the Revenue in this respect should not rank equally with other creditors. It is not a question of priority. It is a question of ranking equally with other creditors.

To put the matter in another way, when one is dealing with a long-term tax there is a certain point of time—it may be when the asset is disposed of, or at death, or insolvency or investment in a trustee—when the tax becomes chargeable. But the tax has been accruing for a considerable time, year by year, admittedly until a final point is reached when it is only a contingent liability. Nevertheless, it is a real liability. We feel that in those circumstances we do not think that what otherwise would accrue to the Revenue should be lost because of this form of disposition.

Therefore, while we fully understand the argument put forward by the hon. Member for Wycombe and my hon. Friend the Member for Heywood and Royton (Mr. Barnett), unfortunately I feel that I must resist the Amendment.

Mr. John Hall

I congratulate the Solicitor-General on a very comprehensive reply, but I confess—and I think that the Committee will agree—that I found it a cold, legalistic, inhuman reply which has no relation to common sense or common justice. Unfortunately, our legislation being what it is, it sometimes happens that the effect of it is to create injustice and hardship, and I would have said that this is one of those cases which creates injustice and hardship. For these reasons, and because we are thoroughly dissatisfied with the reception given to the Amendment by the Government, I would advise my hon. and right hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 162, Noes 174.

Division No. 151.]	AYES	[9.8 p.m.
Agnew, Commander Sir Peter	Griffiths, Peter (Smethwick)	Murton, Oscar
Allan, Robert (Paddington, S.)	Grimond, Rt. Hn. J.	Neave, Airey
Astor, John	Gurden, Harold	Noble, Rt. Hn. Michael
Atkins, Humphrey	Hall, John (Wycombe)	Nugent, Rt. Hn. Sir Richard
Barber, Rt. Hn. Anthony	Hamilton, M. (Salisbury)	Onslow, Cranley
Batsford, Brian	Harris, Frederic (Croydon, N.W.)	Osborn, John (Hallam)
Beamish Col. Sir Tufton	Harris, Reader (Heston)	Page, R. Graham (Crosby)
Bennett, Sir Frederic (Torquay)	Harrison, Brian (Maldon)	Peyton, John
Berkeley, Humphry	Harrison, Col. Sir Harwood (Eye)	Pickthorn, Rt. Hn. Sir Kenneth
Berry, Hn. Anthony	Harvey, Sir Arthur Vere (Macclesf'd)	Pounder, Rafton
Bessell, Peter	Hawkins, Paul	Powell, Rt. Hn. J. Enoch
Biffen, John	Hay, John	Price, David (Eastleigh)
Biggs-Davison, John	Heald, Rt. Hn. Sir Lionel	Prior, J. M. L.
Birch, Rt. Hn. Nigel	Heath, Rt. Hn. Edward	Pym, Francis
Black, Sir Cyril	Hendry, Forbes	Ramsden, Rt. Hn. James
Box, Donald	Hiley, Joseph	Rawlinson, Rt. Hn. Sir Peter
Boyd-Carpenter, Rt. Hn. J.	Hirst, Geoffrey	Redmayne, Rt. Hn. Sir Martin
Boyle, Rt. Hn. Sir Edward	Hobson, Rt. Hn. Sir John	Renton, Rt. Hn. Sir David
Brooke, Rt. Hn. Henry	Hopkins, Alan	Ridley, Hn. Nicholas
Brown, Sir Edward (Bath)	Hordern, Peter	Ridsdale, Julian
Bruce-Gardyne, J.	Hornby Richard	Roberts, Sir Peter (Heeley)
Buck, Antony	Hornsby-Smith, Rt. Hn. Dame P.	Robson Brown, Sir William
Burden, F. A.	Hunt, John (Bromley)	Russell, Sir Ronald
Carlisle, Mark	Hutchison, Michael Clark	Sandys, Rt. Hn. D.
Cary, Sir Robert	Iremonger, T. L.	Scott-Hopkins, James
Clark, William (Nottingham, S.)	Irvine, Bryant Godman (Rye)	Sharples, Richard
Cooke, Robert	Jenkin, Patrick (Woodford)	Shepherd, William
Cooper, A. E.	Jopling, Michael	Sinclair, Sir George
Cooper-Key, Sir Neill	Joseph, Rt. Hn. Sir Keith	Stodart, Anthony
Corfield, F. V.	Kerr, Sir Hamilton (Cambridge)	Stoddart-Scott, Col. Sir Malcolm
Craddock, Sir Beresford (Spelthorne)	Kimball, Marcus	Studholme, Sir Henry
Curran, Charles	King, Evelyn (Dorset, S.)	Summers, Sir Spencer
Dance, James	Kitson, Timothy	Talbot, John E.
Davies, Dr. Wyndham (Perry Barr)	Lancaster, Col. C. G.	Taylor, Edward M. (G'gow,Cathcart)
d'Avigdor-Goldsmid, Sir Henry	Lloyd, Rt. Hn. Selwyn (Wirral)	Thatcher, Mrs. Margaret
Dean, Paul	Longbottom, Charles	Thomas, Rt. Hn. Peter (Conway)
Deedes, Rt. Hn. W. F.	Lubbock, Eric	Thompson, Sir Richard (Croydon,S.)
Doughty, Charles	MacArthur, Ian	Turton, Rt. Hn. R. H.
Elliot, Capt. Walter (Carshalton)	McLaren, Martin	Walker, Peter (Worcester)
Elliott, R. W.(N'c'tle-upon-Tyne,N.)	Macleod, Rt. Hn. Iain	Walker-Smith, Rt. Hn. Sir Derek
Errington, Sir Eric	McMaster, Stanley	Ward, Dame Irene
Eyre, Reginald	Marples, Rt. Hn. Ernest	Weatherill, Bernard
Fell, Anthony	Marten, Neil	Webster, David
Fisher, Nigel	Maude, Angus	Whitelaw, William
Fletcher-Cooke, Charles (Darwen)	Maudling, Rt. Hn. Reginald	Williams, Sir Rolf Dudley (Exeter)
Foster, Sir John	Maxwell-Hyslop, R. J.	Wilson, Geoffrey (Truro)
Fraser,Rt.Hn.Hugh(St'fford & Stone)	Meyer, Sir Anthony	Wise, A. R.
Fraser, Ian (Plymouth, Sutton)	Mills, Peter (Torrington)	Wolrige-Gordon, Patrick
Gammans, Lady	Mills, Stratton (Belfast, N.)	Woodnutt, Mark
Giles, Rear-Admiral Morgan	Miscampbell, Norman	Wylie, N. R.
Gilmour, Sir John (East Fife)	Monro, Hector	Yates, William (The Wrekin)
Glover, Sir Douglas	More, Jasper	Younger, Hn. George
Glyn, Sir Richard	Morrison, Charles (Devizes)
Goodhew, Victor	Mott-Radclyffe, Sir Charles	TELLERS FOR THE AYES:
Grant, Anthony	Munro-Lucas-Tooth, Sir Hugh	Mr. Dudley Smith and
		Mr. G. Johnson Smith.
NOES
Abse, Leo	Carter-Jones, Lewis	Edwards, Robert (Bilston)
Albu, Austen	Chapman, Donald	Ensor, David
Allen, Scholefield (Crewe)	Coleman, Donald	Evans, Albert (Islington, S.W.)
Atkinson, Norman	Conlan, Bernard	Evans, Ioan (Birmingham, Yardley)
Bacon, Miss Alice	Corbet, Mrs. Freda	Fletcher, Sir Eric (Islington, E.)
Bagier, Gordon A. T.	Cousins, Rt. Hn. Frank	Fletcher, Ted (Darlington)
Barnett, Joel	Crawshaw, Richard	Fletcher, Raymond (Ilkeston)
Bence, Cyril	Dalyell, Tam	Foley, Maurice
Benn, Rt. Hn. Anthony Wedgwood	Darling, George	Foot, Sir Dingle (Ipswich)
Binns, John	Davies, Harold (Leek)	Foot, Michael (Ebbw Vale)
Bishop, E. S.	Davies, Ifor (Gower)	Ford, Ben
Blackburn, F.	Dell, Edmund	Fraser, Rt. Hn. Tom (Hamilton)
Bottomley, Rt. Hn. Arthur	Dempsey, James	Freeson, Reginald
Bowden, Rt. Hn. H. W. (Leics,S.W.)	Diamond, John	Garrett, W. E.
Brown, Hugh D. (Glasgow, Provan)	Dodds, Norman	Garrow, A.
Buchanan, Richard	Donnelly, Desmond	Ginsburg, David
Butler, Mrs. Joyce (Wood Green)	Driberg, Tom	Gourlay, Harry
Callaghan, Rt. Hn. James	Duffy, Dr. A. E. P.	Greenwood, Rt. Hn. Anthony
Carmichael, Neil	Dunn, James A.	Gregory, Arnold
Griffiths, Will (M'chester, Exchange)	McGuire, Michael	Reynolds, G. W.
Gunter, Rt. Hn. R. J.	McKay, Mrs. Margaret	Roberts, Albert (Normanton)
Hamilton, William (West Fife)	Mackenzie, Gregor (Rutherglen)	Roberts, Goronwy (Caernarvon)
Hannan, William	McLeavy, Frank	Rodgers, William (Stockton)
Harper, Joseph	MacMillan, Malcolm	Ross, Rt. Hn. William
Hazell, Bert	MacPherson, Malcolm	Sheldon, Robert
Holman, Percy	Mahon, Peter (Preston, S.)	Shinwell, Rt. Hn. E.
Howarth, Robert L. (Bolton, E.)	Mallalieu,J.P.W.(Huddersfield,E.)	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Howell, Denis (Small Heath)	Mapp, Charles	Short, Mrs. Renée (W'hampton,N.E.)
Hoy, James	Mayhew, Christopher	Silkin, John (Deptford)
Hughes, Cledwyn (Anglesey)	Mellish, Robert	Skeffington, Arthur
Hughes, Emrys (S. Ayrshire)	Mendelson, J. J.	Slater, Joseph (Sedgfield)
Hunter, Adam (Dunlermline)	Mikardo, Ian	Small, William
Hunter, A. E. (Feltham)	Millan, Bruce	Smith, Ellis (Stoke, S.)
Hynd, H. (Accrington)	Miller, Dr. M. S.	Snow, Julian
Hynd, John (Attercliffe)	Milne, Edward (Blyth)	Soskice, Rt. Hn. Sir Frank
Irving, Sydney (Dartford)	Molloy, William	Strauss, Rt. Hn. G. R. (Vauxhall)
Jay, Rt. Hn. Douglas	Morris, Alfred (Wythenshawe)	Summerskill, Hn. Dr. Shirley
Jeger, George (Goole)	Morris, Charles (Openshaw)	Swain, Thomas
Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Newens, Stan	Tinn, James
Jenkins, Hugh (Putney)	Oakes, Gordon	Tuck, Raphael
Jenkins, Rt. Hn. Roy (Stechford)	O'Malley, Brian	Urwin, T. W.
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)	Oram, Albert E. (E. Ham, S.)	Varley, Eric G.
Jones, J. Idwal (Wrexham)	Orme, Stanley	Wainwright, Edwin
Jones, T. W. (Merioneth)	Oswald, Thomas	Walden, Brian (All Saints)
Kelley, Richard	Padley, Walter	Wallace, George
Kenyon, Clifford	Palmer, Arthur	Weitzman, David
Kerr, Mrs. Anne (R'ter & Chatham)	Pannell, Rt. Hn. Charles	White, Mrs. Eirene
Lawson, George	Pargiter, G. A.	Williams, Alan (Swansea, W.)
Ledger, Ron	Park, Trevor (Derbyshire, S.E.)	Williams, Mrs. Shirley (Hitchin)
Lever, L. M. (Ardwick)	Parker, John	Williams, W. T. (Warrington)
Lewis, Arthur (West Ham, N.)	Parkin, B. T.	Willis, George (Edinburgh, E.)
Lewis, Ron (Carlisle)	Pavitt, Laurence	Winterbottom, R. E.
Lipton, Marcus	Peart, Rt. Hn. Fred	Woodburn, Rt. Hn. A.
Lomas, Kenneth	Pentland, Norman	Woof, Robert
Loughlin, Charles	Popplewell, Ernest	Yates, Victor (Ladywood)
Mabon, Dr. J. Dickson	Prentice, R. E.	Zilliacus, K.
McBride, Neil	Probert, Arthur
McCann, J.	Redhead, Edward	TELLERS FOR THE NOES:
MacDermot, Niall	Rees, Merlyn	Mrs. Slater and Mr. Grey.

