§
11. In section 27 of the Finance Act 1965 there shall be added the following subsection after subsection (4):—
A gain on the disposal of United Kingdom Government Securities shall not be a chargeable gain to the extent that the proceeds of sale are reinvested in United Kingdom Government Securities".
§ The effect of the Amendment would be that switching in the gilt-edged market was free of Capital Gains Tax. In other words, if somebody sold a block of gilt-edged securities and bought an exactly equivalent block, no question of Capital Gains Tax would arise.
§ This is, as it were, a fall-back position from an Amendment I moved in Committee to exempt gilt-edged securities altogether from the effect of the Capital Gains Tax. Both would be palliative only, of course, but this Amendment would be of some importance, particularly in view of the present state of the market.
1671§ As I pointed out then, the gilt-edged market is damaged not only by the Capital Gains Tax and the Corporation Tax in that companies are forced to try to finance themselves by debentures; it is damaged because income from gilt-edged securities is not franked income, and it is damaged by the general inflation. As I said, the market is sinking and it has sunk a good deal since I used those words.
§ The market has been further damaged by the Steel Bill. The effect of that is to monetise the steel industry and create the best part of another £600 million of gilt-edged securities which nobody is very keen to buy. One can buy gilt-edged securities at discounts up to 6 per cent. by buying steel shares, which is damaging business in the market.
§ It is also damaged by the refusal to allow the banks to give extra credit to finance the effect of S.E.T. It means that more debentures will be issued, that people will be forced on to the grey market for credit at very high rates of interest and that the building societies will have to put up their rates, thus pulling down the gilt-edged market again.
§ I have several times predicted a state of affairs where the Government will lose control of their own credit and bond market. That is very serious. One cannot run a sophisticated economy without a proper bond market. It is desperately serious for people. How many constituents have we all got who have put their whole life savings in War Loan, now at 49 and sinking? So it is a fairly important business.
§ If the Chief Secretary will study the last Quarterly Review of the Bank of England he will get some very important points from it. In the text it said that the real object of debt management was to make Government securities as attractive as possible to holders both here and abroad. It went on to say that one of the attractions of gilt-edged securities was that one could deal in such very large amounts at any time, buying or selling, or used to be able to do so.
§ It went on to give certain figures which are relevant to the Amendment. The first figure is that in the year ended 31st March last the net sales of Government securities with a life of 15 years or over was only 1672 £40 million, whereas in the year ended 31st March, 1963, the net sales were £487 million. If one can sell Government securities one does not have to raise so much in taxes. If one cannot sell them one has to raise the money in taxes.
§ I commend to the attention of the Treasury Bench the difference between the £40 million—they are selling nothing now —and the £487 million, the result of the courage shown by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). If the Government had shown a tenth of his courage they would have been out of their troubles now instead of dashing down a steep slope into the sea. The great attraction is marketability. One cannot get a real marketability for the gilt-edged market unless one gets some dealings, and the people who deal mostly in the gilt-edged market are life assurance companies. In the year ended 31st March last the turnover of gilt-edged dealings by life companies in securities of a life of five years and over went down by 48.3 per cent., and now I imagine dealings are more or less non-existent. So the marketability is going down.
§ What would the Amendment cost? It would cost a great deal less than nothing. It would help the market, and the Government would draw tax from the commissions paid on these deals. It costs nothing. It helps the market. It is desperately important to do something about the market which is now getting completely out of hand.
§ I hope that the Chief Secretary will not give the same answer as was given last time on the Committee stage when I moved an Amendment to exempt the gilt-edged market altogether from Capital Gains Tax. Then it was said, "You cannot do it because you would have to do it for everyone else".
§ But what happened last year? Special provision was given to the gilt-edged market—in a dotty form, admittedly, but that is the hallmark of the Hungarian Mafia which devised it. It gave special privileges to the gilt-edged market which were not given to anyone else. I hope that the right hon. Gentleman will not use that argument. I am hoping for a rational reply. If only the right hon. Gentleman would read his Inland Revenue brief he would find it better than his last speech.
