Clause 27.—(LIFE ASSURANCE AND DEFERRED ANNUITIES.) (Hansard, 27 May 1965)

§ Mr. Diamond
I beg to move Amendment No. 182, in page 29, line 9, to leave out from the first "person" to the end of line 10.

§ The Deputy-Chairman (Sir Samuel Storey)
With this Amendment the Committee can discuss Amendment No. 44, in page 29, line 9, to leave out from first "person" to end of Clause and add: other than a purchased policy as hereinafter defined. (2) Subject as hereinafter provided no chargeable gain shall accrue whether at the maturity thereof or on disposal of the rights under any such policy of assurance or contract as aforesaid. (3) This section shall not have effect as respects any purchased policy and for this purpose Purchased policy means one in which or as respects which the beneficial owner thereto shall have acquired his interest by purchase in the open market.

§ Mr. Diamond
If you please, Sir Samuel. The other Amendments which you have been good enough to say that we may take with Amendment No. 44 are consequential or have a bearing on it.

§ The Deputy-Chairman
The hon. Gentleman said "The other Amendments." Is he referring to Amendment No. 183, in page 29, line 12, leave out from beginning to "the" in line 28 and insert: on the disposal of, or of an interest in, the rights under any such policy of assurance or contract except where the person making the disposal is not the original beneficial owner and acquired the rights or interests for a consideration in money or money's worth. (3) Subject to subsection (2) above",

§ Mr. Diamond
To be frank, Sir Samuel, I did not hear clearly which Amendments you suggested should be discussed at the same time.

§ The Deputy-Chairman
I said that we could discuss Amendment No. 182 with Amendment No. 44.

§ Mr. Diamond
I am entirely in your hands, Sir Samuel. Amendments Nos. 183, 184, 185 and 186 go closely together, and if it is convenient to the Committee I think that we would save time if we discussed them together.

§ The Deputy-Chairman
In view of what the hon. Gentleman says, I think that we should take them together in this debate.

§ Mr. Diamond
I am grateful, Sir Samuel.
The main purpose of these Amendments is to enlarge the scope of the exemption from Capital Gains Tax for life assurance policies which are already provided for in Clause 27. During his Budget speech my right hon. Friend the Chancellor made it clear that there would be no question of double taxation of the policy-holders' receipts. In an earlier statement in December, 1964, he referred to these as being normal policies. When he said "normal policies", he was referring to those which would be exempt from the scope of the Capital Gains Tax.
It has now become clear that the exemption should be widened somewhat. Because of the definition that has been put on normal policies under the Clause, I think that it was right for my right hon. Friend to put down that provisional definition of policies and to take soundings of the views of the insurance companies and others generally as to the best way in which this matter might be handled, and he has now reached the conclusion that the exemption ought to be given—

§ The Deputy-Chairman
Order. I hope that right hon. and hon. Members will maintain silence so that I may hear what is being said.

§ Mr. Diamond
My right hon. Friend has taken the view, as these Amendments show, that the exemption should be widened to such an extent that every life policy holder and holder of a deferred annuity should be free from Capital Gains Tax, provided he was the original holder, or provided that he had not bought the policy or the contract of annuity, that is to say, if it was a gift, the exemption would still apply.
987 That is the basis of these Amendments, and I hope that this widening of the exemption will find approval in the Committee.

