HC Deb 22 June 1966 vol 730 cc773-89
Mr. John Hall (Wycombe)

I beg to move, Amendment No. 267, in page 48, line 9, at end to add: (2) For the year of assessment 1966–67 the rate of capital gains tax shall be 25 per cent. We now come to the first of a large group of Amendments relating to Capital Gains Tax which will, I fear, keep us occupied for some hours to come. We have already had a debate on Clause 37 and its incomprehensibility, but now that we have reached Capital Gains Tax we find a real example of really incomprehensible legislation. If any hon. Members present wish to study that subject, then, if may coin a phrase, they are now to have a basinful.

This Amendment is similar in form to one moved last year by the then hon. Member for Caithness and Sutherland, and was supported then by the whole weight of the Liberal Party. Therefore, we hope for the support of Liberal hon. Members tonight. Last year, my right hon. and hon. Friends went into the Division Lobby in support of the Liberal Amendment and, as I have said, I look forward to Liberal support tonight. We then had a far-ranging debate, lasting about 2¼ hours, despite a commendably short speech by the hon. Gentleman who moved the Amendment—a gesture which I shall seek to emulate tonight.

Perhaps the most significant feature of the debate then, however, was the birth of MacDermot's Law. It was a celebrated occasion, which, I think, ought to be celebrated every year. I will repeat MacDermot's Law in case any hon. Member of the Committee is not aware of it; and repeat how my right hon. Friend the Member for Bexley (Mr. Edward Heath) defined it. My right hon. Friend said: MacDermot's Law can be defined as follows: When raising a new tax, the objective should be to raise the tax sufficiently to ensure that the next adjacent tax is raised sufficiently to ensure that the next adjacent tax is raised sufficiently to ensure that the next adjacent tax is raised sufficiently."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 408.] One can sum it up by saying that higher taxes lead to higher taxes and so on ad infinitum.

I do not want to go all over the arguments we had last year, but I think we should emphasise certain points on this Amendment which is designed to reduce the rate of Capital Gains Tax. Last year, hon. Members of the Committee may remember, we had some debate about the actual yield. During the debates on the Finance Bill and the Budget of 1965 it was estimated that the total yield we would get out of Capital Gains Tax would be about £125 million, and during the debates on the reduction of the rate of Capital Gains Tax from 30 per cent. to 25 per cent. it was estimated by the Financial Secretary at that time that it would cost £20 million of the full yield. I must stress that the full yield would only be reached, if ever—I am talking of the £125 million now—only after some 15 to 20 years. What the estimate of possible yield of Capital Gains Tax is now, after some 12 months of experience, I do not know, but I do not know that it is very important, because we were told quite definitely on many occasions during the debates last year that the real purpose of this tax was not to raise revenue; it was wholly a question of social justice; revenue did not come into this at all, it was a matter of putting social justice right.

It was, perhaps, a little misleading to be told, as we were, last year that the cost of this concession, if concession it be, would be £20 million. It is only £20 million over a very long period of time, and I would estimate that the actual cost of the concession in 1966–7 would be much nearer £1 million. I think I am right in saying—I speak from memory now—that when asked to give the cost of the reduction to 15 per cent., which was the Amendment we moved at that time, the hon. and learned Gentleman said the cost would be £3 million for the year 1966–7. So from that I think our Amendment now would probably cost about £1 million over the same period of time. We are not, therefore, asking for a concession which would be very costly this year.

We have to look at this against the background of potential yield and against the background of the experience which other countries have had in getting yield from this tax. So far as my researches have gone they tell me that the yield from the tax in other countries, as a percentage of total tax revenue, is very small indeed. Even in the United States of America, where they get the highest yield, it is estimated at between 1.5 and 2.5 per cent. The cost of collection in most cases, almost invariably, is very high indeed.

What can be learned from the experience of other countries is that the higher the rate of tax the more it encourages evasion or avoidance, or whatever hon. Members like to call it. The cost to the taxpayer of avoidance by the taxpayer of a tax of this kind tends to be very high. I am sure hon. and learned Members on both sides of the Committee will agree with that. Therefore, with a low rate of tax it is not worth while trying to avoid the tax. Therefore we find that if there is a high rate of tax it does lead to evasion, and as we know—we have had various examples quoted during the long debates we have had today—attempted evasion leads to amendments to the law, to anti-evasion legislation, which adds further complication to an already over-complicated matter and produces confusion on confusion. I mentioned at the beginning of my remarks that the present legislation governing Capital Gains Tax is sufficiently complicated. I would have thought that even those with a vested interest in added confusion would be slightly appalled at the idea of having to add other Amendments, making it even more complicated, in order to stop up loopholes found year by year—loopholes which had been exploited by people who felt that the tax they were being asked to pay was too high.