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

Mr. Graham Page (Crosby)

I do not think that we can leave the Clause without some explanation of subsection (6), which says: It is hereby declared that sums obtained by way of compensation or damages for any wrong or injury suffered by an individual in his person or in his profession or vocation are not chargeable gains. What is in question is what that subsection leaves out rather than what it contains. It describes the damages which are exempt from chargeable gains as damages "in his person", which I presume are damages awarded for physical injury, meaning personal injury of that sort. Is it really suggested that they could have been a chargeable gain? Is it suggested that they could be regarded as a disposable asset?

The Chief Secretary to the Treasury (Mr. John Diamond) indicated dissent.

Mr. Graham Page

The Chief Secretary shakes his head. However, the fact that the subsection is in the Bill in this form raises the question of whether similar damages may be a chargeable gain. I appreciate that the description in subsection (6) is of those damages which are to be exempt, but the very fact that they are in the Clause as being exempt raises the question whether similar ones are disposable assets and may be a chargeable gain.

For example, are damages for breach of promise a chargeable gain? By the very fact that certain damages are excluded by subsection (6), this might well be so. What about damages for libel and slander? They do not affect the profession or vocation of the taxpayer and so one assumes that they may be a chargeable gain under this provision. Would damages for a breach of contract of services be a chargeable gain? Why is it only a profession or vocation suggested that they could be regarded which is to be exempt? I know that this as a disposable asset? is Case II of Schedule B where the earnings from a profession or vocation are chargeable, but it seems rather peculiar that it is only a profession or vocation which is exempt. I am sure that extreme anomalies will arise.

