Commons Sitting of 17 July 1969

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRAYERS
  PRIVATE BUSINESS
    BLACKPOOL CORPORATION BILL [Lords] (By Order)
    Considered, as amended, deferred till Tuesday next.
    DUNDEE CORPORATION ORDER CONFIRMATION BILL
    Read the Third time and passed.
    EAST GREEN, ABERDEEN ORDER CONFIRMATION BILL
    Read the Third time and passed.
    FORTH PORTS AUTHORITY ORDER CONFIRMATION BILL
    Read the Third time and passed.
    CLYDE PORT AUTHORITY ORDER CONFIRMATION BILL
    Read the Third time and passed.
ORAL ANSWERS TO QUESTIONS
  EDUCATION AND SCIENCE

    Schools (Out of Hours Use)
    Mr. Longdenasked the Secretary of State for Education and Science if he will now take steps to ensure that greater use is made of schools' capital equipment out of school hours.
    The Minister of State, Department of Education and Science (Miss Alice Bacon): This is primarily a matter for decision by local education authorities and the governors of individual schools.
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    The practice is already on the increase as a result of the encouragement we are giving to the greater use of school premises and facilities by the community I hope that it will continue to expand.
    Mr. Longden: While thanking the right hon. Lady for that Answer, may I ask her to recall that her hon. Friend the Under-Secretary remarked some weeks ago that the nation was not getting full value for its capital expenditure on schools in than schools should be designed with an eye to their use by the community out of school hours? Will she do all she can to further that aim?
    Miss Bacon: Yes, Sir. We are doing all that we possibly can in that direction and the hon. Gentleman will be pleased to know that half-a-dozen projects, big and small, have been completed in different parts of the country to provide for the community as well as for the schools. A further 100 are being constructed, planned or considered in England alone.
    Mr. Whitaker: Would the right hon Lady agree that excellent gymnasia, swimming pools, playing fields and art classrooms could be used in the coming long summer holidays by the surrounding communities?
    Miss Bacon: This, again, is for local authorities to decide; but I agree with my hon. Friend that, given proper supervision, of course, this is a useful thing for local authorities to do.

    Selection Tests
    Mrs. Renée Shortasked the Secretary of State for Education and Science how many local education authorities operate selection procedures; how many different kinds of selection are used; and by what means parents are informed of what is being assessed by these methods.
    Miss Bacon: The next selection tests are likely to be confined to the whole or part of the areas of 114 local education authorities, but this number will continue to decrease as approval plans for secondary reorganisation are implemented. I am sending my hon. Friend a copy of a report on "Trends in Allocation Procedures" prepared by the National Foundation for Educational Research, which provides useful information in reply to the latter part of her Question.
    Mrs. Short: I am obliged to my right hon. Friend for that reply. Does not the report indicate that there is a large variety of selection procedures, so that it is not suprising that parents should be very concerned indeed about this matter? Does not this difficulty result from having so many different types of secondary school? Is not the answer to abolish selection tests and have comprehensive education as soon as possible?
    Miss Bacon: Yes, Sir. I agree with my hon. Friend very much indeed. There is a great deal of dissatisfaction among parents in areas where selection tests, or selection of any kind, still exist and the only real solution to the problem is to have a system of comprehensive education which does away with such tests alto-gether.
    Mr. Lane: In view of the efforts which many authorities are making to get rid of the dubious features of the 11-plus, cannot the Government try to take a more balanced view of this problem of selection?
    Miss Bacon: We are taking a very good and balanced view of the matter; that is, we are trying to abolish selection wherever it exists.

    Nursery Education
    Mrs. Renée Shortasked the Secretary of State for Education and Science what extensions of nursery education he will introduce in the immediate future.
    Miss Bacon: My right hon. Friend recently announced that a further 5,376 full-time nursery places would be included in the second phase of the urban programme, bringing the total this year to well over 10,000 places.
    Mrs. Short: Again, I thank my right hon. Friend for that Answer and assure her that this extension is very welcome. Is she aware that the Transport and General Workers' Union has just come out in favour of a kind of pre-school care? Will she do all she can to help the proposals that it is putting forward?
    Miss Bacon: Yes, Sir. We are doing everything we can about pre-school care. Indeed, my hon. Friend will be pleased to learn that local authorities have made grants to pre-school play groups in various areas as a result of the urban programme.
    Captain W. Elliot: Can the right hon. Lady say how much money the Government are allocating to this service at the present time?
    Miss Bacon: At the moment, we have the urban programme in progress. We have had the first stage, and the second stage is already announced. The Government are to spend, I think, £20 million to £25 million over the four years, but this includes day nurseries and child care as well. But the essential feature is that, for the first time, where local authorities spend the money the Government are giving a 75 per cent. grant on it.

    Secondary Schools (Propaganda against Parliamentary Government)
    Mr. Wallasked the Secretary of State for Education and Science if he will seek powers to prevent the spread of propaganda directed to the overthrow of Parliamentary government in secondary schools.
    The Secretary of State for Education and Science (Mr. Edward Short): No, Sir. I do not consider that this would be an appropriate matter on which to introduce legislation.
    Mr. Wall: Is the Minister aware that Trotskyist and anarchist forces behind some of the recent university unrest are now turning their attention to the secondary schools? Would he not agree that organised attempts to undermine discipline and the authority of teachers and parents can only disrupt our educational programme, and will he keep the whole question under review?
    Mr. Short: I have looked very carefully at the evidence available, and feel quite sure that we can leave the schools to handle the matter. It is not illegal to advocate the overthrowing of our Parliamentary institutions, and it is a good thing that that is so: that is why they are so strong.
    Mr. Peter M. Jackson: Would not my right hon. Friend agree that it would be very difficult to define the Parliamentary system and Parliamentary government, and that, in any event, it would be improper to restrict the advocacy of the overthrow of certain Parliamentary systems for which the hon. Member for

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    Haltemprice (Mr. Wall) is such an apologist, such as in Rhodesia and South Africa?
    Mr. Short: All I say is that it would be a considerable infringement of individual liberty to make it illegal to advocate the overthrow of our Parliamentary institutions. That is all I say.

    Secondary Education (Final Year)
    Mr. van Straubenzeeasked the Secretary of State for Education and Science whether he will make a statement on his recent proposals for the use of the fifth or final secondary year when the school leaving age is raised to 16.
    Mr. Silvesterasked the Secretary of State for Education and Science what plans he has for allowing a further education option for 15-year-olds when the school leaving age is raised to 16 years.
    Mr. Edward Short: I am considering the comments which I have recently received from local authority, teacher and other associations concerned, in the context of the preparation of new legislation.
    Mr. van Straubenzee: I understand, of course, that this matter requires careful consideration, but will the Secretary of State nevertheless make it clear that if he varies the places in which education in the fifth year can take place, that education will always be under the aegis of the school from which the pupil comes?
    Mr. Short: This is a point of view, and it is a point of view with which I do not wholly agree. We have to face the fact that over the next decade there must be a great deal of intermingling between secondary schools and places of further education. We cannot afford, either from the point of view of resources or of finance to keep them in watertight compartments, and I hope that everyone concerned will realise this and try to cooperate.
    Mr. Silvester: Am I not right in saying that the work on the curriculum that has been done in the last few years has been done on the basis that the pupils will remain in schools? What work has been done on the proposition that they could carry on this extra year in colleges of further education?
    Mr. Short: I do not think that the Schools Council has done any work on the basis of this proposition which I put out for discussion. I do not suggest for a moment that all pupils should spend the fifth year in a college of further education, but I do suggest that for a great many students who are able to do it now it does make sense.

    Size of Classes
    Mr. van Straubenzeeasked the Secretary of State for Education and Science what administrative action he now proposes that local education authorities should take to eliminate class sizes of over 40.
    Mr. Edward Short: Any action open to them within the resources available.
    Mr. van Straubenzee: When the right hon. Gentleman used the phrase quoted in the question in his speech to the A.E.C., which was widely commented on, he must presumably have had administrative action on their part in mind. Could he not assist the House by at least listing, say, two of the actions?
    Mr. Short: If the hon. Member will do me the honour of reading the speech that I made at Cardiff, he will see that I listed more than two ways open to local authorities. One obvious way is to create wider catchment areas in towns. Another obvious way is to alter the organisation in the schools. Another obvious way is to redeploy the use of teachers. If the hon. Gentleman has not read the speech, I will be very happy to send him a copy.

    Transport Museum
    Mr. Macdonaldasked the Secretary of State for Education and Science (1) how many representations he has received asking him to postpone moving the railway relics from Clapham to York until an inquiry has been carried out into the possibility of keeping them in London; and what reply he has sent;
    (2) what plans he has for housing those railway relics now in the museum at Clapham for which there will be no room in the proposed museum at York.
    Mr. Ridleyasked the Secretary of State for Education and Science if he will commission a feasibility study into

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    the setting up of a National Transport Museum in London to house the most important national transport relics.
    Mrs. McKayasked the Secretary of State for Education and Science (1) if he will postpone the decision to move the Transport Museum to York until an independent study has been carried out into the possibility of keeping the collection in London;
    (2) if he will ask the Greater London Council to carry out a feasibility study into a site for a new Transport Museum within the Greater London Council area.
    The Minister of State, Department of Education and Science (Miss Jennie Lee): The whole question of the future of the transport relics has been looked at very thoroughly. The Clapham building is unsuitable to continue as a museum. The new museum at York will provide a living railway museum for future generations.
    I have received many letters about the proposed move from Clapham to York and have given the answer I have just given.
    I may add that exhibits at Clapham which relate to the London Transport Board will be reclaimed by London. The remainder, nearly 70 per cent., will go on display at York.
    Mr. Macdonald: Is it not a fact that the move from Clapham to York will convert and restrict a national transport museum to a provincial railway museum? Is it not thoroughly undesirable to make this regressive move on purely temporary, ad hoc administrative and financial grounds? Would it not be far better to conduct an inquiry into the whole principle of where our national transport museum should be sited?
    Miss Lee: I am grateful to my hon. Friend for showing such interest in this matter, but I would be still more grateful if those taking an interest in the controversy would do us the honour of looking at the evidence that we have collected. Clapham has no powers of internal mobility; no expansion point. It is unsuitable. Other London points are unsuitable. The essence is not cost. The essence is that, on all the evidence we have looked at, we can make a national and expanding museum in York. Perhaps I might add that we just have to be a little careful,
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    at this very time when men are trying to reach the moon, in assuming that to go to Oxford or Cambridge, Edinburgh or York, or any of our great cities outside London, is a journey beyond the capacity of those with specialised interests.
    Mr. Ridley: Is the right hon. Lady aware that she has not carried a large section of public opinion with her in this decision; and that if she has this good evidence and these good grounds, people would be very much more convinced if she were to hold an impartial and public inquiry, so that everyone, and not just herself, could partake in the decision making?
    Miss Lee: I collected as representative a conference as could possibly be held. All the evidence is available to hon. Members. But what shocks me a little is that people give their signatures to letters in The Times and all sorts of things without looking at the evidence that has been collected.
    Mrs. McKay: Is my right hon. Friend aware that hon. Members and members of national bodies have studied the evidence made available by the Minister and are completely dissatisfied; and that the people who are dissatisfied are people outside London? Even from York, people have protested against this move—[Interruption.] Is the Minister aware of the growing disquiet about this move being taken without any feasibility study being made by any responsible authority at all? Will she please delay action and permit the Clapham museum to continue?
    Mr. Speaker: Questions ought to be brief, even on the Wars of the Roses.
    Miss Lee: With permission, I shall make available in the Library to hon. Members all the evidence that has been collected. I know that the hon. Lady the Member for Clapham (Mrs. McKay) has a constituency interest, but I know that she knows that her council has said that Clapham is totally unsuitable, and I have already given my reasons for thinking so on all the evidence at our disposal. We should keep in mind that we are living in a very precious island in which London is important, but in which, perhaps, there are also high points of excellence outside London.
    Mr. Alexander W. Lyon: I hope that I shall be allowed four supplementary questions—
    Mr. Speaker: No.
    Mr. Lyon: Is it not an arrogant assumption that nowhere outside London is suitable for any kind of national museum? Is there any better place for a national transport museum than the second city in the country, which is also a great regional transport centre, which was also for many hundreds of years the capital of England, and which today is attracting more visitors to its Castle Museum than the British Museum is attracting to its exhibits?
    Mr. Channon: Would not the right hon. Lady agree that, in spite of what the hon. Member for York (Mr. Alexander W. Lyon) said, there is some concern that the site proposed for this museum in York may be too small? Will she say whether this has been studied? Secondly, can she say whether or not the site at Nine Elms, which has been proposed, was fully studied by her before she came to this decision?
    Miss Lee: This is a national museum and therefore Greater London Council, quite properly, says that it is not prepared to take financial responsibility for it. I was in York a few days ago. I had difficulty in getting into the present museum as so many people, particularly children, were there. It is static, like Clapham, but I did visit the engine room and I saw the great expanse of land right down to the very decorative riverside, which satisfied me that we can have internal mobility in York. It seemed to me that there is surrounding space in which to make an extremely agreeable museum.
    Mr. Ridleyasked the Secretary of State for Education and Science if he will carry out a feasibility study into the best way of providing a National Transport Record Office in the Metropolis for the records of the transport industries.
    Miss Jennie Lee: The proposal to amalgamate at the new museum in York the record collections covered by Section 144 of the Transport Act, 1968, which are at present housed in London and York, has been looked at very thoroughly. I am sure that, in all the circumstances, this is the right solution.
    Mr. Ridley: Will the right hon. Lady agree that all the transport records should be together and that these archives of international importance should not be split up? Second, ought they not to be in close proximity to all the other national records, which are in the Metropolis? Will she look at the matter again?
    Miss Lee: What the hon. Gentleman suggests is not necessarily so. For instance, Scotland will have its own records, and those have been handed to the Secretary of State for Scotland. London has its own records. York will have the records excluding Scotland's and London's at the present time. One must accept that there are most distinguished libraries and collections outside London with specialised appeal.
    Mr. Macdonald: Is it not thoroughly undesirable that the decision about the site where these records are kept should, apparently, be taken on the mere fortuitous circumstance that premises happen to be available at a certain site? Would it not be far better to undertake a rational inquiry into the best and most convenient place from the standpoint of the principle of siting these records?
    Miss Lee: My hon. Friend is misinformed. It was not by accident that there was a Transport Museum at York at well as at Clapham. York was a great railway centre with a great tradition. We found that we had there the geographical setting—all the evidence was examined, and the question has been gone into very thoroughly—and it was clear that this was the best location.

    New Primary Schools
    Mr. Gardnerasked the Secretary of State for Education and Science how many new primary schools were completed during 1963–64; how many new places were made available; and what are the estimated figures for 1969–70.
    Miss Bacon: In 1963–64 313 and 101, 370 respectively. The estimated figures for 1969–70 are 600 and 215,000.
    Mr. Gardner: Is my right hon. Friend aware that, compared with the record of hon. Members opposite, this is a very fine record? Will she continue to give priority to primary education and building for primary education, bearing in

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    mind the number of very old schools, particularly in the East Midlands?
    Miss Bacon: I realise that there are still many old schools about which we want to do something in future, but we have had the figures I have given, which show that we are progressing twice as fast today as we were in 1963.
    Mr. J. E. B. Hill: Before the right hon. Lady takes too much credit for this achievement, will she acknowledge that there are over three-quarters of a million more children of primary school age and the improvement factor has therefore declined?
    Miss Bacon: Of course, we realise that there are more children today than there were four years ago, but these figures show that we have gone ahead very much faster than has the number of children.

    Residential Colleges (Awards to Students)
    Mr. Bidwellasked the Secretary of State for Education and Science if he will seek to make awards to students at long-term residential colleges mandatory upon local education authorities.
    The Minister of State, Department of Education and Science (Mrs. Shirley Williams): This would require legislation for which the Government have no plans at present.
    Mr. Bidwell: Will my hon. Friend undertake to look most closely at representations being made from students at adult colleges in this regard, because the nation is being deprived of very fine university potential educated material?
    Mrs. Williams: We greatly admire the work which these colleges do. In 1966 the then Secretary of State for Education and Science asked authorities to give awards at uniform rates to students going to such colleges. We could not go beyond that without a new Act of Parliament.
    Sir E. Boyle: Is the hon. Lady aware of cases which have been brought to my notice where the authority has refused an award because of the fear that the student might afterwards qualify to go on to university? Would she not be able to say that it is precisely the purpose
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    of these colleges to provide a second chance and that people should not be deprived of a second chance from which they can particularly benefit?
    Mrs. Williams: I completely agree with that. The whole purpose of adult education is to allow people to come back into the education system after perhaps a gap through a lack of opportunity. If the right hon. Gentleman will send such cases to me, I will look into them. We know of only one authority which is taking an unjustifiably restrictive view towards adult education.

    Teacher Training Courses
    Mr. Gardnerasked the Secretary of State for Education and Science what were the numbers of students in teacher training courses in 1964; and what are the latest figures available.
    Mrs. Shirley Williams: In October, 1964, the number of students following initial teacher training courses in England and Wales was 65,851; the provisional figure for October, 1968, is 110,245.
    Mr. Gardner: While appreciating what is being achieved, will my hon. Friend bear in mind the special needs of these non-academic children staying on at school until they are 16? Are there special new provisions for finding the special teachers needed for this job?
    Mrs. Williams: A number of in-service courses have been mounted for teachers who are to take children in the raising of the school leaving age year. The Schools Council is working with the support of teachers on a number of other projects.

    Primary Education (Stockton-on-Forest)
    Mr. Turtonasked the Secretary of State for Education and Science whether he is aware of the unsatisfactory facilities for primary education at Stockton-on-Forest; what representations he has received from the local education authority; and what plans he has for remedying the situation.
    Miss Bacon: The North Riding Authority has submitted a proposal to replace the Stockton-on-Forest Church

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    of England controlled school, because of the defects of the existing building. My right hon. Friend has been unable to find a place for it in the building programme because priority had to be given to more urgent projects. I cannot yet say when it will be possible to sanction this replacement.
    Mr. Turton: Is the right hon. Lady aware that 16 years ago these school premises were admitted to be out of date and in the last five years this school's population has increased by 50 per cent. and now has to be housed in improvised accommodation which is 500 yards apart? Will she accept an invitation from me to visit this school during the Summer Recess—if we are to have one?
    Miss Bacon: This is not the first invitation I have had from the right hon. Gentleman. The North Riding Education Authority has been given permission to build four new primary schools under its 1969–70 design list. The local authority put forward a list of 13 and put this school eleventh in the list, so I think the right hon. Gentleman will realise that the education authority gave others higher priority. Incidentally, this school was built in 1857. I agree with the right hon. Gentleman that it should have come down long ago.

    Public Schools Commission (Second Report)
    Mr. Christopher Priceasked the Secretary of State for Education and Science when he now expects to receive the second report of the Public Schools Commission on private day schools.
    Mr. Dudley Smithasked the Secretary of State for Education and Science if he will now give the latest date when he expects to receive the second report of the Public Schools Commission.
    Mr. Scott-Hopkinsasked the Secretary of State for Education and Science when Part II of the Report of the Commission on Public Schools will be published; and if he will make a statement.
    Mr. Edward Short: I hope to receive the Commission's second report towards the end of the year.
    Mr. Price: Would my right hon. Friend agree that there is some urgency about getting this report quickly because, since
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    he has given a pledge to legislate on comprehensive education next Session, it is important that the future of these day schools should be brought into the general ambit of comprehensive education and not left apart as a tiny privileged sector?
    Mr. Short: I quite agree that this is a very important problem, because the direct grant schools retain selection in many areas which are otherwise fully comprehensive.
    Mr. Dudley Smith: Is the right hon. Gentleman aware that there is considerable speculation at the moment in education circles that the Commission is divided on what it is to report and that the report may be delayed until spring? The longer the period of uncertainty the greater the damage to the country's magnificent direct-grant schools.
    Mr. Short: The hon. Member is better informed than I am. I know nothing about the way the Commission's report is going. All I know is that the chairman has promised the report towards the end of this year. What we cannot allow indefinitely is the use of public funds to retain selection in areas which otherwise are fully comprehensive.
    Sir E. Boyle: Arising out of the last supplementary answer but one, is it not a fact that a number of direct-grant schools have deliberately altered the age of intake of public free places in order to meet reorganisation schemes? Will the right hon. Gentleman give a firm assurance to the House that he does not intend to interfere with such arrangements which involve these places being taken up at a later age than 11?
    Mr. Short: I will not give any undertaking about these schools. I realise that some schools are making some moves towards fitting in with the local system. I welcome that very much and hope that more of them will do so.
    Mr. Evelyn King: May we assume that the recommendations in the first report will never be implemented by any Government at any time?
    Mr. Short: The hon. Member may make no such assumption. The divisive public schools will be dealt with—and dealt with, I hope, before very long.