We know that in the first year of the operation of this tax the Inland Revenue officers have been overwhelmed by the task placed upon them; indeed, we were faced with something very rare in fiscal experience—a threatened strike by them. In a previous incarnation the Chancellor might have been more closely associated with such a strike, but in this case it must have been a source of some embarrassment. I understand that an arrangement has now been made which has at least satisfied those officers tem- porarily and has provided them with some recompense for the appalling labour of having to try to comprehend the ramifications and intricacies of Capital Gains Tax legislation, quite apart from the burden placed upon them by the valuation provisions.

I remember suggesting from time to time, in last year's debate, that the Capital Gains Tax would face the Inland Revenue officers with serious and difficult problems, which would create a great strain upon the organisation. I was brushed off, and such is my normal diffidence that I accepted this brushing off. I took it that the Chancellor, the Financial Secretary, the Chief Secretary and the other notable and highly intelligent Members on the Government Front Bench knew much more about these things than I did, and that they were right and I was wrong. But what I said then has turned out to be true; we have created appalling problems for the Inland Revenue officers—and not only for them, but also for the taxpayers.

The Inland Revenue has produced a very good comprehensive booklet on the Capital Gains Tax, which runs to 143 pages, including the index at the end, and which gives some idea of the complicated legislation with which it has to deal. It has undoubtedly been completely and utterly overloaded by the work placed on its shoulders. That is one reason why we have the curious situation in which the Selective Employment Tax is administered by the Ministry of Labour and the Ministry of Health. I can understand the Ministry of Health being called in, no doubt for medical as well as other reasons.

Looking at this new tax—and I call it a new tax because it is new in its present form, although the first tax of this kind was introduced some years ago—we tend to compare it with the experience of other countries which have the same sort of tax. Last year the Financial Secretary suggested that it was difficult to compare our proposals with those of other countries because there were so many differences in the systems and the forms of tax exemptions used, and that the only country with which we could fairly compare our system was the United States.

In the United States the rate of tax imposed is 25 per cent. The argument used by the Financial Secretary was that because the maximum rate of personal taxation in this country is 91¼ per cent. on investment income exceeding £15,000, whereas in the United States it is 70 per cent. on the top slice of investment income exceeding £35,700, it was right that our Capital Gains Tax should also be at a higher rate. That was the reason for MacDermot's Law.

Many arguments have been put forward in the past about the effect that the tax has on Surtax payers, who, on the whole, will make capital gains and will therefor be subject to this tax. It is not true that Surtax payers are the only ones who make capital gains, but even if it were, surely the fact that our Surtax payers are the most heavily penalised of all the Surtax payers in the world—certainly much more heavily penalised than those in America, with which we compare our Capital Gains Tax system—is a reason for having a lower rate of Capital Gains Tax rather than a higher one.

1.0 a.m.

Mr. Michael English (Nottingham, West)

Would the hon. Gentleman explain whether he is referring to the net effect of American taxation or to the American taxation rates? Surely the American Income Tax rates are higher than are the rates in this country at the top level, although because of the possible number of exemptions their net effect may be lower?

Mr. Hall

I accept as a fair comparison the top rate of tax and the top slice of income as between the two countries. This is a comparison which has been used on both sides of the House in previous debates. I have never understood, when it is agreed that we can use the United States as a fair comparison with this country, why we have decided to take the rate of 30 per cent. instead of 25 per cent.

I would not protest so vigorously about this high rate of tax if it were not for various considerations which have been brought into play by the operation of our legislation. I would not protest if it were a tax entirely on gains and not, as it is in part, on capital. I would not protest so much if it did not impose such a burden on many taxpayers who have to seek professional advice, and often costly professional advice, for which they can claim no recompense against their capi- tal gains. I would not protest so much if the tax avoided injustice and anomalies, some of which we shall try to put right by later Amendments. I would not protest so much if it were not for the fact that some shareholders find that they are paying 58 per cent., because capital gains which have borne tax at the hands of companies bear tax very often at the hands of shareholders. Neither would I protest so much if the tax did not encourage evasion and avoidance with all the undesirable consequences which flow.