There are many cases in which "vocation" has been defined, and in order to understand what the Clause means it is

worth considering what has been held to be a vocation under Case II of Schedule D. It includes the following—the professional bookmaker—but if we are to exempt a bookmaker, shall we exempt a boot maker, a land agent, an adviser to a newspaper on betting, a barrister writing plays in his spare time, an actress, but not a private backer of horses, or a golfing professional in his capacity as a gambler on the result of private golf games, or a film producing executive, and so on? There is an extraordinary distinction between vocation and trade and the same sort of anomalies will be perpetuated by the subsection.

In this Clause it makes nonsense to distinguish between a trade on the one hand and a profession or vocation on the other hand. For example, I wonder whether damages awarded in a fatal accident to the representatives of the deceased person who had been run down in a motor car accident would be a chargeable gain. That is not exempt under the subsection, because they would not be damages to that person but something which his representatives could claim. The very fact that the subsection exempts damages as described in the subsection leads us to believe that unless they are described specifically in the subsection, they may well be a chargeable gain.

Mr. Diamond indicated dissent.

Mr. Page

The Chief Secretary shakes his head, but this is the logical conclusion to be drawn. If the subsection is to apply only to disposable assets, then we must assume that when it refers to a physical injury, it assumes that if a man loses a leg in a motor car accident, he disposes of an asset in doing so and we have to put in the Bill that he will not be charged Capital Gains Tax because he has disposed of that asset, his limb. If that is not the case, why is the provision there at all? If these things described in the subsection do not need to be described in the Bill and might not be chargeable gains at all, why include the subsection? I hope that on reconsideration it can be left out and that we shall not be left with this ambiguity.

Mr. Charles Fletcher-Cooke (Darwen)

These are descriptions of some of the sort of ca uses for the recovery of sums in the courts. We cannot tell why certain ones have been chosen and others not. Take a petitioner in a divorce case who gets from her former husband, not a periodic sum, but a capital sum perhaps because she does not need a periodic sum but needs a capital sum to buy a house for herself after the divorce. Would that capital sum be obtained by way of compensation or damages for a wrong or injury suffered? I should have thought not. If not, is it an exception under some other rule in the Bill? If not, should it not be an exception?

It would be monstrous if, both the ex-husband and the wife and the court having thought that a capital sum was the right payment to make in certain matrimonial disputes—perhaps £2,000 or £3,000, a once and for all payment, which was suitable to buy a house for the injured wife—that should suffer Capital Gains Tax. It implies that, since it is not specifically described in subsection (6), it would be so.

From the other side of the picture, would the payment of such a sum by the former husband be chargeable upon him if he paid, for example, in the form of a transfer by himself to his former wife £2,000 in securities under an order of the court? Would that be a firm realisable gain? Would he have to pay on that involuntary realisation Capital Gains Tax? Since the Government have put in this subsection, if the Chief Secretary could explain the extent and limitation of involuntary transfers under agreements of the court or under orders approved by the court, we should be satisfied.

Mr. J. Grimond (Orkney and Shetland)

We had a very important statement from the Chancellor of the Exchequer last night in connection with this Clause. Since then we have had some time to consider his statement, and have also had remarkable events taking place on the Stock Exchange. I should like to make two points.

First, as I indicated last night, on considering this further I do not think that the Chancellor's suggestions will meet the case of those who would maintain that they bought Government stocks expecting to have them paid in full on redemption date and who feel that the tax is a breach of contract. I am not arguing whether they are right or wrong, but some people have maintained that, and the Chancellor of the Exchequer indicated that he thought that there was something in that argument.

I cannot believe that that argument is met by having this new neutral zone between the issue price and the redemption price. The people caught by the Capital Gains Tax, because they are outside that zone, will feel aggrieved, but, further, we have seen today very remarkable movements on the Stock Exchange between stocks of essentially the same nature. This may add very much to the feeling of injustice.

The point which I wish to ask the Government about is this. As I understand it, the main argument for the concession was that it would make the gilt-edged market easier to manage. The Chancellor said that he was aware of the difficulties which there had been in this market and that, at any rate, part of the reason for this concession was that it might improve confidence in the market. We do not yet have HANSARD for the later part of yesterday's proceedings, but I think that he said that this would be a firm and decisive decision and would give great benefit to the gilt-edged market. One result which I know is that the gilt-edged market had completely to suspend operations this morning. This may be a temporary matter, and I fully appreciate that there may be arguments for it. I should like the Chief Secretary to tell us whether he feels that this concession has achieved its object, whether he now feels happier about the gilt-edged market and whether he thinks that this morning's unhappy events are likely to have any serious effect on sterling.

9.30 p.m.

My feeling is that whatever cause might be attributed to it, it cannot improve the confidence of people who are looking at this country from outside to see that after a statement by the Chancellor, designed to increase confidence, the Stock Exchange had to suspend dealings in Government securities, a thing which, I am told, has never happened before. We should not part with the Clause without hearing the Govern- ment's further thoughts on this matter, both as to the position of the individual holders, some of whom, I appreciate, have concessions but many of whom will not feel that they have a concession which is relevant to what they regard as their grievance and as to this morning's events and the success or otherwise of the Government's policy in restoring confidence to the gilt-edged market.

Mr. Nigel Birch (Flint, West)

I should like to add one or two words to what the Leader of the Liberal Party has just said.

The Temporary Chairman (Mr. James McInnes)

Order. I called Mr. Box.

Mr. Donald Box (Cardiff, North)

I am sorry, Mr. McInnes, that the similarity between the names caused the error. The right hon. Member for Orkney and Shetland (Mr. Grimond) has referred to the great state of confusion that occurred in the London market this morning. It is fair to say that that was hardly comparable with the state of confusion which was apparent on the Treasury Bench at the time of the announcement and the reception which it received last night.

If the late Hugh Dalton goes down in history as the Chancellor who rigged his own market and whose epitaph will inevitably be "2½per cent. Treasury bonds issued at 100, now standing at 38½", the Chancellor of the Exchequer will be remembered as the man who brought the gilt-edged market to a grinding standstill, something which, I understand, as others of my hon. Friends have said, not even Hitler achieved during the war. To suspend dealings in the gilt-edged market, which is reputed to have a daily turnover of £50 million, is a damning indictment of the utter incompetence of the Chancellor in handling this matter.

We all realise the motives behind the Chancellor's decision. It was not a question of playing fair with investors. It was not even a matter of reflective integrity to heal an apparent breach of faith on the part of the Government. It must be stated clearly that this decision on the part of the Chancellor was one of pure expediency. Here we had the right hon. Gentleman faced with a discredited and crumbling gilt-edged market. Let us face it, he capitulated to the pressure of informed opinion because he had to do something to restore the confidence which he had destroyed in recent weeks.

Having made the decision, one would have thought that it was easy enough to carry out the intention. But no. Almost at midnight last night, long after the provincial editions of the London papers had gone to press and been dispatched, long after the time when most financial editors were safely tucked up in bed, the Chancellor made a long and involved statement which was complicated and difficult to understand.

Before deciding whether the Clause should stand part of the Bill, the Committee is entitled to know who was primarily responsible for this tortuous scheme. Obviously, it was somebody with a very devious mind. It is quite inconceivable that the Chancellor of the Exchequer should have acted on his own initiative in this matter.

