§ Mr. Diamond
I beg to move Amendment No. 132, in page 28, line 20, leave out from '1968' to end of line 34 and insert:
§ (6) This section shall apply in the case of a death after 19th March 1968 but where the property which passes in the death consists of a gift of rights under a policy of insurance issued in respect of an insurance made before 20th March 1968 (and so that but for this subsection, the gift would be dutiable under section 34(2) of the Finance Act, 1959 (gift 1749 by payment of premium on policy)) such property shall be dutiable (if at all) as if this section had not been enacted.
No. 276, in line 20, leave out from '1968 ' to end of line 34 and insert:
Provided that where the property which passes on the death consists of a gift of rights under a policy of insurance issued in respect of an insurance made before 20th March, 1968 and passes on the death under the said section 2(1 )(c) by virtue of section 34(2) of the Finance Act, 1959 (gift by payment of premium on policy), then this section shall only apply thereto if and to the extent that the dutiable amount of such property exceeds £25,000, such dutiable amount being calculated in accordance with the said section 34(2) and after making any reduction under section 64 of the Finance Act, 1960 (graduation of charge), and this proviso shall be applied to each such policy of insurance which so passes.
The Amendment to Amendment No. 132, in line 6, leave out from 'above' to end of line 7 and insert:
'shall apply only to the first £25,000 of the said property'.
§ No. 277, in page 28, line 31, leave out '£25,000' and insert '£50,000'.
No. 278, in line 31, at end insert:
Estate duty arising as a result of this section shall only be payable on the amount by which the total sums payable or other benefits arising under all policies of insurance related to the death exceed £25,000.
§ No. 279, in line 32, after ' subsection ', insert:
- (i) the words ' policy of insurance' shall include a contract for a deferred annuity, and
No. 281, in line 34, at end add:
(7) For the purposes of subsection (6) above, the payment by the deceased of the premium for a single premium policy of insurance shall be treated as operating to keep up the policy within the meaning of that expression in the said section 34(2).
No. 282, in line 34, at end add:
(7) Where the total amount or value referred to in paragraph (b) of subsection (6) above exceeds £25,000 but does not exceed £37,500, this section shall not apply to a fraction of the amount or value of any property passing on the death under the said section 2(l)(c) by virtue of the said section 34(2) in consequence of any such gift as is referred to in paragraph (a) of that subsection, such fraction having a denominator equal to that total amount or value and a. numerator equal to twice the sum by which it falls short of £37,500.
(8) Where the said total amount or value exceeds £25,000 and, after any application of subsection (7) above, the total estate duty payable on the death of the deceased apart from this subsection would be greater than the aggregate of—
No. 283, in line 34, at end add:
(7) Property passing on the death of the deceased, either as property comprised in any gift or other disposition made by the deceased in his lifetime in favour of, or of any of, the spouse and children of the deceased, or as an annuity or other interest purchased or provided for, or for any of, the spouse and children of the deceased, shall be exempt from estate duty up to a total amount or value of dutiable property and interests so passing, determined after making any reduction under section 64 of the Finance Act 1960 (graduation of charge on gifts), of £25,000 for any one death; and such exemption shall be given by rateable reduction of the amount or value of all such dutiable property and interests as aforesaid (after first making any such reduction under the said section 64 as aforesaid).
§ Mr. Diamond
Perhaps I should deal with these various matters fairly broadly so as to cover all the arguments, as there was some possibility of a slight misunderstanding at an earlier stage.
§ Mr. Patrick Jenkin
I apologise for intervening so early in the Chief Secretary's speech. We are all extremely fond of the Financial Secretary and he was in very grave difficulties, but I think it is only fair to say that he made a proper muck-up of trying to explain this in Committee.
§ Mr. Diamond
I am sorry that in Committee the Opposition, including the hon. Member for Yeovil (Mr. Peyton), were unable completely to follow my hon. Friend the Financial Secretary, who speaks not only with great warmth of heart and entertaining wit, but with an immense clarity of diction. I shall return to the point and hope that I shall be more successful.
§ Mr. John Peyton (Yeovil
): I concede this to the Chief Secretary. We heard every word that the Financial Secretary said. Whether the Financial Secretary 1751 understood a word that he said we were uncertain. We certainly did not.
§ Mr. Diamond
There is nothing like starting off on an agreed basis—that the Opposition did not understand one word. Perhaps in these circumstances it would be wiser and safer for me not to risk misleading anyone by using words which have been fairly carefully prepared to make this group of Amendments clear.
The main purpose of the Amendments is to implement the undertaking which my hon. Friend the Financial Secretary gave in Committee to extend the relief for policies of assurance taken out before Budget day. The relief as it stands gives an exception from the new rule of aggregation only when the total benefits arising under all pre-Budget policies which are to any extent within the charge to Estate Duty on the death of the assured do not exceed £25,000.
The Amendments which we are now discussing add to this relief where the total benefits exceed £25,000. This new relief consists in excluding from the new rule of aggregation the proportion of the amounts chargeable to Estate Duty in respect of such policies which £25,000 bears to the total benefits. The intention underlying the original relief, where the total benefits involved were not more than £25,000, was to provide for the case in which it could be said that the provision for dependants was "comparatively modest". It will be remembered that my right hon. Friend the Chancellor used those words in his Second Reading speech. The figure of £25,000 was selected as representing a reasonable judgment of what a modest provision was. But it would be unfair to leave the matter there and to give no relief at all where the total benefits exceed £25,000, perhaps by only a small amount.
There are various possible marginal provisions which could be devised, but the Chancellor has chosen what I hope the House will agree is the generous one of excluding from the new rule of aggregation in all cases the chargeable amounts rateably attributable to £25,000 of the total benefits. The total benefits arising under a policy will commonly be greater than the amount on which Estate Duty is chargeable in respect of the policy, because there are two limitations on the 1752 charge. The first limitation is by reference to the premiums paid in the period since March, 1963, and within seven years before the death compared with the total premiums. Second, there is a limitation on account of taper relief, that taper relief being 15 per cent., 30 per cent., or 60 per cent., as the case may be, on premiums paid in the early part of the gifts period.
Thus, the new relief following the approach in the existing Clause 33 has regard to the total benefits arising under the policies as the fundamental basis of the relief and not the amount on which any Estate Duty is chargeable. It is the total actual benefits arising which are the proper measure of a comparatively modest provision. On that footing, only the amounts chargeable which are attributable to £25,000 of the total benefits ought to be relieved.