    Students (Teaching Practice)
    Mr. Christopher Priceasked the Secretary of State for Education and Science what studies he is making of the ways in which students on teaching practice in schools can be drawn more fully into the life of the school and help to relieve its manpower problems.
    Miss Bacon: The Department is sponsoring research into teaching practice at Bristol University and further research is planned. There was a conference on the subject at Exeter University in March this year which representatives of the Department and Her Majesty's Inspectorate attended. Many colleges of education are experimenting in new ways of making teaching practice more profitable to students and schools.
    Mr. Price: Does not my right hon. Friend agree that most of the periods of teaching practice spent by students in school are far too short for the students to fit into the life of the school at all, and, further, will she agree that we give our teachers on teaching practice in school far less responsibility in the school than, for instance, student nurses have in hospital? Will my right hon. Friend urge some action in this matter?
    Miss Bacon: The periods may be short, but we must strike a balance here. Although I feel that more could be done about students on school practice, we must ensure that there is no substitution a qualified teacher by a student, because the purpose of the student's being there is to gain help in teaching.

    Secondary Education (Finance)
    Mr. Boyd-Carpenterasked the Secretary of State for Education and Science whether it is his intention in his forthcoming legislation to seek to relieve local education authorities of their share of the cost of secondary education.
    Mr. Edward Short: No, Sir.
    Mr. Boyd-Carpenter: As the right hon. Gentleman is threatening to over-ride local authorities and their electors on the question of the system of secondary education in their areas, is he not at the same time forfeiting any moral justification for compelling them to contribute financially?
    Mr. Short: The right hon. Gentleman, who was for a long time a Treasury Minister, knows that the financing of education is not dealt with under the Education Acts. His Question refers to the Education Acts.

    Education Bill
    Mr. Laneasked the Secretary of State for Education and Science whether, in the light of his current consultations with interested organisations, he will now make a further statement about the main features of the forthcoming Education Bill.
    Mr. Edward Short: I am not ready to make a statement until current consultations have been completed. I made clear to the hon. Member on 6th February last that all concerned should first have an opportunity to express views on desirable changes in the law.—[Vol. 777, c. 559–60.]
    Mr. Lane: I welcome the consultations, but will the right hon. Gentleman undertake to publish a White Paper or a Green Paper as soon as we reassemble so that full weight may then be given to the views of the public at large and of hon. Members before the Bill itself appears?
    Mr. Short: I undertake to publish a White Paper or a Green Paper, but not immediately the House reassembles.
    Mr. Gresham Cooke: If the Minister intends to introduce a national scheme for comprehensive education in his forthcoming Bill, will he consider the needs of special areas such as Richmond-upon-Thames where there is neither space nor finance to build comprehensive schools and the present secondary schools will need extension?
    Mr. Short: What is lacking in Richmond-upon-Thames is not space or finance but the will to do it.
    Mr. J. E. B. Hill: Will the right hon. Gentleman confirm that there will have to be two Bills, one comparatively short covering his immediate objectives, and later the more comprehensive Bill for which he has been collecting information and views?
    Mr. Short: The hon. Gentleman will have to await the Queen's Speech.

    School Building Programmes
    Mr. Eadieasked the Secretary of State for Education and Science (1) in the school building programmes of 1960 to 1964 in England and Wales, what was the value of approvals, starts and work done; how the figures compare with those for the years 1964 to 1968; what was the value of work under construction in 1968; and how it compares with the figure for each of the previous eight years;
    (2) what was the total number of new places in school projects in England and Wales in 1960 to 1964; how it compares with the number in the years 1964 to 1968; how many new school projects were under construction in 1968; and how this figure compares with that for the last eight years for which figures are available.
    Miss Bacon: As the Answer contains a number of figures, I shall circulate it in the OFFICIAL REPORT.
    Mr. Eadie: Could my right hon. Friend satisfy my curiosity and that of the House by telling us whether, in any of the figures which she will publish in the OFFICIAL REPORT, there are any comparative record figures?
    Miss Bacon: The Answer is rather long, but I can tell my hon. Friend that in 1960 the value of school building work under construction was less than £84 million and in 1968 it was £164 million.
    Mr. Ridsdale: Can the right hon. Lady explain why, in spite of all this money being spent on schools, there is such a serious shortage of primary school places in North-East Essex?
    Miss Bacon: I can answer that easily. More ought to have been done in years gone by.
    Following is the information:

    1961–64

    1965–68

    Value of approvals

    £342·8m.

    £442·8m.

    Value of starts

    £363·2m.

    £457·3m.

    Value of work done

    £324·4m.

    £443·2m.

    School Places started

    1,000,670

    1,298,039

    School Places completed

    905,560

    1,211,269

    Value of school building work under construction

    Number of projects under construction

    £m.

    1960

    83·9

    732

    1961

    114·5

    877

    1962

    139·8

    926

    1963

    153·7

    1,006

    1964

    134·8

    839

    1965

    123·0

    816

    1966

    140·4

    965

    1967

    163·3

    1,102

    1968

    164·6

    1,021

    Private Schools (Fire Precautions)
    Mr. Liptonasked the Secretary of State for Education and Science if he will take steps to compel private schools to install fire escapes, smoke doors and adequate fire precautions generally.
    Miss Bacon: My right hon. Friend already exercises his powers under Section 71 of the Education Act to require all independent schools to have adequate fire precautions and means of escape in the event of fire.
    Mr. Lipton: To what extent are the powers exercised? Does my right hon. Friend realise that quite a number of these private schools are housed in accommodation which was never intended to be used as private school premises, and one of these days there could be an awful tragedy, which ought to be prevented now?
    Miss Bacon: If my hon. Friend has any examples, I shall be glad to go into them. Chief fire officers arrange inspections of independent schools on their own initiative, or sometimes at the request of Her Majesty's inspectors who, after visits, may feel that the fire precautions are not adequate.

    Spring Bank Holiday
    Mr. J. H. Osbornasked the Secretary of State for Education and Science, in view of the fact that Whitsun, including Whit Monday next year will be on a different week-end from the Spring Bank Holiday, if he will now send a circular to local education authorities advising them to ensure that school holidays coincide with the Spring Bank Holiday next year and in future years, so that industrial holidays in the spring may coincide with school holidays.
    Miss Bacon: No, Sir. It is for local education authorities and governors and managers of schools to determine school holiday dates to suit local circumstances.
    Mr. Osborn: Have not the Government some responsibility in trying to have holidays arranged to coincide with the Spring Bank Holiday? Local authorities, employers in industry and trade unions are finding immense difficulty in getting the school holiday to coincide with the industrial holiday. Could not the right hon. Lady, with the rest of the Government, set a lead?
    Miss Bacon: I understand that there are difficulties in this connection, but, as I say, we could not give directions to local authorities. The hon. Gentleman will be interested to know that the Government are considering whether there should be permanent arrangements for the dates of the spring and summer holidays in England and Wales, and a statement on this will be made later.
    Dr. John Dunwoody: Does my right hon. Friend agree that the tendency of many local education authorities to give at least a whole week half-term holiday in the summer term is in the interest of both the children and the tourist trade, and will she take steps to encourage other local education authorities to do the same?
    Miss Bacon: My hon. Friend comes from an area to which many holidaymakers go, and his question illustrates how necessary it is that this matter be settled at local level since there are many local considerations to be taken into account.

    Teachers (Salary Negotiating Machinery)
    Mr. Laneasked the Secretary of State for Education and Science what progress he has made in his further consultations with teachers' organisations about salary negotiations; and whether he will now make a further statement on future procedure within the Burnham machinery.
    Mr. Edward Short: I am always ready to see teachers' organisations, separately or together, about salary negotiating machinery and procedures, but I have had no recent consultations.
    Mr. Lane: I appreciate that the ball is not directly in the right hon. Gentleman's court. Will he be ready to do all he can to lubricate the Burnham machinery and get rid of the procedural friction?
    Mr. Short: I told the teachers' organisations that if they will come to me with agreed proposals about procedure I shall be happy to agree to them.
    Mr. Peter M. Jackson: Is my right hon. Friend aware of the considerable sense of frustration which has recently been expressed by members of the A.T.T.I.? Would he consider setting up separate negotiating machinery for teachers in technical colleges and colleges of commerce?
    Mr. Short: As the A.T.T.I. claim has gone to arbitration, the less I say about it at this moment the better.

    Married Women Teachers
    Mr. MichaelShaw asked the Secretary of State for Education and Science how many qualified married women teachers he estimates are now out of the teaching service.
    Miss Bacon: I cannot make any such estimate.
    Mr. Shaw: Has there been any improvement in attracting these qualified teachers back into the profession where their services are so greatly needed?
    Miss Bacon: In the year ending 1st February, 1969, the latest date for which figures are available, nearly 7,000 married women teachers returned to schools.
    Sir E. Boyleasked the Secretary of State for Education and Science how many qualified married women teachers he estimates will return to full or part-time service in the year ending 1st February, 1970.
    Mr. Edward Short: It is too early to assess this. Some interim figures will be available in November. I hope that the figure will continue to be substantial, because I am sure that these teachers have a long-term and valuable place in our schools.
    Sir E. Boyle: What proposals has the right hon. Gentleman for a recruiting campaign during the coming years? Did not the recruiting campaigns between

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    1960 and 1967 make a very great deal of difference to the numbers of part-time returners? Is the right hon. Gentleman aware that his rather muted answers this afternoon will come as a great disappointment to those who know the enormous importance or the contribution made by the part-time married woman returner?
    Mr. Short: I thought that my answers this afternoon had been anything but muted. The number of women returning is very satisfactory. We do not need a campaign. I have explained in the House before that we now have it established that it is the normal thing for a married woman teacher to return to teaching when she has had her children. I think that this is now firmly established, and the flow of married women back to teaching is satisfactory.
    Mr. Moonman: Apart from the seriousness of our not having sufficient information to plan in advance, will not the success of any effort to persuade people to return to teaching depend on there being a proper backing service such as nursery accommodation for the children of the teachers concerned?
    Mr. Short: I agree, and we are prepared to approve nursery schools where this would facilitate the return of married women teachers.

    Part-Time Teachers
    Mr. Michael Shawasked the Secretary of State for Education and Science to what extent he estimates the employment of more part-time teachers will help to abolish classes of over 40 by September, 1970; and if he will make a statement.
    Mr. Edward Short: Part-timers have made and are making a valuable contribution to reducing the number of classes over 40. I believe that they will continue to do so.
    Mr. Shaw: Does the right hon. Gentleman envisage, if he is to achieve his target, that there must be greater encouragement if more part-time teachers are to be attracted back into the profession?
    Mr. Short: Yes. I hope that local authorities will continue to recruit them. The latest figure I have is that in the
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    period between October, 1968, and February, 1969, 770 extra full-time equivalents of part-timers returned to teaching.
    Mr. Scott-Hopkins: Will the Secretary of State confirm that there is not a chance of being able to reduce the size of classes to below 40 by 1970 and that in the primary schools the position is getting worse, not better?
    Mr. Short: I do not agree. If the local authorities follow the lead I gave them in my speech at Cardiff, to which I referred earlier, they can get rid of most at any rate of the classes of 40 or over by September, 1970.

    Educational Priority Areas
    Mr. Montgomeryasked the Secretary of State for Education and Science why the special building allocations for educational priority areas are not being continued beyond 1969–70.
    Mr. Edward Short: The special two-year programme was a valuable first step in dealing with the problem. But for the future I prefer that as much as can be spared from all the resources for school building be devoted to such areas.
    Mr. Montgomery: Is the Minister satisfied that more could not be done for educational priority areas?
    Mr. Short: My right hon. Friend has just pointed out that the school building programme is now about twice as big as it was in the last year of Conservative government. Obviously the educational priority areas are getting a very fair share of that very large building programme.
    Sir E. Boyle: As the right hon. Gentleman has twice said that about the building programme, will he acknowledge that the last programme that we authorised complete was the 1965–66 programme, and that the improvement element was considerably greater in that programme than in the last programme which the right hon. Gentleman has authorised
    Mr. Short: In 1964–65 the school building programme was £82 million. In 1971–72 it will be £169·5 million.
    Sir E. Boyle: What about 1965–66?

  INDUSTRIAL RELATIONS AND PRODUCTIVITY
  Mr. Bidwellasked the Prime Minister if he now intends to have further discussions with the Trades Union Congress and the Confederation of British Industry on industrial relations and productivity.
  Mr. William Hamiltonasked the Prime Minister what interdepartmental machinery has been created to assess the effectiveness or otherwise of the measures agreed with the Trades Union Congress and the Confederation of British Industry for the settling of unofficial strikes.
  The Prime Minister (Mr. Harold Wilson): I have no immediate plans for further discussions with the T.U.C. and the C.B.I. on these matters. On unofficial strikes, my right hon. Friend the First Secretary of State already works in close consultation with other Ministers concerned.
  Mr. Bidwell: Now that we have turned our backs on aspects of penal law policy, will not my right hon. Friend consider inviting the trade union movement to expose the deficiencies of some industrial management, particularly in the export trade, which cost us far more than any unconstitutional strikes? Has my right hon. Friend's attention been drawn to The Times Business News today which announces the impending retirement of the present Director-General of the C.B.I., who wishes to enter the House as a Tory politician? Does not my right hon. Friend hope that there will be a more enlightened successor to this gentleman?
  Mr. Speaker: Order. It is fairer to everybody if questions are brief.
  The Prime Minister: On the first part of the question, I thought that the T.U.C. document was reasonably balanced as between those strikes which are caused by unwise action by employers and those which are caused by action by unofficial strikers.
  On the second point about the C.B.I., I would only say that my own relations with the present retiring Director-General have always been perfectly reasonable and constructive; and I think in all our relations he has shown all the qualities necessary to become a Conservative candidate.
  Mr. William Hamilton: Is my right hon. Friend aware that the speech made by Mr. Victor Feather the day before yesterday was very welcome to hon. Members on this side? Will my right hon. Friend consider publishing in the OFFICIAL REPORT the names and locations of the strikes which have been settled by the T.U.C. since the agreement was reached by the Government?
  The Prime Minister: I think that the speech of Mr. Feather was extremely significant. I think it was widely recognised by the House in the debate on industrial relations a fortnight ago that there will be strikes that cannot be settled by the T.U.C. and which could not be settled by legislation, either of the kind contemplated in our White Paper or of the kind contemplated by right hon. Gentlemen opposite. There are great difficulties at this moment at Margam. I think that in the short period so far since the agreement with the T.U.C. was arrived at the represntatives of the General Council have shown great determination and considerable success in dealing with strikes that can be settled only within industry.
  Sir C. Osborne: As the Government have turned their back on their previous policy, according to the Prime Minister's own supporter, is he satisfied that the T.U.C. can solve the problem that he has set them to tackle on his behalf?
  The Prime Minister: I have just answered that question, and I dealt with it at greater length in the debate. I said that there will be many strikes, especially the very short-term strikes, which nobody could help to deal with by any situation; and many of them are not so serious to our export trade. I said that there will be others which are serious and which could not be dealt with either by legislation or by the T.U.C. Nobody was claiming 100 per cent. success. The hon. Gentleman will have seen the acid comments of Mr. John Davies in The Times a fortnight ago on his party's own proposals.

  PHARMACEUTICAL INDUSTRY
  Mr. William Hamiltonasked the Prime Minister if he will recommend the establishment of a Royal Commission to inquire into the drugs industry.
  The Prime Minister: No, Sir. The Sainsbury Committee has recently carried out a comprehensive review of the relationship of the pharmaceutical industry with the National Health Service and I see no need for a further general inquiry.
  Mr. Hamilton: Does not my right hon. Friend agree that if we could cut the rising cost of drugs in the National Health Service this would obviate the need for charges on teeth, glasses and prescriptions, which are so objectionable to many hon. Members on this side of the House? Can he say what the machinery is, interdepartmental or otherwise, to ensure that the profit margins of the drug manufacturing industries are not unreasonable?
  The Prime Minister: The rising cost of prescriptions has caused great concern in the House and has been the subject of many reports by the Public Accounts Committee under successive Chairmen. I was concerned with some of these. This is an extremely complex issue. There are more reasons than the alleged rapacity of the pharmaceutical industry.
  A great deal of ground has been covered since the Sainsbury Report in the negotiations between the Department and the pharmaceutical industry for a new price review scheme, but these talks are not yet completed.
  Sir T. Beamish: Can the Prime Minister name any country in the world which enjoys cheaper drugs than we do? Is it not about time to leave this most successful industry alone?
  The Prime Minister: Unlike most other countries, in this country the payment for drugs falls on the public purse, and there is therefore a real obligation on the Minister, of whatever party, to secure the maximum economy and the avoidance of excessive profits by the pharmaceutical industry, which has been highlighted, for example, in certain reports of the Public Accounts Committee. In the lifetime of the Conservative Government some progress was made. It was, I think, the right hon. Member for Wolverhampton, South-West (Mr. Powell) who insisted on the patent-busting—I do not know whether it is still his view—which helped to bring down excessive profits in the pharmaceutical industry.

