Clause 40.—(VALUATION.) (Hansard, 31 May 1965)

§ Mr. MacDermot
I beg to move Amendment No. 482, in page 45, line 15, to leave out subsection (3) and to insert: (3) The market value of shares or securities quoted on the London Stock Exchange shall, 1369 except where in consequence of special circumstances prices so quoted are by themselves not a proper measure of market value, be as follows—

(a) the lower of the two prices shown in the quotations for the shares or securities in the Stock Exchange Official Daily List on the relevant date plus one-quarter of the difference between those two figures, or

(b) halfway between the highest and lowest prices at which bargains, other than bargains done at special prices were recorded in the shares or securities for the relevant date,
choosing the amount under paragraph (a) if less than that under paragraph (b), or if no such bargains were recorded for the relevant date, and choosing the amount under paragraph (b) if less than that under paragraph (a): Provided that—

(i) this subsection shall not apply to shares or securities for which some other stock exchange in the United Kingdom affords a more active market; and

(ii) if the London Stock Exchange is closed on the relevant date the market value shall be ascertained by reference to the latest previous date or earliest subsequent date on which it is open, whichever affords the lower market value.
This is a proposed redraft of subsection (3) in order to clear up a number of points. The subsection sets out a formula for the valuation of quoted securities and it is based on long-standing Estate Duty practice which is well-known to practitioners in this abstruse art, but it is not contained in any legislation and it appears that the formula as drafted has given rise to a number of doubts and perhaps is a little ambiguous in some places. We have redrafted it in order to clear up the questions which have arisen.
May I quickly itemise the points with which we have sought to deal? First, in the interests of precision we make it clear that the subsection deals only with the London Stock Exchange. Valuations for shares quoted on other exchanges will be made in accordance with the same principles as far as they can be applied—and this is already estate duty practice. Secondly, we make it clear that the Stock Exchange quotations to be taken into account are those which appear in the official daily list.
Thirdly, the subsection limits the use of bargains to those recorded for the relevant date. Unrecorded bargains are a matter of private knowledge and it does not seem right that they should be used as a basis for valuation. Fourthly, the term "more active market" is used instead of "larger market" 1370 in order to make it clear that the criterion is the market for the particular shares. Finally, the opportunity has been taken to make it clear that the Stock Exchange value is to be taken as the market value only where the holding of the shares is of such a kind and size that the quoted price is a fair measure of their value. It was never intended that the quoted price should be used in special circumstances such as the sale of a controlling shareholding.
The expression in the second line, except where in consequence of special circumstances prices so quoted are by themselves not a proper measure of market value meets that point. I hope that the redrafting will clear up the doubts which have arisen on the original form.

§ Mr. Peter Walker
The principle which the Government have adopted is completely wrong. They have accepted the formula for Estate Duty purposes, but, basically, this is not for Estate Duty purposes at all, the big difference being that for valuation for Estate Duty one is talking of a valuation required for a person who will sell the assets, and for this purpose one is not doing that. This is the basis of valuation as at 6th April and, by using this formula, the Government are involved in a £477 million robbery, as I shall show by demonstrating what the difference would be if they used a fairer basis of valuation.
It can be argued that the correct basis of valuation at 6th April should be the price that a share could be bought at on that particular day, and the reason why this must be so is this. Take the example of a share which did not change price between 6th and 7th April. The person buying that share on 6th April will, for the purposes of the Bill, have his share valued at a quarter above the selling price for that day, whereas the next day he would have his share valued at the buying price for that day. In almost every type of security, this will make a considerable difference.
Even if the Government accepted a more reasonable formula, taking, say, half-way between the buying price and the selling price for the purposes of this valuation, this is the difference it would make. On Government short-dated stock, the total amount on issue being £5,000 million, it would make a difference of 1371 £12.5 million in valuation on that day. In other Government securities, it would make a difference of £75 million in the valuation on that day. In corporation stocks, it would make a difference of £15 million in total valuation on that day, and for ordinary stocks it would make a difference of no less than £375 million. There is the total of £477 million.
Thus, by this Amendment, the Government have, on 6th April, established a price at least £477 million above what the total valuation of Stock Exchange securities should have been for that date. This means that, over the years, as those stocks are realised, the Government will enjoy 30 per cent. or in some cases 35 per cent. of £477 million in wrongful valuations. I regret that we did not put down the appropriate Amendments to the Chancellor's Amendments, but I give notice that, if the hon. and learned Gentlemen is unwilling to accept our arguments, we shall move appropriate Amendments on Report.