The various Amendments have been tabled on that basis. The main purpose of the Amendments is achieved in the new subsections (7) and (8). There are some other changes to which I shall now shortly refer. The relief is extended so as to embrace single premium policies which are described by the words in the new subsection (7) as "a gift of … a policy". This relates to an Amendment put down by hon. Members opposite in Committee, and repeated on Recommittal but not reached and, therefore, not debated.
Another change is that any pre-Budget policies which have matured or been surrendered before 20th March are completely excepted from the new rule of aggregation. That is provided under subsection (9).
Subsection (10) deals with policies which are varied after Budget day so as to increase their value. The subsection allows relief only for the part attributable to the policy before variation. A policy may be varied in amount or terms without constituting a new policy, and provision is necessary to prevent someone who had pre-Budget insurances for, say, £1,000 from taking advantage of the relief under the Clause by increasing the value by means of a variation to, say, £25,000.
The new subsection (2) extends the relief to cover deferred annuities payable 1753 on the death of the deceased, thus meeting the point made in Amendments put down in Committee by hon. Gentlemen opposite but, again, not reached.
I have attempted to describe accurately and slowly the precise proposals embodied generally in these Amendments. I dare say that hon. Gentlemen will have points to make and will wish to discuss the matter at length. I think that the most convenient course now would be for me to leave the matter there and listen carefully to the ensuing debate.
§ Mr. Patrick Jenkin
The Chief Secretary will not be surprised when I tell him that there are many people who regard Clause 33, next to the aggregation of minors' income, as one of the most important matters in the Bill. It makes a major change in the pattern of Estate Duty and removes what has hitherto been regarded as a settled and well established method of disposing of one's property in such a way as to reduce liability to Estate Duty. There is little doubt that the aspect of this change, far-reaching thought it is for the future, which has given rise to the greatest indignation on the part of the public is the manifestly retrospective effect of the Clause on policies taken out before Budget day.
There can be little doubt that, even with the relief which was embodied in the Bill—of which no word had been said in the Budget—and even with the minor addition, for such it is, in the Amendment now before us, this retrospective abrogation of the benefits of non-aggregation which applied to policies taken out before Budget day has caused a grievous disruption of the carefully planned provision for dependants made in many thousands of families throughout the country. In some cases, the change effected by the Clause, and hardly ameliorated by the relief which the right hon. Gentleman has just described, has been little short of catastrophic. Men have entered into irrevocable transactions, divesting themselves of property in circumstances in which they relied upon the existing law, and the effect on their transactions has been virtually to destroy them overnight. To my mind, this comes manifestly within the category of cases in which a change in the law should not be made with retrospective effect.
1754 Several of the Amendments which are being taken at the same time would achieve the object that the change in the law—which we could, perhaps, discuss separately as to its merits—should apply only in respect of policies taken out after Budget day. I am absolutely convinced that that would be right. The Chief Secretary may or may not have heard the speech which I addressed to the Committee on Clause 30, the extension of the gift period from five to seven years, in which I put what seemed to me to be the appropriate distinction between cases in which it is legitimate to legislate with retrospective effect and cases in which it is wrong so to legislate.
I shall not repeat those arguments now, save to say that there is a clear distinction between cases, on the one hand, in which one is changing a law which has been well settled for many years, which has been recognised over and over again in subsequent legislation passed by the House and which has been relied on by the taxpayer, with the full knowledge and consent of the Revenue—and in this particular case with agreement made by the Revenue with the Life Offices Association —in which retrospection is manifestly unjust, and, on the other hand, those cases in which one is seeking to close loopholes exploited by clever accountants and lawyers, that is, cases in which a measure taken one year to deal with one form of tax avoidance device or another can be seen in the following year not to have succeeded in its purpose because someone has by his ingenuity found a way round it. In such circumstances, there might well be a case for retrospective legislation.
I recounted to the Committee a number of examples from Finance Acts since the war which showed that the distinction which I put to the Committee had been followed to the letter. There were many cases in which changes had been made in Estate Duty legislation—and it is particularly in Estate Duty legislation that this sort of situation arises, because one is dealing wih transactions in which the tax becomes chargeable in the future— and in which exactly that distinction had been followed. I shall not repeat them.
Whatever else one may say, it is clear that the benefit of non-aggregation of 1755 policies in which the deceased never had an interest falls without any doubt into the case in which retrospective legislation should not have been introduced. The first reason for that is that non-aggregation has existed since 1894. It was built into the Finance Act of that year in that property in which the deceased never had an interest was not to be aggregated with the rest of his estate.
It has become an established feature of the Estate Duty picture. It has been recognised over and over again by the courts and by Parliament. Parliament itself cast a benevolent eye on this relief, for such it is, in 1954, when Parliament legislated to close a manifest avoidance device by which people were taking out a whole series of separate policies in favour of a single beneficiary. Parliament legislated to stop that but did nothing to alter the benefits of non-aggregation.
Secondly, in 1959 Parliament put on to a firm statutory footing the dutiability of policies by reference to the number of premiums paid within the gift period, then five years, now seven years. There was no reference in the Section on that occasion to non-aggregation. It was assumed to be a permanent feature of the legislative scene.
Thirdly, there was the agreement to which I have referred with the Life Offices Association. It is to be found in a letter which that Association put out and from which I will read only one paragraph:The whole purpose of the offices' self-imposed restrictions in this area of 'combinations'"—that is, the combined policy, the back-to-back—is therefore directed to ensuring that there is proper underwriting—in other words, if the life to be assured does not measure up to a minimum standard of health, then the contract will not be issued.The reason for that is that the life offices knew perfectly well and they had discussed it with the Revenue that that sort of underwriting represented a tax avoidance device.
The letter continues:There are two long-stops to this important underwriting restriction. The first merely affirms the normal practice of most offices of not taking a life over age 80—the other limits 1756 the combination effected in any one year to £50,000, if both contracts are issued by the same office.The agreement was there. Policies were issued on the faith of it. It does not lie in the mouth of any Chancellor of the Exchequer thereafter unilaterally to abrogate the basis on which those policies were issued, yet that is exactly what the Clause and the Bill do.