§ Mr. Peter Walker (Worcester)
I rather admired the gentle way in which the Chief Secretary came to the Dispatch Box, hesitated over his brief, and then made almost a virtue of having drafted a very bad Clause. To say that the Chancellor tentatively put forward this definition to see whether there was any reaction, and what advice he would receive, and then decide to alter it, is the most remarkable thing that we have heard in this Committee today.
What happened was that the Chancellor put down a Clause, but left out many life policies. If the Chancellor's pledge of 8th December meant anything, it meant that the Treasury would draw up a Clause to cover the millions of life assurance policies, and to cover such things as group life policies on employees. There are millions of such policy holders in this country, and it is incredible that the Chief Secretary should now say that they did not include such people, but waited to be advised whether they should be included.
The fact is that on 8th December the Chancellor made a pledge about life policies and the maturity value of life policies not coming under Capital Gains Tax. He then had some months in which to prepare the Bill, but he decided not to take advice as to what policies should be included. Instead of taking advice on how to word the Clause, he decided to put in a general Clause and wait for advice thereafter.
What happened? The Bill was published, and to the amazement of everybody it did not cover employers taking out policies on their employees. It did not cover policies on dependants other than wife and child. It did not cover the many thousands of policies on partners in businesses throughout the country. In fact, it was estimated that about 4 million people were not covered by the Clause.
The moment this was spotted, did the Chancellor issue a statement saying that he had put the Clause in the Bill in 988 order to receive the reaction of the life assurance companies? Not at all. He saw the Life Offices Association. He referred it to the Inland Revenue. A meeting took place with the Revenue. Following that, was there any statement to the effect that all these people would be covered? Not at all. The Life Offices Association was so distressed at the fact that it did not appear to be making much progress that it called a Press conference and announced to the country that 4 million policy holders would not benefit by this Clause.
That took place on 12th May, and it was not until the next day that the Treasury announced—this having been on the front pages of all the newspapers—that in fact it was going to pay some attention and do something about this Clause. But even then we did not see the Amendment. It was prior to that date, fortunately due to the attention of the Opposition, that an Amendment was put in to cover this position, and we had to wait a considerable time before the Government got round to remedying the thoroughly bad original drafting of this Clause. But the Chief Secretary comes here this evening and tells the Committee that they really drew up a bad Clause in order that they could obtain general comments upon it, and include everybody—a tentative Clause. The trouble with this Bill is that we have 90 tentative Clauses.
Our only hope is that all the remaining Clauses are as tentative as this Clause was, for certainly if the hon. Gentleman would take a little more notice of advice upon the other Clauses and change them in the same way as he has changed this Clause, it would be a far better Bill. But, alas, all the other advice he has so far ignored, and I suggest that he would probably have ignored this advice if it were not for the fact that the front page of every newspaper carried the story that 4 million policy holders would not benefit. Do not let us believe that, as a result of this particular Amendment and this Clause, the life policy holders are doing rather well as a result of the Capital Gains Tax. It should be known, of course, that even after this Amendment the life assurance companies will be paying Capital Gains Tax on all of their investments, and therefore the policy holders will be 989 at a disadvantage as a result of the application of the Capital Gains Tax.
Let us also be aware that the individual policy holder may be at something more of a disadvantage than most, because doing his investing through his life policy by means of paying his premium, the Capital Gains Tax will be paid by the life assurance companies at the full rate of 40 per cent. Therefore, instead of an individual paying either 30 per cent. on the capital gains, or less than 30 per cent. if he takes advantage of the two-thirds option, an individual will probably be put at a disadvantage because his premiums are being invested through the life companies, who will be paying the full rate of Capital Gains Tax. The sadness is that the Government have not decided, in the interests of the millions of policy holders throughout this country, to apply a special rate of Capital Gains Tax to the insurance companies, in the same way as they apply a special rate of Income Tax to the insurance companies.
The fact is that the policy holders are mainly people of low incomes, who would not even pay the 30 per cent. Capital Gains Tax, but through the investments in their life policies they will be paying far more. So, although the Government have reluctantly followed, once again, the lead of the Opposition, although the Government have amended a thoroughly badly drafted Clause, I should not like it to go out from this Committee that this means that they have been in any way benevolent to policy holders. They have been thoroughly mean, and policy holders will suffer as a result of their action.

§ Mr. Peter Walker
My only question at this stage concerns the position of policies used in connection with mortgages. The Chief Secretary will be aware that many life policies are used for the purpose of repaying mortgages. I believe that, as the Clause is now worded, after a mortgage is foreclosed, and the proceeds of the policy become the right of the people who provided the mortgage in that way, there is a possibility that it would be treated as a purchase policy. If the hon. Gentleman does not know the answer I trust that he will look into the matter between now and Report and, if necessary, then move an appropriate Amendment.

§ Mr. Diamond
I am completely seized of the point of the hon. Gentleman's question. I will make absolutely sure of the answer. My tentative view, and I am not a lawyer, is that the hon. Gentleman need have no anxiety. The provision is deliberately drawn to deal only with a purchase. I will make absolutely sure and, if necessary, deal with the matter on Report.