  NUCLEAR WEAPONS
  Mr. Eldon Griffithsasked the Prime Minister if he will convene a meeting of Heads of Government of the Western European Union to consider new initiatives for nuclear sharing among European members of the North Atlantic Treaty Organisation.
  Mr. Raphael Tuckasked the Prime Minister whether it is his policy that Great Britain should share any nuclear secrets with France.
  The Prime Minister: The Government's policy has always been that the North Atlantic Treaty Organisation is the most suitable forum for co-operation on nuclear defence policy. The Nuclear Planning Group and the wider Nuclear Defence Affairs Committee were specifically established for this purpose and there have been regular meetings of these bodies.
  Mr. Griffiths: Since the Foreign Secretary has only just accepted in Brussels the need for a political and technological identity of purpose between Britain and the European community, does it not follow that sooner or later, short of general disarmament, there must be a European deterrent? Therefore, would it not be wise to start exploring with the French those areas where we could collaborate on nuclear questions for our mutual financial advantage?
  The Prime Minister: I thought that the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home) issued one or two wise words on this subject, if he was correctly reported, today, as I am sure he was. That is a different issue from a European deterrent. Of course, we are prepared and always have been, to discuss at any time with the French Government mutual questions of interest in the field of nuclear weapons, including, for example, the desirability of their observing the test ban agreement and signing the Non-Proliferation Treaty.
  This is very different from a nuclear deterrent, which the hon. Gentleman is suggesting, and which raises the gravest dangers about a German finger on the trigger, and which would, as I understand it, involve a total derogation from at:. Non-Proliferation Treaty, except in some

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  future situation where there is only one country, one Government and one Defence Ministry in Europe.
  Mr. Raphael Tuck: Does my right hon. Friend agree that in view of our atomic agreement with the United States we could not share any nuclear secrets with a European Power without obtaining leave from the United States Government, and that the United States Government could not give us leave without infringing their MacMahon Act?
  The Prime Minister: The position of the United States and successive agreements by successive Governments with the United States here are well understood. I believe that there is a great capacity—and I have urged this on the late President of France—for Anglo-French cooperation in the peaceful uses of nuclear energy. I would be extremely careful about anything in the weapons sense, in a bilateral sense or in any sense outside N.A.T.O., where up till now the French have not been very much involved in nuclear planning matters. This is the right centre for doing this.
  Mr. Rippon: Will the Prime Minister confirm the view that the Secretary of State for Defence expressed first in Munich earlier this year that there must be a distinct European defence capability within N.A.T.O., and does he agree that that must involve some degree of nuclear sharing based on Anglo-French co-operation?
  The Prime Minister: I confirm what my right hon. Friend said in Munich. He has gone a long way to making his words a reality by setting up arrangements for much closer co-operation on defence matters between European countries, but within N.A.T.O., and within the overall control of N.A.T.O. I do not believe that the conclusion which the right hon. and learned Gentleman draws from this is right. I do not believe that this means a European nuclear deterrent, which would be divisive of N.A.T.O., involve separatist tendencies in N.A.T.O., and involve, except in the circumstances which I mentioned to the hon. Gentleman, a breach of the Non-Proliferation Treaty, which this country has ratified.
  Mr. John Mendelson: As the Conservative spokesman on defence and the
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  Leader of the Opposition on occasion have supported proposals in the recent past which would lead to our agreeing to a separate nuclear command within the European Economic Community, as a price of Britain's entry into that community, and as these ideas are put forward by Herr Strauss and other people in leading political positions in Germany, would my right hon. Friend reaffirm the Government's policy that they regard this as very dangerous, and that they would not trade such an offer against Britain's entry into the Common Market?
  The Prime Minister: I have stated the Government's position many times and have repeated it again today. I do not think that it is necessary to add to what I have said.
  Mr. Heath: Could the Prime Minister explain how it is that one can have a nuclear planning group in N.A.T.O. of which the Germans are members and there is no danger, with which I agree, but that if one has a nuclear planning group of European Powers of which the Germans are members there is talk of the Germans having a finger on the trigger?
  The Prime Minister: I referred to the German finger on the trigger in reference to a phrase used by the hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths) about a European deterrent. A European deterrent means control over that deterrent. A nuclear planning group for consultation, of which the Germans are members, is a valuable development within N.A.T.O. The right hon. Gentleman will be as pleased as the rest of us when the French agree to co-operate wholeheartedly in that. It is a very different thing to have a consultative group in N.A.T.O., N.A.T.O. being the overriding authority, on the one hand, as compared with a European community deterrent in which European nations decide when the deterrent is to be used.
  Mr. Heath: In that case, if there was a Franco-British deterrent within the nuclear planning group within N.A.T.O. there could be no objection?
  The Prime Minister: The right hon. Gentleman has on a number of occasions, both in this country and abroad, proposed a Franco-British deterrent. So far as that is concerned, there would be no derogation from the authority of N.A.T.O.,

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  because it would be two existing nuclear Powers combining. There may be many arguments against that, and in my view this is a matter on which we are certainly not prepared to propose anything to the French Government. That is a very different thing, as his own arguments suggest, from a European deterrent with other people deciding who pulls the trigger.

  PARLIAMENTARY BOUNDARY COMMISSION (PROPOSALS)
  Mr. Eldon Griffithsasked the Prime Minister what representations he has received from residents of the Huyton Parliamentary Constituency in regard to the Parliamentary Boundary Commission's proposals.
  Mr. Bostonasked the Prime Minister what representations he has received arising from the Report of the Parliamentary Boundary Commission for England; and what replies he has sent.
  The Prime Minister: I should perhaps make clear the constitutional position that I am not answerable to the House any more than any other hon. Member is answerable in respect of correspondence addressed to me as a constituency M.P.
  Having said that, the total number of communications about the Government's Bill which I have received in both my capacity as Prime Minister and as constituency M.P. from my constituents—the total number—is not one, Sir. With regard to the number received from the whole of Britain, the answer is about 20.
  Mr. Griffiths: Mr. Speaker—[Interruption.]
  Mr. Speaker: Order. I want to hear the supplementary question.
  Mr. Griffiths: I am obliged to you, Mr. Speaker. Since the Huyton constituency has a larger electorate than Ladywood, Manchester, Exchange and Leeds, South East put together, is it not extraordinary that the Prime Minister should be resisting the recommendations of the Boundary Commission, which says on page 48 of its report that Huyton cannot simply be left unchanged with 87,000 electors any longer?
  The Prime Minister: The hon. Gentleman is trying very hard after the Answer I gave. He could have mentioned Kinross and West Perthshire in his list. But I am deeply touched by the concern he showed about my constituents and which so many hon. Members showed for so many hours the other evening. I recognise, on their own admission, that their spite is not against the constituency but is against me. I have realised that for a long time. But the hon. Gentleman will be delighted to know—[Interruption.]—this was an admission of more than usual frankness—but the hon. Gentleman, with the deep concern for my constituents which I fully understand, will realise that all of my 95,000 constituents are happy with the Government's Bill [HON. MEMBERS: "Oh."] Not one
  of them has written—not even the chairman of the local Conservative Party. There are many ways in which that gentleman could have communicated with me. I think that the mass of my constituents have shown their general support of their Member of Parliament.
  Mr. Boston: Can my right hon. Friend throw any light on Bexley? As the Leader of the Opposition is not now to be welcomed into the Cities of London and Westminster, we must not be too hard on him, because he brings benefits to some people. But since he is to remain at Bexley, would not my right hon. Friend agree that Bexley's loss is the Cities of London and Westminster's undoubted gain?
  The Prime Minister: On a previous occasion I said that I was not concerned with the Leader of the Opposition. As I have explained, since the Government's announcement on this matter I have had some 20 letters from the country as a whole—which surely reflects deep concern about the Government's proposal—compared with 50 letters about the abolition of hare-coursing and 70 letters about cruelty to dogs in Japan.
  Mr. Rippon: Will the Prime Minister—[Interruption.]
  Mr. Speaker: Order. The House must not get too happy.
  Mr. Rippon: Will the Prime Minister—[Interruption.]
  Mr. Speaker: Order.
  Mr. Rippon: Will the Prime Minister say what point it would be for the chairman of the Conservative Party in Huyton to ask him why he is rigging his own constituency?
  The Prime Minister: If the chairman of the Conservative Party in my constituency—for whom I have far more respect as a Conservative than for most members of the Opposition Front Bench—really feels strongly about this matter, he is perfectly articulate and capable of expressing that view and writing to me about it. I must tell the right hon. and learned Gentleman that I have not even had a representation from the Monday Club.
  Mr. Shinwell: What has my right hon. Friend done about the letters—a substantial number of about 70—which he has received about the export of dogs to Japan?
  Mr. Rippon: All without licences.
  The Prime Minister: The right hon. and learned Member for Hexham (Mr. Rippon) may joke about other subjects but not about a serious subject like dogs in Japan. I have sent to the authors of those letters, as to the authors of the smaller number criticising the Government's Bill, appropriate replies.
  Mr. Thorpe: Are we to assume that the lightness of the Prime Minister's postbag on the question of the redistribution of boundaries—
  Hon. Members: Speak up.
  Mr. Thorpe: Are we to assume—
  Mr. William Hamilton: Take your hand out of your pocket.
  Mr. Thorpe: Are we to assume from the lightness—
  Mr. William Hamilton: Take it out.
  Mr. Thorpe: Are we to assume from the lightness of the Prime Minister's postbag on this subject that he intends to treat with equal levity Motion No. 400 which has been signed by many of his hon. Friends calling attention to the need for the redistribution of boundaries and the holding of by-elections at fixed statutory periods—the term fixed in this case not referring to the discretion of the Government but to a statutory period.
  The Prime Minister: The Question on the Order Paper related to the number of communications I had received from Huyton constituency and not to Motions on the Order Paper. To judge from the degree of ecstacy in which the right hon. Gentleman got himself last week, I do not think that he was very critical of the size of the Birmingham, Ladywood constituency.
  Mr. Eldon Griffiths: On a point of order, Mr. Speaker. Because of the noise I inadvertently misquoted the Boundary Commission and I should like to put the matter right at once.
  Mr. Speaker: Order. I will deal now with the hon. Gentleman's point of order. If he did attempt to quote the Boundary Commission in a supplementary question he was out of order. If he attempted to correct the quotation he would be even more out of order.
  Mr. Griffiths: I quite accept what you have said, Mr. Speaker. All I wish to correct is the number of voters. It is not as I said it was—[Interruption.]
  Mr. Speaker: Order. The Chair will inform an hon. Member when he is out of order.
  Mr. Griffiths: I simply wish to correct my misstatement. I said that the number of constituents in Huyton was 87,000. I should have said that it was 87,379.
  Mr. Speaker: The House will note the gravity of the correction.

BUSINESS OF THE HOUSE
Mr. Heath: Will the Leader of the House kindly state the business of the House for next week?
The Lord President of the Council and Leader of the House of Commons (Mr. Fred Peart): Yes, Sir. The business for next week will be as follows:
MONDAY, 21ST JULY—Supply [28th Allotted Day]: Debate on Civil Science, which will arise on a Motion for the Adjournment of the House.
Prayers on the National Health Service (Charges for Appliances) Regulations.
Second Reading of the Trustee Savings Banks Bill [Lords], which is a consolidation Measure.

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Motions on the White Fish (Inshore Vessels) and Herring Subsidies Scheme, the Housing Subsidies (Representative Rates of Interest) Orders, and on the Motor Vehicles (International Circulation) (Amendment) Order.
TUESDAY, 22ND JULY—Supply [29th Allotted Day]:
Debate on the B.B.C.'s Plan "Broadcasting in the Seventies", which will arise on a Motion for the Adjournment of the House.
At ten o'clock, the Question will be put from the Chair on all outstanding Votes.
Motion on the B.B.C. Licence and Agreement.
Consideration of Lords Amendments to the Post Office Bill, and to the Education (Scotland) Bill.
Remaining stages of the Trustee Savings Banks Bill [Lords].
WEDNESDAY, 23RD JULY—Second Reading of the Consolidated Fund (Appropriation) Bill.
THURSDAY, 24TH JULY—Remaining stages of the Consolidated Fund (Appropriation) Bill.
Consideration of any Lords Amendments received from another place which, if necessary, will be continued on Friday, 25th July and on Monday, 28th July.
In addition to the business announced for tomorrow, it is intended to move, if there is time, the Motion on the Carriage by Air Acts (Application of Provisions) (Amendment) Order.
As to the Summer Adjournment, I hope to make an announcement next week.
Mr. Heath: Will the Postmaster-General be making on Monday his promised statement on the B.B.C.'s plan, so that it may be considered before the House debates the matter on Tuesday?
Secondly, the Leader of the House will recall that last week he undertook to represent to the Minister of Agriculture that he should make the statement about the muddle which the Government have got themselves into over agricultural credit. Can he now tell the House when that statement will be made?
Mr. Peart: I made representations about both matters. Although the Oppo-
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sition have proposed a debate on the B.B.C.'s plan for Tuesday, and I am glad that they have, because it is an important subject, my right hon. Friend the Postmaster-General feels that the statement should await that debate.
Mr. Heath: We gave a day for a debate on broadcasting because of the immense interest in all quarters of the House in the subject and because we felt that that would meet the requirements of the House. The House would be much better served if the Postmaster-General made his statement on Monday so that the whole House could consider it and the debate could be held on Tuesday in the light of the statement.
As for agricultural credit, is the right hon. Gentleman telling us that he is absolutely powerless in this matter and that his representations were ignored by the Minister of Agriculture?
Mr. Peart: The right hon. Gentleman should not assume that.
What the right hon. Gentleman said about a statement on Monday by my right hon. Friend the Postmaster-General was a fair point, but there are many matters for consideration and discussion between Ministers. I will again convey the right hon. Gentleman's view, but the debate will be on Tuesday. The debate is to be on "Broadcasting in the Seventies", and hon. Members would obviously expect the Postmaster-General to deploy his arguments in that debate.
Several Hon. Members rose—
Mr. Speaker: I remind the House that there is a mass of business ahead, as those who have been through Report stages of the Finance Bills know.
Mr. Shinwell: I gather that the Merchant Shipping Bill, which is to be introduced today, is not likely to be proceeded with next week or before the Summer Recess. As it is a formidable piece of legislation and likely to be very complicated, would it not be desirable for the Government to issue a White Paper, explaining the Bill's purpose, to precede the legislation and our debates on it?
Mr. Peart: The Bill is to be published tomorrow and no doubt my right hon. Friend and his colleagues will examine it

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carefully. It is an important Bill affecting an important industry. I have noted what my right hon. Friend has said and I will convey his views.
Dr. Winstanley: When will the House have an opportunity of discovering whether the Report of the Services Committee on facilities for Members justifies the very encouraging reference which the Prime Minister made to it last week? Will we get the report next week?
Mr. Peart: I hope that the Report will be out tomorrow, so the hon. Member should be enthusiastic about it.
Mr. Roebuck: Will my right hon. Friend rearrange the business for next week to permit a debate on the pending closure of the Sun and the state of the Press generally? Is he aware that the idiot laughter from some hon. Members opposite when this matter was raised yesterday was not representative of opinion in the House, or of opinion outside, and that there is considerable anxiety about this subject?
Is my right hon. Friend further aware that when, about a year ago—
Mr. Speaker: Hon. Members may not on business questions debate the issue about which an hon. Member is asking a business question.
Mr. Roebuck: With respect, Mr. Speaker, I was not seeking to debate it, but to remind my right hon. Friend of a promise which his predecessor made when I sought a debate on the Press about a year ago. My right hon. Friend then said that if a newspaper were about to close, he would favourably consider a debate. Will my right hon. Friend consider this carefully and see what he can do for us?
Mr. Peart: My hon. Friend rightly highlights the importance of a matter which affects many working journalists and others, in the typographical trade, and the public. I accept all that, but my hon. Friend may well have an opportunity to raise the subject on the Consolidated Fund Bill.
Mr. Edward M. Taylor: Is the right hon. Gentleman aware of the mounting concern in all parts of the House about the failure to get relief supplies through to Biafra? Will the Foreign Secretary
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make another statement before the Recess?
Mr. Peart: I am aware of the difficulties. We have had a debate on the subject and my right hon. Friend is obviously anxious to do all he can. If it is necessary, he will inform the House of developments.
Mr. John Mendelson: May I press my right hon. Friend further on this serious issue of the proposed disposal of one of the limited number of national morning newspapers published in London? When The Times was offered to Lord Thomson, there was no time for a debate, because the offer was announced on the last day before the Adjournment of the House for the Recess.
A definite promise was then given to my hon. Friend the Member for Harrow, East (Mr. Roebuck) that there would be a debate if there were any danger to any other newspaper. Will my hon. Friend honour this engagement and let us have a debate next week, when opinion may be brought to bear on this problem?
Mr. Peart: I cannot alter the business for next week in that sense.
Mr. Mendelson: Why not?
Mr. Peart: My hon. Friend is a skilled parliamentarian and he must await my reply. If he feels strongly about the matter, he will have an opportunity to try to raise it on the Consolidated Fund Bill.
Mr. Costain: Is the Leader of the House aware of the concern in the South-East about the proposal for the Channel Tunnel? Could he persuade the Minister of Transport to make a statement on the subject before the House rises for the Summer Recess?
Mr. Peart: I know that there are many different views about this proposal. I will make representations to my right hon. Friend, but I cannot promise that he will make a statement.
Mr. Dickens: In view of my right hon. Friend's encouraging news about the forthcoming report from the Services Committee, may we have an assurance that the House will have an opportunity to debate that report before we rise for the Summer Recess?
Mr. Peart: I cannot give a promise, but I will consider the matter.
Dame Joan Vickers: In view of the importance of the Duncan Report, will the right hon. Gentleman give an assurance that no action will be taken by the Government on it until the report has been debated?
Mr. Peart: I cannot do that. Obviously, the Government have to hear views and a statement has been made. But, if it is necessary, the Government must take action. However, I will consider the hon. Lady's request.
Mr. English: If the Postmaster-General's statement is not to be made before next Tuesday, can my right hon. Friend assure us that it will be made before the Recess?
Mr. Peart: The debate is to be before the Recess—next week.
Mr. Marten: Has the Leader of the House seen the very gently-worded Motion about the inadvisability of going straight into the Common Market? In view of the anxiety throughout the nation about this question, could he possibly find time to discuss it before we rise for the Recess?
[That this House believes the Government should not at present pursue its application to join the Common Market.]
Mr. Peart: I read that Motion with care and interest. I will note what the hon. Gentleman said, but I do not think that there will be time for such a debate next week.
Mr. Murray: I appreciate my right hon. Friend's problem about fitting in a debate on the Press next week, but can he assure the House that if there is a debate on the subject on the Consolidated Fund Bill we shall have a statement of the Government's intentions from the Front Bench?
Mr. Peart: That is a matter for Mr. Speaker. However, if the subject were raised the Government would have to see that a spokesman made an announcement.
Mr. Evelyn King: Has the Leader of the House seen a Motion noting the resentment—I do not think that "resentment" is too strong a word—of local authorities at being asked by the Minister of Housing and Local Government to give their opinions about the Redcliffe-
890
Maud Report before October? May we debate this example of Ministerial peremptoriness?
[That this House, noting that the Redcliffe-Maud Commission took a period of years to reach their conclusions, and knowing, as does the Minister, that many county councillors and their officials are on holiday in August and September, resents the peremptory request of the Minister of Housing and Local Government to the County Councils Association to provide their views on it by October and requests him to withdraw it.]
Mr. Peart: I have noted the Motion. I am dealing with the business for next week and it will not be debated next week.
Mr. Philip Noel-Baker: Can my right hon. Friend say what provision he is making for a debate on numerous international issues of great importance with which the House has not dealt? If he is making no provision, will he agree that the powers and rights of Parliament in respect of the control and formulation of foreign policy are being seriously eroded?
Mr. Peart: I cannot agree to that. My right hon. Friend was a member of a Labour Government, and he supported the then Leader of the House. There is always difficulty in finding time for many of these great issues. If there were time, I would be delighted to arrange a foreign affairs debate, but there is not time next week.
Dame Irene Ward: Can the Leader of the House tell us how we are to dispose of the time on the Consolidated Fund Bill? Are we to be allowed to raise our various interests? I have very many interests that I would like to talk about, and I would like to know what is to be done with regard to the debates on those days.
Mr. Peart: I know, of course, that the hon. Lady has many interests. But she must not be too selfish. Other hon. Members also have interests. This is a matter for Mr. Speaker to decide.
Mr. Michael Foot: It is apparent from my right hon. Friend's announcement that some time next week we shall be debating the attempts of another place to hold up measures agreed to by this