When I intervened during his statement last night, he told me in reply to my question that the scheme had not been specifically approved by the Government Broker. What we ought to be told is whether the Government Broker specifically disapproved of the right hon. Gentleman's speech. Was he even consulted, and if not, why not? After all, he is a man with 30 years' experience in the gilt-edged market. He is an absolute professional, at the top of his profession, and yet many of my hon. Friends and I understood the Chancellor to say last night that the Government Broker did not thoroughly approve of his speech.

Mr. Diamond

I only intervene on a point of accuracy. My right hon. Friend did not say that. I know that the hon. Gentleman is not able to quote from HANSARD, because we have not got HANSARD with us. My right hon. Friend did not say that, and he made it clear, as the hon. Gentleman, and everyone knows, that he himself was the responsible person, and that he took responsibility for his decisions.

Mr. Box

That is all very well, but I asked the Chancellor a specific question. I asked for a specific assurance that the scheme which he was putting before the Committee had the unqualified approval of the Government Broker. Unless I am going a little crazy with these late hours—and maybe I am—I came to the conclusion, as did many of my hon. Friends, that the right hon. Gentleman refused utterly to commit himself to whether the Government Broker approved or not. He went on to say that he had often been criticised for taking too much expert opinion. I suggest that this is one case where he might well have benefited from a little expert and experienced opinion.

I think the third possibility is that this scheme was the brainchild of someone at the Treasury, and the name of "Mr. You-know-Who" immediately comes to mind. I wonder whether, in the next few days, we are going to see in a student magazine an article by "Mr. You-know-Who's" daughter entitled, "Daddy makes a nonsense of it again".

Mr. Ellis Smith (Stoke-on-Trent, South)

That is typical of the hon. Gentleman's attack on the miners.

Mr. Box

I had not mentioned anyone by name.

I think that before we decide whether the Clause should stand part of the Bill, we ought to have answers to this question, answers which ought to restore confidence to the gilt-edged market, because if we do not receive those answers, and we do not restore confidence in the gilt-edged market, I fear that the Chancellor may bring off Labour's great autumn double—a crisis in the £ abroad, and demoralisation of the gilt-edged market at home.

Mr. Peter Hordern (Horsham)

I must declare a personal interest, in that I am a member of the London Stock Exchange. I went about my business this morning and entered the market at about 11.15 with the words of the Chancellor still ringing in my ears, that we had to vote on the Amendment late last night because it was essential to have an orderly market in the gilt-edged section of the Stock Exchange the following morning. As the Committee knows, the gilt-edged market opens at ten o'clock. I had one or two constituency matters to attend to first, so I was not there until about 11.15 a.m. To my astonishment, it simply was not possible to negotiate any dealings in the gilt-edged market.

Sir Frederic Bennett (Torquay)

The Leader of the Liberal Party said that he could not recall an occasion on which a similar suspension of dealings in gilt-edged stocks had occurred in the past. I have found that there was such an occurrence in 1931. Can my hon. Friend tell me whether his researches have been more effective, and there were other occasions?

Mr. Hordern

I am grateful to my hon. Friend. There was not very much else to do at that time, because no dealings were going on, so I made inquiries about that. My inquiries led to certain answers, and they produced a result. My hon. Friend is quite right. In 1931, there was a suspension of dealings on the gilt-edged market for one and a half hours, on the occasion when 5 per cent. War Loan was changed to 3½ per cent. War Loan. On further inquiry, I discovered that dealings had been suspended also on the outbreak of the First World War, but before that, so far as I was able to ascertain, no suspension in dealings had occurred since 1815, during the critical time of the Battle of Waterloo.

I do not know whether it is the Government's intention to celebrate the 150th anniversary of Waterloo. All I can say is that they are going about it in the most remarkable way. I do not wish to dwell too much on the consternation that existed in the Stock Exchange for more than is necessary. The Chancellor last night dwelt for some time on the considerable concession that he had made. I agree that it is a considerable concession in respect of certain Government stocks. What is so extraordinary is that the Chancellor does not appear to have grasped the fact that it is not possible to make concessions in certain Government stocks without applying concessions all over the field.

This underlines what has been demonstrated throughout our discussions, namely, the extraordinary ignorance of the Chancellor and his advisers in the Treasury. I cannot believe that he could possibly have called for intelligent advice which could have produced a result like this. I want to give a short factual example to show that this is true. Yesterday morning it would have been quite possible for any investor to have put down an order to invest in either one of two classes of security, both of which were precisely similar at that time. The first was British Transport 3 per cent. stock, 1968–73, and the second was British Electricity 3 per cent. stock, 1968–73.

There was absolutely no distinction between the offered price in the market. It was 77⅞. The market is not large in either of these stocks and the buyer could have instructed his broker to buy whichever was easier to buy. It might have occurred to the broker to buy British Electricity 3 per cent., 1968–73. All I can say is that when he woke up this morning with the Chancellor's words ringing in his ears he would have discovered that he bought the wrong stock. Had he bought the British Transport stock he would have had 22⅛ points clear appreciation, absolutely tax-free.

I do not want to dwell on the quality of the advice which the Chancellor has accepted, but it is very unfair to holders of other securities, whether or not they are Government securities, and it is particularly unfair to holders of Corporation and Commonwealth stocks. What kind of consultation could have taken place? There are several holders of Cheltenham 3 per cent. stock, 1971, Essex 3½ per cent. stock, 1972 and L.C.C. 3½ per cent. stock, 1968–73. If those holders were to be advised properly all those holders would sell their holdings and invest in British Transport stock.

It seems not only unjust that the market should have been split in this way, but, also, that some stock should have been specially selected for favour and other stocks should not have. Just because the Government are not responsible for the redemption of these Corporation and Commonwealth stocks they feel they can bring in quite different terms for some stocks and not for others.

What staggers me is the absolute ineptitude of the advice. Taking into account the kind of discussions that we have had on discretionary trusts and so forth, and the fact that we have heard that these are to be broken up and revalued every 10 years, any sensible trustee's advice would be to dispose of those trusts if it were possible and to invest in this absolutely tax-free haven. I cannot understand what could have persuaded the Government to bring about these circumstances. I am sure that one or two of the hon. Members opposite particularly cannot be very happy about there being an absolutely tax-free haven in some gilt-edged stock but not in others.

9.45 p.m.

I wish to take up one point. In making some sort of defence for these suggestions the Chancellor said that the gilt-edged market would not suffer much because it was after all managed on institutional funds. He adduced in defence of this that the banks were supporting the short end of the market and that pension funds controlled the long end of the market. I think that he said that these were the most important influences. He also said that it was quite unnecessary to give the life companies any particular concession because they did not represent a significant proportion of the market. If these are not his exact words, the right hon Gentleman said something very similar.

I cannot imagine where the Chancellor gets this kind of advice. What does he imagine he is saying about the pension fund having a larger slice of the long end of the market? It is utter rubbish. I do not wish to bore the Committee—[HON. MEMBERS: "Go on."]—but if one takes figures for the life funds—there are figures in the White Paper, Cmnd. 827, and in the Radcliffe Committee's Report in 1959; the proportions would remain the same though the figures may differ—at that lime, the figures amounted in all to £4,000 million for life funds and £1,116 million which was invested in gilt-edged. We discover that in the long end of the market what pension funds had in British Government securities was £570 million.