1673§ Mr. DiamondI cannot help the right hon. Gentleman. I recognise a good deal of what he said about the seriousness of the position and I do not propose to enter into a long debate about the health of the gilt-edged market. What is at issue is whether this Amendment would have a considerable effect on the gilt-edged market; whether it is necessary because of the history of the market since the 1965 Finance Act and the right hon. Gentleman's similarly dolorous speech last year; and whether the health of the market has been in any way prejudiced, so far as one can see, by the legislation that the Government are introducing and by their unwillingness to do more than recognise what we called a debt of honour but which our predecessors were not prepared to recognise as such.
The question is whether this Amendment in tax terms would be fair to other taxpayers and likely to achieve any marked effect on the market. One has only to go back to the Chancellor's speech yesterday on the question of dealing sympathetically with the market in tax terms. He made it clear that he is going to considerable lengths, in cooperation with and with the assistance of the Stock Exchange, to maintain a system which is very difficult for the Inland Revenue to work but which allows dealings in the market which would not otherwise take place.
Indeed, so difficult is it that the hon. Member for St. Ives (Mr. Nott) suggested that we should not attempt to carry it on but should withdraw the facility which caused all the trouble. However, my right hon. Friend made it clear that he wanted the facility continued notwithstanding the problem of bond washing and so on because he acknowledged that we needed to give every encouragement to this market. That is the position of the Government.
The Government do not feel that this Amendment would have any material effect on the market but it would have a prejudicial effect on other taxpayers. It would breach a serious principle in picking out a particular kind of capital gain and saying that it shall not be taxed—shall [IX be taxed in the case of a limited company virtually at all and in the case of a private holder not taxed for a very long period.
1674 The right hon. Gentleman says, "Let there be no tax payable so long as there is switching; let the tax be paid when there are sales either of the whole amount or part of an amount, when there is a realisation". But he will acknowledge that a limited company could go on switching for ever.
§ Mr. DiamondThe purpose of the Capital Gains Tax is not to provide machinery whereby no Capital Gains Tax can be paid. The purpose of the Capita] Gains Tax machinery is to see to it that all holders of securities where capital gains are realised pay their fair share of Capital Gains Tax, and it is a modest tax at a moderate rate. This would breach that principle.
It is a short time since all the arguments were adumbrated about why it is a principle which we cannot accept. It has gone back over many years, and I am sorry that I cannot possibly recommend the House to accept the proposal, albeit that it is in a less objectionable form than previously.
§ 2.0 a.m.
§ Sir G. NabarroBefore the right hon. Gentleman sits down, may I put a question to him? He accused my right hon. Friend the Member for Flint, West (Mr. Birch) of being dolorous last year, and he suggested that he has been equally dolorous this year. The right hon. Gentleman admitted in the opening stages of his speech that the position in the gilt-edged market is extremely serious, and it is about to be made very much more serious by the loosing on the market of something approaching £600 million in all of scrip in respect of the proposed nationalisation of the steel industry, which my right hon. Friend referred to as "monetising" the steel industry.
If the right hon. Gentleman agrees that the position of the gilt-edged market has deteriorated progressively since the speech which my right hon. Friend made last year and is now in a serious position—and that is self-evident and manifest, anyway—and having regard to the grave current economic circumstances, then if my right hon. Friend's suggested solution is the wrong one, surely the Treasury must be able to offer an alternative which is the correct solution. I suggest to my right hon. and hon. Friends 1675 that we cannot sit on the sidelines in this vitally important matter of the gilt-edged market and allow it to slide until my right hon. Friend is compelled to make another dolorous speech in 1967.
I repeat that this is a critically important matter, and I press on the Treasury Bench that if the suggestion offered in the Amendment is the wrong one—perhaps it is a palliative or an ameliorating measure—why will the right hon. Gentleman not give us his version of what is the right one? We are all agog with interest, waiting for a constructive suggestion from him suggesting that he should arrest the drift in the gilt-edged market. I need hardly repeat that there are hundreds and thousands of small investors in our constituencies who are holding War Loan at something below 49, and it is still sliding down. Therefore—[Interruption.]—the hon. Gentleman should not be flippant about this.