The excuse which was offered to a member of the public who wrote to the Chancellor was as follows, and I quote from a letter dated 13th May and signed by the Private Secretary to the Chancellor to a Mr. Shaw. I should make it clear that I am not referring to my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw). The reply states:The Revenue, whilst welcoming it"—that is, the voluntary limitation—made it clear that it would not be treated as limiting Ministers' freedom to take such legislative action as they might think fit about these policies.I ask the Chief Secretary, to whom did the Revenue make it clear that it did not regard itself as bound by that?
I have a letter from a leading firm, perhaps the leading firm, of insurance brokers—these are the people to whom it was supposed to have been made clear that the agreement was regarded by the Revenue as not binding upon it— stating:For many years there has been an agreement between the Treasury and the Life Offices Association under which it has been regarded as reasonable for policies to be effected up to a maximum figure of £50,000 (securing in appropriate cases non-aggregation). If the Clauses are to stand as drafted, therefore, I would suggest that there is an irrefutable case for altering the £25,000 to £50,000.There is an Amendment which would achieve that.To do otherwise would, it seems to me, be retrospectively discrediting an agreement between Her Majesty's Treasury and a recognised trade society.How can it possibly lie in the mouth of Treasury Ministers to say that it has been made clear to all the people in that case that it did not regard itself as bound by the agreement which it made with the Life Offices Association? Indeed, the Chancellor admits that there is justice in the argument about retrospection because 1757 he is prepared to introduce the £25,000 exemption. This provision for £25,000, both as in the Bill and subject to the Amendment moved by the Chief Secretary, is, as I hope that the right hon. Gentleman will appreciate, a very modest one. What is still worse is that it has the most wildly haphazard results. I will deal with those presently.
Despite the relief, however, the Clause represents a break in faith with responsible bodies who have acted in full accordance with the wishes expressed over many years by the Treasury and the Inland Revenue. The result is to cause serious disruption of people's legitimate expectations.
The cases that one will quote, and which have, I am sure, been quoted to many hon. Members, on both sides, will, of course, be of people of some means, because it is in cases where the rates of duty are very high, as they are in this country, that the effect of the removal of the relief of non-aggregation has a correspondingly swingeing effect.
I would like to quote one or two of the examples which have come to me. Perhaps, with the leave of the House, I might read this letter in full:As one of the trustees of a life policy annuity scheme, it is my duty to distribute the proceeds arising from two policies, which have become payable as the result of my mother's death on 5th April this year.One cannot fight for oneself, but on this occasion I have no personal interest except to try and fight for the 30 beneficiaries under these two policies who were due to receive varying amounts up to £5,000. This was not a haphazard figure but was the one chosen because at that time moneys due under a life policy were assessed as a separate estate and benefits up to £5,000 per individual were not liable to tax.When my mother made these arrangements, she was delighted to be able to help so many people. She died a few days too late in the knowledge that these arrangements had probably failed in part, as the policies amounted to more than £25,000. Arranging one's affairs prudently today is rather like sitting down to play cards, when the rules can be changed in the middle of the game to suit the house.If you can do anything to put right the injustice of Clause 33 of the 1968 Finance Bill, I should be extremely grateful".That is a typical example of the sort of reaction to which the Chancellor's proposals in the Bill have given rise.
My next quotation indicates that one is dealing not only with wealthy people disposing of their wealth, but with people 1758 in close companies who have built up businesses by their own hard work and who have seen their life's work virtually disappear overnight. A letter to my right hon. Friend the Member for En-field, West (Mr. Iain Macleod) states as follows:I joined this company"—a well-known company—as a director in 1926 at the age of 24. I invested £500 in the company, and each year I ploughed the profits back into the business, living on a very low income which I believe at that time was about £450 a year. The business continued to expand year by year, until in 1947 my accountant drew my attention to what a serious position would arise in the event of my death.A little lower down he goes on:I realised that by all my hard work and enterprise I was going to leave my wife and four children with a very serious problem had I died at that time.… I immediately took steps to increase my life cover and to spread my estate amongst my wife and my four children. I effected life insurance policies to a total of just over £85,000. … Until yesterday"—the letter was written the day after the Budget—the situation was adequately covered, and in the event of my death adequate insurance was going to be available to meet death duties, as these policies had been written under the Married Women's Property Act for the benefit of my four children. The news this morning that these are now aggregable in my estate has completely altered the position, and all my plans for the last forty years have gone in the last twenty-four hours. How I shall finally resolve this position I do not know, but my immediate reaction is to surrender all my life policies, and thereby reduce my estate, and go on a buying spree for the remainder of my life. There does not appear anything now that I can do that will avoid the necessity of selling the company shares to meet Death Duty liabilities. This company, in which I invested £500 in 1926, today has a market value of £1,750,000, but I feel almost a criminal for having done it. Certainly all enterprise and initiative have been finally knocked out of me, and I am sure there must be thousands more in industry who feel in exactly the same manner.Did the Chancellor realise that this would be the effect of the Clause? Does he seriously believe that by this fiddling little Amendment for the £25,000 exemption he is doing anything to resolve the case of those people who took out policies on the faith of the existing law and arrangements made by the life offices with the Inland Revenue? One can well understand the despair of professional advisers faced with this. I quote a letter 1759 from another leading firm of insurance brokers:How can we or any professional insurance adviser give advice based on insurance law to any client when an act of this long standing can be changed by a few words from a socialist chancellor—changed not only for future life policies, but for those too which may have been in effect for thirty or forty years? We can now no longer give advice on matters with confidence.One can well understand the writing of the leading tax commentator, Alun Davies, in the Daily Telegraph on 14th May:Like the restriction of the marriage allowance to the period of marriage in the first fiscal year, the gesture on M.W.P.A. policies is a mean one, worthy only of a fiscal Scrooge.In Press article after Press article in the financial and quality newspapers, writers have been appalled at what the Government have done and certain that it could not go unamended. What have we got? We have an Amendment which makes the most marginal effect and does virtually nothing to help the tens of thousands of cases where people will be penalised to the extent of hundreds of thousands of £s. However, even the Government recognised that they could not defend the position where the exemption was to be for policies of a total value of £25,000, and with full aggregation if the policy came to £25,001. Therefore, we have this so-called marginal relief—if that is the right word—for the first £25,000.