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House for the improvement of the housing of the people, particularly leaseholders. In view of that, can we have a White Paper before the debate, disclosing what are the landlords' interests of Members in the other place?
Mr. Peart: My hon. Friend has made a very interesting suggestion. I will consider it sympathetically.
Mr. Lubbock: With regard to the Report of the Services Committee on which two hon. Members have put Questions to the Leader of the House, while appreciating that there may not be time for a full debate in view of the congestion in the parliamentary programme, will he undertake to see to it that a statement is made by the Treasury on its reactions to the recommendations before we rise for the Summer Recess?
Mr. Peart: If the hon. Gentleman reads the Report carefully, he will see that part of his question is answered. I cannot go beyond that. I hope that the Report will be out tomorrow. If it is delayed it will be for only a few days for printing reasons. But he should read it first.
Mr. Gardner: I know that my right hon. Friend always tries to help, but is he aware that it is just not good enough to debate the closure of another national newspaper merely on the Consolidated Fund Bill? This is a potential disaster for democracy. Will he not consult his colleagues to see whether we cannot find time next week for a proper debate?
Mr. Peart: I have announced the business, and it is a full week. My hon. Friend must know that I cannot arrange a day's debate on this next week. I merely suggest that there is an opportunity on the Consolidated Fund Bill.
Mr. Buck: Will the Leader of the House say why time is not being provided by the Government for a debate on the Report of Her Majesty's Inspector of Constabulary? Is he aware that it is particularly important to debate it, in view of the fact that it reveals that, for the first time, indictable crimes in the provinces exceeded 1 million last year?
Mr. Peart: Anything to do with crime is important, but there cannot be a debate next week.
Mr. Moonman: Has my right hon. Friend seen the strongly-worded unambiguous Motion No. 181, which asks for Government commitment to and interest in the newspaper industry? Has my right hon. Friend not had representations from the Government during the last few days about preparing and making time for a statement next week? The Consolidated Fund Bill is one thing, but foresight is another.
[That this House, in view of the continuing reduction in the number of national newspapers in Great Britain, and in the light of the situation in the communication industry in general, urges Her Majesty's Government to give consideration to an immediate inquiry into the financial and commercial structure of the newspaper industry.]
Mr. Peart: That Motion was tabled a long time ago. But, for the reasons that I have given, the business for next week which I have announced must be as it is.
Sir A. V. Harvey: While we understand why the Leader of the House is unable to say when we will go into recess, can he at least say when we shall return to work in the autumn, so that hon. Members are able to make some plans ahead?
Mr. Peart: It depends when we get up.
Mr. Dalyell: Is my right hon. Friend aware that while some right hon. and hon. Gentlemen opposite are as anxious as many of our colleagues to leave Westminster and go into recess on 25th July, if he has timetable difficulties, there is no other option than to use Monday, Tuesday or Wednesday of the following week to discuss this crisis issue of the Sun, because by October it will be too late.
Mr. Peart: I agree with my hon. Friend about the importance of this matter, but pressing me to find time for a debate inevitably will take us beyond the date by which we had hoped to rise. However, I still think, if my hon. Friends so wish, that they could use their parliamentary opportunities next week.
Mr. Maxwell-Hyslop: Will the Leader of the House ask his right hon. Friend the Secretary of State for Social Services to announce before the recess his decision to end the discrimination against patients

893
in mental hospitals, who do not receive pocket money from his Department in the same way as patients in general hospitals do?
Mr. Peart: I would have thought that this was a matter which the hon. Gentleman would raise directly with my right hon. Friend. I will mention the matter to him.
Mr. Whitaker: Is my right hon. Friend aware that when the first people are likely to land on the moon, this House may be discussing the white fish industry? Would it not be more appropriate to discuss the Sun?
Mr. Peart: I hope that my hon. Friend will have his priorities right. The white fish industry is a very important one for many of our colleagues and for the people, in addition to which in war and in times of crisis the industry supplies very gallant men to the Royal Navy.
Mr. J. E. B. Hill: Since the Government apparently do not intend to make any formal observations upon the Reports of the Select Committee on Agricuture, will he provide time for a short debate on those Reports this Session?
Mr. Peart: Not next week.
Mr. Raphael Tuck: I realise that I may be fruitlessly knocking my head against a brick wall, but I have a number of hon. Members on this side of the House behind me. On more than one occasion, my right hon. Friend has promised to give sympathetic consideration to requests for a short debate on the closure of S. G. Brown, of Watford. May we have a slightly more encouraging reply than, "Not next week"?
Mr. Peart: My hon. Friend has had a debate on this matter and raising it now in the House does highlight it again.
Sir T. Beamish: Is there any intention to provide Government time for the Sunday Entertainments Bill? Is the Leader of the House aware that it is a controvercial Measure, to which there is a good deal of opposition, and that it affects the whole country? May we have the right hon. Gentleman's assurance that, if Government time is provided, it will be in normal and convenient hours?
Mr. Peart: The Bill was reported to the House only on Tuesday. Perhaps
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I might add that, in view of the late stage of the Session and the fact that the Bill has to pass all its stages in another place, I doubt whether it has any prospect of completing all its stages—[An HON. MEMBER: "Why?"] I am merely explaining the difficulties. I am willing to discuss them with the sponsors of the Bill.
Mr. Hector Hughes: Turning to a more musical subject, will my right hon. Friend find time for my Motion No. 395, the object of which is to frustrate the unethical attempts of the B.B.C. to stop the exposition and study of music in Scotland?
[That this House deplores the British Broadcasting Corporation's announcement that it can no longer remain financially responsible for the British Broadcasting Corporation Scottish Symphony Orchestra and hopes that the orchestra will not be disbanded notes that the Corporation are to consider a proposal from the Scottish Arts Council who are to be congratulated on their initiative in this matter; and calls urgently on both the British Broadcasting Corporation and the Government to give all necessary support and to take all necessary steps to save this distinguished orchestra and to maintain the study and exposition of its splendid work without which Scottish aesthetics and in particular music in Scotland would be significantly impoverished.]
Mr. Peart: I have noted the terms of my hon. and learned Friend's Motion. He will have an opportunity to raise the matter on Tuesday, if he catches Mr. Speaker's eye.
Mr. Arthur Davidson: Will my right hon. Friend accept that the closure of any national newspaper is a great blow not only to hon. Members on this side of the House, but to everyone who believes in a free and diverse Press? Will he not reconsider his decision and let us have a debate on this vitally important topic?
Mr. Peart: I cannot add to what I have said. I know that my hon. Friend feels strongly about it, but I cannot alter the business for next week.
Mr. Orme: May I suggest to my right hon. Friend that when he talks about the urgency of next week's business, he could consult with the Opposition about their

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Supply day for Monday? They want to discuss communications in relation to the B.B.C. on Tuesday. Could not they be asked to change their Supply day on civil science for a debate on the newspaper industry, and could not the Government make a contribution by dropping the Regulations concerned with teeth and spectacles?
Mr. Peart: If my hon. Friend thinks that his priorities are right, he has expressed them very well. However, it is a matter for the Opposition to choose. Civil science is an important subject.
Mr. Winnick: Is my right hon. Friend aware that there is still concern at the fact that no agreement has been reached to get food supplies into Biafra? If we are going into recess next week can my right hon. Friend make sure that the necessary statement is made by the Foreign Secretary on what is perhaps the most important issue at the moment—the prevention of mass starvation?
Mr. Peart: This is an important matter. My right hon. Friend is busily engaged on it and if necessary the House will be informed.
Mr. Arthur Lewis: Has my right hon. Friend's attention been drawn to an Oral Question put to the Prime Minister last Thursday when, at 3.30 p.m., he said that he had no statement to make about the Plowden Committee and yet, 20 hours later, a Written Answer was given? Would my right hon. Friend ask whether the Prime Minister will tell the House why he—inadvertently, of course—gave a false Answer to a Question?
Mr. Peart: I do not accept my hon. Friend's assumptions. Apart from that, the Prime Minister is a busy man. I do not think that he would make a statement on that matter.
Mr. Howie: Even if the Government cannot find time for a full-scale debate on the Press next week can they find time at least to say something about it?
Mr. Peart: That is another matter. I shall convey my hon. Friend's request to my right hon. Friend. There is no time next week—I think that my hon. Friend understands this—but if he wants a state-
896
ment I will convey his request to my right hon. Friend.
Mr. Richard: Again on the question of the Press, if there is to be a debate on the Consolidated Fund Bill on the future of the newspaper industry and the Sun can my right hon. Friend undertake that the reply made by the Front Bench spokesman for the Government will be a definitive statement of the Government's attitude towards the industry? Is he aware that many hon. Members on this side of the House and elsewhere are genuinely concerned about the matter?
Mr. Peart: My hon. Friend must await my representations. I am aware of the opinions on this matter. I am not unsympathetic but as Leader of the House I must think in terms of priorities in fixing business.

CONSOLIDATED FUND BILL DEBATES
Mr. Speaker: It may help hon. Members if I remind them that for the debate on Wednesday next, on the Second Reading of the Consolidated Fund Bill, they may hand in to my office their names and the topics that they wish to raise by ten o'clock on Tuesday morning.
The Ballot will be as last time, for name plus topic, and an hon. Member may hand in only his own name and his own topic. I shall put out the result of the Ballot later on Tuesday, 22nd July.

CONSOLIDATED FUND BILL DEBATES
  BILL PRESENTED
    MERCHANT SHIPPING
    Bill to make fresh provision in place of certain enactments relating to merchant ships and seamen and to repeal some of those enactments without replacement; and for purposes connected therewith, presented by Mr. Anthony Crosland; supported by the Prime Minister, Mr. Michael Stewart, Mrs. Barbara Castle, Mr. William Ross, Mr. Cledwyn Hughes, Mr. George Thomas, Mr. William Rodgers, and the Attorney-General; read the First time; to be read a Second time tomorrow and to be printed. [Bill 203.]
ORDERS OF THE DAY

  FINANCE BILL
  As amended (in the Committee and in the Standing Committee), further considered.
  4.3 p.m.
  Mr. Speaker: I have posted my provisional selection of Amendments for the third day of the Consideration of the Bill. There have been some additional Amendments within a group already selected. These are the following Amendments: No. 121, in Clause 27, page 32, line 20, leave out subsection (2) and insert—
  (2) If, by virtue or in consequence of provisions contained in any legislation forming part of the law of a territory outside the United Kingdom or of any action taken under such provisions, the nature or content of the legal relationship between the relevant person or any other person and an individual ordinarily resident in the United Kingdom is different from what it would have been if the relationship had been governed by the corresponding United Kingdom law, then in determining whether, under subsection (1) of that section, any income of the relevant person is deemed for the purposes of the Income Tax Acts to be the income of such an individual, the said provisions and the effect thereof may be disregarded and it may be assumed that the nature and content of the legal relationship in question is in every or any particular respect governed by the corresponding United Kingdom law.
  In this subsection—

  (a) 'relevant person' means a person resident or domiciled out of the United Kingdom to whom income has become payable as mentioned in the preamble to that section, and

  (b) 'corresponding United Kingdom law ' means such part of the law of England, Scotland or Northern Ireland (whichever may be most appropriate to the individual concerned in any particular matter) as would, on a true and fair view of the legal relationship in question, be applicable to the nearest equivalent relationship recognised by and subsisting under the law of England, Scotland or Northern Ireland, as the case may be.

  No. 123, in line:34, at end insert:
  (4) At the end of that section insert the following subsection—
  ' (9) This section shall not apply more than once to any one amount forming part of the income of a person resident or domiciled out of the United Kingdom '.
  No. 124, in line 42, leave out from ' in ' to ' except ' in page 33, line 3, and insert:
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  'that section, the individual shall be chargeable to income tax by virtue of that section for the year of assessment in which the benefit is received on such part of the amount or value of the benefit as is justly referable to the income of the person resident or domiciled out of the United Kingdom (but subject always to subsection (1) of this section)'.
  and No. 125, in page 33, line 5, after ' he ', insert ' or any other person ', in the name of the hon. and learned Member for Northwich (Sir J. Foster), who asked me whether I would group these with Amendment No. 126. I have done this.
  I have also decided to accept the request of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) to call Government Amendment No. 201 separately. The Government were grouping, if I remember rightly, with a number of other Amendments. Government Amendment No. 201 will be taken separately. I have also selected one new starred Amendment, No. 318, in Schedule 17, page 134, line 20, leave out ' indefensibly "and insert' indefeasibly '. In the name of the same hon. Member which interested me greatly. That is one the list of selections for today.

  FINANCE BILL
    Schedule 13

      DISALLOWANCE OF INTEREST
      Mr. Speaker: We now come to Amendment No. 301. I again remind the House that despite all the efforts that we have made during the small hours of the morning we still have a mass of work to do and that brief speeches and debates will be not unacceptable to the whole House.
      The Minister of State, Treasury (Mr. Dick Taverne): I beg to move Amendment No. 301, in page 106, line 6, leave out paragraph 1 and insert:
      Overdrafts
      1.—(1) This paragraph has effect for the purposes of the sections of this Act giving relief in respect of interest, and paragraph 8 of this Schedule.
      (2) If a person draws money from a bank account or other running account, and applies it, or any part of it, so as to fulfil the conditions in any of the said sections or the said paragraph 8, he shall be regarded as obtaining a loan of that money up to the amount of the highest debit balance in the account in the six months beginning with the date on which the money is drawn:
      Provided that if that date fell before 6th April 1968 it shall be assumed that the said

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      highest debit balance was not less than the amount of money drawn from the account.
      (3) If the account has been in credit throughout a year of assessment (excluding any year before the year 1968–69) any loan so obtained before the year in which the account has been in credit shall be treated as having been repaid at the beginning of that year.
      (4) The whole of the interest on debit balances in the account in any year of assessment shall be available for attribution to any outstanding loans so obtained:
      Provided that the amount of interest attributable to a loan, or to the aggregate of any loans, made before the beginning of the year 1968–69 shall not exceed the amount of interest on debit balances in the account in the year 1968–69 with which the said person has been charged.
      (5) A loan so obtained shall be regarded as carrying interest in any year of assessment at the rate chargeable on the account on the last day of that year on which the account was in debit, but only so far as interest is available for attribution under sub-paragraph (4) above and, where part only of a loan is eligible for relief under the provisions mentioned in subparagraph (1) above, that interest is to be attributed rateably to the eligible and ineligible parts of the loan.
      (6) Where the amount of interest paid on a loan for part only of a year of assessment is to be ascertained, this paragraph shall be applied to ascertain the amount of interest paid for the whole of the year, and that amount shall be apportioned between that part of the year and the remainder according to their respective lengths.
      This Amendment, in the first place, removes the commencement provisions in paragraph 1 of Schedule 13 which are now contained in new Clause 29 and mainly deal with the question of tax relief on overdraft facilities where needed to meet qualifying expenditure. This is a difficult problem. The previous Amendment did not deal with it and was severely criticised by the hon. Member for Worthing (Mr. Higgins) and the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin).
      Their criticisms seemed to have considerable force. Previously, if an overdraft did not exceed a certain sum in a month that was taken as the amount of the account, but it was said that there could be a fortuitous payment through the account at a certain time which would mean that this provision would work unfairly in certain cases.
      The Amendment meets this difficulty and has been brought forward after further discussions with the Committee of London Clearing Banks on the proposed following rules. First, where a person
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      draws on a bank account or other running account to meet qualifying expenditure, he is to be treated as obtaining a loan equal to the money drawn or the highest figure of the overdraft in the six months after the money is drawn, whichever is the less. The money is drawn when it is debited to the account—that is, not when the cheque is made out but when the recipient cashes it. That is the date when the bank parts with the money and also the date which is recorded in its books.
      It may, for the reasons I have given, be onerous to take the state of the account at the date when the money is drawn, when the account may be in credit owing to money paid in on a temporary basis. Instead of that, the figure taken is to be the highest figure of any overdraft in the following six months or the amount of the cheque, whichever is the less. Where the proceeds of the cheque have been only partly used for qualifying purposes the interest will be apportioned rateably between the qualifying and non-qualifying parts of the loan.
      Secondly, relief is to be given for any year of assessment, first, for interest on the amount of the notional qualifying loan at the rate of interest charged at the last day of the year for which the account was overdrawn or, alternatively and secondly, the actual overdraft interest paid in the year, again whichever is less.
      Thirdly, if the account has been in credit for a whole tax year the loan is to be treated as having been repaid at the beginning of that year.
      These rules have to be modified for money drawn in the past, because there may no longer be records showing the state of the account in the six months following the time when the money was drawn and they may not show when the account was subsequently in credit for a whole tax year. Therefore, in the case of money drawn before the year 1968–69 relief is limited to the interest charged on the overdraft in the year 1968–69, which will already be recorded in the tax payer's claim to relief for overdraft interest for that year. If no overdraft interest was charged for 1968–69 the loan will be treated as having been repaid and no relief will be due.
      Where some overdraft interest was charged for 1968–69 relief will be given,

      901
      subject to the 1968–69 ceiling, by reference to the amount drawn—or the amount of the qualifying expenditure, if less—without regard to the state of the account in the period before 1968–69.
      I hope that these provisions will deal with the points previously made and will work fairly.
      Mr. Terence L. Higgins: The Minister of State is too modest. It was the case that when a somewhat similar but more widely ranging Amendment came up in Committee the Government found themselves defeated as a result of the Chairman's casting vote. On that occasion there were three essential points put forward by the Government in an Amendment designed to tighten the provisions of Clause 18, 19 and Schedule 13 even more. The three main aims on that occasion were, first of all, to stop artificial transactions for loans on houses, such as transactions of the kind where the man might sell the house to his wife and then buy it back again, thereby increasing the total amount of his mortgage and obtaining loan interest upon it.
      That part of the Government's Amendment came up again last night on Amendment No. 218 and we raised no objection on that occasion. Although we disagreed with the fundamental principle of the whole proposal the Government are putting forward for the change of the law about the interest, we could see that this was a clear kind of contrivance which would operate against what they proposed.
      The second main issue in the Government's ill-fated Amendment which was defeated in Committee concerned the device whereby the Government apparently tried to decide, through the Inland Revenue, whether people who changed houses with someone else in the same road were or were not motivated by the idea of getting a greater loan and, therefore, greater tax relief. The Minister is too modest. As I understand, this point has been dropped.
      Mr. Taverne: This was dealt with last night. It was a modified version of the previous Amendment, but the point was dealt with.
      Mr. Higgins: The point which is now in this very reduced Amendment represents some changes in the Government's
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      position and a move towards a sane attitude, within the limits of their own provisions. The original provisions were clearly unfair. They meant that the amount of interest allowed would turn almost entirely upon the purely arbitrary fluctuations in a particular overdraft. This was nonsense. It is extraordinary that any Government should have come forward with an Amendment to their own Bill which, quite clearly, was badly thought-out. None the less, we accept the repentance of the Government and the Minister of State and accept that the object of the Amendment is to meet the points made in Committee. This at least is some improvement in the Bill. It is still objectionable in many respects, but it is a move in the right direction.
      It still leaves completely unanswered the basic absurdity of these provisions about house purchase which is that if someone sells his house and then buys it back he is completely caught, even now, by the provisions of the Bill. On the other hand, suppose he sells his house and buys a different one for perhaps a higher figure. Whereas the mortgage on his old house was almost paid off and perhaps stood at 20 per cent., the mortgage on the new house s 100 per cent. In this case, he gets complete relief on the interest on that loan. The Government are in this strange position, which I described as ludicrous in Committee, where they have these elaborate Clauses designed to catch what are called artificial transactions, while anyone who engages in what the Government feel is a genuine transaction gets total relief.
      The Amendment does nothing to meet that fundamental point, and it is one on which we disagree with the Government in their proposals about the disallowance of interest. It would be churlish for us to press for even more, in the spirit of Oliver Twist, because the Government have cleared up the more obvious absurdities within the very narrow range of this point.
      4.15 p.m.
      Mr. Michael Shaw: I want to comment on the uncertainty that has resulted in the original Schedule and change that has now taken place. During the last few months people have been very worried about their position. It has not been,