§ Mr. John Hynd (Sheffield, Attercliffe)I am not being.
§ Sir G. NabarroI suggest that he is—
§ Mr. Hynd rose—
§ Sir G. NabarroVery well. I will give way.
§ Mr. HyndThe hon. Gentleman is talking about people who are holding gilt-edged securities which are falling in value, but we are talking about capital gains. If they fall in value, will they be taxed?
§ Sir G. NabarroThe hon. Gentleman evidently did not listen to my right hon. Friend's speech; otherwise, he has not the mental capacity to understand simple English.
| Division No. 119 | AYES | [2.5 a.m. |
| Alison, Michael (Barkston Ash) | Cooke, Robert | Harrison, Col. Sir Harwood (Eye) |
| Allason, James (Hemel Hempstead) | Dalkeith, Earl of | Hawkins, Paul |
| Astor John | Dean, Paul (Somerset, N.) | Heseltine, Michael |
| Atkins, Humphrey (M't'n & M'd'n) | Deedes, Rt. Hn. W. F. (Ashford) | Higgins, Terence L. |
| Awdry, Daniel | Dodds-Parker, Douglas | Hill, J. E. B. |
| Baker, W. H. K. | Elliott, R.W.(N'c'tle-upon-Tyne,N.) | Hunt, John |
| Balniel, Lord | Eyre, Reginald | Hutchison, Michael Clark |
| Batsford, Brian | Fortescue, Tim | Jenkin, Patrick (Woodford) |
| Biffen, John | Gilmour, lan (Norfolk, C.) | Johnston, Russell (Inverness) |
| Birch, Rt. Hn. Nigel | Glover, Sir Douglas | Joseph, Rt. Hn. Sir Keith |
| Boyd-Carpenter, Rt. Hn. John | Glyn, Sir Richard | King, Evelyn (Dorset, S.) |
| Brinton, Sir Tatton | Goodhart, Philip | Kitson, Timothy |
| Bromley-Davenport, Lt.Col.Sir Walter | Grant, Anthony | Knight, Mrs. Jill |
| Brown, Sir Edward (Bath) | Grant-Ferris, R. | Longden, Gilbert |
| Bruce-Gardyne,J. | Gurden, Harold | Loveys, W. H. |
| Chichester-Clark, R. | Hall, John (Wycombe) | Lubbock, Eric |
| Clark, Henry | Hall-Davis, A. G. F. | MacArthur, Ian |
| Clegg, Walter | Harrison, Brian (Maldon) | Macleod, Rt. Hn. Iain |
§ Mr. Ivor Richard (Barons Court)Get on with it.
§ Sir G. NabarroI will get on with it. If I am pressed, I will get on with it for another half hour. I am perfectly capable of talking about a matter as important as this for a very long time.
I rose to press the Chief Secretary with a simple question. If he considers that my right hon. Friend's Amendment is irrelevant to the issue of the slide in the gilt-edged market, will he please give us the remedy that he considers is relevant? The slide has been going on continuously now for 12 months, and we have not yet reached the bottom. It is in the interests of hon. Members on both sides to press the matter with a view to an improvement in gilt-edged securities.
§ Mr. BirchMay I say, with leave, that the Chief Secretary introduced some slightly irrelevant points. This has nothing to do with bond washing. So far as being let off from Capital Gains Tax is concerned, this is a switch. It is not basically a realisation. Simply to say that the Government's measures have not damaged the gilt-edged market is dotty. The Chief Secretary should ask the Bank of England, the Government broker—or anybody. They will tell him that the application of Capital Gains Tax to the gilt-edged market and the effects of the Corporation Tax have been devastating. These are largely the reasons why there has been this big slide in the gilt-edged market. Therefore, I ask my right hon. and hon. Friends to press this Amendment to a Division.