But that is not what it means. This is where the Financial Secretary's instinct was right when he first introduced the Clause, but when he was put right by his advisers he had to tell us exactly what the Amendment meant. We had some bizarre scenes of confusion in the last moments before the Guillotine fell in Committee when the Financial Secretary announced this concession. It relates to the dutiable slice of the policy relating to the premiums paid in the last seven years.
We now know what the Financial Secretary said was all wrong. The Revenue issued a statement, and the relief is now as it was spelt out in the Amendment —to which my right hon. Friend the Member for Enfield, West referred as the Mark II. This has produced results—I 1760 hope that the Chief Secretary appreciates this—which are hardly less bizarre than those which would have occurred before. The formula involves bringing into the calculation the non-dutiable slice of the insurance policy. The relief is to be quantified by reference to property which is not subject to duty. Why confine oneself to the non-dutiable slice of insurance policies? Why not bring in all the gifts made beyond seven years ago? It is a weird way of quantifying any relief.
The position is complicated by the effect of the tapering provisions, and in my calculation I shall exclude them because they make it complicated to understand. The figures, therefore, are not strictly right, but I hope they will illustrate the point.
The bizarre effect of the Mark II concession is that the longer the policy has run the smaller is the slice which is non-aggregable. Let us assume that one has a policy worth £100,000 and that it has run for four years, and the whole of the policy money is dutiable and the first £25,000 is non-aggregable. But if it has run for 28 years only seven-twenty-eighths or one quarter is dutiable. Yet the slice which remains non-aggregable is reduced from £25,000 to a quarter of that, which is £6,200. I emphasise that I am ignoring the tapering provisions. When one comes to longer periods virtually the whole of the dutiable slice becomes aggregable and the benefit of non-aggregation is virtually valueless. It is a weird result. It would not have happened if the Mark I concession had been adopted. Our Amendment would restore the Mark I position. I believe that even now the Government must accept it.
We abhor this retrospective legislation. We believe that it is entirely wrong in this case and is doing a grave injustice to those who relied on the word of the Chancellor, the Treasury and the Government. This modest Amendment to the Chancellor's Amendment is one way in which the right hon. Gentleman can put right the grave wrong which has been done.
§ Mr. Peyton
This is not only an odd Clause but an evil one. It was begotten in muddle and dishonour. I agree with the very strong condemnation that my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) has just uttered against it.
1761 One particularly odd characteristic of the handling in the Standing Committee, it seemed to me, was that the Financial Secretary, the meaning of whose words was almost entirely lost upon me, made an announcement which meant one thing and an explanation was issued the following day by Ministers' mentors, the Press officers at Somerset House, London, W.C.2, explaining what the Minister meant. I wonder whether the Chief Secretary to the Treasury would care to comment on this at some stage, or perhaps the Minister of State, who is to reply, would like to get up now and say whether it is normal for Ministers in the present Government to be corrected by Press officers at Somerset House. To my mind, it seems undesirable and wrong.
I endorse all the comments which my hon. Friend the Member for Wanstead and Woodford made about retrospection. To us it smacks of bad taste. I wonder whether the Ministers and their advisers have questioned themselves as to what are the likely long-term consequences of Government behaviour of this kind. My hon. Friend has produced two very telling examples of two people who made perfectly legitimate disposals of their assets to people who hoped to benefit out of this, and then, at the last minute in one case, the Government intervene callously, without thought, without knowledge of the grounds on which they are treading, and alter the whole basis on which those plans depended. I cannot believe that the Government have contemplated what the long-term effect of this sort of action will be on the confidence of the industry and individuals.
My hon. Friend has already referred to the question of the insurance industry's understanding with the Inland Revenue. We are told that the Inland Revenue had informed the industry that it might renege on its promise, that it did not mean what it appeared to mean. We are entitled to a much more adequate explanation than we are likely to have from present Treasury Ministers of this kind of conduct.
What importance are the life offices to attach to any future understanding they may have with the Inland Revenue? Is any such understanding, though reached in good faith on their part, and though they base their business plans on it, to be liable to reunciation on the whim of 1762 Ministers, Ministers, moreover, who are not trusted and no longer command credit throughout the country?
When the decision was first announced in the Chancellor's Budget Speech, I singled it out as one of the more vicious things in a Budget that was intended to be vicious. Few of us will forget the Chancellor's peroration then, when he turned to gather the harvest of Left-wing cheers as he announced that he was really giving the cane to those who were not his political supporters.
Two of my constituents wrote to me about this. Neither is a very rich man. One happens to be a very distinguished public servant whose record of service to the State is far greater than anybody now on the Treasury Bench can claim. Yet at one time it looked as though the whole of his arrangements had been made worthless, and there was very little sympathy from the Government. The present proposal has helped these people slightly, but I assure the Minister of State—I know not whether he cares— that such people have a residue of deep resentment and distrust. They have made their arrangements, which have been undermined at the Government's whim and in disregard of a promise made by the Commissioners of Inland Revenue. What kind of integrity is that?
I have put down an Amendment, Amendment No. 277, proposing that instead of being £25,000 the figure should be £50,000. I do not see why the Government should not give way on this. We are deeply disappointed that they did not see fit to exempt all Married Women's Property Act policies entered into before the Budget. Then, whatever may be said about the breach of the understanding with the life offices, at least it would not have had retrospective effect.
I have been a Member of Parliament for about 17 years. On previous occasions when we had a Tory Government these little retrospective horrors were inserted in Finance Bills. Although the services of back-benchers to the State are not always noticed, there were on those occasions Members who were prepared to vote against their own party and not put up with that kind of conduct because they thought it dishonourable. Certainly on all those occasions when 1763 such provisions were in any way offensive, the nasty, obnoxious content was removed from the Bill. But this time we have had no one on the Government side, no one on the Front Bench opposite, who has felt even the slightest reaction of disgust. One would not expect anything so strong as that, but there has not even been a slight twinge of unease. Yet the Government are playing ducks and drakes with relations between themselves and the public at a time when public confidence in our institutions is not very strong.
I have often wondered to what extent thought is given in the councils of the Inland Revenue to the relations between the tax-gathering authorities and the public I admit that they have an odious job, and for the most part they do it with great skill and fairness. I am sure that that is their objective, but I question whether that very desirable state of affairs can be expected to continue if Governments are encouraged or allowed by their advisers to perpetrate actions which many fair-minded, honourable people regard as dishonest.