§ Mr. MacDermot
I cannot accept the arguments advanced by the hon. Member for Worcester (Mr. Peter Walker). They are based on a fallacy. This is not only a valuation as at Budget day. It covers the whole field of valuation, including valuation as at death. I should have thought that the Committee would accept that we must have the same valuation of the same asset at the same date for two purposes, namely, for Estate Duty and for Capital Gains Tax purposes.
The hon. Gentleman bases his whole argument upon a particular circumstance, namely, a Budget day valuation which would benefit one class of taxpayer. But one must also take into account that this market valuation will operate also in the case of a gift as between donor and donee. If one takes the valuation most favourable to the donor, one does injustice to donee, and vice versa.
Therefore, one has to strike a middle position so as to get fairness and justice between the different parties, and this, broadly speaking, is what the estate valuation system does. It has operated a very long time without complaint, and all we are seeking to do is to put in clear, statutory form what is a well-recognised and established practice. I must advise the Committee that whatever 1372 defects there may have been in the original drafting, the principles of it are sound.

§ Mr. Peter Walker
The argument of the two examples quoted by the Financial Secretary, of the donor and the donee and the Capital Gains Tax applying at death, for that purpose, I agree, that is perfectly valid, but for all the other purposes, the purposes of people selling shares in the normal way, which constitutes the great majority of market activities, his basis of valuation is completely wrong. I agree that the Amendment improves the original draft for the purpose which he had in mind, but I give notice that we shall raise the matter again on Report.

§ Mr. Box
I, also, take issue with the Financial Secretary over the content and drafting of this Amendment, because it seems to me both inadequate and incomplete in several respects. During his intervention just now the hon. and learned Gentleman referred to the fact that the first half of the Amendment dealt only with the London Stock Exchange. I agree that it appears from the Amendment that no notice is taken of the prices on the associated stock exchanges, the Scottish stock exchanges and the provincial stock exchanges, whose official lists cover many hundreds of companies which are only quoted on those exchanges.
The original subsection that we are deleting seemed to cover this matter, but the Amendment does not seem to cover it. The proviso even goes so far as to say that this subsection shall not apply to shares or securities for which some other stock exchange … affords a more active market … in provincial exchanges. It seems to limit the matter and then not deal with it thereafter.
I wish to support what my hon. Friend the Member for Worcester (Mr. Peter Walker) has said regarding the arrival at market price. I think that we need some further explanation about how this is calculated. We know that the two bases described in the Amendment are, as it says, the lower of the two prices … plus one-quarter of the difference between those two figures" 1373 or halfway between the highest marking and the lowest marking, whichever is the lowest. Market value for a unit trust is described in the Clause as half-way between the buying and selling prices". Paragraph 21(2) of the Sixth Schedule, dealing with quoted securities, refers to what is sold by the owner, and immediately reacquired by him, at their market value on 6th April 1965. I think that by any understanding of this this surely must mean the middle price whether this is measured by means of the quotation of the business marked on that day, but it seems for this purpose the basis proposed is the willing buyer, willing seller basis.
I would just give four examples of the anomalies which arise. The quotation price of British Paints on 6th April was 19s. and the markings average price was 19s. 5¼d. British Ropes quotation price was 10s. 6d. against a markings average price of 11s. 1½id. James Dawson quotation price was 15s. 7½d. against the markings average price of 16s. 3¾d. Reed Paper was even worse: the quotation price was 50s. 9d. against a markings average price of 48s. 3¾d. It will be seen that there can be a wide variation between the two bases. Surely, if that is that yardstick which is to be used, it is the higher figure rather than the lower one which should be used in this case.
1.0 a.m.
Finally, I want to deal with lines 10 and 11 of the Amendment, because they do not make sense to me. This is a little technical, and I hope that I shall be able to make it clear. The first part from line 10 is clear. It reads: … choosing the amount under paragraph (a)"— that is, the quotation price— if less than that under paragraph (b)"— that is, the markings average price, and here we get into difficulties— or if no such bargains were recorded for the relevant date, and choosing the amount under paragraph (b)"— that is, the markings average price— if less than that under paragraph (a). 1374 The trouble is that (b) refers to bargains recorded on the relevant date. This seems to be a direct contradiction, because if one is to use (b), that is, the markings average price as a basis, I do not see how one can arrive at it if no such bargains were recorded on the relevant date.
I am sure that that sounds complicated, but I could explain it to the hon. and learned Gentleman if it was not clear to him that there was a direct contradiction here. It seems that the whole Amendment needs some revision. I hope that he will consider it fit to take it back to the draftsmen, and I may say that if he needs any expert help from the Opposition my hon. Friends and I will be only too willing to help.