I think it is fair to say that we on this side of the Committee do not oppose a Capital Gains Tax. We oppose a tax on capital, which we shall discuss later on, but we do not oppose the principle of a Capital Gains Tax. What we do oppose is the imposition of a rate of 30 per cent. against the background of the present imperfections and injustices of the present Capital Gains Tax legislation.

Against that background we believe that this rate of 30 per cent. is too high, and although I think that the reduction to 25 per cent. a little modest on our part, I think it is a sensible and moderate Amendment which I hope will receive the support of the Committee.

Mr. MacDermot

The hon. Member for Wycombe (Mr. John Hall) has been doing a lot of protesting, but I should like him to explain to the Committee on whose behalf he is protesting.

The effect of this Amendment and the only effect would be to reduce from 30 per cent. to 25 per cent. the fiat rate of Capital Gains Tax on gains accruing in the year 1966–67 to persons other than companies. May I remind the Committee that there is what is known as the alternative basis of charge, by which people who make capital gains can choose an alternative basis of charge, which, broadly speaking, means that for people whose income is such that at the marginal rate they do not pay a rate higher than the standard rate of Income Tax, the rate of Capital Gains Tax is about 20½ per cent. For the people who pay less than the standard rate of Income Tax, which is the great majority of taxpayers in the country, if they make capital gains the rate of Capital Gains Tax would be still lower. All that this Amendment does is to propose that we should lower the rate of Capital Gains Tax for that relatively small minority of taxpayers who would pay Capital Gains Tax at the standard rate of 30 per cent. There are about 21 million taxpayers in this country, of which fewer than half a million have investments on which their marginal rate of tax exceeds the standard rate of Income Tax. Broadly then, there are half a million taxpayers who, if they realised capital gains, would be liable to pay at the standard rate of 30 per cent., and many of those will be Surtax payers.

But for the other three million or so people who have investment income—it is mainly, presumably, people with investment income who are likely to realise capital gains—if they paid Capital Gains Tax at all, it would be at 20½ per cent. or lower——

Mr. Hall

I find this question of 20½ per cent. puzzling. Am I not right in saying that, on 25th May, 1965, in an intervention in the speech of my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), the Financial Secretary confirmed that someone paying the standard rate of Income Tax would pay 27½ per cent. instead of 30 per cent.?

Mr. MacDermot

The hon. Member will remember that that was in Committee. On Report, we introduced an Amendment which considerably improved the alternative basis of charge. He will probably recall—he will be able to refresh his memory from the reports— that, on average, it works out that, for the standard rate payer, the alternative basis of charge means that he now pays Capital Gains Tax at a rate of 20½ per cent.

In effect, the Amendment proposes that we should reduce the rate of Capital Gains Tax for the Surtax payer and for people who are paying at the highest rate of Income Tax——

Mr. Gower

What is wrong with that?

Mr. MacDermot

What is wrong with it? It is interesting to see that, in a year in which it is conceded that the Chancellor cannot in general reduce taxes, when the Opposition concede that this is not a year in which we can reduce Income Tax, in the proposals which are put forward for redundancy taxes—I understand that this is an Official Opposition Amendment—this tax is picked out as the one which should be reduced.

It is an Amendment for the relief of the distressed fraternity, the Surtax payers. It is like the friendly society which we heard about yesterday from the hon. Member for Worcestershire, South (Sir G. Nabarro), the Nabarro Friendly Society for taxpayers whose marginal rate is 18s. 3d. in the £. These are the people who are singled out by the Opposition for relief in this year. I suggest that this is a curious section of the community to choose.

The hon. Member for Wycombe suggested that 30 per cent. is an unfair rate, or as his hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) described it, a "swingeing" rate. We can judge the rate ony by comparing it. We can compare it with the rates of other countries, which is always difficult because they often have different tax structures from our own, or we can compare it with other rates in this country. Comparing it with other countries, we agreed last year, when we reviewed some of the other systems for taxing capital gains, such as those in Germany, Japan and Sweden, that their systems are so different—in some cases they tax capital gains much higher than we do— that it would not be possible to draw any comparison from those countries.