To what was the Chancellor referring when he said that switching was not necessarily affected by these methods? I do not believe that the Chancellor appreciates how the market works. He said that it would not affect switching, life companies having to pay tax which otherwise they would not have to pay. The right hon. Gentleman is talking nonsense.

I wish to come to one other point that I consider demonstrates the whole rationale—if it may be described as such—of the Government's proposals. We have been inclined to forget what is the rate of tax because we have been so concerned about the gilt-edged securities We forget that the rate is 30 per cent.

As I am sure the Committee will recognise, it will have a considerable effect on the turnover of the gilt-edged market. How was a rate of 30 per cent. arrived at? The Financial Secretary, for whom I have a considerable personal regard, adduced these reasons. He said that, first, we must bear in mind the highest rate of Surtax on an investment income of over £15,000. A man with that income is taxed at 91¼ per cent. That is one criterion on which we assess what is the rate. I do not know who this man is with a £15,000 investment income. I suggest that he must be someone like "Bertie Wooster".

The second criterion was that we must see to it that there was not any particular tax avoidance by those people who indulged in bond washing and dividend stripping. How many people does he imagine indulge in those kind of operations? They must be characters like "Moses Maggot", and on those two mythical characters, "Wooster" and "Maggot", we are to have an extra rate of tax which, I suggest, would have a considerable effect on the turnover in the gilt-edged market. It would seem to be believed that people are tumbling over themselves to lend money to the Government. The reverse is true. In these circumstances, the Government are the supplicants. People are not longing to invest in Government securities. The Government must wake up to how the market works and to the true position of things.

It is important to establish why the rate has been set at 30 per cent. The Financial Secretary went on to say that it would not have any effect on a switching. He referred to the situation in America and said that the amount of switching in Wall Street in proportion to the value of outstanding issues was greater than the amount which went on in London, despite the fact that the Americans had a Capital Gains Tax. The point is that the number of outstanding issues in New York is much smaller than the amount in London but that the value of securities in New York is about three times as large as in London. It is not surprising, therefore, that we get these figures for switching. So the hon. and learned Gentleman's comments did not prove anything.

What sort of investigations have the Government made about the turnover in the gilt-edged market concerning switching? My information—and I mention this without any great sense of reliability—is that 60 per cent. to 70 per cent. of all dealings in the gilt-edged market are concerned with switching operations. I hope, on a later Amendment, to have an opportunity to again refer to switching.

It is absolute nonsense to say that the gilt-edged market will not be affected in connection with life companies and that the rate of 30 per cent. will have no bearing on the market. One cannot help but feel that the Government have come to Parliament with a totally preconceived idea of what the Capital Gains Tax should involve and the amount it should be in respect of everything to which it will apply.

The whole of our discussion on the Capital Gains Tax makes one think that the Government have spent the last 13 years wandering in the wilderness like one of the lost tribes of Israel, struggling on their way and getting ideas from we know not where. Mr. Kaldor seems rather like the Cheltenham colonel when one considers the sort of advice given to the Committee by the Treasury spokesmen. When are the Government going to take notice of the valuable advice that is available to them; for example, the advice available from the Bank of England? I cannot believe that the Capital Gains Tax in general, and the Clause in particular, could possibly have been based on any advice given to the Government by the Bank of England. I suggest that if hon. and right hon. Gentlemen opposite listened more to those who know a little more about the market and less to some of the abstract ideas which come from goodness knows where, the country would be better off.

Mr. Bessell

It may not have occurred to hon. Members that the Parliamentary draftsmen certainly have a sense of humour. While this part of the Bill is headed "Exemption and reliefs", having sat through virtually the whole of the debate on the Clause I have discovered that the only reliefs which are likely to exist are for people with the good fortune to win on the football pools.

It is obvious, from the discussion and the way the Clause is worded, that the Government have not taken note of the real needs of the agriculture industry, particularly in the way it will be affected by the Capital Gains Tax. I will not exaggerate the situation by saying that the effects will be disastrous, but I am certainly saying that the Clause will have a very depressing effect on the industry, particularly on the small farmer.

We have seen that the victims of compulsory purchase orders, of whom there are many, will receive no relief or assistance from the Government. We saw in the discussion on an Amendment which I moved earlier that the Capital Gains Tax is full of the most glaring inconsistencies. In that discussion the hon. Member for South Ayrshire (Mr. Emrys Hughes) referred to Cornwall as an irrelevant part of the country. My constituents do not forget remarks of that sort. We have also seen the effect of all this on the gilt-edged market; how it has been, if not disastrous, then certainly very grave.

If the Clause is allowed to stand part without amendment the Government will have had one remarkable achievement. They will have shown to the possessor of property that a new mathematical principle is in operation—that one and one will no longer make two, but one and a half.

Mr. Diamond

I think that perhaps it would be convenient if I were to reply, first, to the more detailed points raised by one or two hon. Members about certain of the subsections in this Clause and then deal fairly fully with the criticisms regarding my right hon. Friend the Chancellor's proposals in relation to gilt-edged.

The hon. Member for Crosby (Mr. Graham Page) asked many questions relating to subsection (6). As he knows very well, this is in declaratory form and it is put in to help. There is always an argument that if anything is put in a declaratory form, everything has not been put in and that something may have been left out. The purpose of it is to make clear what ought to be clear without anything in the subsection. I am sure that the hon. Gentleman realises that the essence of it is as described here, that damages for any wrong or injury suffered are not chargeable gains and, indeed, could not be chargeable gains.

Several hon. Gentlemen asked me questions about marital matters, but there is no reason to go into all the things that cannot be capital gains. There is a definition of assets which do become chargeable assets and are, therefore, subject to the Capital Gains Tax; there is no need to list everything.

Sir Kenneth Pickthorn (Carlton)

May I ask in what sense is this declaratory? Is it in the sense that such was the law before the Bill was drafted, when all the surrounding conditions were quite different?

Mr. Diamond

No. It relates to the law as it will be if the Bill becomes an Act of Parliament. It is declaratory in the sense that although the Bill makes perfectly clear which are and which are not capital gains, in order to remove any posssible doubt certain things are stated not to be chargeable gains, as they might otherwise have caused a slight measure of doubt.

Mr. Graham Page

The right hon. Gentleman has not dealt with the point, that it specifically says: … compensation for damages for any wrong or injury suffered by an individual in his person or in his profession or vocation … We know perfectly well that under Schedule D the words normally used are "trade, profession or vocation" and the very exclusion of the word "trade" leads one to believe that a compensation or damages for any wrong to a man's trade will be a chargeable gain.

Mr. Diamond

There is no need to go as far as this. We are not incorporating all the Income Tax terms in the Bill. I have already said this is in declaratory form to deal with matters on which there might be a possibility of doubt. It does not attempt to include all of those things which are to be excluded. What is there are the things that are to be charged but there are one or two items about which hon. Members might have reasonable doubt, so it is declared there that they are not chargeable.

10.0 p.m.

If I may, I will go straight to the criticisms raised by the Leader of the Liberal Party and two hon. Members who have spoken, not for the first time, in relation to this matter. Perhaps I can, first, report what has happened on the gilt-edged market and then come a little more to the argument. The jobbers on the gilt-edged market took the view until about half-past twelve this morning that it was right for them to delay dealings until they had adjusted all their prices, having regard to the specific statement made yesterday by the Chancellor of the Exchequer. They stopped dealing, very understandably, until they had had time to mark all their prices, having regard to the important and relevant statement may by my right hon. Friend yesterday, and we would expect them to take a reasonable time to do this. That is all that happened.