§ Question put, That those words be there inserted in the Bill:—
§ The House divided: Ayes 92, Noes 148.
1677| Maddan, Martin | Pearson, Sir Frank (Clitheroe) | Turton, Rt. Hn. FL H. |
| Marten, Neil | Peel, John | Walker, Peter (Worcester) |
| Maxwell, Hyslop, R. J. | Pike, Miss Mervyn | Walters, Dennis |
| Mitchell, David (Basingstoke) | Pink, R. Bonner | Ward, Dame Irene |
| Monro, Hector | Pounder, Rafton | Weatherill, Bernard |
| Morrison, Charles (Devizes) | Powell, Rt. Hn. J. Enoch | Webster, David |
| Munro-Lucas-Tooth, Sir Hugh | Rossi, Hugh (Horrney) | Whitelaw, William |
| Murton, Oscar | Shaw, Michael (Sc'b'gh & Whitby) | Winstanley, Dr. M. P. |
| Nabarro, Sir Gerald | Smith, John | Woodnutt, Mark |
| Noble, Rt. Hn. Michael | Summers, Sir Spencer | Wylie, N. R. |
| Nott, John | Taylor, Edward M.(G'gow,Cathcart) | |
| Orr, Capt. L. P. S. | Taylor, Frank (Moss Side) | TELLERS FOR THE AYES: |
| Osborn, John (Hallam) | Tooling, Sir William | Mr. Francis Pym and |
| Page, Graham (Crosby) | Thatcher, Mrs. Margaret | Mr. Peter Blaker. |
| NOES | ||
| Abse, Leo | Griffiths, Will (Exchange) | Newens, Stan |
| Allaun, Frank (Salford, E.) | Hamilton, James (Bothwell) | Noel-Baker, Francis (Swindon) |
| Alldritt; Walter | Hamilton, William (Fife, W.) | Norwood, Christopher |
| Archer, Pater | Hamling, William | Ogden, Eric |
| Armstrong, Ernest | Hannan, William | O'Malley, Brian |
| Bennett, James (G'gow, Bridgeton) | Hattersley, Roy | Oram, Albert E. |
| Bidwell, Sydney | Hazell, Bert | Orme, Stanley |
| Bishop, E. S. | Helfer, Eric S. | Oswald, Thomas |
| Blackburn, F. | Herbison, Rt. Hn. Margaret | Parkyn, Brian (Bedford) |
| Booth, Albert | Hobden, Dennis (Brighton, K'town) | Pentland, Norman |
| Boston, Terence | Hooley, Frank | Perry, George H. (Nottingham, S.) |
| Braddock, Mrs. E. M. | Howie, W. | Price, Christopher (Perry Barr) |
| Bradley, Tom | Hoy, James | Probert, Arthur |
| Brooks, Edwin | Hughes, Emrys (Ayrshire, S.) | Redhead, Edward |
| Brown, Hugh D. (G'gow, Provan) | Hughes, Roy (Newport) | Reynolds, G. W. |
| Brown,Bob(N'c'tle-upon-Tyne,W.) | Hunter, Adam | Rhodes, Geoffrey |
| Brown, Ft W. (Shoreditch & F'bury) | Hynd, John | Richard, Ivor |
| Buchan, Norman | Jackson, Colin (B'h'se & Spenb'gh) | Roberts, Gwilym (Bedfordshire, S.) |
| Buchanan, Richard (G'gow, Sp'burn) | Jackson, Peter M. (High Peak) | Robertson, John (Paisley) |
| Butler, Mrs. Joyce (Wood Green) | Jenkins, Hugh (Putney) | Robinson, W. 0. J. (Walth'stow, E.) |
| Cant, R. B. | Jones, J. Idwal (Wrexham) | Roebuck, Roy |
| Carmichael, Neil | Judd, Frank | Rose, Paul |
| Carter-Jones, Lewis | Kelley, Richard | Ross, Rt. Hn. William |
| Coe, Denis | Kenyon, Clifford | Rowlands, E. (Cardiff, N.) |
| Crawshaw, Richard | Kerr, Russell (Feltham) | Ryan, John |
| Cullen, Mrs. Alice | Lawson, George | Sheldon, Robert |
| Dalyell, Tam | Leadhitter, Ted | Shore, Peter (Stepney) |