      903
      until now that we have been able to give any clear indication to them.
      Inquiries have gone on with banks and accountants, there has been a reviewing of bank accounts, trying to break them down, and so on, and it has all been unnecessary.
      Now that the consultation has taken place the matter has been cleared up, and although we do not like the principle, these uncertainties are resolved and the matter has been put into a very sensible pattern for which we are grateful. However, we must evolve a system whereby the commonsense Schedule that has now been produced could have been brought forward earlier, saving all this uncertainty.
      Mr. John Smith: This Amendment illustrates very well the extraordinary complexities with which the whole community will be entangled simply for the sake of allowing the Government to pursue a few imaginary malefactors. I ask the House to compare the previous system with the proposed rigmarole. Until now the bank simply typed out, half yearly, on a small form, the amount of overdraft interest charged to its client who sent it to the revenue. It was entered on his tax return and that was the end of the matter. Now we are substituting for this system an extremely complicated procedure involving all sorts of apportionments and rateable attributions.
      Secondly, I cannot understand why, when calculating the allowable interest it is necessary to allow either the interest actually incurred or an amount based—since lending rates are based on the Bank Rate—on the Bank Rate at the end of the year. In the frequent case where Bank Rate is lower at the end of the year than the average of Bank Rate throughout the year, this will result in a needless deprivation of allowance to the taxpayer.
      Mr. Taverne: The reason we had to take the rates at the end of the year is to some extent arbitrary, but it is the only rate that we can fix.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 221, in page 107, line 13, leave out paragraphs 3 and 4.
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      This Amendment is consequential on new Clause 28, since part of paragraph 3 referring to overdrafts is now to be found in the Clause.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 222, in page 108, line 6, leave out ' and (12)'.
      This, again, omits a reference which is being replaced by one in new Clause 29.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 231, in line 26, at end insert:
      Allowance of interest as a business expense
      6.—(1) Section 137(f) of the Income Tax Act 1952 (disallowance of deductions in respect of capital employed) shall not be treated as disallowing the deduction of any interest.
      (2) After paragraph (1) of the said section 137 insert—
      (ll) any annual or other interest paid to a person not resident in the United Kingdom if and so far as it is interest at more than a reasonable commercial rate '.
      (3) This paragraph shall apply for income tax purposes for the year 1968–69 and subsequent years of assessment, and for corporation tax purposes to accounting periods ending on or after 6th April 1968.
      Mr. Speaker: I would suggest that with this Amendment we can take Amendments No. 33 in page 20, line 17, at end insert—
      ' and interest paid wholly and exclusively for the purposes of a trade, profession or vocation shall be deducted in computing the amount of the profits to be charged under Case I or Case II of Schedule D'.
      and No. 35, in page 21, line 15, at end insert:
      (7) Section 137(f) of the Income Tax Act 1952 (disallowance as business expenses of capital) shall be taken not to extend to reasonable interest paid for the use of capital.
      Mr. Taverne: In Committee, fears were expressed that as a result of the European Investment Trust case, despite the actual practice of the Inland Revenue, Section 137(f) of the 1952 Act could lead to the disallowance of the deduction of interest on capital employed in the business. My right hon. Friend the Chief Secretary said that he would consider whether he could allay these fears by making explicit statutory provision and that is what this Amendment does. It covers very much the same points

      905
      covered in Amendments 33 and 35. Subparagraph (1) provides that Section 137(f) is not to be treated as disallowing the deduction of any interest as a business expense. Sub-paragraph (2) provides for the disallowance of any interest, whether annual or short, paid to a non-resident at more than a reasonable commercial rate. The disallowance will apply only to the excess. Sub-paragraph (2) substitutes a consistent rule for the decision which gave rise to the fears that the European Investment Trust decision applied only to interest which could be brought within Section 137(f).
      Sir John Foster: I think that we can justly claim that as a valuable contribution by the Opposition, because the position before it was brought to the attention of the politicians in charge was that Section 137(f) had been interpreted so that one could not deduct interest even on working capital. The result was that if I.C.I. built a factory and borrowed the money to build it it was not allowed to deduct interest as a business expense.
      There are many cases in the Income Tax Acts where one gets these ridiculous results, and the Inland Revenue is forced to deal with them by extrastatutory concessions or by hole-in-the-corner methods. Under the hole-in-the-corner method, if it is allowed, the person concerned is regarded as a naughty boy. This is very unsatisfactory, because sometimes the person is not a naughty boy in the estimation of anybody else. If it is hole-in-the-corner, it is said that one cannot deduct interest on working capital.
      I wish that a Government would end extrastatutory concessions. They are a disgrace to all Governments, and to any rational system of income tax. Here, at least, we have cleared up one anomaly.
      Amendment agreed to.
      Further Amendments made: No. 223, in page 109, line 23, leave out ' paragraph 3 above ' and insert:
      section ("loans made on or before 15th April 1969") of this Act'.
      No. 232, in page 110, line 2, leave out time when' and insert:
      ' end of the year of assessment in which '.—[Mr. Taverne.]
      Mr. Taverne: I beg to move Amend-merit No. 230, in page 112, line 32, at end insert:
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      (4) If under the transaction a person assigns, surrenders or otherwise agrees to waive or forgo income arising from any property (without a sale or transfer of the property) then, without prejudice to the liability of any other person, he shall be chargcatble to tax under Case VI of Schedule D on a sum equal to the amount of income assigned surrendered, waived or foregone.
      (5) If credit is given for the purchase price of any property, and the rights attaching to the property are such that, during the substances of the debt, the purchaser's rights to income from the property are suspended or restricted, he shall be treated for the purposes of subparagraph (4) above as if he had surrendered a right to income of an amount equivalent to the income which he has in effect forgone by obtaining the credit.
      (6) The amount of any income payable subject to deduction of income tax at the standard rate shall be taken for the purposes of subparagraph (4) above as the amount before deduction of that tax.
      Paragraph 13, which is extended by this Amendment, deals with artificial arrangements for dressing up payments of interest in another form. The Schedule as it stands applies to loans free of interest when the debtor agrees to make annual payments instead, and, second, to loans free of interest, but where the debtor transfers an income-producing asset.
      The Amendment deals with two similar devices, both of which have been used in cases which have recently come to the notice of the Inland Revenue. In the first case, a company puts trustees in funds to advance money to its employees to buy shares in the company, and it is then made a condition of the advance that until the employee has repaid the advance he is not to be entitled to the dividends, but must pass them on to the trustees.
      The other device is similar, except that instead of selling his right to the dividends on his shares the employee waives his right to the dividends so that the company keeps the money instead of paying it out as dividend. The Amendment is in line with the existing provisions of paragraph 13, and it tightens the position insofar as those two devices have come to light.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 224, in page 113, line 6, at end insert:
      (3) This paragraph shall not impose any obligation on a bank carrying on a bona fide business in the United Kingdom in respect of any interest paid by the bank in the ordinary course of that business.

      907
      This is an Amendment to paragraph 14 which empowers inspectors of taxes to require persons who pay interest without deduction of tax to report the names and addresses of the payers and the amount paid to them. The Amendment exempts banks from the duty of making reports under this provision in respect of interest on their deposit accounts, and so on, because Section 29 of the 1952 Income Tax Act already makes such provision.
      Sir J. Foster: My recollection is that there is a provision in Section 29 which says that if a person serves notice on a bank that he is a foreign depositor the bank is obligated not to disclose his name. I imagine that that proviso is not touched by the Amendment.
      Mr. Taverne: I cannot tell the hon. and learned Gentleman whether that provision is there. Perhaps he can confirm that in a moment. All that the Amendment does is to remove from banks an obligation which would otherwise be there. It leaves banks in the position in which they were previously under Section 29. The position of the banks is not changed.
      Sir J. Foster: With the leave of the House—
      Mr. Speaker: Order. It is not usual to have the leave of the House in these circumstances. I think, however, that the hon. and learned Gentleman might intervene before the Minister sits down.
      Sir J. Foster: Thank you, Mr. Speaker. If Section 29 stands, then the proviso is in subsection (5).
      Amendment agreed to.
      Further Amendment made: No. 225, in page 113, line 10, leave out ' section 19 of this Act' and insert:
      'the sections of this Act giving relief in respect of interest'.—[Mr. Taverne.]
      Mr. Taverne: I beg to move Amendment No. 308, in page 113, line 18, at end insert:
      (2) If the claim relates to interest on an overdraft the statement shall show (instead of the particulars in paragraphs (a) to (d) above)—

      (a) the date when the money was drawn out of the account and, unless that date fell before 6th April 1968, the highest
      908
      debit balance in the account in the six months beginning with that date,

      (b) the rate of interest chargeable on the account for the last day of the year of assessment to which the claim relates on which the account was in debit,

      (c) the amount of interest on debit balances in the account in the year of assessment, and

      (d) the name and address of the claimant.

      Perhaps it might be convenient to refer, at the same time, to Amendment No. 374, in line 21, which is part of the same Amendment. These are consequential Amendments, providing for the form of certificate which a person claiming relief for overdraft interest must get from the payer and furnish in support of his claim.
      Mr. Higgins: I think that the Minister is wrong in saying that these Amendments are consequential. As I understand, this somewhat changes the obligation which at present falls on banks for the issuing of certificates of this kind. I think it true to say that there has been some concern among bank managers about what their obligations will be following the passing of Clauses 18, 19, and this Schedule.
      Can the hon. and learned Gentleman confirm that it will not be necessary, under the new form, which I gather will replace the present form R.62, for ordinary bank managers to certify whether or not the interest which is covered by the certificate is allowable, nor will it be necessary to state the purpose for which the loan is to be used?
      Second, can the Minister clear up what is meant by the statement with regard to the rate of interest? Does this mean that the true rate of interest must be stated? There are a number of different ways of computing interest, particularly on bank overdrafts in the form of loans, and so on, which may differ from the true rate of interest if that term is used in more general terms.
      In that connection, what is the position if the rate of interest is somewhat offset by differences in charges, and so on? There is considerable concern about this in the banking community. Have they been consulted on this matter?
      Mr. Taverne: I understand that they have been consulted on the second matter, and it was after discussions with the Committee of the London Clearing Banks that this decision about charging the rate

      909
      of interest charged on the account for the last day of the year of assessment was fixed. It would be the rate of interest which the bank was charging on that day.
      I can give the hon. Gentleman the assurance for which he asked in the first part of his comments. A bank, or any other creditor, will not be concerned with whether the interest ranks for tax relief, because that will depend on facts which are not within its knowledge. I said that these were consequential Amendments because they are consequential on the new form of paragraph 1.
      Mr. Higgins: Can the Minister confirm that it is the true rate of interest which is stated, rather than any other basis, for example, that used by gas boards in advertising what the rate of interest is?
      Mr. Taverne: I think that that is right, but I shall make sure, and if it is not I shall inform the hon. Gentleman. I understand that it is the true rate of interest.
      Mr. Speaker: It would be better if the debates on Report were more formal, and the winder-up wound up at the end.
      Mr. David Howell: Can the Minister say whether in his discussions with the London clearing banks any estimate was asked for, or offered, about additional administrative costs, if any, on the bank under the system arising from these Amendments?
      4.30 p.m.
      Mr. Kenneth Baker: The Amendment was introduced rather diffidently by the Minister, but it makes a substantial change in the practice of the banks. The bank statement one sends at present to the Inland Revenue is a simple piece of paper stating the amount of interest paid. The new banker's certificate, on the other hand, will be a more elaborate document, and, in particular, under paragraph (2)(a) of Amendment No. 308, it will have to state
      '' the highest debit balance in the account in the six months beginning with that date."
      I regard that as highly objectionable. For the first time, an inspector of taxes will know the highest overdraft which someone has had during the six months prior to the claim. This is a new departure. I believe it to be the first time that a tax inspector will automatically,
      910
      under our tax laws, know the level of one's personal overdraft.
      Mr. Taverne: The question of administrative costs was not discussed, and I cannot give the hon. Member for Guildford (Mr. David Howell) the figure. Amendment No. 308 follows exactly the earlier Amendment to paragraph 1 of Schedule 13, which has already been approved by the House. It follows automatically that, if that is to be the basis on which interest relief is to be given, this information must be provided. Otherwise, it would be unworkable. I take it that, in approving the first, the House automatically approves the second.
      I cannot say offhand what information was or was not provided in the past, but it does not seem to me that there is a great difference in the information required. It is true that the new certificate will be more elaborate, but there is no difference in principle between the information previously required in connection with interest on a fixed debt or interest payable on overdrafts and information about what the highest point of the overdraft was in the course of the six months.
      Mr. John Smith: There is a major difference. The information which banks have to supply at present can all be prepared by a bank's computers. As there are so many certificates of this sort, that is an important point. On the other hand, extracting the highest debit balance on the account cannot be done by computer. A highly-paid individual has to go through each account and retain in his head the highest balance while he goes through every single entry in the year. It is a very tedious process.
      Amendment agreed to.
      Further Amendments made: No. 274, in page 113, line 21, leave out ' subparagraph (1) above ' and insert:
      ' the preceding provisions of this paragraph '.
      No. 226, in page 114, leave out lines 30 to 32 and insert:

      (a) to interest on any debt incurred after 15th April 1969, and

      (b) to interest paid after 5th April 1975 on a debt incurred on or before 15th April 1969.—[Mr. Taverne.]

      Mr. Taverne: I beg to move Amendment No. 227, in page 114, line 39, leave out paragraph 21.
      This, also, is a consequential Amendment.
      Mr. Higgins: Consequential on what?
      Mr. Taverne: I shall be glad to explain in each case if the hon. Gentleman wishes.
      The Amendment removes paragraph 21 of the Schedule because that paragraph has been transferred to subsection (5) of new Clause No. 29.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 228, in page 115, line 4, leave out payable ' and insert—
      ' paid without deduction of tax '.
      This is a drafting Amendment to the definition of "bank, discount house or stock exchange" interest in paragraph 22 of the Schedule. That definition relates to interest paid to a bank and short interest paid to a discount house or stockbroker which has hitherto qualified for relief under Section 200 of the 1952 Act. In the case of annual interest paid to a bank, relief can be claimed under Section 200 provided that the payer has made the payment in full without exercising his right to deduct tax at source.
      The Amendment makes clear that the definition applies only where the interest is paid in full so that it is the kind to which Section 200 has so far been applied.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 313, in page 115, line 15, at end insert—
      'but so that a company shall not be regarded as the subsidiary of another company unless both are bodies corporate '.
      This Amendment is designed to facilitate consolidation. It deals with the question of subsidiaries because there might be technical difficulties in consolidation if in new Clause No. 33 and one or two other places in the Bill the reference in the interest provisions to one company being a subsidiary of another were not expressly confined to bodies corporate.
      Mr. A. P. Costain: This seems to be extraordinary. How could there be a company which was not a body corporate? What has the Minister in mind to catch under this conglomeration of words?
      Mr. Taverne: It might otherwise refer to an unincorporated association.
      Amendment agreed to.
      Further Amendment made: No. 229, in page 116, line 13, leave out from under ' to as ' in line 14, and insert—
      ' the sections of this Act giving relief in respect of interest (except section "loans to pay estate duty"))'.—[Mr Taverne.]

    Schedule 15

      DISALLOWANCE OF TRADING LOSSES
      The Chief Secretary to the Treasury (Mr. John Diamond): I beg to move Amendment No. 144, in page 126, line 40, after decide ', insert—
      `for the purposes of paragraph 1(b) or (c) above '.
      Mr. Deputy Speaker (Mr. Sydney Irving): We may take, at the same time, the following further Amendments: No. 289, in Clause 24, page 27, line 32, at end insert:
      Provided that this section shall not apply to transactions within a group of companies which are under the common control of any one of those companies.
      No. 280, in Schedule 15, page 126, line 46, at end insert:
      (d) any acquisition of a holding by a company from another company at time when both are members of a group of companies within the meaning of Paragraph I sub-paragraph (b) of Schedule 13 to the Finance Act 1965 shall be left out of account.
      No. 281, in page 127, line 1, leave out '(d)' and insert '(e)'.
      No. 282, in page 127, line 4, leave out '(e)' and insert '(f)'.
      No. 148, in page 127, line 24, at end insert:
      Groups of companies
      5.—(1) A change in the ownership of a company shall be disregarded for the purposes of the principal section if—

      (a) immediately before the change the company is the 75 per cent. subsidiary of another company, and

      (b) (although there is a change in the direct ownership of the company) that other company continues after the change to own the first-mentioned company as a 75 per cent. subsidiary.

      (2) If there is a change in the ownership of a company which has a 75 per cent. subsidiary (whether owned directly or indirectly) then, unless under sub-paragraph (1) above that change in ownership is to be disregarded, the principal section shall apply as if there had also been a change in the ownership of that 75 per cent. subsidiary.
      Mr. Diamond:I hope that it may be convenient to take, at the same time, the three other Government Amendments, Nos. 145, 146 and 147.
      Mr. Deputy Speaker: Yes, if that is agreeable to the House.
      Mr. Diamond: The Government Amendments are consequential, but they are consequential upon a promise which I gave in Committee to have regard to the point made in an Amendment then moved by the Opposition relating to the loss-buying provisions and, in particular, relating to the effect of the loss-buying provisions on inter-group share transactions.
      I made it clear that the Amendment then being discussed was not acceptable as it stood. Having looked into it, we are introducing these Amendments, of which No. 148 specifically meets the point which was discussed in Committee by requiring that changes in ownership of a company within a group shall be disregarded if after the change the group relationship subsists.
      The Clause, therefore, remains fully applicable to loss-bearing companies entering and leaving the group. The test of group relationship—perhaps I should say this having regard to other Amendments—is the 75 per cent. test already provided for the purposes of the Schedule in paragraph 5.
      The previous four Government Amendments are put down because there was a risk that paragraph 2(c) as it stands could be invoked not only to aggregate the holdings of the loss-buyer and those connected with him—that was the sole purpose of the sub-paragraph—but also to make the shareholding test inapplicable where the loss-buyer and loss-seller are connected persons.
      If, for example, the loss-buyer and the loss-seller enter into a partnership they become connected persons. Perhaps that is a little far-fetched, but, supposing that they were minded to do so, and they became partners and accordingly connected persons, by virtue of paragraph 2(c) of Schedule 15 they should be treated as though they were one and the same person. The effect of that would be that no acquisition of shares had taken place, so that, even if the buyer did acquire 100 per cent. of the shares of the loss-bearing
      914
      company, there is for the purposes of the Clause no change of ownership.
      The first two Amendments are designed to remove entirely the possibility of such a damaging construction in subparagraph 2(c).
      Amendment agreed to.
      Further Amendments made: No. 145, in page 126, line 40, after ' of ', insert at least '.
      No. 146, in line 41, after ' makes ', insert at least '.
      No. 147, in line 45, leave out from ' aggregated ' to end of line 3 on page 127 and insert
      'as if they were acquisitions by, and holdings of, one and the same person'.
      No. 148, in page 127, line 24, at end insert:
      Groups of companies
      5.—(1) A change in the ownership of a company shall be disregarded for the purposes of the principal section if—

      (a) immediately before the change the company is the 75 per cent. subsidiary of another company, and

      (b) (although there is a change in the direct ownership of the company) that other company continues after the change to own the first-mentioned company as a 75 per cent, subsidiary.

      (2) If there is a change in the ownership of a company which has a 75 per cent. subsidiary (whether owned directly or indirectly) then, unless under sub-paragraph (1) above that change in ownership is to be disregarded, the principal section shall apply as if there had also been a change in the ownership of that 75 per cent. subsidiary.—[Mr. Diamond.]