What I have said was a fairly restrained version of the views widely held by those of my constituents who have fairly and legitimately made arrangements for the disposal of what they own. They have been affected by these arrangements for some years, as they are irrevocable so far as they are concerned, and the arrangements have now been seriously and to a large extent undermined There is not a note of apology from the Government, not a note of regret The Government lick their chops and look for cheap cheers. That is utterly disgusting. A plain appeal to the mob and to prejudice was what we had from the Chancellor at the end of his Budget speech.
This wanton inflicting of injustice, this contravention of the unwritten rules of fair play, is a discredit to Parliament and, if it is needed, a further measure in the great load of disgust which the Government deservedly bear on their shoulders.
§ 6.0 p.m.
§ Mr. Michael Shaw
I support what has been so eloquently said by my hon. Friends the Members for Wanstead and Woodford (Mr. Patrick Jenkin) and Yeovil (Mr. Peyton).
1764 I wish to make three points. First, it was a serious mistake not to exempt all policies which were in existence before 20th March this year. Secondly, harm has been done to the relationships between the Revenue and the life officers. I do not know what goes on in other countries, but I believe that this type of relationship is valuable in our society. So complicated is life these days that without this sort of relationship we should often be in very serious trouble. In the long term, it is bad that doubt should be cast on this relationship. I do not say that there will be distrust overnight, but in future those concerned must be more wary than they were in the past. They cannot have the same confidence in future as they had in the past as a result of what has happened. Anyone with experience in these matters knows that the types of policy which we are discussing have always been tailored to meet the requirements of the Revenue. This has been a very important factor in preparing this type of policy. When it is done with friendly understanding, such actions should be honoured.
As drafted originally, there was no exemption from aggregation in the Bill. After the pressure which was applied, exemption in respect of the first £25,000 was granted. My complaint concerns the way in which it has been granted. We tabled an Amendment in Committee showing how we believed exemption from aggregation should be effected. The Financial Secretary, speaking ad lib., gave his view of how it should be effected. The hon. Gentleman is regarded by all of us in this House, not as a fool, but as a shrewd and knowledgeable man in these matters. The significant thing is that both he and us came to the same natural conclusion as to how exemption from aggregation should be effected. Is it not extraordinary that hon. Members and people outside—in fact, everybody except the members of the Treasury Bench other than the Financial Secretary —should come to the same conclusion about the common sense way of exempting the first £25,000?
Apart from that being the logical way, in view of the size of the Amendment and the computations which have to be made in implementing the Treasury's method, there is not the slightest doubt that ours was not only the common sense and fair 1765 way of proceeding, but also the simple way. This year, we have heard quite a bit about the hope for simplicity in future. I have no great faith in that hope, because this year more and more complications are being built in to our taxation system. One of the complications will be the method of working out this form of exemption.
I very much regret that the right hon. Gentleman will not accept an Amendment along the lines suggested by us. I am sure that everyone in industry and in the House believes that ours is a better and simpler method and that it should be adopted.
§ Mr. Tom Boardman (Leicester, South-West)
Unfortunately, I was not present during the earlier part of the debate. Amendment 87, which is in my name and that of one of my hon. Friends, concerns a restricted and limited point, namely, the non-aggregation of policies payable by reason of accidental death.
The Clause provides for the aggregation of all policies unless they were taken out before 20th March or possibly unless premiums are paid out of current income. It is, no doubt, contended that this is necessary, in the eyes of the Government, to avoid evasion of estate duty. But such an argument cannot apply to the type of policy covered by Amendment 87, because, by its definition, a policy payable for accidental death cannot be a policy taken out as part of an estate duty saving plan. No one can plan his Estate Duty affairs on the basis that he will die by accident. Therefore, exemption for accidental death policies comes into a different category.
I ask the Minister to consider the types of people affected. Take the man who has a small business worth perhaps £25,000, which the Financial Secretary said was a modest sum these days, and who, in order to protect his famiy from the grave consequences which might fall upon them if he should be killed and the business had to go under, takes out a life accident policy for a similar amount. Under the Bill, that would be aggregated with the value of his business and duty at the rate of 31 per cent. would be payable upon it.
Take the case of a man with a life interest amounting to a rather more substantial sum, £50,000, which does not, 1766 under the terms upon which it was settled, pass to his family. He takes out an accident policy for, say, £30,000 of which £18,000 would go in estate duty if he should suffer a fatal accident.
Is this the way to encourage people to provide for their families? Is not a widow bereaved by an accident in which her husband has been struck down in the prime of life entitled to more consideration? Is the family tragedy to be treated as an opportunity for rich Treasury pickings? That is what will happen if accident policies are aggregated with all other policies.
Perhaps one of the worst features is that the form of aggregation suggested penalises the poor wife but not the rich wife. The wife with means of her own who can take out a policy on her husband's life from her own resources can avoid aggregation. The employee who is fortunate enough to be employed by a firm who takes out a policy against accidental death, the benefit of which would pass to the estate of the deceased employee or the widow or family of the deceased employee, would escape aggregation. But in the case of the wife with no means of her own, who is devoting her time to building up the home and is not going out to work to earn money and is unable to pay the premiums on a policy, the policy moneys payable in the event of her husband's accidental death are aggregated, with the consequences that follow.
I commend Amendment No. 87 to the House.
§ Mr. Walter Clegg (North Fylde)
I think that my hon. Friend the Member for Leicester, South-West (Mr. Tom Boardman) has explained the case for this Amendment most admirably.
I would refer the Chief Secretary to several things which I consider could form precedents concerning the way that the State has already treated sums of compensation which become payable on death. Payments made under the Workmen's Compensation Acts, the Fatal Accidents Act, the Carriage By Air Act and the Industrial Injuries Act have never ranked for Estate Duty purposes. Therefore, we are asking here for something less than that. We are asking that there should be special treatment for moneys 1767 coming into an estate flowing from death caused by accident.
Certain payments in the event of death under the Law Reform (Miscellaneous Provisions) Act form part of the estate, but these are of a minor nature. Normally, they are for loss of expectation of life and for pain and suffering. Under the Fatal Accidents Act, which is the nearer precedent of all, because, by its nature there has to be death by accident, any damages awarded to the widow and children do not form part of the estate for Estate Duty purposes. I understand they are free from that charge. Where there is a private arrangement during the lifetime of the parties, we suggest that there should be some concession when it comes to Estate Duty. This has always been so under the Fatal Accidents Act. I do not think that we are asking for a great deal more when we ask the Chief Secretary to look at it in this light.