§ Mr. Cole
Having studied the Amendment for the last hour, I feel that I, too, can give the Government some assistance on it. This is a gallant attempt to improve on the existing subsection (3), but it has not quite got there.
I appreciate that this is a difficult matter, and I do not want to cut across what was said by my hon. Friend the Member for Worcester (Mr. Peter Walker), because what he said was correct. I am concerned about the words in the Amendment. The Financial Secretary referred to what he called "special circumstances". It is axiomatic that we do not take any notice outside the House of Commons of what is said in debates. We take notice only of what we produce as our final answer.
I wondered what the special circumstances were. I know what the hon. and learned Gentleman has in mind, but could not they be spelt out in the Amendment? Special circumstances can cover a hundred and one different things. What about some kind of panic abroad which affects some of the shares on the Stock Exchange? Would the news of a gold strike, or a non-gold strike, be a special circumstance? Would an unfounded, or a well-founded, rumour be a special circumstance? I do not think that it is enough to refer merely to special circumstances, even with the explanation given by the Financial Secretary. We must be told what the special circumstances are. They may cost a person paying Capital Gains Tax a considerable sum of money.
1375 I thought that I was wrong when my hon. Friend the Member for Worcester said that the operative date was Budget day. The Financial Secretary said that a number of other dates could be relevant—the date of death, the date when something passed in the way of a gift, and so on. I have looked at the interpretation Clauses in the Bill, and in neither is there a reference to the relevant date. Who decides on the relevant date other than Budget day?
As my hon. Friend said, lines 10 to 12 of the Amendment do not make sense, and perhaps I might read them. choosing the amount under paragraph (a) if less than that under paragraph (b), or if no such bargains were recorded for the relevant date,"— then comes the word "and", and I cannot see where it belongs— and choosing the amount under paragraph (b) if less than that under paragraph (a). Is it left to Hobson—"You pays your money and you takes your choice"—or is it mandatory? It strikes me as unusual that the present participle—"choosing"—is used. We would normally have said "shall choose".
I suggest that the hon. Gentleman should change these three lines into something more normal, without the reference to choosing—we do not use the word very much in legislation—and without the "and" in the middle of line 11, because with it one does not know whether an alteration or an addition is intended.
I should like to know what happens about the masses of securities in companies—especially close companies—which are quoted on provincial stock exchanges. Where are they assessed? Where is their market value under the Bill? I suggest that the Government should have another try with this Amendment.

§ Mr. MacDermot
I shall have another try at making myself clear, because I have answered two points in respect of which I have been asked questions by both hon. Members who have spoken. The first question concerned provincial exchanges. I sought to make it clear that the proposed subsection (3) deals only with the London Stock Exchange. Valuations for shares quoted on other 1376 exchanges will be made in accordance with the same principles, so far as they can be applied to those exchanges. That is already the practice under the Estate Duty system. It works, and it was thought better to formulate the matter specifically in relation to the London Stock Exchange, which will be the main one; but the same principles will apply mutatis mutandis to the provincial exchanges.

§ Mr. Cole
Will that appear somewhere else in the Bill? It does not at the moment.

§ Mr. MacDermot
No; I am stating that as a matter of practice. If hon. Members feel that it would be helpful to have it written into the Bill I shall consider that.
I was asked what was meant by "special circumstances". A phrase of this kind was used precisely because so many circumstances would have to be covered that it would be foolish to try to write them into the Bill. I sought to make clear the underlying principle. The Stock Exchange value will be taken as being the market value only where the holding of shares is of a size and kind that the quoted price is a fair measure of their value. If anybody can show circumstances to prove that that would not represent a fair valuation, special circumstances would be established.
I was also asked about unit trusts. They do not fall within this provision. They are dealt with in a separate subsection.

§ Mr. Box
I quoted them only to show the variations in the methods of arriving at the market price. For unit trusts we have one system and in this case we appear to have the difference between the lowest marking and the highest marking on a certain day, or what we know as the probate price. Why not use the halfway mark between the lowest level of quotation and the highest level of quotation? That would be far more sensible than the probate price system.