    Clause 25

      SALE BY INDIVIDUAL OF INCOME DERIVED FROM HIS PERSONAL, ACTIVITIES
      Mr. Diamond: I beg to move Amendment No. 204, in page 28, line 39, at end insert:
      `and
      (c) the main object, or one of the main objects, of the transactions or arrangements was the avoidance or reduction of liability to income tax '.
      Mr. Deputy Speaker: It has been suggested by the Government, and I understand that it commends itself to the Opposition, that with this Amendment we also take Amendment No. 299, in page 28, line 39, at end insert:
      Provided that entering into a service agreement for a reasonable remuneration on an

      915
      arm's length basis and with a person who is not a ' connected person ' as defined by paragraph 21 of Schedule 8 to the Finance Act 1965 shall not constitute a transaction or arrangement for the purposes of this section.
      and Government Amendment No. 205.
      Mr. Diamond: The purpose of the Amendment is to exclude from the scope of Clause 25 any transactions where avoidance or reduction of liability to income tax is not a main object. Clause 25 deals with the sale by an individual of income derived from his personal activities.
      When we were considering this matter in Committee, the Clause led to a great deal of misunderstanding and I undertook to see whether words could be incorporated in the Clause to make the position clearer. The Amendments put down to this Clause will, I think, achieve that object. I hope that they will clarify the situation in a way which hon. Members in Committee understood that it would be clarified.
      The difficulty which arose was that the words in the Clause were interpreted in a way which was not intended. In Committee, I made it clear that the words were not intended to apply to bona fide transactions, such as the customary sale of a partnership interest or to a customary capital sum received from the admission of a new partner to work in a partnership.
      As a result of re-examining the drafting of the Clause, it was thought wise to introduce Amendment No. 204, which makes clear that avoidance or reduction of liability to income tax should be one of the main objects of the transaction if the Clause is to apply.
      Mr. John Nott: I think that it might save time if I interrupt the right hon. Gentleman. Is this the first time in our tax legislation that this type of Clause has been inserted, or is it common practice? Could the right hon. Gentleman enlarge on that?
      Mr. Diamond: It is not the first time. It is fairly common practice. I think that that is the better description of it. It is a mehod which is well known to practitioners in this field. I think that it helps considerably in removing the anxiety which many people had about the way to interpret the rest of the Clause.
      916
      This is what we are trying to do. We are not attempting to add or to detract anything from the Clause, but to make it clear that it should be read in the way that I am advised it always should have been read. But there had been some dispute about it.
      The Amendment, I hope, makes it inevitable that it will now be read in the way that I was instructed that it should be read. The Amendment, therefore, seeks to make certain that the Clause provides an ample general safeguard for bona fide transactions of all types.
      I think that that answers, in the main, Amendment No. 299, but I shall listen carefully to any points which are made on it.
      Amendment No. 205 ensures that a genuine going concern sale of a professional practice or a share in one or of a company or a stake in one is not caught by Clause 25.
      It could be argued that Amendment No. 204 is sufficient by itself. However, the anxiety that was expressed on this Clause was such and the misunderstanding so widespread that I took it as my responsibility to see that further words were introduced to remove the misunderstanding and make it absolutely clear to the layman, as well as to the skilled reader of novels of this kind, that the wording could only have one meaning.
      Amendment No. 205 has been put down as an additional exemption for these two reasons. First, to deal exclusively with the customary sales of professional practices or shares in them, because there were many representations both in Committee and outside that those transactions might have been caught by the Clause.
      Secondly, to give a more specific indication in the Clause of the distinction between the sale of personal earnings and the sale of a going concern. The sale of a going concern represents a different thing, and many more things, than the sale of personal earnings.
      I hope, therefore, that with those two additions to the Clause, these two aids to interpreting it, it will now be felt that the Clause does not cover more than I said in Committee that it was intended to cover.
      Sir J. Foster: Before the right hon. Gentleman sits down, may I ask him to

      917
      explain how the proviso in Amendment No. 205 works? He says that it is clear to the layman. As he is more skilled than the layman, will he explain how it works?
      Mr. Diamond: The proviso about receiving full consideration?
      Sir J. Foster: Yes.
      Mr. Diamond: Certainly. It will work in this way. Where a person is selling the goodwill of his practice, for example, and continuing to work in the practice, provided that he is receiving full consideration for the work that he carries on doing in the practice, it is clearly to be distinguished from the case where he sells his future earnings, continues to work, but does not receive full consideration for his future work by way of income.
      The remuneration for his future work is satisfied by the capital sum which was paid at the time that the contract was entered into. Therefore, the device, which we all understand, of turning income into capital and substituting the lower rate of capital gains tax for the higher rate of income tax and surtax would apply. That is why the words to which the hon. and learned Gentleman referred are used. If there is less than full consideration, the transaction could be caught.
      Let us forget the case of an actor and similar cases where there is an obvious and deliberate attempt to avoid the higher rate of surtax. Let us take the ordinary case of a professional man who wishes to turn his income into capital. He could enter into a partnership, sell the goodwill, and obviously take a much reduced salary for his future services. That could all be part of the transaction. That is a case where someone is deliberately trying to turn his future remuneration from the nature of income into something which is partly income, but mainly capital, the capital consideration taking place at the sale. Therefore, we must have these words to prevent that kind of transaction taking place.
      Sir. J. Foster: Again, the Opposition can take great credit for the result of their strenuous fighting in Committee against the position taken by the Government that the Clause did not catch the people that everybody thought it would. There were letters from the Financial Secretary to the public saying, "We do not take the view that ' exploiting ' means ex-
      918
      ploiting ' when it applies to a solicitor, an accountant, and so on". In the end, however, the mass of objections which were represented through the members of the Opposition in the Committee convinced the Chief Secretary that there might be substance in them. The right hon. Gentleman then promised to look carefully at everything that had been said, and the Amendments are the result of those considerations.
      Speaking for myself, it may seem churlish that I do not thank the Chief Secretary, because the Government should never have embarked on this course at all. All that they have done is that in cooking somebody's boiling oil, they have reduced the heat. It seems rather absurd that the impression gets out to the public that the Government have made a lot of concessions when all that they have done is to acknowledge a few mistakes and that they have gone too far.
      One can imagine in a similar vein that if Hitler, instead of torturing his prisoners, had shot them, there might have been headlines in the British papers to thank Hitler for shooting his prisoners and not torturing them as well.
      Mr. Diamond: It would have been an improvement.
      Sir J. Foster: The right: hon. Gentleman says that it would have been an improvement, but I do not interpret any of these things as a concession. It is a verbal argument, but it perhaps spoils the amenities between the two parties.
      I should like to make two comments. The Chief Secretary is quite right in saying that his Amendment takes care of Amendment No. 299 and, therefore, I shall not seek to support it. I wish, however, to use Amendment No. 205 to make a protest against the complexity of tax legislation, of which no Government are altogether innocent.
      The Chief Secretary said that Amendment No. 205 would introduce language from which even a layman reading this type of novel would see immediately that he had benefited. I ask the House to consider how this works. The proviso states:
      "if the value of the profession…is derived to a material extent from…receipts derived…from the individual's activities "—

      919
      so far it is not very difficult—
      "and for which, when all capital amounts are disregarded, the individual will not have received full consideration".
      That is very esoteric, because "full consideration" means, the Chief Secretary has said, full consideration in income. There is no hint of that. One cannot know that "capital amounts…disregarded" is again a term of art. A "capital amount" is defined in the Clause as an amount on which tax is not paid.
      We thus have the very involved algebraical equation that if a man gets A plus X, having had the A disregarded he is then taxed on A. This seems most absurd in legislation. The capital amounts are disregarded. They having been disregarded, naturally the consideration is that much short and, therefore, the capital amounts are then taxed, because the proviso to the Amendment then goes on to say that the subsection
      "shall not exempt the part of the capital amount so derived."
      The layman who reads that would be rather surprised to see that "consideration there means income consideration, because one must disregard capital. The capital having been disregarded, it is then taxed. It is a very odd result. I recognise that it works out all right for a lawyer; having looked up what "capital amount" means, it is not too difficult, although it is fairly difficult even then.
      I again enter a plea to have these matters drafted in much easier language. There is an argument for saying that it could be drafted in ordinary language. When Grace Kelly's father drafted his will, he said that he would not call his children issue of the first party but would call then kids, and he did throughout. It worked very well. He said that he would not leave his son anything because he had helped himself to all his shirts and ties. He made a very good will.
      Mr. Diamond: Did all this property go to his nanny-goats?
      Sir J. Foster: I ask that there should be a great drive by one Government or another to draft these matters as far as possible in ordinary language. Wherever they have a definition in an Act, it should be printed in heavy black letters and
      920
      where the definition is in a particular Section of the Act, it should be printed in italics. One can never understand these things from an Act. The Dogs Act, for example, states that the expression "cattle" shall include poultry. An ordinary man reading that Act cannot guess that "cattle" means poultry. It is no good our saying that even a layman can understand what these novels mean.
      We accept the Amendments as simply a late-minute repentance from a rather dogmatic assertion of what the law is.
      Mr. Nott: These Amendments clearly improve the position as it was originally drafted in the Bill. Whatever the situation may be at the present time, however, it is quite wrong to add to the Statute Book additional legislation which makes a person taxable on a particular transaction if tax avoidance was the object of the transaction.
      This is removing from Parliament the ultimate right to legislate on tax matters. It undoubtedly puts into the hands of the Inland Revenue powers to decide on people's individual transactions which it should not be given. It may well be that my own party, when in power, passed one or two pieces of tax legislation which gave undue discretion to the Inland Revenue. Nevertheless, that does not in any way condone a Government in putting further legislation of this sort on the Statute Book.
      How can the Inland Revenue judge in every case whether a person arranged his tax affairs to avoid tax or to pay as little tax as possible within the law? This puts upon the Inland Revenue a task which I do not think Parliament should give it. As mentioned in one of the Sunday newspapers last week, it attributes to the Inland Revenue a degree of moral sensibility which the Department neither has nor should be asked to assume.
      Clause 25 was probably the worst in the whole of the Bill. Whereas the Clause concerning overdraft interest was foolish and misguided, I think that Clause 25 was repugnant and still is. I do not want the Government's Amendments to go through without my saying that it is utterly wrong for the Government to introduce and pass through Parliament legislation which leaves it to the Inland Revenue to decide whether a person is liable to tax.
      Mr. Kenneth Baker: It is regrettable that the Chancellor of the Exchequer has not been responsible for piloting the Clause through the House. When he introduced the Budget and announced that he would tackle the Beatles and the Constellation-type investment, he got a great cheer from his back benches, but he had no conception of the complexity that was needed in our tax laws to try to catch the Beatles and that sort of arrangement.
      As we pointed out in Committee, and as the Chief Secretary has now recognised, the Clause was originally drafted so widely that it caught not only the Beatles, but virtually every small businessman who attempted to sell or float his company, as well as many professional partnerships.
      It is no good the Chief Secretary shaking his head, because the Amendment which he has just moved recognises the validity of what I have said.
      5.0 p.m.
      I, too, would like to comment upon the obnoxious way in which the remedy has been made. It is now up to each taxpayer who makes a transaction of this sort to show that lie is not doing it to avoid tax, and this, in the end, comes down to a straight conversation or argument between the taxpayer and the Inland Revenue. Who is to decide? It will be the officials of the Inland Revenue who will decide because the law on this point is not precise. So one has to give the Inland Revenue a degree of psychological insight and interpretation of motivation which no Government Department is capable of exercising and which no Government Department should have.
      I suspect that the way in which the Chief Secretary has amended the Clause will make it completely nugatory. Virtually any movie or pop star who undertakes such a transaction will be able to argue very persuasively under the Amendment that he is not doing it for tax avoidance. This is a fine example of trying to amend a bad Clause in a bad way. It is like trying to keep the damp out of a house by shutting the door and turning the key in the lock. It cannot be done.
      The Chief Secretary suggested in Committee that this was an important Clause because it might bring in about £4 or £5 million. He did not say how that would
      922
      be brought in, but I suggest now that the yield from the Clause will be very small indeed.
      This is a good example of how bad our tax legislation can be. A Clause is introduced to get a party cheer in the Budget speech; it is badly drafted, badly thought out, and it has to be substantially amended in such a way that it cannot be effective.
      Mr. David Howell: May I associate myself briefly but strongly with the points which have been made about the Clause and the Amendment. As my hon. and learned Friend the Member for Northwich (Sir J. Foster) has said, the Clause and the Amendment are of byzantine complexity. As my hon. Friend the Member for Acton (Mr. Kenneth Baker) said, it is a perfect example, almost a case study, of how not to legislate. It provides as strong an example as earlier new Clauses which we discussed of the almost desperate need for the Government, in attempting to bring forward great new slices and principles of legislation that were omitted in the original draft of the Clause, to do so in a rather more mature and adult way than they have done.
      I personally think—and this point has been made in other parts of the debate on Report—that innovations in tax legislation must he discussed through the medium of the Green Paper technique or, better still, through a Select Committee on tax reform, if we are to avoid the neurosis that understandably seizes the country when such Measures appear in the Finance Bill, with the threat that the Government will use their majority to ram them through, come what may.
      It is only in the last weeks before Report that we have seen that the Government have been trying to cook up something to get out of the muddle that they are in.
      I agree with my hon. Friend the Member for Acton that the net effect of the Amendment is that nobody will be caught. A huge new principle of taxation is brought forward, Amendments are brought in which erode the principle, which continues to be triumphantly asserted, but the Clause will have no effect.
      The only bizarre effect to come out of it is that tax inspectors will have to go

      923
      through the curiously medieval process of enquiring into men's souls and looking into the motives with which they set out to do certain transactions. That is an inquisitorial procedure in which, if I were an inspector of taxes, I would wish to have no part, and it is wrong for us to ask the Inland Revenue to participate this. I join my hon. Friends in deploring this method of legislation and the thoughts, motives and petty feelings which lay behind this attempt to get a cheap cheer.
      Sir Eric Errington: A difficult task has already been placed upon inspectors of taxes by existing legislation, but never before has an inspector of taxes had to decide a case where the onus is not upon the Government to prove that there should be taxation but upon the individual to prove that he is not avoiding taxation. This is a complete alteration of principle, and it has arisen only because it has been found necessary to alter the original Clause which was discussed in Committee.
      It is a serious thing to ask taxpayers to prove that they are not avoiding taxation. The use of the word "avoidance" is often an unhappy one, but what really matters is that no taxpayer should be put into the position of having to prove that he is not avoiding tax.
      Mr. Stanley R. McMaster: I was not a member of the Committee, but I should like to join my colleagues on this side of the House who have spoken on the Amendment. I fail to understand Amendment No. 204, and I hope that the Chief Secretary will elucidate it a little more clearly.
      The Amendment states that:
      "the main object, or one of the main objects, of the transactions or arrangements was the avoidance or reduction of liability to income tax."
      Surely every sensible man attempts to reduce his income tax. Is the Chief Secretary legislating to say that a man, in order to avoid falling under this provision, must show that he attempted to pay the maximum amount of tax? What kind of duty is that man showing towards his wife and family? Every man must reasonably be assumed to reduce his tax liability; there is nothing wrong in this. One is not of course entitled to evade
      924
      taxation; that is an entirely different proposition; but surely one is entitled so to arrange one's affairs that one pays the minimum amount of tax possible?
      It therefore seems to be complete nonsense to add this provision to the Clause. I am completely unsatisfied on this, and I hope that the Chief Secretary will explain it a little more clearly.
      Mr. Diamond: I have received a request to explain matters a little more clearly. May I call in aid the fact that when the hon. and learned Member for Northwich (Sir J. Foster) was responding more or less officially he did not take the point that has been taken by those who are not perhaps as fully familiar with the law as is the hon. and learned Gentleman?
      This is a well-tried form of words. It appeared first in Section 32 of the Finance Act, 1951, then in Section 412 of the Income Tax Act, 1952, and in Section 28 of the Finance Act, 1960. It is a form of words used to protect a taxpayer whose transactions might, if it were not for this form of words, look as though they were undertaken for tax avoidance.
      We place upon the Inland Revenue the responsibility of collecting tax in accordance with the will of Parliament. We must give to the Inland Revenue reasonable authority and opportunity to carry out the wishes of Parliament. This device is used for that purpose.
      If the hon. Member for Belfast, East (Mr. McMaster) will look at the Clause, he will see that it starts off by saying "This section has effect where …" and two matters then arise. We are now saying that there is also a third matter which arises, namely, where a transaction is not entered into with a view to avoiding tax. I hope that I have made the purpose clear.
      I cannot get people to accept what I am saying; I can only repeat what I understand to be the situation on the best authority available to the Inland Revenue and the Government. The Clause now means what it has always meant. It has not altered its effect or its compass at all. Words have been added to make the meaning clear. There can be no doubt that this has been successful.
      I was grateful for the speeches of the hon. Member for Acton (Mr. Kenneth

      925
      Baker) and the hon. Member for Guildford (Mr. David Howell). They are two completely independent, objective-minded Members of Parliament and have said that although the provision sought to catch everybody, the Clause now catches nobody. I wish to make clear to them that their original understanding was a complete misunderstanding, and I am glad that that is so.
      Mr. Kenneth Baker: Before the right hon. Gentleman leaves that point, as he says that we have totally misunderstood the point of this misconceived Clause and Amendment, would be hazard an estimate as to the yield of taxation from the Clause as amended and how he reached that estimate?
      Mr. Diamond: The compass of the Clause being unaltered, the estimate of saving is unaltered. It remains precisely the same as before. We expect to get the same revenue from the Clause as we expected to get before.
      The hon. Member for St. Ives (Mr. Nott) is anxious about the use of these words. I have already indicated that they are based on considerable authority and precedent. Perhaps he did not fully consider the reason that the Government thought fit to use these words and why Parliament thought fit to accept them after some years' experience of the operation of the formula. Anybody who is dissatisfied is not subject to excessive authority on the part of the Inland Revenue. A person who disagrees with the Inland Revenue has the same right under this Clause as under any other Clause to appeal to the court.
      Mr. Nott: Could the Chief Secretary comment on the previous avoidance provisions in the legislation? Did they involve any different onus of proof, or is the position precisely the same?
      Mr. Diamond: The position is the same. The purpose of this provision is not to protect the Inland Revenue but to protect the taxpayer. It is to make clear that where a transaction may be thought to be purely one of tax avoidance, there is a responsibility on the Revenue to be satisfied that the transaction is aimed at tax avoidance. With that explanation, I hope that the House will accept the Amendment.
      Sir E. Errington: Could the Chief Secretary say what extra work this will involve for the inspectorate of taxes, who are already overladen with work?
      Mr. Diamond: Every responsibility put upon the Inland Revenue to collect tax inevitably means an additional duty for them. The only test one can make in this case is whether it is a reasonably efficient way of collecting tax. We feel that it is an efficient way. If we do not bring in this provision, the situation could develop in which every professional man could turn his income into capital and escape tax. We have to take this action in respect of those who may avoid tax in that way. This action was promoted and suggested by right hon. Gentlemen opposite, by the Press, by a number of my hon. Friends, and I am sure that the House will feel it a sensible thing to do.
      Amendment agreed to.
      Further Amendment made: No. 205, in page 29, line 11, at end insert:
      (4) This section shall not apply to a capital amount obtained from the disposal—

      (a) of assets (including any goodwill) of a profession or vocation, or of a share in a partnership which is carrying on a profession or vocation, or

      (b) of shares in a company, so far as the value of what is disposed of, at the time of disposal, is attributable to the value of the profession or vocation as a going concern, or as the case may be to the value of the company's business as a going concern:

      Provided that if the value of the profession, vocation or business as a going concern is derived to a material extent from prospective income or receipts derived directly or indirectly from the individual's activities in the occupation, and for which, when all capital amounts are disregarded, the individual will not have received full consideration, whether as a partner in a partnership or as an employee or otherwise, this subsection shall not exempt the part of the capital amount so derived.
      In this subsection references to the company's business include references to the business of any other company in which it holds shares directly or indirectly.—[Mr. Taverne.]

    Clause 26

      ARTIFICIAL TRANSACTIONS IN LAND
      5.15 p.m.
      Mr. Taverne: I beg to move Amendment No. 206, in page 29, line 26, leave out 'a view to' and insert 'the sole or main object of'.