| Davidson Arthur (Accrington) | Ledger, Ron | Silkin, John (Deptford) |
| Davies, Dr. Ernest (Stretford) | Lestor, Miss Joan | Slater, Joseph |
| Dewar, Donald | Lever, Harold (Cheetham) | Small, William |
| Diamond, Rt. Hn. John | Lewis, Ron (Carlisle) | Steele, Thomas (Dunbartonshire, W.) |
| Dickens, James | Lomas, Kenneth | Summerskill, Hn. Dr. Shirley |
| Doig, Peter | Lyons, Edward (Bradford, E.) | Urwin, T. W. |
| Dunwoody, Mrs. Gwyneth (Exeter) | McBride, Neil | Varley, Eric G. |
| Eadie, Alex | McCann, John | Walden, Brian (All Saints) |
| Edwards, Robert (Bilston) | MacDermot, Niall | Walker, Harold (Doncaster) |
| English, Michael | McGuire, Michael | Wallace, George |
| Ensor, David | McKay, Mrs. Margaret | Watkins, David (Cornett) |
| Fletcher, Raymond (Ilkeston) | Mackenzie, Gregor (Rutherglen) | Wellbeloved, James |
| Flom', Bernard | Mackintosh, John P. | Whitlock, William |
| Foley, Maurice | McMillan, Tom (Glasgow, C.) | Willis, George (Edinburgh, E.) |
| Foot, Michael (Ebbw Vale) | McNamara, J. Kevin | Wilson, William (Coventry, S.) |
| Ford, Ben | Mahon, Peter (Preston, S.) | Winnick, David |
| Fowler, Gerry | Mahon, Simon (Bootle) | Winterbottom, R. E. |
| Fraser, Rt. Hn. Tom (Hamilton) | Manuel, Archie | Woodburn, Rt. Hn. A. |
| Garrow, Alex | Mapp, Charles | Woof, Robert |
| Gourlay, Harry | Miller, Dr. M. S. | |
| Greenwood, Rt. Hn. Anthony | Mitchell, R. C. (S'th'pton, Test) | TELLERS FOR THE NOES: |
| Gregory, Arnold | Morgan, Elystan (Cardiganshire) | Mr. Joseph Harper and |
| Grey, Charles (Durham) | Morris, Alfred (Wythenshawe) | Mr. loan L. Evans. |
| Griffiths, David (Rother Valley) | Murray, Albert |
§ Mr. SpeakerI think that the next six Amendments can be dealt with in one block.
§ Mr. MacDermotYes, Mr. Speaker. Amendments Nos. 85–90 all meet the same points in relation to short-term gains tax as the House accepted a few moments ago in relation to long-term gains tax.
§
Amendments made: No. 85 in page 110, line 47, leave out "in" and insert:
at any time not later than the end of".
§ No. 86, in page 111, line 1, after "or", insert "of".
§ No. 87, in line 4, after "Kingdom", in. Bert "or elsewhere".
1679
§
No. 88, in line 8, leave out "in" and insert:
at any time not later than the end of".
§
No. 89, in line 17, leave out "after" and insert:
(whether that day fell before".
§ No. 90, in line 17, after "effect", insert "or later)".
§ —[Mr. MacDermot.]
§ Schedule 13.—(REPEALS.)
§ Mr. MacDermot1 beg to move Amendment No. 116, in page 117, line 10, column 3, to leave out "section 69(7)(b)" and to insert:
In section 69, in subsection (5) the words from ' and the exclusion ' to the end of the subsection and in subsection (7) the words from 'but notwithstanding' to the end of the subsection".
§ This Amendment is consequential on others discussed earlier in the day.
§ Amendment agreed to.
§ Bill to be read the Third time this day and to be printed. [Bill 78].