We on this side, throughout the Finance Bill, have in many ways tried to protect the positions of widows and children of men killed in their prime. My hon. Friend the Member for Leicester, South-West has very cogently argued the need for this. Therefore, I hope that, even at this late stage, the right hon. Gentleman will consider whether something can be done.
§ Mr. Diamond
I will deal with the last point first and come back to the main stream of argument which has been put forward from the Opposition.
The suggestion made by the hon. Member for Leicester, South-West (Mr. Tom Boardman) and the hon. Member for North Fylde (Mr. Clegg) is that there should be some exemption where there is a policy covering death by accident. I was not clear whether what was meant was the ordinary type of life policy where perhaps a fixed sum is payable in the event of death or an additional sum payable in the event of death by accident. I do not think that alters the situation, because I take it that the hon. Member for Leicester, South-West was concerned with cover against accident and an accident arising. The hon. Gentleman suggested that this does not form part of any tax avoidance device and, therefore, there should be no aggregation.
The hon. Member for North Fylde sought to support his hon. Friend the 1768 Member for Leicester, South-West by reference to the Fatal Accidents Acts, claiming that here was an example of an exemption from aggregation. The hon. Gentleman is not on solid ground in making that statement. Here is a case where the Estate Duty does not apply, because it is not property passing at death. It does not therefore, come within the scope of Estate Duty.
§ Mr. Clegg indicated assent.
§ Mr. Diamond
I am grateful to the hon. Gentleman for nodding his assent. It does not come within the scope of Estate Duty. Therefore, there is no question of exemption from aggregation. I do not think that the hon. Gentleman was helping his hon. Friend's argument.
The hon. Member for Leicester, South-West sought, in a way which did not persuade me in the slightest, to say that a widow whose husband met with a motor car accident is someone for whom one should have sorrow, pity and understanding, but that a woman who is bereaved because her husband has a heart attack and drops down dead in the middle of his life, leaving a young family, is to be treated differently. I do not share that view. Both instances are equally regrettable. In my view, one cannot distinguish between death by accident and death arising through natural causes. It is a most unfortunate happening if it occurs early in life and the widow is left with difficult responsibilities to carry. But there is no reason why one should pick out one class of widow, as the hon. Gentleman did, and say that she is to be distinguished from other widows. I do not share that view. Therefore, I cannot possibly recommend that the Amendment we are discussing—I gather it has not been specifically moved, but we are discussing it—is one which should meet with the approval of the House.
I turn now to the main argument dealing with retrospection and breach of faith. I think these are the main points. There is also the argument that the concession which has been made is in some respects inadequate. It is never the case that a concession meets with wholehearted approval, but this concession, at the figure of £25,000, will inevitably go a long way to remove any question of real hardship.
1769 I will deal, first, with the argument of lack of faith. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) referred to a letter from a firm of brokers denying that there was an absolutely, pellucidly clear understanding that the Government, in acknowledging the help they were Teceiving by the self-discipline that insurance companies were placing on themselves, were nevertheless retaining their complete freedom of action. The hon. Gentleman referred to a letter from brokers. This arrangement and this making clear of the Government's freedom of action by the Government's officials, as the hon. Gentleman can imagine, is likely to have been done in all cases. Officials are always extremely careful about these matters. This was made clear at a meeting with the life offices. The brokers were not present. The life offices have never challenged what we are now saying. Up to this moment, there has been no challenge that what we are saying is not absolutely right. Our records show this. We have checked to make absolutely sure. There is no question but that it was made absolutely clear that the Government were retaining their freedom of action, as every Government must.
§ Mr. Patrick Jenkin
I think it is important to get one thing clear. Nothing has ever appeared in print about this agreement. No Press hand-out has ever been made and no public statement has ever been issued. This understanding was perfectly properly reached behind closed doors—I make no complaint about it—between representatives of the Inland Revenue and representatives of the Life Offices Association. After an announcement in the Press that I was to be the Opposition spokesman responsible for the handling of Clause 33, I received many letters. I have read only one to the House from insurance brokers complaining that they regarded this Clause as in breach of the arrangement. They say they knew nothing about it. It was wrong of the Chancellor's Private Secretary to write to one of them and say that it had always been made clear. Therefore, I ask the question again: to whom does the Chief Secretary allege this has been made clear? The right hon. Gentleman has so far told us that it was made clear to the life offices. What about everybody else?
§ Mr. Diamond
I am going further than alleging. I am affirming, after a recent review of the records so that memories alone are not to be relied upon, that the parties with whom the Government had discussions were left in no doubt that the Government retained their freedom of action. There is no argument after that to say that some insurance brokers, to whom this was no doubt a profitable business, in a perfectly proper way, are annoyed because that business has become somewhat limited. Of course they are likely to protest, and so is the Chairman of the International Fiscal Association, a body set up to keep down Income Tax, and in fact all taxes. That is the function of the organisation. I am saying that there is no breach of faith of the slightest kind by the Government. The Government entered into discussions and made their position clear, as I am sure every right hon. and hon. Gentleman realises anyone but the most thoughtless and irresponsible person would do. That deals with the argument whether £25,000 should be £50,000.
§ Mr. Peyton
When Governments, with their mighty machines, give undertakings to a limited number of people, or reach an understanding with a limited number of people, they cannot be heard subsequently to say that their undertaking was limited to that small audience in that small room. It goes right through the community. The right hon. Gentleman said that brokers found this a profitable business. They legitimately relied on that understanding. That is the point.
§ Mr. Diamond
The hon. Gentleman is putting far more than he is entitled to into what took place. In this respect, as in some others, the life assurance companies took the view that what was at £2,000 a head—as it originally was under the Married Women's Property Act—a reasonable matter to regard as a non-aggregable estate, had become a ramp, and it was no good for the business of the life offices that they were participating in a ramp. They co-operated because there is only one end to that kind of business. All that was said was that the Government recognised the position, but were free to act, as any Government must be, in the way they 1771 thought right to protect the revenue and to raise revenue. There is no question whatsoever of any breach of faith, and there is no justification whatsoever for alleging that the £25,000 ought to have been at least £50,000.