      927
      With this Amendment, it might be convenient to refer at the same time to Amendment No. 207, in line 29, leave out 'a view to' and insert 'the sole or main object of'.
      and Amendment No. 208, in page 31, line 16, at end insert:
      (9) This section shall not apply to a gain accruing to an individual which by virtue of section 29 of the Finance Act, 1965 (private residences) is exempt from capital gains tax, or which would be so exempt but for the provisions of paragraph 2 of Schedule 12 to the Finance Act, 1968 (residence acquired partly with a view to making a gain).
      These Amendments modify the test of liability under Clause 26 relating to artificial transactions in land. They arise out of some disquiet which was expressed in Committee by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). He pointed out that people who purchase houses in the expectation that they will increase rather than decrease in value may fear that they will be caught by the Clause.
      As I then indicated, we sought to delete the words "a view to' and to insert "the sole or main object of", and we thought that that met the point. In addition, by Amendment No. 208 we have tightened the Clause yet further to make it clear that dwelling houses in most cases escape. We have removed from the scope of Clause 26 a gain accruing on the disposal of an owner-occupied house.
      This has been done by adapting, with one alteration, the tests used for exempting such property from capital gains tax. The exemption, which goes wider than the capital gains tax exemption, does not incorporate the provisions of paragraph 2 of Schedule 12 to the Finance Act 1968, which specifically excludes from the capital gains tax exemption a dwelling house acquired wholly or partly for the purpose of realising a gain from its disposal.
      It might be said that the exemption goes very wide, but it is the intention, particularly in regard to the clearance procedure which we shall be coming to a little later, that so far as possible ordinary people should be exempted. It is comparatively rare that somebody buys a house wholly for the purpose of realising a gain. We want owner-occupiers not to have the fear that they may have to apply
      928
      for clearance procedure before they want to sell their house. I hope that the Amendments will be welcomed by the House.
      Mr. Michael Shaw: One sees in Amendment No. 206 the phrase "the sole or main object of" in regard to the realising of a gain. In the Amendments which have just been dealt with the wording is different and referred to the main object or one of the main objects. It is a curious phraseology and I wonder why it is different in the two instances. The wording of Amendment No. 207 is much more stringent than in the earlier Amendments which we have discussed.
      Mr. Costain: In the debate in Committee, my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) withdrew an Amendment because the Financial Secretary said that he would consider the matter. He said:
      "… in considering the genuine capital element of the transaction, the increase in the value of the land, this Clause does not apply."—[OFFICIAL REPORT, Standing Committee F, 24th June, 1969; c. 683.]
      Does the hon. and learned Gentleman contend that by these Amendments he has altered that part of the transaction or not? This is the case in which a genuine property company sells a property to obtain funds for redevelopment. There was some concern at the time. Does he think that the Amendments meet this point, since Clause 26 is so incomprehensible?
      Mr. Taverne: I am trying to recall the exact discussion which we had in Committee on the investment company, but the answer which I then gave to the hon. and learned Member for Northwich (Sir J. Foster), or someone else who moved an Amendment on his behalf, was that the position was clear and there was no danger. The Clause has not been altered either in its intention or in its scope, but there was a doubt about whether some transactions might be thought to be caught. To clear this up, we decided that "sole or main object" made it clearer than the words "with a view to".
      The reason for these words is the reason which I gave for rejecting the Amendment moved by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), namely that, if it were the

      929
      sole object only, an incidental purpose, however slight or insignificant, could mean that the Clause was avoided. The words "main or sole object" deal with the transactions which are intended to be caught, and in one respect we go beyond what the Clause seemed to be doing originally. That is in the special exemption under Amendment 208, which goes exceedingly wide.
      Mr. Michael Shaw: Before the hon. and learned Gentleman sits down. In this circumstance, it means that one has to weigh up all the various objectives and decide which is the main objective, and it means that there can be only one. In the Amendments which we discussed previously, it appeared that there could be several main objections and that one need not decide which was most important. Why this difference in treatment? I do not see why there should be any difference in principle. The Government should make up their minds which method they will adopt, rather than applying one case for one set of people and another case for another set. It does not seem fair, if fairness indeed enters into this.
      Mr. Taverne: I must confess that, while looking at the Amendments which were to follow, I did not follow the preceding debate with the attention which it deserved, so that I cannot answer this completely. However, I do not think that anyone can object to these words, because they are restrictive; they secure, therefore, that the sale of a house in which a person lives will be excluded.
      Amendment agreed to.
      Further Amendments made: No. 207, in page 29, line 29 leave out 'a view to' and insert 'the sole or main object of'.
      No. 208, in page 31, line 16, at end insert:
      (9) This section shall not apply to a gain accruing to an individual which by virtue of section 29 of the Finance Act, 1965 (private residences) is exempt from capital gains tax, or which would be so exempt but for the provisions of paragraph 2 of Schedule 12 to the Finance Act, 1968 (residence acquired partly with a view to making a gain).—[Mr. Taverne.]
      Mr. Taverne: I beg to move Amendment No. 209, in page 31, line 28, at end insert—
      (10) Where a person who considers that paragraph (a) or paragraph (c) of subsection (2)
      930
      of this section may apply as respects a gain of a capital nature which that person has obtained from the disposal of land, or which he would obtain from a proposed disposal of land, supplies to the inspector to whom he makes his return of income written particulars showing how the gain has arisen or would arise—

      (a) the inspector shall, within thirty days from his receipt of the particulars, notify that person whether or not he is satisfied that, in the circumstances as described in the particulars, the gain will not, or would not, be chargeable to tax on that person under this section, and

      (b) if the inspector notifies that person that he is so satisfied, the gain shall not be chargeable on that person under this section:

      Provided that if the particulars given under this section with respect to the gain are not such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the inspector, any notification given by the inspector under this subsection shall be void.
      Mr. Deputy Speaker (Mr. Sydney Irving): I suggest that it would be convenient to discuss at the same time the Amendments to Amendment No. 209, (r), in line 7, leave out 'or not'; (s) in line 11, at end insert:
      (c) if the Inspector is unable to notify that person that the gain will not be chargeable under section 26(2) he shall refer the matter to the Commissioners who shall make the decision;
      and (t), in line 11, at end insert:
      (c) if the inspector is unable to notify that person that the gain will not be chargeable under section 26(2) he shall furnish him with the reason or reasons for his decision.
      Mr. Taverne: I am obliged, Mr. Deputy Speaker.
      In our debates on this Clause in Committee, hon. Members opposite asked for a clearance procedure to be applied to transactions which might be affected or might be thought to be affected by the Clause. I explained, in dealing with the particular clearance procedure suggested by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), that there was a number of objections to the particular form he proposed, but I said that I would move a clearance procedure myself at the appropriate stage. That is what Amendment No. 209 does.
      There is one major difficulty in devising a system of clearances, and that is to protect the Inland Revenue in cases where it is not told the whole story, as sometimes happens, at the time of the application for clearance. It may be that a transaction which on the face of it

      931
      seems outside the Clause, on the information supplied, will later turn out to be part of a more general transaction which would bring it within the Clause.
      The Amendment meets the difficulty in two ways. First, the decision on a clearance application will be made by reference to the circumstances as described in the particulars supplied by the applicant, and, if it later transpires that these particulars contain a material error or omission, the clearance notification will be void. Second, as I said, what was required was a clearance procedure which dealt with disposals rather than the original acquisitions. Therefore, this too deals with disposals or proposed disposals of land and not proposed acquisitions or developments.
      Obviously, the Inland Revenue will have more facts to go on if asked about the disposals, the last transactions, and not the first chapter of the story. Clearance at the disposal stage has another advantage. It means that a person who acquired property before Budget Day will be able to ask for clearance in respect of this disposal. Perhaps I can deal with the Amendments to this Amendment later.
      Sir J. Foster: One cannot be grateful for this clearance procedure, because it is very unsatisfactory. I should like the hon. and learned Member to compare it with the clearance procedure under Section 28 of the 1960 Act, which, although it is itself very unsatisfactory, is much wider than this. The clearance procedure amounts to this: one tells the inspector some facts and he says that he is satisfied or he is not. He usually says that he is not, and what can one do then? Under Section 28, there is a tribunal when one goes back and forth, but up to now—a case is awaiting judgment in the House of Lords—one does not know all the facts which have been given by the Inland Revenue. The taxpayer must be protected against the Inland Revenue as well.
      The system under Section 28, although unsatisfactory, protects the taxpayer much more, because there is a tribunal which decides between the two sides where the taxpayer does not know what the Revenue says. Here the inspector keeps it in his mind and turns it over and
      932
      says "No." Our Amendments to the Amendment suggest that, if the inspector cannot notify that person that the gain would not be chargeable, he should furnish him with the reason for his decision.
      It is a great principle of law, which is not completely observed in England, that if one gives reasons one is a little ashamed of giving nonsensical reasons or prejudicial reasons. On the Continent, no decision can be made by any person in a judicial capacity without his giving reasons. It shocks continentals that English judges can just say, "I have found for the plaintiff", and give no reasons. Fortunately, motivated decisions are coming more and more into English law. The judges are rather ashamed to give a decision without reasons. But in certain circumstances, if they do not give reasons there is no appeal, so that they would voluntarily run a risk of an appeal if they did give reasons.
      Amendment (s) says that if the inspector says "No" he should refer the matter to the Commissioners for them to decide. That is a little better, because at least the inspectorate can decide whether the facts given are satisfactory or not. I would ask the Government to think about this again and the Minister of State to call for a report on the decisions under Section 28 of the 1960 Act. The procedure is more satisfactory under that provision, which is itself unsatisfactory. I am sure that if the Minister calls for a report on this matter, after he is over the rigours of the Bill, he will be shocked to find how many taxpayers do not get protection.
      We are not primarily concerned with straightforward cases. In a doubtful case the inspector is bound to decide the various points in his favour. There is nothing wrong with that, in that he must make a decision. Unfortunately, however, there will be no method of distinguishing between the inspector's views of the law and the facts in the case, for he will naturally be unable to divide his mind and say, in effect, "I find this, but I will appeal against myself to see if I am right or wrong." In a clearance procedure of this sort there should be a form of appeal and, because the clearance procedure proposed by the Government is unsatisfactory, I trust that my hon. Friends will oppose it.
      5.30 p.m.
      Sir Henry d'Avigdor-Goldsmid: The Minister will recall that in the much regretted absence of my hon. and learned Friend the Member for Northwich (Sir F. Foster) in Committee, it fell to me to move an Amendment on this subject, to which the Minister gave the best answer for which we could hope at that stage. He said that while the form of clearance procedure which we had proposed was unacceptable to the Government, he would introduce a clearance procedure on Report.
      It is well know that every immigrant who lands at Dover is thereby seized of a complete knowledge of British law. It is equally assumed that every hon. Member is fully qualified to act as a tax lawyer. This is far from being the situation, particularly in my case.
      It was with keen anticipation, therefore, that I awaited the publication of a draft of the promised clearance procedure; for the obvious reason that to judge whether or not it was satisfactory I wished to obtain advice from those qualified in these matters. However, the draft did not appear on the Notice Paper until last Friday morning. This made is impossible for me to have the necessary consultations with those learned in these matters; and my hon. Friends and I were, therefore, obliged to table what might be described as random chosen Amendments (r), (s) and (t). Amendments (r) and (s) go together and deal with one point while (t) deals with another. I will comment on both.
      Amendments (r) and (s) say that where the inspector is not able to give clearance the matter must be referred to the Commissioners. The object is simple. Cases which go to the inspector will not be extremely straightforward. The straightforward cases are, to some extent, dealt with by Amendment No. 208, meaning that those which go for clearance are likely to be highly sophisticated. It is desirable, therefore, that there should be the basis of a ruling in these matters, for with the best will in the world the local inspector is not, by his nature, qualified to deal with a matter requiring the ingenuity of people like my hon. and learned Friend the Member for Northwich and others equally distinguished in reaching decisions. That is why we have tabled Amendments (r) and (s).
      934
      Amendment (t) might be described as a long stop. While even with my legal knowledge of the way in which Somerset House works I would not expect reasons to be given, it is to be hoped that the taxpayer will be given the reason for the failure to give him clearance. The Amendment would mean the inspector furnishing the person with the reason for his decision if there is a refusal.
      The Clause deals with what are called "Artificial transactions in land", although the word "artificial" does not appear elsewhere in the Clause. These are matters of a high degree of sophistication and the clearance procedure seems an essential part of it. Our suggestion that such a procedure should exist appealed to the Government in Committee, but I have lost sympathy with them because, having gone this far and having accepted the principle of our proposal, they have not given us a chance to reconsider the draft of their clearance procedure because of the lateness of its appearance on the Notice Paper.
      We appreciate that the Government are working under great pressure. They must accept, however, that we, too, are under pressure and that the assistance available is, compared with theirs, negligible. They should have given us at least a week in which to consider the clearance procedure they are proposing. Instead, it was published at the last moment and we have had to scratch up a few Amendments to convey the sense of our aims, although we accept that the phraseology of our proposals may not be acceptable to the Government.
      The procedure being adopted by the Government in this matter is repugnant, particularly when we are debating matters as important as this. Many people will need to refer to the clearance procedure in future, particularly since it will affect many transactions in land. The taxpayer is not being treated fairly because the Government's proposed clearance procedure is not acceptable and we have no possibility of proposing worthwhile Amendments to it. I hope, therefore, that my hon. Friends will reject the Government proposal.
      Mr. Michael Alison: My hon. and learned Friend the Member for Northwich (Sir J. Foster) was right to point to the extent to which the

      935
      inspector will be prejudiced and predisposed into giving an unsatisfactory answer when inquiries of this kind are made. The whole of the clearance provisions, read in conjunction with the stiffer definition introduced in an earlier Amendment which introduced the phrase "sole or main object", will make any approach by an honest inquirer to the tax inspector virtually an admission of guilt.
      The Government are putting the wretched claimant in the position of the small child who comes out in a violent rash and goes to his mother or nurse to make sure that he does not have measles. It is almost self-evident. If one says to the inspector, "Do these provisions apply in my case?", one can imagine the answer one will receive, particularly since paragraphs (a) and (c) are explicit in referring to
      "… land, or any property deriving its value from land, is acquired with a view to realising a gain from disposing of the land …"
      and
      "… land is developed with a view to realising a gain from disposing of the land when developed …"
      How can a person possibly ask the tax inspector, "Does this apply in my case? Did I acquire the land with the sole or main object of making this sort of gain?" How can the inspector possibly answer that question finally to the honest inquirer? The person must know in his own mind whether it applies to his own case. To expect a man who is in any doubt to ask the inspector to verify or interpret his motives and intentions when, after all, they are so clearly set out in an Amendment which we accepted earlier, is to put the whole thing in the realm of suspicion from the moment he goes to the inspector.
      The Minister of State in the Government Amendment has made a clear distinction between going to the inspector before the event occurs and going to him after the event occurs, either to discover what his liability might be after he disposed of the land, or what it might be if he were to dispose of it but so far had not done so. If under the new clearance procedure an inquirer is told by the inspector that if he disposes of land which he has not yet disposed of he will be liable, and has already been caught by the procedure, can any subsequent dis-
      936
      posal be held to have taken place with a view to avoidance? It must enter into a different dimension once he is told that he cannot avoid. It must be in the nature of a fresh transaction—it is wiping the slate clean. If this eventuality occurs before disposal and is held to be liable, surely he can dispose without being held to be liable under the Clause?
      Sir E. Errington: In view of the decision of Her Majesty's Inspector of Taxes and Trustees of Grundy, which is a case which was subsequently confirmed in a later case, I believe that in certain circumstances the inspector can make a "discovery" which involves a changed decision. What troubles me is that a discovery may be made subsequently in such a way that there may be a complete change of liability. If that is the case, there is no finality, and the taxpayer is entitled to some sort of certainty.
      I therefore feel that sub-Amendment (S), which would refer the matter to the Commissioners,
      "who shall make the decision"
      is right. As things stand, it is always open to the tax inspector—and it may not even be the same tax inspector—to make discovery. In such a Clause as this, in which there is no definition of artificial transactions in land, it is essential that people going on normal business should know clearly where they stand. I hope that some consideration shall be given to this point, otherwise there will be grave difficulties.
      5.45 p.m.
      Mr. Taverne: The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) complained about the late date on which the Amendment was tabled. I understand that he has some ground for complaint, although he generously recognised the considerable pressures operating on the Government. However, I apologise for the late tabling of the Amendment.
      I did not understand what the hon. Member for Barkston Ash (Mr. Alison) was complaining about. He seemed to complain that Clause 26 was so narrowly drawn that to go through the clearance procedure amounted to a confession of guilt. Even if that were so, I do not think that anyone could complain. The more narrowly it is drawn the better it is for the bona fide taxpayer.

      937
      The hon. Member made one reference which I did understand. It is not at the stage of acquisition that one goes through the clearance procedure, but when one makes or is about to make the disposal. If that gives clearance, Clause 26 cannot apply. But there must be safeguards, as I must tell the hon. Member for Aldershot (Sir E. Errington). The person will be cleared if the facts are as he told them, but if the facts are not right, or further facts come to light, the inspector's decision is not binding.
      The hon. and learned Member for Northwich (Sir J. Foster) asked me to call for a report on the workings of Section 28 of the 1960 Act. I shall be glad to see how that Section has worked. I understand that it did not mean that every taxpayer could go to the tribunal on a clearance application. I am not quite sure what the hon. Gentleman had in mind, but no doubt when I look at the matter I can find that out.
      The objections to the Clause are twofold. The first is that there is no reference to Commissioners, and the second takes the form of a request for reasons to be given by the inspector. I am not sure what Commissioners the objectors have in mind. Are they the Commissioners of Inland Revenue, as I suspect, or are they the appellate commissioners? If it is the latter, one would be in a very difficult position. I assume, however, that the reference is to the Commissioners of Inland Revenue.
      The local inspector will be quite capable in the majority of cases of deciding whether an application should be refused or cleared. In borderline cases, he will go to the Inland Revenue specialists and, if necessary, to the Board for a determination. If the reference is to the appellate commissioners, new ground would be broken because all other appellate procedures have been allocated to the Inland Revenue. The purpose of the clearance procedure is to benefit the taxpayer and get a quick decision. It is not at that stage a decision by the court but a decision which can put him in a better position than he would be in if the procedure did not exist.
      In 1960, the Conservative Government provided a clearance procedure in Section 28. They, too, said that the inspector should not give reasons. If he had to
      938
      give reasons, and perhaps enter into correspondence and argument, one would not get a quick decision. In the hypothetical case for future disposal this is of particular importance. If there were to be elaborate correspondence, not only would the quick decision be less easily obtainable, but there would be the further risk, which was behind the decision in 1960 not to give reasons, of persons seeing how they could get round the decision. It is in accordance with precedence that no reasons are given. It is to ensure a quick decision that there is no reference to the Commissioners of Inland Revenue, but in any case of difficulty there will be reference to the Board, or to the specialist department.
      Mr. Alison: Once the decision has been given, must that decision always stand for that particular case, or can it be revised with the passage of time? If one had lived in the house for 15 years, could the case be reconsidered?
      Mr. Taverne: If the answer of the inspector is that the transaction is in the clear, Clause 26 cannot apply, unless it did turn out that the statement of fact was false, or further information came to light.
      Mr. Iain Macleod: For various reasons which are no one's fault in particular, we are in something of a difficulty here. When my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) spoke on this matter in Committee he asked for a clearance procedure, and here is a clearance procedure. On the other hard, the Amendment was put down for Report—we understand the reasons very well—at a very late date. The more we look at this particular clearance procedure the less we like it for reasons which have been given by my hon. Friends. We therefore tabled sub-Amendments (r) and (s) for one proposal which we prefer so that the matter should be referred to the Commissioners. The Minister of State was right, it is the Commissioners of Inland Revenue to whom we refer.
      We have little hope of achieving sub-Amendment (t). The reasons in those circumstances are not given. It would be ideal if we could vote on sub-Amendment (r), but I understand that that is a matter for Mr. Speaker and no doubt we should have put in an application

      939
      earlier. We are therefore faced with a decision of whether to accept a clearance procedure which we acknowledge has been put forward to meet the point made by the Opposition, or to register our vote against the Minister of State refusing to accept sub-Amendments (r) and (s), which would vastly improve this quite unfair clearance procedure.
      I am in no doubt of the advice I should give to my hon. and right hon.
      Friends. I think we should vote on this matter. We understand all the difficulties about the clearance procedure put forward by the Government, but it is not satisfactory to us. I therefore invite my hon. and right hon. Friends to record their votes in the Lobby.
      Question put, That the Amendment be made:—
      The House divided: Ayes 206, Noes 153.

      Division No. 336.]

      AYES

      [5.52 p.m.

      Abse, Leo

      Freeson, Reginald

      Marks, Kenneth

      Albu, Austen

      Gardner, Tony

      Marquand, David

      Archer, Peter

      Gnsburg, David

      Mason, Rt. Hn. Roy

      Armstrong, Ernest

      Gordon Walker, Rt. Hn. P. C.

      Mayhew, Christopher

      Ashton, Joe (Bassetlaw)

      Gregory, Arnold

      Mellish, Rt. Hn. Robert

      Atkins, Ronald (Preston, N.)

      Griffiths, David (Rother Valley)

      Mendelson, John

      Atkinson, Norman (Tottenham)

      Griffiths, Eddie (Brightside)

      Mikardo, Ian

      Bacon, Rt. Hn. Alice

      Griffiths, Will (Exchange)

      Millan, Bruce

      Barnes, Michael

      Hamilton, James (Bothwell)

      Miller, Dr. M. S.