As a result, prices started to be quoted having regard to what the Chancellor of the Exchequer said, and this is why—and we took the best possible advice on this—we had to reach a clear, specific conclusion last night so that the market could start to deal. As soon as the market got the detailed statement from my right hon. Friend, the jobbers started to recalculate their prices. That is all that happened.

Mr. Hordern

rose—

Mr. Diamond

I hope that the hon. Gentleman will allow me to describe the position on the market, and I will gladly give way to him later.

Dealings have been quite heavy since the market opened, and I can quote a selection of prices today as compared with yesterday in six or seven stocks. We have 6 per cent. Conversion Stock 1972—closing price yesterday, 98⅝, today, 991/16 British Transport 3 per cent. 1968–73—gone up from 77⅝ to 81; British Electricity 3 per cent., 1968–73—gone up from 78¼ to 78⅞; 3½ per cent. Treasury, 1977–80—gone up from 69½ to 72; 3½ per cent. Treasury 1979–81—gone up from 69⅝ to 71; 4 per cent. funding 1960–90—gone up from 89⅝ to 91½.

Those are all increases that have taken place today as a result of the statement made yesterday by my right hon. Friend— [HON. MEMBERS: "What about War Loan?"] War Loan is an undated stock, and it has gone down from 52⅜ to 51¾ I presume, from the sounds opposite, that hon. Members are delighted that it has gone down.

Mr. Hordern

The Chief Secretary said that at 12.30 the market started dealing again in Government securities and the turnover was appreciably normal. I appreciate that there is some difficulty, but I happened to be there myself and I know what it was like. The jobbers were making prices of half a point whereas the normal margin is about one-eighth, or possibly a quarter. The size of the market over the whole field was about £50,000, which is very small indeed.

Mr. Diamond

I am sure that the hon. Member will forgive me saying so, but he is one—individual—one broker I think, not a jobber. It is not unreasonable to assume that there is more information available to the Government than one individual has, even if he happens to be a Conservative Member of Parliament.

Mr. Hordern

rose—

Mr. Diamond

I shall give away again in a moment, because I am going to deal with the hon. Member a great deal and I shall give way every time.

The hon. Member is most anxious that the Government should take full and reliable advice and the Government do so, full reliable advice and information, and on that basis I made the statement. I am sorry to tell the hon. Member that his information conflicts with mine, but it is not perhaps inconceivable that those advising me have greater knowledge and more access to information than is available to one hon. Member walking in the Stock Exchange making his own very objective conclusions prior to coming here and making a speech.

Sir D. Glover

The Chief Secretary said a moment ago that this was the reason why last night we had to reach a conclusion. Last night we voted on an Amendment which had nothing to do with the Chancellor's statement. He made a statement on the basis of which he will propose an Amendment on Report, but we did not reach a conclusion on that last night.

Mr. Diamond

I think those who understand Parliament understand that we had to reach a conclusion. [Interrup- tion.] The right hon. Member for Bexley (Mr. Heath) made the same point last night.

Sir William Robson Brown (Esher)

I do not want to make any difficulties, but I think that it will help the situation if I ask this question. Was the market suspended at the request of the Government Broker for good reasons? Was he in a position to inform the market when he went there and was it suspended at his request? Otherwise, this situation is very peculiar.

Mr. Diamond

It is not peculiar at all. The Government Broker went there with the full information and the jobbers, naturally, required time to take account of it to make the necessary calculation and to adjust their prices. That is all that happened. One or two details of clarification were further required and were duly given, but until they had all the necessary details it would be quite wrong to start the market going. Otherwise, people would have been dealing on something less than full information. Everyone who has the slightest connection with the Stock Exchange knows that the whole endeavour and purpose of the Stock Exchange Committee is that everyone dealing with it should have full, detailed and accurate information. As soon as this was available and incorporated in the prices, dealings began.

Mr. Hordern

rose—

Mr. Diamond

I do not know whether the hon. Member need interrupt again. I am coming back to him and he will have plenty of opportunity to interrupt.

My right hon. Friend the Chancellor has been criticised for what he has done. He has been criticised by every hon. Member who has spoken in this debate, including the Leader of the Liberal Party, so perhaps it would be right to remind the Committee of what he has done and why he has done it.

What he has done is to honour the pledge which the hon. Member for Horsham (Mr. Hordern) and the hon. Member for Cardiff, North (Mr. Box) both put to him in recent speeches. He having honoured that pledge, both hon. Members sought to tear the Chancellor to bits for having done the very thing they asked him to do. Not satisfied with that, they said, and quite truthfully, that all they were doing was adducing an argument which they hoped the Chancellor was listening to because they were not interested in honouring the pledge. All they were interested in was that all capital gains on gilt-edged should be totally free from Capital Gains Tax on redemption. They could not produce arguments in favour of that because it would have driven a coach and horses straight through the system of taxation.

What they did was to pretend that here was an argument which they could rely on, an argument to honour the pledge of the Government's contract with the purchaser of the stock. That is the argument they adduced. The Chancellor responded to that argument and, as soon as he responded to the argument, both hon. Members said that the Chancellor should not have done it, that he was utterly stupid, and who advised him?

Mr. Hordern

We say that the so-called concessions made by the Chancellor are half-concessions. They do not apply across the whole of the board. The Chief Secretary is showing a most extraordinary display of ignorance.

Hon. Members

Oh.

Mr. Diamond

I thought the hon. Gentleman wanted to ask me a question, not to make another speech.

Mr. Box

I will not take up at this moment the point which my hon. Friend has made. The Chief Secretary inferred that I did less than justice to the Chancellor when I asked last night whether he had taken expert advice and the advice of the Government Broker. Would the Chief Secretary be good enough to tell the Committee categorically whether the scheme put forward by the Chancellor last night had the unqualified support of the Government Broker?

Mr. Diamond

The hon. Gentleman does himself no good at all by repeating a question. [HON. MEMBERS: "Answer."] He knows that any responsible Minister speaking from this Box, whatever his party, would give the same answer as I have given and which I repeat, that a Minister making a statement at this Box is responsible for what he says and does not attempt to hide behind the skirts of anybody else. It is for that reason that hon. and right hon. Gentlemen, those of us who are hon. and right hon. Gentlemen in the House of Commons, always refrain from attacking civil servants who are not here to speak for themselves.

The argument advanced—

Sir Lionel Heald (Chertsey)

rose—

Mr. Diamond

Perhaps it would be convenient if I replied to the arguments and the debate now that I have dealt with the requests made by the two hon. Gentlemen.

The argument advanced both by the two hon. Gentlemen and by other hon. Members was that a contract, a pledge, was given by the Government of the day that, when a Government stock was issued at a discount, the difference between the issue price and the redemption price was expected to be free of any capital taxation and should therefore continue to be free in that way. Last night, the right hon. Member for Flint, West (Mr. Birch) said that to do what we have done was retrospection in its most odious form. Various other hon. Members had previously said that this pledge must be honoured.