The nearest system to ours is the American one. The hon. Member referred to what was described as MacDermot's Law in our debates last year, which description arose directly from my comments on a comparison of our system with that in America.

If I might quote the law as I formulated it and not as the right hon. Gentleman who is now the Leader of the Opposition formulated it, I said: Their rate"— that is, the American rate— is 25 per cent., but I would remind the Committee of what I said at the outset about how we must relate our capital gains tax rate to our general rates of personal taxation. American rates of personal taxation are lower than ours. Their maximum rate is 70 per cent. on the top slice of investment income exceeding £35,700 a year. That compares with the figure I gave of 91¼ per cent. for investment income exceeding £15,000. When we bear in mind that the alternative rate exists for people of moderate means—and exists under both the American system and our system—and when we consider that the chief beneficiary of the low flat-rate tax is the Surtax payer, I suggest that if 25 per cent. is fair and reasonable in relation to the American maximum of 70 per cent., a rate of 30 per cent. is very moderate in relation to our maximum of 91¼ per cent. … but if the purpose of this tax is to secure social justice, to secure some equity, and to see that one lot of people do not get away with vast and regular increases of wealth, and if the second obective is to prevent incentive to tax avoidance by people dressing income as capital, neither of these objects will be achieved if we make too great a discrepancy between the rate of tax that wealthy people pay on their income and the rate of tax which wealthy people pay on their capital."—[OFFICIAL REPORT, 25th May, 1965; Vol. 713, c. 325–7.]

Mr. John Hall

In his very interesting quotation, the hon. and learned Gentleman has omitted one intervention by my right hon. Friend the Member for Bexley (Mr. Heath), at c. 326. in which he said: This is such an important point that I hope that the hon. and learned Gentleman can reiterate it, and clarify it. What he says is that because we have a very much higher maximum level of personal taxation than have the Americans it is only fitting that we should also have a higher rate of Capital Gains Tax.

Mr. MacDermot

Of course it is, and that is what I said in the passage that I have just read. One of the objects of the Capital Gains Tax is to stop tax avoidance by people dressing up income as capital. Clearly, the nearer the Capital Gains Tax rate is to the Income Tax rate, the more likely one is to achieve that objective. But we all agree that it would be quite unfair to establish a rate of Capital Gains Tax which was the same or nearly the same as these high rates of Income Tax.

That is agreed for a variety of reasons, taking into account that many of these gains are realised and accumulated over many years, taking into account the inflation element which may be present in those gains which calls for a lower rate, and weighing up the many different elements which go to decide what is a fair rate, in relation to our general structure of rates of tax. 30 per cent. was a fair rate, and I suggest that nothing has happened in the mean time to make us alter that view.

Mr. Higgins

Can the hon. and learned Gentleman tell us what rate of inflation he is assuming in making this calculation?

Mr. MacDermot

I am not assuming any rate. We all know and have experience of the rate of inflation that there has been since 1939. We have had two short periods when the inflation was actually reduced, one a period under Sir Stafford Cripps and another period shortly after 1957; otherwise, we have had a fairly steady rate right through. That is obviously something which one must take into account when assessing what is the fair rate of Capital Gains Tax, and that we have done.

Capital Gains Tax in particular is a type of tax where one would expect the rates to be altered with rather less frequency than the rates of other taxes. But, in any event, one cannot see the particular argument for reducing the rate for one year—and it is only estimated on the basis of one year—for the narrow class of people who will pay at the standard rate.

I will not quarrel with the hon. Gentleman's estimate of the amount of money involved. As we know, the yield of the Capital Gains Tax in these early years will be very low, because we are only dealing with taxing gains since Budget Day of last year. Of necessity, therefore, we are dealing with very small amounts.

1.15 a.m.

Mr. Gower

Surely one of the justifications of a Capital Gains Tax is that it brings in a source of revenue which in favourable conditions should enable less tax to be collected from other sources, including Income Tax. By the hon. and learned Gentleman's argument, if Income Tax is lowered presumably Capital Gains Tax should be at a lower rate. Does that not make nonsense of the whole thing?

Mr. MacDermot

I have indicated that I do not think Capital Gains Tax rate should be altered or that it should fluctuate. If we had a substantial reduction in Income Tax rates—some have been arguing for that and suggesting that we should make substantial differences in indirect taxes—I agree that that would be circumstances in which we would look again at the rate of Capital Gains Tax.