I come, then, to the broader argument, that of retrospection. The argument here is that where we are dealing with Estate Duty which is duty collected on the net assets of a deceased person, and which always speaks as at the date of death, any arrangement entered into during the lifetime of an individual must be protected against any subsequent variation in Estate Duty law. That is an impossible proposition.
§ Mr. Jenkin
The right hon. Gentleman ought to know that I have never advanced that proposition. I am sorry if he has not had a chance to read my speech in Committee on Clause 30. The Chancellor of the Exchequer was kind enough to approach me about it afterwards, as indeed was the Financial Secretary. That speech contained my full statement. Where there has been a long-settled, well-established practice, on the basis of which people have carried out their transactions and ordered their affairs, the matter should not be upset by retrospective legislation. That is the only proposition to which I have ever committed myself.
§ Mr. Diamond
That is a limited form of it and I am grateful for the correction that the hon. Gentleman has given. I have explained why I am not as fully informed of all the details of the previous debates on this topic as I would wish to be. The argument which is generally put forward—and the argument which lies behind the hon. Gentleman's assertion— is that we are unable to alter the Estate Duty provisions with regard to any matter as to which for some time there has been an exception or a mitigation. That is something which, equally, we cannot accept.
In the earlier debate a reference was made to the action of the then Conserva- 1772 tive Government in introducing a modest form of partial aggregation in this very field. It was justified up to the hilt by the Treasury Minister of the time. This is a situation which one is bound to refute. It cannot be the case that a sensible accountant or solicitor—and I noticed with care that those who were either accountants or solicitors spoke with a good deal more moderation—would dream of advising his client that what is an appropriate arrangement to make to alleviate the Estate Duty position at the present time is something which will continue, and will be reliable for all time until the client dies. Any accountant or solicitor who wrote to his client and said, "I advise you to do so-and-so. It will help you in Estate Duty matters now, and you can rest assured that however long you live it will be of benefit to your estate", would be liable for damages in an action for negligence, because would be acting irresponsibly, knowing, from the practice of the law, that alterations take place every year. In my experience the matter is always made especially clear to a client because Estate Duty provisions are of necessity long term.
Advising a client on company matters, on business matters, on commercial matters and on Income Tax matters means giving advice on current affairs, but Estate Duty matters, by the essence of the thing, are long-term, and the person giving advice always dwells on that. It is untrue to say that a professional adviser would not have regard to this situation. People expect the law to change from time to time with regard to Estate Duty, and it does so change. It changes quite frequently to give retrospective benefits. I am sure that the hon. Gentleman would not argue about that. It changes from time to time to alter the position with regard to deaths in the future, and has immediate effect. If we were to accept what the hon. Gentleman is proposing we would never be in a position to change the rates of Estate Duty while anybody living was still alive.
§ Mr. Diamond
It is not nonsense. That is the proposition which is being advanced, that the Government are not entitled to vary the Estate Duty law with regard to future deaths of those who are still alive.
§ Mr. Peyton
All that we are maintaining—and I should have thought it was abundantly clear to anybody who wished to understand it—is that there should not be alterations to the ground rules on which actions have been based. If a man makes a binding and final arrangement for the disposal of his assets, meaning that he no longer has any control over those assets, we say that it is wrong to engage in retrospection which affects that transaction.
§ 6.30 p.m.
§ Mr. Diamond
I have listened carefully to what the hon. Gentleman has said. I can only repeat that the argument, basically, as I see it is: there being no distinction between a practice which has lasted for two years and a practice which has lasted for 10 or 15 years, it does not affect the fundamental principle, which is: are the Government entitled to alter the law concerning Estate Duty so as to have an effect on those at present living?
§ Mr. Diamond
The right hon. Gentleman says, "Of course they are". In that case I need not argue the matter further. There can be no charge of a lack of faith or retrospection. We are doing what the previous Government have done in this matter. We are carrying the principle of aggregation further, and providing for those who might be affected— an exemption of a modest but quite generous kind.
§ Mr. Tom Boardman
As one who has had to give advice in such matters before coming here, may I ask whether the right hon. Gentleman confirms that the change previously made by the Conservative Administration was to close a loophole or to prevent a fiddle or an abuse that was then current? It is a completely different situation now.
Would not he also confirm that—
§ Mr. Diamond
No—I would not confirm that there is a clear distinction to be drawn between the previous action and 1774 this one. I would not confirm that there has been no question of tax avoidance in these matters in recent times. If the hon. Member says that his party introduced the Measure in 1954 in order to counter tax avoidance I would say that there is also a strong element of that in the present proposal.
§ Amendment agreed to.
§ Mr. Patrick Jenkin
I beg to move Amendment 280, in page 28, line 34, at the end:(7) Nothing in this section shall render aggregable any pension, annuity, lump sum, gratuity or other like benefit which is or may become payable in consequence of, or in connection with, the retirement, disability or death of any individual under—This is a very short Amendment which is designed to clarify the position. I hope that the Chief Secretary will be able to give a favourable answer to my question, in which case it will not be necessary to spend much time on it. It would be extremely difficult to devise a retirement benefit for the pensioner—the man for whom the retirement benefit scheme was devised—in a form in which it would become liable to Estate Duty. These are, for the most part, benefits which follow upon retirement, and to the extent that they give rise to any liability it is a liability for the dependants.
- (a) any enactment, or
- (b) any fund, scheme or contract, and without prejudice to the generality of the foregoing words in particular—
But there are circumstances in which it would be very unjust if the benefit of non-aggregation were lost. This is in circumstances in which a man is entitled to a pension on his retirement but exchanges that right for the right to a pension of a lesser amount during his life, followed by a separate pension for his widow from his death and during her life. This would be a gift and would give rise to a passing under the Finance Act, 1894, in Section 2(1)(c). Under that legislation, if the husband did not survive the seven-year period from the making of the gift there would be no doubt that the 1775 pension would have escaped aggregation if the value of the rights was less than £5,000—and if it was less than £5,000 it would not be dutiable.
Under the Bill, however, it seems that there might be a charge under Section 2(1)(d) of that Act as an interest purchased or provided and the prevailing charge would, under Section 33(3), have to be brought in. Under Section 2(l)(c) the Bill creates a risk that that sort of benefit would be liable to aggregation. This is a benefit which would arise indirectly under a retirement benefit scheme —under any statutory superannuation scheme or any Section 379 retirement pension or a Section 388 retirement benefit scheme. It could also arise under Section 22 of the Finance Act, 1956, which we were discussing earlier. Under any of those schemes it would be open to a man who retired to surrender part of his pension in return for a lower pension for himself and then, on his death, a pension for his widow for the rest of her life.