My right hon. Friend was not persuaded that there was any such pledge. Nevertheless, although the previous Government had themselves not honoured this pledge, although, when they introduced the short-term Capital Gains Tax, they never took the view that this was a pledge which bound them—any yield redemption was a chargeable gain for the purpose of that short-term Capital Gains Tax—[Interruption.] Never mind when it was incurred. The question, on a matter of honour is: is this chargeable or is this not chargeable?

10.15 p.m.

Although the previous Government denied the validity of that claim my right hon. Friend took the view that where a matter of honour is in question, and the honour of the British Government is in question, one does not argue—if the argument is one way or the other—one takes the view that one must do the best that can be reasonably expected having regard to the implied pledge. There was no contract of that kind. I have the documents here in front of me. When these bonds are issued there is a sort of prospectus which describes completely what will happen. If any part of the income is to be tax-free it says so, and there was no question of any such statement being made. It states clearly what is the issue and redemption price on the application form.

It is at that point that it could be thought by those who make the investment that the yield from their point of view is to be drawn from two elements (a) the interest and (b) the capital appreciation up to the date of redemption. As this is the coalesced yield which the purchaser has to have regard to, it might be expected by the purchaser that taxation would remain, by and large, in the same kind of categories as existed, and it might, therefore, be held that it was wrong to impose the Capital Gains Tax on one of the elements that formed part of the yield. It was because of this that my right hon. Friend thought it was the wiser and more honourable course to honour that pledge. Right hon. Gentlemen opposite, including the Leader of the Liberal Party, say that that is not good enough and that what matters is not at what price it was issued but the price which people paid for it.

People pay for it in one or two ways. They either buy through a jobber from another holder who sold at that time or through the jobber, again from the shop, which, instead of being fed by another individual selling, is fed by the Issue Department of the Bank of England. The jobber goes to the department and says, "We have run out of stock and our shelves are dry. Can you let us have more stock?" There is no difference whatsoever either in machinery, practice or effect between stock being bought on tap or stock being bought which is coming through from another holder in the ordinary way. As the right hon. Gentleman partly appreciated or it occurred to him last night, there is no half-way house. One either stops at the point of the pledge—the difference between the issue price and the redemption price—or one has to go the whole way and say that whatever anybody paid for it one deducts that from the redemption yield, and that should be free from Capital Gains Tax.

Why should we relieve from tax every person who makes a capital gain from profit on gilt-edged? What about the person who holds fixed-interest securities? Is he to be relieved? What about the person who makes a capital gain in any other way? Why should one have to pay and not the other? There is no justification whatsoever for going as far as to say that any person who bought at any time a dated Government stock should have capital gains tax-free up to the point of redemption. Therefore, I am repeating that the only thing that my right hon. Friend could have done was the thing he did, which the previous Government refrained from doing although saying that it was a matter of honour as far as the Government was concerned.

Mr. Box

Does not the hon. Gentleman appreciate that the Bank of England has been able to get a higher price when selling the stock to the public because the public were working on the assumption that they were going to get the redemption profit free of tax? The Bank has in many cases sold at a higher than normal yield level at the time of issue and the only reason why it was able to do that was this tax-free element.

Mr. Diamond

When there is no Capital Gains Tax, people, naturally, do not take into account a Capital Gains Tax in their calculations. But now there is a Capital Gains Tax. It is not retrospective. That is the whole point. The hon. Gentleman has no more knowledge of it than his right hon. Friend had.

We have said time and again that this applies as from Budget day, and any appreciation prior to Budget day does not arise at all. We have gone further and said that, if the stock at the point of purchase prior to Budget day was lower, then we shall give the stock-holder the benefit of that lower price, or, if it were a higher price, he could take whichever he preferred, the earlier price or the price on Budget day. There is no question of retrospection whatever.

I am saying, therefore, that my right hon. Friend, having regard to the pleas made, which we now know were completely insincere, from both the hon. Member for Horsham—

Mr. Hordern

rose—

Mr. Diamond

I shall give way. I have not finished referring to the hon. Gentleman, and he may care to reply to both observations at the same time.

My right hon. Friend, has yielded to the pleas made by hon. Members such as the hon. Member for Horsham and the hon. Member for Cardiff, North, both of whose pleas were totally insincere and totally inconsistent with the speeches they have made this evening, as soon as the request had been granted. Having done that, he has done the right thing and the honourable thing, and I hope, therefore, that we can now get this Clause.

The Deputy-Chairman

Sir Douglas Glover.

Mr. Box

On a point of order, Sir Samuel. The Chief Secretary said that both I and my hon. Friend the Member for Horsham (Mr. Hordern) were insincere in our speeches. We asked him to give way to us before he sat down so that we could have an opportunity to make a point. He has now sat down and you have called another speaker. Is it possible for us to put our points?

The Deputy-Chairman

The hon. Gentleman cannot intervene if the Chief Secretary has sat down. But there is nothing to stop him taking part later in the debate in Committee.

Sir D. Glover

I am not a dealer in the gilt-edged market. I am not a jobber or a broker. I am not a large holder of Government stock. But I know that, by his speech tonight, taken with the Chancellor's statement yesterday, the hon. Gentleman has struck a great blow to confidence among ordinary people in this country. Of course, the institutions and the knowledgeable people do switching operations and so on, but the great bulk of people in Britain who have bought Government stock have always bought that stock on the agreement of the nation to pay the par value on maturity.

The Chief Secretary has said that there is no question of retrospection. The fact remains that literally millions of people in this country, who, perhaps, have £100 of this stock or £500 of that, bought their stocks through their banks, not through brokers, not through jobbers or on the advice of great investment advisers in the belief that, when they were due for redemption, perhaps in 1974 or in 1968, they would get the price marked on the ticket.

The Chief Secretary said that there is no aspect of retrospection. When these people bought the stocks, there was no Capital Gains Tax. They bought them with a sense of confidence in the country and with confidence that the State would acknowledge its obligations. The State has acknowledged its obligations in nearly every stock on maturity by paying £100 on that stock. It paid on maturity. whatever the stocks, even "Daltons", all of which were bought in the blind belief that the State would pay £100 on maturity.

The Government say there is no aspect of retrospection. Yet, because the holders happen to have paid something which, on 6th April, 1965, was 20 per cent. below par, or 30 per cent. or 40 per cent. below par, depending on its time of maturity, then, on maturity, if they want to dispose of that stock, they will have to take 30 per cent. depletion of value between 6th April last and the date of maturity.

The Chief Secretary can make a lot of powerful speeches and I have some sympathy with some of the points he made. But he misses the point that, although there is great activity amongst institutions, a great mass of ordinary people up to now have bought Government stocks, taking the words "gilt-edged" as meaning what they were supposed to mean when I was a boy—that the Government honour their word and pay the full price at maturity. The hon. Gentleman has made no case as to how he can, in all honesty, talk to that great mass of people who will now find that they must pay 30 per cent. on any automatic depletion of value as the stocks come to maturity.

Mr. Heath

This is an important Clause dealing with exemptions and I think that you, Sir Samuel, and your colleagues in the Chair have been generous in enabling the Committee to discuss something which does not appear in the Bill but which was circulated, in an extraordinary proceeding, by roneod document by the Chancellor late last night. I hope that the Committee will now be prepared to bring our discussion on the Clause to a conclusion.