Mr. Iain Macleod (Enfield, West)

I should like straight away to put right something which the hon. and learned Gentleman said in regard to priorities enshrined in this Amendment. I think he was happier in the legal rather than the political part of his answer. He said that we are giving priority to a small number of people who would be favourably affected by this proposal. That is perfectly true. He went on to say that this seems an odd priority to take as our first relief, but it is not the first relief. The first relief we asked for was the one I ask for which is enshrined in New Clause 11 for tax relief for disabled and those who are widows or widowers and who because of their circumstances—I have been in those circumstances myself— have to have a housekeeper and to claim an allowance.

There is a vast number of New Clauses which we shall come to subsequently which show the true social priorities we on this side of the Committee believe in. It is a mere accident of the order in which the Bill is arranged that we happen to come to this proposal before the others. As to the hon. and learned Gentleman's argument that comparatively few people would be affected by this proposal, comparatively few are affected by having a disabled wife, but that is no reason why we should not do justice if we can to both classes. We know perfectly well that a limited number are affected and the sum of money is about £1 million a year, which cannot be spoken of in the same breath as the £360 million Income Tax 9d. relief for which we on this side did not vote. I think the hon. and learned Gentleman is wrong to criticise our order of priorities.

Mr. Alison

The Financial Secretary, perhaps perfectly legitimately, has had his bit of fun about tonight not being the Fellowship of Buffaloes which we had last night but the Friendly Society for Surtax Payers, but in stressing the social justification for the Capital Gains Tax and turning down the Amendment we propose, he ignores at the nation's peril the connection which one cannot avoid between the pursuit of social justice and its economic consequences.

If the Capital Gains Tax is to have an effect on savings and the mobility of savings which it does have, economic consequences will flow which will be counterproductive socially. We cannot have it both ways. If the nation is not going to save, or decides that the only reasonable way to save in the light of the Capital Gains Tax is to save money in the form of works of art which people will enjoy and keep for a lifetime rather than spending money on productive enterprise, the taxpayer will be hit.

Taxes have to be used to make the savings equal to the investment, and it nearly always means that indirect taxes have to be raised. There is the 1d. on the pint and more on tobacco. The swingeing effect of taxes has the effect of discouraging savings and the mobility of savings. One cannot have it both ways. The Government cannot claim that they are going to pursue social justice and say that the economic consequences are irrelevant. One can be counter-productive in one's social aims, as I believe the Government are in danger of being at the present time. One of the reasons that we have given high priority to lowering the Capital Gains Tax at present is that the country is faced with an investment crisis. The Government do not seem to have spotted this yet. The C.B.I. latest survey showed that the whole investment trend and attitude of management were depressing and the trend is not optimistic. This is of great importance. The rate of increase in capital investment is half the projected level in the National Plan.

In this situation we have two things of considerable importance. We have the new form of industrial development in which the Government are going to use the taxpayers' money in the interests of subsidising manufacturing investment, but there is no proper criterion. There is no attempt in the Industrial Development Bill, nor has there been anything hinted in public statements, nor is there anything in the White Paper, proposed to canalise the taxpayers' money in the pursuit of projects which are profitable, desirable or worthwhile. It could be argued that the capital grant system proposed by the Government will make it possible for the train robbers to get a grant for capital investment. If they operated a business for breaking up scrap metal by oxy-acetylene burner they could probably get a capital grant from the Government which they would not have got with the investment allowance system. There is no criterion of soundness, worth-whileness or profitability of the capital investment in the Government's incentive scheme.

At the same time the Government have with the Capital Gains Tax deliberately frozen private savings which, freed from the shackles of this kind of taxation, would instinctively tend to find its way out of profitless, declining assets into assets giving a bigger return. It is an undesirable fact that the tax, however limited, has immobilised savings and will tend to retain them in assets which may cease to be productive. It may encourage savings to go into sectors which are entirely unrelated to manufacturing industry. We have already seen the trend of some savers to switch to gold and works of art. If the Government want to get the economy moving they must give an incentive to the saver to use his savings rationally, to switch from one investment into another and to pursue projects which will be profitable and worthwhile. It may be humorous to say that this is in the interest of Surtax payers, but Surtax payers have a contribution to make to the economy as the Financial Secretary must admit.