Is it really the intention that in those cases the benefit arising should be aggregated with the rest of the estate, or can the Chief Secretary assure us that there will be no question of aggregation in those few cases where the policy would be dutiable? If he can give the assurance for which I have asked we need not delay too long over the Amendment.
§ Mr. Diamond
I think I can give the hon. Member the assurance that he desires. It is not always easy to give an assurance on the basis of a speech that has been made, because the speech sometimes goes further than the Amendment on which the speech is based. I limit my assurance by saying that I assume that the hon. Member was not talking about ordinary insurance policies and was not seeking an assurance about them. I assume that he was talking as though the Amendment did not include them. It is possible to read the Amendment in that way. I feel sure that he was not intending otherwise, and I am therefore saying that I am not giving an assurance with regard to that part of the Amendment which might refer to insurance policies.
With regard to the rest of the Amendment, I can put the position shortly by saying that it is the Government's view 1776 that there is no need for the Amendment in relation to approved superannuation or other death, disability or retirement benefits because they do not come under aggregation in any event.
The hon. Gentleman asked whether, as there was no liability under Section 2(l)(d) but there might be under Section 2(l)(c), I could help him. [Interruption.] Then I misheard what he said. I can confirm that it is not under subsection (l)(c) and that if there is any liability it is under paragraph (d), which charges annuities or other interests purchased or provided by the deceased to the extent of a beneficial interest arising on death. I assume that the Amendment is based on the view that part of the superannuation contributions could be regarded as laid out in order to make a gift to the beneficiary.
This is not so. Therefore, the main part of the Amendment—that is, the part designed to protect benefits under approved superannuation schemes and schemes for the self-employed—is superfluous.
§ Mr. Jenkin
I am happy to accept the right hon. Gentleman's assurance. It is clear that the Amendment does not refer to policies, and if I inadvertently mentioned them it was a slip. I meant to refer to pensions, gifts, lump sum annuities and similar benefits.
I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Patrick Jenkin
I beg to move Amendment 284, in page 28, line 34, at end add:(7) Where the relevant gift or disposition occurred before 20th March, 1968, no person shall in consequence of this section be liable for any estate duty merely as a trustee or former trustee of a settlement or a trustee, guardian, committee, or other person in whom any interest in property passing or the management thereof is at any time vested, in excess of the estate duty which would have been payable by him if this section had not been enacted.This Amendment also has been tabled to give the Treasury an opportunity to make it entirely clear that trustees will not be made personally liable for any increase in estate duty liability which may arise by virtue of the Clause in circumstances in which they may have distributed property or otherwise disposed of 1777 assets before the change comes into effect. This was raised in Committee in connection with Clause 30, under which, again, trustees could have become personally liable for an amount higher than they would have retained to meet estate duty liability.
The Financial Secretary said on 29th May:When a trustee, relying on the five-year gift period, has insured on that basis and therefore, not unreasonably has released the funds, it would be very hard if he were to be called on personally to make good any shortfall in the duty. I certainly undertake that in such cases the Revenue will rely exclusively upon its concurrent right to proceed against the beneficiary. I do not know whether that would be sufficient for the hon. Gentleman—"—at which point I am reported as intervening to say, "Yes", and the Financial Secretary went on:—or whether he feels it ought to be incorporated in legislation. However, I can assure him that in a case of that kind the Revenue would exclusively rely upon its right against the beneficiary."—[OFFICIAL REPORT, Standing Committee A; 29th May, 1968, c. 1755.]I am sure that the Chief Secretary appreciates that exactly the same or a similar situation arises under this Clause, for instance, where a Married Women's Property Act or other trust policy has matured or been surrendered before the Budget, but the life assured dies after the Budget, having paid the premiums in the seven years before the death. In such cases, there may be premiums payable on his death for which the trustees would be accountable and although they may have kept sufficient money to pay the duty on a non-aggregable basis, they would not have had the foresight of a Hebrew prophet, which is what would be necessary, to retain sufficient duty to pay the difference between the non-aggregable and the aggregable duty.
Clearly, no personal blame could attach to trustees in these circumstances, so I hope that exactly the same assurance can be given in the case of a possible liability under Clause 33 as was given by the Financial Secretary in Committee about the potential liability under Clause 30. If the right hon. Gentleman can give that assurance, once again, I do not think that we need waste much time with this Amendment.
§ 6.45 p.m.
§ Mr. Diamond
The hon. Member referred to a matter which was discussed 1778 earlier and which relates to the responsibility of trustees arising from the new charge which we are discussing. In the normal course, there is no problem at all. That is to say, where the trustee knows the position before he disposes of the realisation of the policy, he is under the normal responsibilities and no special care need be taken. What the hon. Gentleman is referring to is a special difficulty which may arise when the policy has matured or been surrendered before Budget day, the policy moneys have been disposed of by the trustee and this difficulty now arises.
I am advised that, in effect, where the gift was a transaction entirely completed before the Budget, the trustees ought not to be required to account for tax, that they have, in these circumstances, acted reasonably in parting with the funds. We have had representations on this from other interests, and the Chancellor accepts that there is a case for relief for trustees in these circumstances. That is to say, when a policy matured or was surrendered before Budget day, an exception from the new rules of aggregation for such policies is provided. Therefore, there is no problem with regard to that matter.
§ Mr. Jenkin
It has, obviously, occurred to me that the substance of any complaint may have been removed by Amendment 132, which we discussed earlier, in that aggregation was not to apply in the case of surrenders or where policies had matured. But I feel sure that, if there are any residual cases— I cannot at the moment think of any— the same principle which the Financial Secretary enunciated on the earlier Clause will apply equally on this later one.
§ Mr. Hirst
I should be grateful if the right hon. Gentleman could explain his phrase "ought not to be held responsible" or "ought not to be required". It may be perfectly adequate, but I find it difficult to see the significance of it. Is the right hon. Gentleman giving the assurance that they will not be so required? I should be grateful for clarification.
§ Mr. Diamond
The hon. Gentleman is right. I was guilty of an ellipse. I should have spelled it out in its two parts 1779 —first, on principle they ought not be, and, second, in law they are not.
§ Amendment, by leave, withdrawn.