The Chief Secretary has attempted to answer some detailed points, and I do not intend to pursue them any further. I should like to come to the major points raised by the hon. Gentleman. He has accused two of my hon. Friends of insincerity in their arguments. I remind him that in this Committee we are not accustomed to imputing motives or doubting motives of each other in dealing with these matters. It is deplorable that, at this stage of the debate, he should introduce such an element. Those hon. Members who are trying to bring the discussion on this important, long and complex Bill to a conclusion in a reasonable time are not helped by the hon. Gentleman when he adopts this attitude.

My hon. Friends put forward certain arguments for dealing with this matter. If he will pay us the compliment of referring back to the Budget debate or to the Second Reading of this Bill, he will find that we then pointed out the reasons why we think that the gilt-edged market should be excluded from the Capital Gains Tax. One of those major reasons was the interest of the Government in raising money. We have always put forward that argument and therefore the hon. Gentleman was not only improper in saying what he did but also inaccurate in describing the arguments put before the Committee as only those of honour affecting the issue price of Government stock when it was put before the market. So I would say to the Chief Secretary that these are serious matters deserving of more serious argument than he has chosen to give them tonight.

10.30 p.m.

Many of his arguments indeed were specious in the extreme. He said that the short-term Capital Gains Tax applied to the gilt-edged market, but surely he must realise the immense difference the six months' speculative gains tax and its purpose and the long-term tax with which we are dealing at the moment? He made an enormous amount of this sudden upsurge of concern with the honour the Government and the Chancellor. It has taken them seven months to get round to this sudden upsurge of concern for the Government's honour.

In spite of their statement that the tax was going to apply to the gilt-edged market, despite the protestations which were made, despite the advice given them, in spite of the Budget debate and the debate on Second Reading of this Bill they did nothing until last night. Until then they were not concerned about the honour of the Government. So let us have rather less from the Chief Secretary about this new-found concern for the honour of his own Government or of the money market and Government stocks.

Today's events have confirmed the worst fears which were expressed in this Committee last night. The Chief Secretary dismissed them rather lightly. "Oh," he said, "all that happened was that the dealers decided they would not take any action for a few hours while they sorted the problem out." He dismissed it lightly. The fact that the London gilt-edged market was closed for dealing in Government bonds is an event of the utmost importance, and were it not for the fact that today is Ascension Day, and other bourses in Europe were closed, it would have been an item of the greatest importance for all Europe. That is the plain fact of the case.

It cannot just be lightly dismissed as though the dealers just had a long coffee break and talked the problem over before dealing in Government stocks again. But that was the light-hearted way in which the Chief Secretary dismissed it. What about the Government Broker? He is not a civil servant who cannot be mentioned. Of course he can be. The Chief Secretary is getting rather too keen on telling this Committee we cannot mention or discuss particular people.

The Chief Secretary tried to do it the other night when Dr. Kaldor was mentioned. I have not done so myself, but, of course, hon. Members have, and they are perfectly entitled to do so. He is employed by the Government three and a half days a week and the other three and a half days a week he is a private citizen, delivering lectures in Cambridge University, and, of course, he can be criticised by anybody inside or outside this Committee. He has put his views on record and published them again in two volumes since he has been employed part time by the Government.

What is the position of the Government Broker? Why did it take him an hour and a half to get into the market this morning? Was he not properly prepared? Is this the way these matters are handled in this new concern with the honour of the Government and their proficiency in dealing with the financial affairs of the country?

What is the explanation? The Chief Secretary completely refuses to give it and lightly dismisses it all with a wave of the hand. All this time the Government brought forward no specific proposals until we brought forward ours in this Committee. The Amendment we put forward was to exempt these stocks, and we put it forward in a group of Amendments taken together. What happened last night, as was indicated by some Members of the Committee, was to introduce into the gilt market what the Financial Times described as "an element of irrationality".

That is what the Chancellor has done—suddenly completely to alter the relationship between Government stocks. He just gave selected items. What my hon. Friend wanted to bring out was the complete picture of the relationship between the different stocks in the gilt-edged market. What the Chancellor did by his announcement last night was suddenly to change the relationship between them. This is what the Chief Secretary has demonstrated by his figures. They shocked some of his hon. Friends, including the hon. Member for Ebbw Vale (Mr. Michael Foot), because of the large gains, going up to £4 5s. for a stock in some cases.

That is not the way to handle the gilt-edged market. Sudden changes of this kind in the gilt-edged market are what every Chancellor, every Governor of the Bank of England and every Government Broker wants to avoid. This is the result of the Chancellor's action last night. If he had taken the action we suggested, the relationship would have remained almost exactly the same and there would not have been the sudden change that we saw today, with its consequences. This is one of our main reasons for criticising the Chancellor's action.

The second reason is the general method of handling the matter. If the Chief Secretary says that the Government have received the best advice, we are bound to accept his statement, and we have done so. But this does not alter the fact that tonight the market was still confused, and will obviously remain confused for some time. Today's events are really the culmination of seven months of mishandling of our financial affairs by right hon. and hon. Gentlemen opposite. That is what we have had today, and the rest of the world knows it. The consequences of this are very great.

I can understand hon. Gentlemen opposite. They look hurt. They sat there last night when this was put before the Committee. When it was not received with a great shout of welcome and open arms they looked hurt. Then they began to look puzzled. They felt that they had made a great concession to the Committee. The Chief Secretary has argued that this must be important—because this is the principle which the Government have laid down for the Capital Gains Tax and now they have made a tremendous concession. We argued that certain consequences would follow as a result of the concession. They do follow. That is why we tabled the Amendment in the form in which we did. They always follow. That is why I strongly object to the Chief Secretary accusing hon. Members on this side of the Committee of insincerity. We have always said that these consequences would follow.

This is the problem which the Chancellor has created for himself by introducing the Capital Gains Tax in this form, improperly, in an enormous Bill for which he has not had proper time for preparation or discussion. That is now the situation in which Ministers find themselves—hurt, puzzled, exhausted and demoralised. They cannot complain that they were not warned.

The final thing is the most important of all, and it is this. The Chief Secretary is following the example of the Chancellor last night in saying that he must have certainty and that he got certainty as a result of the Division on our Amendment. Of course he has not got certainty. He is deluding himself. The Chief Secretary is deluding himself if he thinks that he has certainty. He has not even got anything on the Notice Paper. He does not know what Amendment will be put forward, or what the Committee will do about it. He does not know what pressures will be brought to bear on him by public opinion for discussion and action on these matters before Report.

The really important question is that, having, as my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) said last night, now taken up this posture by this new position, will the Chancellor be able to stand there? In many ways this is now a much greater question than if he had merely rejected that overture and stayed on his original position. This is the case now. This is the big question which has now to be dealt with. There is no point in trying to baulk it. It is there, and everybody knows it, as a result of what the Chan- cellor did last night. That is why the Chancellor must now discuss this with his colleagues and get the best advice.

I hope that the Committee will now be prepared to bring this to a conclusion, knowing and recognising that when the Report stage comes we then have a further major debate upon this because of the immense importance of the issue and the action which the Chancellor has to take. Not until the Bill passes both Houses of Parliament will there be certainty on which the gilt-edged market can rest.

Question put and agreed to.

Clause ordered to stand part of the Bill.