It is economic as well as social justice to do what we can to take the burden of investment off the taxpayer's back and put it on the back of the people who are prepared to do it and take risks. It is no use the Financial Secretary pretending that he can dismiss the Amendment as one of narrow self-interest, looking after the rich. It is not in the least designed to do that. It is designed to increase the mobility of capital, at a time when savings are static and investment in industry is declining, and when, above all, the Government's own scheme for canalising the taxpayer's money into industry is based on an entirely irrational premise, with no sort of attempt to smell out projects which are profitable and worthwhile.

Mr. Hirst

I very much agree with what has been said by my hon. Friend the Member for Barkston Ash (Mr. Alison), and I am grateful to my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for intervening in this debate. I greatly resented the speech of the Financial Secretary on this Amendment. If anything could be more unmitigated claptrap than MacDermot's Law when we first heard it, it was his repetition of it from HANSARD tonight. I am surprised that he was not too ashamed to read it again.

It is quite right that we should be consistent. Last year, we said that the rate was too high, and we say it again now. The hon. and learned Gentleman makes his unctious remarks, telling us that it is shocking that we should do these things. I know that he has been present in the Chamber a good deal, but I wonder how much of the debates he has listened to, or how much he has read the Notice Paper. I myself have several New Clauses down on the very lines referred to by my right hon. Friend the Member for Enfield, West. It is quite monstrous for the hon. and learned Gentleman to tick off the Opposition for bringing forward an Amendment which is perfectly consistent with what they said on the last occasion and which is regarded as perfectly reasonable in the country at large. If this rate were reduced by some other method—for the moment I forget the details, but I accept what I have heard—that would be all the more good reason for the basic or standard rate being reduced also.

I greatly resent the Government's political vendetta, which must be a nonsense in economic terms, against the Surtax payer. Some of the Surtax rates constitute a great injustice to some people, and it is adding insult to injury for the Financial Secretary, in his unctious way, to trot out political claptrap in defence of a situation which he knows is utterly indefensible.

Mr. Gower

We did not like MacDermot's Law when we heard it last year, and we like it even less now. It is an appalling law. It frightens us and makes us very apprehensive about the future. The level of personal taxation is extremely high now, and, if the Financial Secretary is to be believed, should it become higher the rate of Capital Gains Tax will be raised accordingly even more. The party oppossite is a party of high taxation of all kinds.

Mr. Hirst

And spite.

Mr. Gower

Certainly of high taxation. We are most anxious about the prospect not only for people in this category but for all classes of taxpayers. It was most misleading of the hon. and learned Gentleman to suggest that, because we have put down this Amendment, we are not interested in many other classes of taxpayer. There is far too great a burden of taxation already in many cases, but not least in this.

Mr. John Hall

The Financial Secretary's reply was on the lines we expected. He did not answer to the arguments put to him, and he has not sought to return to answer the cogent points made by my hon. Friends the Members for Barkston Ash (Mr. Alison) and for Shipley (Mr. Hirst). What he did was what one anticipated he would do, and that is to single out this Amendment as being more a method of obtaining some particular concession for Surtax payers. We have heard this in Finance Bill after Finance Bill, whether they are on this side or that side of the Committee. It seems that the Government Front Bench regard the Surtax payer as some sort of undesirable person who does not deserve any form of fiscal justice whatsoever. It is worth while pointing out that included in the brain drain are a large number of potential or existing Surtax payers who are leaving this country because of the burden of taxation. Even the Chief Secretary and the Financial Secretary have indicated that they sometimes find the burden of Surtax too high.

1.30 a.m.

The Financial Secretary did not address himself to the problems that will arise when people become conscious of the fact

that this rate is high and unfair and are driven—as always happens when taxation is regarded as penal—to forms of evasion. This means that we shall go on having additional amendments to this legislation which will make it practically impossible for any normal person to understand it.

Over recent weeks, when it has been necessary for taxpayers to complete their returns, I have had three people in my constituency telephoning me in tears and in despair who did not understand how to deal with this problem. People living on investment of one kind or another, not particularly wealthy people, who are required to make returns of their capital or capital gains, cannot afford to ask for the highly professional advice which is essential in so many of these cases. They really do not understand the Act or how to deal with their returns. I have given them such advice as I can, but this is the kind of complication that arises.