§ Mr. MacDermot
It will work more fairly if the alternatives are written into the Amendment.
As for the words from line 10 onwards, if hon. Members will read them carefully they will see that they are quite 1377 clear. If hon. Members will find it easier to look at it starting this way, the position is that if there are recorded bargains for a particular day, so that (b) is a starter, then one sees whether the amount would be less under (a) or under (b). If the amount under (a) is smaller than the amount under (b), then the amount under (a) is chosen; if the amount under (b) is the smaller, then that amount is chosen. I am sorry to have to put it in such simple language. I thought that it was simple already, but when one tries to give a child's guide to something already simple it sounds excessively simple.
The other words, … or if no such bargains were recorded", made it clear that if no bargains are recorded as under (b) one takes the test under (a). It is the mean price of the two prices shown in the quotation for that day, and there, are, of course, two prices shown even when no bargains are recorded.

§ Mr. Box
With respect, it does not show that.

§ Mr. Lubbock
I know that it is very late, and that it is very difficult to read these complicated words when we have been at it all day, but I would suggest, with respect to the Financial Secretary, that it might become clearer if these lines were reworded to read: … choosing the amounts under paragraph (a) if either those amounts were less than the amounts under paragraph (b) or no such bargains were recorded for the relevant date"— and then going on as it is at the moment: … and choosing the amount under paragraph (b) if less than that under paragraph (a): If that very slight amendment were made to lines 10 to 12, it would become much clearer.

§ Mr. Box
I want to take issue with the Financial Secretary. We are all clear about the wording in line 10, which he explained in detail to us. What he has not explained is the apparent complete contradiction in lines 11 and 12, which make a reference to paragraph (b), preceded by the words: … if no such bargains were recorded". But paragraph (b) deals with bargains which are recorded. This is a complete 1378 contradiction, and I wish that the Financial Secretary could explain it in simple terms, as he did the first.

§ Mr. MacDermot
I can only suggest that hon. Members go away and wrap a cold towel around their heads and read it again, because it says exactly what they want it to say.

§ Mr. MacDermot
I beg to move Amendment No. 152, in page 46, line 12, to leave out "for relief".
This is a drafting Amendment to exclude some words which are unduly restrictive.

§ Mr. MacDermot
I beg to move Amendment No. 153, in page 46, line 14, to leave out "appeal shall lie" and to insert question shall be determined on a reference".

§ The Deputy-Chairman (Sir Samuel Storey)
I think that this Amendment goes together with the next one, No. 154.

§ Mr. MacDermot
These are drafting Amendments to deal with appeals to the Lands Tribunal.

§ Mr. MacDermot
I beg to move Amendment No. 293, in page 46, line 18, to leave out subsection (7) and to insert: (7) In relation to land and leases of land in Scotland for any reference to the Lands Tribunal there shall be substituted a reference to the Lands Tribunal for Scotland: Provided that until sections 1 to 3 of the Lands Tribunal Act 1949 come into force as regards Scotland, this subsection shall have effect as if for the reference to the Lands Tribunal for Scotland there were substituted a reference to a person selected from the panel of referees appointed under Part I of the Finance (1909–1910) Act 1910. This is a drafting Amendment to make the drafting more accurate for the purposes of Scottish law.

§ Mr. Stratton Mills (Belfast, North)
I beg to move Amendment 99, in page 46, line 29, to leave out from "to" to the end of the Clause and to add: the general appeal provisions embodied in the Income Tax Management Act 1964". At this hour of the night I do not wish to detain the Committee for more than two minutes. This is a probing Amendment, as I am not all sure what the procedure is when there is a dispute between the parties as to the valuation of shares other than shares quoted on the Stock Exchange.
The words in subsection (8) seemed to be very narrow. Although the operative word seems to be the word "jurisdiction", in line 31, in relation to the general commissioners, I would like an explanation from the Financial Secretary. I would also like to know why this form of wording has been chosen rather than that in my Amendment referring to general taxation principles.

§ Mr. MacDermot
If I understand the hon. Member correctly, he wants to ascertain why we are providing that the taxpayer has not got the option to have his appeal heard either by the general commissioners or by the special commissioners. Is that the point?

§ Mr. MacDermot
It is to ensure that one will not have different and inconsistent valuations of shares of the same company made by different bodies of commissioners. Generally speaking, when one is dealing with the valuation of shares there is a great advantage if one can get the valuation done by the general commissioners for the area in which the company is located. More often than not, these will be private companies, small, local businesses.
The general commissioners will have the advantage of local knowledge, which the special commissioners will not have, so that this is something well within their competence and it is obviously desirable when questions may arise from different valuations of even the same block of shares by different people with different interests in different parts of the country.
1380 Clearly, it is better than having three tribunals possibly trying to adjudicate on the same question and producing different results. There should be one tribunal to produce one result and before which all interested parties could appear.

§ Mr. Stratton Mills
I beg to ask leave to withdraw the Amendment.