There is little doubt that a rate of this kind will be resented when it is felt, and I do not think the Financial Secretary gave sufficient attention to that. We regard the Financial Secretary's reply as very unsatisfactory, and we shall want to express that dissatisfaction in the normal way. I would advise my hon. and right hon. Friends to divide the Committee.

Question put, that those words be there added:—

The Committee divided: Ayes 95, Noes 156.

Division No. 52.] AYES [1.33 a.m.
Allason, James (Hemel Hempstead) Glover, Sir Douglas Lubbock, Eric
Awdry, Daniel Grant, Anthony Mackenzie, Alasdair (Ross&Crom'ty)
Baker, W. H. K. Gresham Cooke, R. Macleod, Rt. Hn. Iain
Batsford, Brian Grieve, Percy McMaster, Stanley
Biggs-Davison, John Grimond, Rt. Hn. J. Macmillan, Maurice (Farnham)
Bossom, Sir Clive Hall, John (Wycombe) Maddan, Martin
Bryan, Paul Hall-Davis, A. G. F. Maginnis, John E,
Buchanan-Smith, Alick (Angus, N&M) Heald, Rt. Hn. Sir Lionel Maxwell-Hyslop, R. J.
Buck, Antony (Colchester) Heseltine, Michael Mills, Peter (Torrington)
Carlisle, Mark Higgins, Terence L. Mitchell, David (Basingstoke)
Clark, Henry Hill, J. E. B. Monro, Hector
Clegg, Waiter Hirst, Geoffrey More, Jasper
Cooke, Robert Holland, Philip Morris, Charles R. (Openshaw)
Cooper-Key, Sir Neill Hooson, Emlyn Munro-Lucas-Tooth, Sir Hugh
Dalkeith, Earl of Hordern, Peter Page, Graham (Crosby)
Davidson, James (Aberdeenshire, W.) Hornby, Richard Pearson, Sir Frank (Clitheroe)
Deedes, Rt. Hn. w. F. (Ashford) Howell, David (Guildford) Peel, John
Digby, Simon Wingfield Hunt, John Percival, Ian
Eden, Sir John Hutchison, Michael Clark Pink, R. Bonner
Elliott, B. W. (N'c'tle-upon-Tyne, N.) Jenkin, Patrick (Woodford) Pounder, Rafton
Eyre, Reginald Johnston, Russell (Inverness) Ridsdale, Julian
Farr, John Jopling, Michael Rossi, Hugh (Hornsey)
Fortescue, Tim King, Evelyn (Dorset, S.) Scott, Nicholas
Giles. Rear-Adm. Morgan Kitson, Timothy Sharples, Richard
Gilmour, Sir John (Fife, E.) Knight, Mrs. Jill Shaw, Michael (Sc'b'gh & Whitby)
Sinclair, Sir George van Straubenzee, W. R. Wilson, Geoffrey (Truro)
Smith, John Vickers, Dame Joan Winstanley, Dr. M. P.
Stodart, Anthony Walker, Peter (Worcester) Woodnutt, Mark
Summers, Sir Spencer Walker-Smith, Rt. Hn. Sir Derek Worsley, Marcus
Taylor, Frank (Moss Side) Wall, Patrick
Thatcher, Mrs. Margaret Weatherill, Bernard TELLERS FOR THE AYES:
Tilney, John Webster, David Mr. Pym and Mr. Younger.
Turton, Rt. Hn. R. H. Whitelaw, William
Allaun, Frank (Salford, E.) Freeson, Reginald McNamara, J. Kevin
Alldritt, Walter Gardner, A. J, Mahon, Peter (Preston, S.)
Anderson, Donald Garrett, W. E. Mahon, Simon (Bootle)
Archer, Peter Ginsburg, David Manuel, Archie
Armstrong, Ernest Gray, Dr. Hugh (Yarmouth) Mapp, Charles
Atkins, Ronald (Preston, N.) Gregory, Arnold Miller, Dr. M. S.
Baxter, William Griffiths, Will (Exchange) Morgan, Elystan (Cardiganshire)
Benn, Rt. Hn. Anthony Wedgwood Hale, Leslie (Oldham, W.) Neal, Harold
Bennett, James (G'gow, Bridgeton) Hamilton, William (File, W.) Newens, Stan
Binns, John Hazell, Bert Noel-Baker, Francis (Swindon)
Blenkinsop, Arthur Heffer, Eric S. Oakes, Gordon
Boardman, H. Henig, Stanley Ogden, Eric
Booth, Albert Hobden, Dennis (Brighton, K'town) Oram, Albert E.
Boyden, James Hooley, Frank Orbach, Maurice
Bradley, Tom Horner, John Orme, Stanley
Brooks, Edwin Howarth, Harry (Wellingborough) Oswald, Thomas
Brown, Rt. Hn. George (Belper) Howarth, Robert (Bolton, E.) Page, Derek (King's Lynn)
Brown, Hugh D. (G'gow, Provan) Howell, Denis (Small Heath) Park, Trevor
Brown, Bob(N'c'tle-upon-Tyne, W.) Hughes, Hector (Aberdeen, N.) Parkyn, Brian (Bedford)
Brown, R. W. (Shoreditch & F'bury) Hughes, Roy (Newport) Pavitt, Laurence
Buchan, Norman Hunter, Adam Perry, George H. (Nottingham, S.)
Buchanan, Richard (G'gow, Sp'burn) Jackson, Colin (B'h'se & Spenb'gh) Price, Christopher (Perry Barr)
Callaghan, Rt. Hn. James Janner, Sir Barnett Price, William (Rugby)
Cant, R. B. Jay, Rt. Hn. Douglas Rhodes, Geoffrey
Carmichael, Neil Jeger, George (Goole) Roberts, Gwilym (Bedfordshire, S.)
Coleman, Donald Jeger, Mrs. Lena (H'b'n&S. P'cras, S.) Rose, Paul
Crawshaw, Richard Jenkins, Hugh (Putney) Rowlands, E. (Cardiff, N.)
Cullen, Mrs. Alice Johnson, Carol (Lewisham, S.) Shaw, Arnold (Ilford, S.)
Davies, Harold (Leek) Jones, Dan (Burnley) Sheldon, Robert
Davies, Ifor (Gower) Judd, Frank Shore, Peter (Stepney)
de Freitas, Sir Geoffrey Kelley, Richard Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Dell, Edmund Kerr, Mrs. Anne (R'ter & Chatham) Short, Mrs. Renée (W'hampton, N. E.)
Dempsey, James Kerr, Russell (Feltham) Silkin, John (Deptford)
Dewar, Donald Lawson, George Silkin, S. C. (Dulwich)
Diamond, Rt. Hon. John Leadbitter, Ted Silverman, Julius (Aston)
Dickens, James Ledger, Ron Steele, Thomas (Dunbartonshire, W.)
Doig, Peter Lee, Rt. Hn. Jennie (Cannock) Summerskill, Hn. Dr. Shirley
Dunnett, Jack Lever, Harold (Cheetham) Varley, Eric G.
Dunwoody, Mrs. Gwyneth (Exeter) Lever, L. M. (Ardwick) Wainwright, Edwin (Dearne Valley)
Dunwoody, Dr. John (F'th & C'b's) Lewis, Ron (Carlisle) Walden, Brian (All Saints)
Eadie, Alex Lomas, Kenneth Walker, Harold (Doncaster)
Edwards, Robert (Bilston) Lyon, Alexander W. (York) Watkins, David (Consett)
Edwards, William (Merioneth) Lyons, Edward (Bradford, E.) Wells, William (Walsall, N.)
English, Michael McCann, John Whitaker, Ben
Ennals, David MacDermot, Niall Williams, Alan (Swansea, W.)
Evans, Ioan L. (Birm'h'm, Yardley) Macdonald, A. H. Williams, Alan Lee (Hornchurch)
Faulds, Andrew McGuire, Michael Williams, Mrs. Shirley (Hitchin)
Fitch, Alan (Wigan) Mackenzie, Gregor (Rutherglen) Wilson, William (Coventry, S.)
Fletcher, Ted (Darlington) Mackie, John Woodburn, Rt. Hn. A.
Foot, Michael (Ebbw Vale) Mackintosh, John P. Woof, Robert
Forrester, John Maclennan, Robert
Fowler, Gerry MacMillan, Malcolm (Western Isles) TELLERS FOR THE NOES:
Fraser, Rt. Hn. Tom (Hamilton) McMillan, Tom (Glasgow, C.) Mr. Grey and Mr. Whitlock.

Clause Ordered to stand part of the Bill.