      Beaney, Alan

      Hamilton, William (Fife, W.)

      Milne, Edward (Blyth)

      Benn, Rt. Hn. Anthony Wedgwood

      Hannan, William

      Moonman, Eric

      Bidwell, Sydney

      Harper, Joseph

      Morgan, Elystan (Cardiganshire)

      Binns, John

      Harrison, Walter (Wakefield)

      Morris, Alfred (Wythenshawe)

      Blenkinsop, Arthur

      Hart, Rt. Hn. Judith

      Moyle, Roland

      Booth, Albert

      Haseldine, Norman

      Newens, Stan

      Bradley, Tom

      Hattersley, Roy

      Noel-Baker, Rt. Hn. Philip

      Bray, Dr. Jeremy

      Healey, Rt. Hn. Denis

      Ogden, Eric

      Brooks, Edwin

      Heffer, Eric S.

      O'Malley, Brian

      Brown, Bob (N'c'tle-upon-Tyne, W.)

      Henig, Stanley

      Oram, Albert E.

      Brown, R. W. (Shoreditch & F'bury)

      Herbison, Rt. Hn. Margaret

      Orme, Stanley

      Buchan, Norman

      Hobden, Dennis

      Owen, Will (Morpeth)

      Buchanan, Richard (G'gow, Sp'burn)

      Hooley, Frank

      Padley, Walter

      Butler, Herbert (Hackney, C.)

      Howarth, Harry (Wellingborough)

      Page, Derek (King's Lynn)

      Butler, Mrs. Joyce (Wood Green)

      Howie, W.

      Pannell, Rt. Hn. Charles

      Callaghan, Rt. Hn. James

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Park, Trevor

      Carmichael, Neil

      Hughes, Hector (Aberdeen, N.)

      Parker, John (Dagenham)

      Castle, Rt. Hn. Barbara

      Hughes, Roy (Newport)

      Parkyn, Brian (Bedford)

      Craddock, George (Bradford, S.)

      Hunter, Adam

      Pavitt, Laurence

      Crosland, Rt. Hn. Anthony

      Hynd, John

      Peart, Rt. Hn. Fred

      Davidson, Arthur (Accrington)

      Irvine, Sir Arthur (Edge Hill)

      Pentland, Norman

      Davies, G. Elfed (Rhondda, E.)

      Jackson, Colin (B'h'se & Spenb'gh)

      Perry, George H. (Nottingham, S.)

      Davies, Dr. Ernest (Stretford)

      Jackson, Peter M. (High Peak)

      Prentice, Rt. Hn. Reg

      Davies, Rt. Hn, Harold (Leek)

      Jay, Rt. Hn. Douglas

      Price, William (Rugby)

      Davies, Ifor (Gower)

      Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)

      Probert, Arthur

      de Freitas, Rt. Hn. Sir Geoffrey

      Jenkins, Hugh (Putney)

      Rankin, John

      Delargy, Hugh

      Jenkins, Rt. Hn. Roy (Stechford)

      Rees, Merlyn

      Dewar, Donald

      Johnson, Carol (Lewisham, S.)

      Richard, Ivor

      Diamond, Rt. Hn. John

      Johnson, James (K'ston-on-Hull, W.)

      Robinson, Rt. Hn. Kenneth (St. P'c' as)

      Dickens, James

      Jones, Dan (Burnley)

      Rodgers, William (Stockton)

      Dobson, Ray

      Jones, J. Idwal (Wrexham)

      Roebuck, Roy

      Doig, Peter

      Jones, T. Alec (Rhondda, West)

      Rogers, George (Kensington, N.)

      Dunnett, Jack

      Kelley, Richard

      Rose, Paul

      Dunwoody, Mrs. Gwyneth (Exeter)

      Kerr, Russell (Feltham)

      Ross, Rt. Hn. William

      Dunwoody, Dr. John (F'th & C'b'e)

      Lawson, George

      Rowlands, E.

      Eadie, Alex

      Lee, Rt. Hn. Frederick (Newton)

      Ryan, John

      Edwards, Robert (Bilston)

      Lever, Rt. Hn. Harold (Cheetham)

      Sheldon, Robert

      Edwards, William (Merioneth)

      Lewis, Arthur (W. Ham, N.)

      Shinwell, Rt. Hn. E.

      Ellis, John

      Lewis, Ron (Carlisle)

      Shore, Rt. Hn. Peter (Stepney)

      English, Michael

      Lipton, Marcus

      Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

      Ennals, David

      Loughlin, Charles

      Short, Mrs. Renée (W'hampton, N.E.)

      Evans, Fred (Caerphilly)

      Luard, Evan

      Silkin, Rt. Hn. John (Deptord)

      Faulds, Andrew

      Lyon, Alexander W. (York)

      Silkin, Hn. S. C. (Dulwich)

      Fernyhough, E.

      McCann, John

      Silverman, Julius

      Finch, Harold

      MacColl, James

      Skeffington, Arthur

      Fitt, Gerard (Belfast, W.)

      MacDermot, Niall

      Slater, Joseph

      Fletcher, Rt. Hn. Sir Eric(Islington, E.)

      Macdonald, A. H.

      Spriggs, Leslie

      Fletcher, Raymond (Ilkeston)

      McGuire, Michael

      Stonehouse, Rt. Hn. John

      Fletcher, Ted (Darlington)

      Mackenzie, Gregor (Rutherglen)

      Strauss, Rt. Hn. G. R.

      Foley, Maurice

      Mackintosh, John P.

      Summerskill, Hn. Dr. Shirley

      Ford, Ben

      McNamara, J. Kevin

      Taverne, Dick

      Forrester, John

      Mahon, Simon (Bootle)

      Thomas, Rt. Hn. George

      Fowler, Gerry

      Mallalieu, J. P. W.(Huddersfield, E.)

      Tinn, James

      Fraser, John (Norwood)

      Manuel, Archie

      Tomney, Frank

      Tuck, Raphael

      Wellbeloved, James

      Winnick, David

      Urwin, T. W.

      Whitaker, Ben

      Woodburn, Rt. Hn. A.

      Varley, Eric G.

      Whitlock, William

      Wyatt, Woodrow

      Wainwright, Edwin (Dearne Valley)

      Williams, Alan (Swansea, W.)

      Watkins, David (Consett)

      Williams, Alan Lee (Hornchurch)

      TELLERS FOR THE AYES:

      Watkins, Tudor (Brecon & Radnor)

      Williams, Clifford (Abertillery)

      Mr. Alan Fitch and Mr. Neil McBride.

      Weitzman, David

      Wilson, William (Coventry, S.)

      NOES

      Alison, Michael (Barkston Ash)

      Gurden, Harold

      Osborne, Sir Cyril (Louth)

      Astor, John

      Hall, John (Wycombe)

      Page, Graham (Crosby)

      Awdry, Daniel

      Harris, Frederic (Croydon, N.W.)

      Page, John (Harrow, W.)

      Baker, Kenneth (Acton)

      Harrison, Brian (Maldon)

      Peel, John

      Balniel, Lord

      Harvey, Sir Arthur Vere

      Peyton, John

      Bell, Ronald

      Heath, Rt. Hn. Edward

      Pike, Miss Mervyn

      Bennett, Dr. Reginald (Gos. & Fhm)

      Heseltine, Michael

      Pink, R. Bonner

      Berry, Hn. Anthony

      Higgins, Terence L.

      Powell, Rt. Hn. J. Enoch

      Biffen, John

      Hill, J. E. B.

      Price, David (Eastleigh)

      Birch, Rt. Hn. Nigel

      Holland, Philip

      Prior, J. M. L.

      Black, Sir Cyril

      Hooson, Emlyn

      Pym, Francis

      Body, Richard

      Hordern, Peter

      Quennell, Miss J. M.

      Boyle, Rt. Hn. Sir Edward

      Hornby, Richard

      Rhys Williams, Sir Brandon

      Brinton, Sir Tatton

      Howell, David (Guildford)

      Ridley, Hn. Nicholas

      Bromley-Davenport, Lt.-Col. Sir Walter

      Hunt, John

      Ridsdale, Julian

      Campbell, B. (Oldham, W.)

      Jenkin, Patrick (Woodford)

      Rossi, Hugh (Hornsey)

      Campbell, Gordon (Moray & Nairn)

      Jones, Arthur (Northants, S.)

      Russell, Sir Ronald

      Carlisle, Mark

      Joseph, Rt. Hn. Sir Keith

      Scott, Nicholas

      Carr, Rt. Hn. Robert

      Kerby, Capt. Henry

      Shaw, Michael (Sc'b'gh & Whitby)

      Chichester-Clark, R.

      Kershaw, Anthony

      Silvester, Frederick

      Clark, Henry

      Kimball, Marcus

      Sinclair, Sir George

      Clegg, Walter

      Kirk, Peter

      Smith, John (London & W'minster)

      Cooke, Robert

      Kitson, Timothy

      Speed, Keith

      Cooper-Key, Sir Neill

      Knight, Mrs. Jill

      Stainton, Keith

      Cordle, John

      Lawler, Wallace

      Steel, David (Roxburgh)

      Costain, A. P.

      Legge-Bourke, Sir Harry

      Taylor, Sir Charles (Eastbourne)

      Craddock, Sir Beresford (Spelthorne)

      Lloyd, Rt. Hn. Selwyn (Wirral)

      Taylor, Edward M.(G'gow, Cathcart)

      Crouch, David

      Longden, Gilbert

      Temple, John M.

      Crowder, F. P.

      Lubbock, Eric

      Thatcher, Mrs. Margaret

      Currie, G. B. H.

      McAdden, Sir Stephen

      Thorpe, Rt. Hn. Jeremy

      d'Avigdor-Goldsmid, Sir Herry

      MacArthur, Ian

      Turton, Rt. Hn. R. H.

      Dean, Paul

      Maclean, Sir Fitzroy

      van Straubenzee, W. R.

      Deedes, Rt. Hn. W. F. (Ashford)

      Macleod, Rt. Hn. Iain

      Vickers, Dame Joan

      Digby, Simon Wingfield

      McMaster, Stanley

      Waddington, David

      Dodds-Parker, Douglas

      McNair-Wilson, Michael

      Wainwright, Richard (Colne Valley)

      Drayson, G. B.

      McNair-Wilson, Patrick (NewForest)

      Walker, Peter (Worcester)

      Eden, Sir John

      Maddan, Martin

      Walker-Smith, Rt. Hn. Sir Derek

      Elliot, Capt. Walter (Carshalton)

      Marples, Rt. Hn. Ernest

      Walters, Dennis

      Emery, Peter

      Marten, Neil

      Ward, Dame Irene

      Errington, Sir Eric

      Maude, Angus

      Weatherill, Bernard

      Eyre, Reginald

      Maudling, Rt. Hn. Reginald

      Wiggin, A. W.

      Fisher, Nigel

      Mawby, Ray

      Williams, Donald (Dudley)

      Fletcher-Cooke, Charles

      Mitchell, David (Basingstoke)

      Wilson, Geoffrey (Truro)

      Foster, Sir John

      Monro, Hector

      Wolrige-Gordon, Patrick

      Fraser, Rt. Hn. Hugh (St'fford & Stone)

      More, Jasper

      Wood, Rt. Hn. Richard

      Gilmour, Ian (Norfolk, C.)

      Morgan-Giles, Rear-Adm.

      Worsley, Marcus

      Goodhart, Philip

      Morrison, Charles (Devizes)

      Wright, Esmond

      Goodhew, Victor

      Mott-Radclyffe, Sir Charles

      Younger, Hn. George

      Grant, Anthony

      Murton, Oscar

      Gresham Cooke, R.

      Neave, Airey

      TELLERS FOR THE NOES:

      Griffiths, Eldon (Bury St. Edmunds)

      Noble, Rt. Hn. Michael

      Mr. Anthony Royle and Mr. Humphrey Atkins.

      Grimond, Rt. Hn. J.

      Nott, John

      Orr-Ewing, Sir Ian

    Schedule 16

      TAX AVOIDANCE: SUPPLEMENTAL PROVISIONS
      Mr. Diamond: I beg to move Amendment No. 210, in page 130, line 15, leave out 'by any method'.
      The Amendment is an attempt to meet the wishes and the consensus of the Committee. The hon. and learned Member for Northwich (Sir J. Foster) and the hon.
      Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) tabled a similar Amendment. The hon. Member for Walsall, South, asked me to remove from the Schedule provisions that encourage
      "the inspector of taxes to widen as far as possible the scope of this inquiries, and"
      encourage
      "him to seek the most devious means of obtaining his purposes."—[OFFICIAL REPORT, Standing Committee F, 24th June, 1969; c. 689.]
      In an attempt to meet the spirit of the request made by the hon. Gentlemen, we have tabled the Amendment to delete "by any method". The words are superfluous. I hope that this will be taken as a tribute to the work of the Opposition.
      Sir J. Foster: I thank the Chief Secretary for that tribute. The words were difficult of philosophical interpretation. I seem to remember that the Act contained an expression like:
      "any method, however indirect"
      which made confusion worst confounded. We are glad that the Bill has been improved to this extent. It will now read:
      "when the capital amount … is sold or otherwise realised"
      which is what it should have been in the first place.
      Amendment agreed to.
      Further Amendment made: No. 211, in page 130, line 35, at end insert:
      as though he were the person assessed, but without prejudice to the right to recover it from the person actually assessed'.—[Mr. Diamond.]
      Sir J. Foster: I beg to move Amendment No. 293, in page 132, line 31, after 'worth', insert:
      'which is calculated to depend substantially upon future activities either of the individual and another or others pursuing any profession or vocations and'.
      This is a useful Amendment to make it clear that the capital amount is referrable back to the
      "future activities either of the individual … or others pursuing any profession or vocations".
      The point of Clause 25 is to try to secure that an individual who turns his future activities into capital shall be taxed. Accepting for the purpose of the present argument that the Clause secures that end, we thought that the words "capital amount" were capable of misinterpretation if they did not apply back again to the individual's activities. We tabled the Amendment in an effort, while agreeing with what the Government want to do, to secure that the shot which is sprayed by the Clause will not hit too many innocent targets.
      Mr. Diamond: I was not sure that the hon. and learned Gentleman would seek
      944
      to move the Amendment in the circumstances. Now that my right hon. Friend's two main Amendments—Nos. 204 and 205—have been accepted by the House, the bona fide cases, about which there was some anxiety and which it was thought previously might be caught, will be excluded and, therefore, there is no longer any need for the Amendment. I understand that there was need for it earlier, in the Opposition's view, but perhaps the hon. and learned Gentleman will now agree with me that it need not be pursued in present circumstances.
      Sir J. Foster: In view of what the Chief Secretary has said, I beg to ask leave to withdraw the Amendment.
      Amendment, by leave, withdrawn.

    Clause 27

      TRANSFER OF ASSETS ABROAD
      Sir J. Foster: I beg to move Amendment No. 126, in page 32, line 34, at end insert:
      Where the income mentioned in subsection (1) of that section is the income of the trustee or trustees of a settlement, the said subsection (1) shall not apply to any individual by reference to that income unless the individual was a party to and acquiesced in the transfer of assets or any relevant associated operation.
      Mr. Deputy Speaker (Mr. Sydney Irving): With this Amendment the House can discuss also the following Amendments: No. 121 in page 32, line 20, leave out subsection (2) and insert:
      (2) If, by virtue or in consequence of provisions contained in any legislation forming part of the law of a territory outside the United Kingdom or of any action taken under such provisions, the nature or content of the legal relationship between the relevant person or any other person and an individual ordinarily resident in the United Kingdom is different from what it would have been if the relationship had been governed by the corresponding United Kingdom law, then in determining whether, under subsection (1) of that section, any income of the relevant person is deemed for the purposes of the Income Tax Acts to be the income of such an individual, the said provisions and the effect thereof may be disregarded and it may be assumed that the nature and content of the legal relationship in question is in every or any particular respect governed by the corresponding United Kingdom law.
      In this subsection—

      (a) 'relevant person' means a person resident or domiciled out of the United Kingdom to whom income has become payable as

      945
      mentioned in the preamble to that section, and

      (b) 'corresponding United Kingdom law' means such part of the law of England, Scotland or Northern Ireland (whichever may be most appropriate to the individual concerned in any particular matter) as would, on a true and fair view of the legal relationship in question, be applicable to the nearest equivalent relationship recognised by and subsisting under the law of England, Scotland or Northern Ireland, as the case may be.

      No. 123, in line 34, at end insert:
      (4) At the end of that section insert the following subsection—
      (9) This section shall not apply more than once to any one amount forming part of the income of a person resident or domiciled out of the United Kingdom'.
      No. 124, in line 42, leave out from 'in' to except' in page 33, line 3, and insert:
      'that section, the individual shall be chargeable to income tax by virtue of that section for the year of assessment in which the benefit is received on such part of the amount or value of the benefit as is justly referable to the income of the person resident or domiciled out of the United. Kingdom (but subject always to subsection (1) of this section)'.
      No. 125, in page 33, line 5, after 'he' insert 'or any other person'.
      No. 127, in line 34, at end insert:
      Where the income mentioned in subsection (1) of that section is the income of the trustee or trustees of a settlement, no individual (other than an individual who was a party to and acquiesced in the transfer of assets or any relevant associated operation) shall be deemed to have power to enjoy that income unless he is or will or may at some future date be able by any lawful means to secure that the income or assets representing it will, whether in the form of income or not, be paid or applied to him or for his benefit; and the amount of income which may, under the said subsection (1), be deemed to be the income of such an individual shall not be greater than the amount or value of the income or assets the payment of which to him or application of which for his benefit he is or will or may be so able to secure:
      Provided that where, in the year of assessment in which the income becomes payable to the person resident or domiciled out of the United Kingdom, the individual does not have such an ability as is referred to in this subsection, but will or may have such an ability in the future, the income shall not be deemed to be the income of the individual until the year of assessment (if any), in which he comes to have such an ability, and it shall not then be any objection to the making of an assessment for that year of assessment that it was in an earlier year that the income became payable to the person resident and domiciled out of the United Kingdom.
      Sir J. Foster: The Amendments are designed to clear up what may be called the mess by the Clause in its Amendment
      946
      of Section 412 of the Income Tax Act, and 1952, which sought to catch settlements abroad and sought to catch only settlors in this country who attempted by foreign settlements to put their income out of reach of the Inland Revenue here.
      I will put it in layman's fashion. The spokesman for the Conservative Government of the time said that it was intended to catch only settlors in Britain, but the Revenue sought to establish a different principle. What the politicians had stated in the House of Commons could not be adduced in evidence in the courts. What the politicians had said went by the board and Section 412 was extended because of its wording. The Government spokesman at that time had assured Parliament that it had applied only to settlors in this country. A reading of those debates set against after events shows of what little worth are the assurances of politicians.
      The Financial Secretary to the Treasury (Mr. Harold Lever): Conservative politicians.
      Sir J. Foster: It applies all the way round. These were Conservative politicians. We legislate in this tortuous fashion; and what we legislate is usually not understood by Ministers, much less so by back benches. The legislation goes through. The Revenue then says, "This is provision means so and so". The Revenue is held to be right; so, despite what the politicians had said, the tax-payer is caught.
      An interesting result of the Clause is that a beneficiary in a foreign settlement, even if he does not know about the settlement and does not get a penny, can be assessed on the income of the settlement. Whether or not he knew of the settlement, he is assessable. It is no defence for him to say that others had been assessed on the same income. That is why it is now common practice always to put in settlements the names of the Financial Secretary, the Chief Secretary, and the Chancellor of the Exchequer. They do not know that they are beneficiaries under the settlement; they are entitled to the money, and, if the Revenue does not assess them, I imagine that it can be mandamused.
      The Chancellor may find himself liable on an income of £100,000 of which he

      947
      will never get a penny and of which settlement he has never heard; but he is liable if the Revenue chooses to assess him. It is a nice question whether the Revenue can be mandamused to assess the Chancellor, but it is a ridiculous way of governing a country to have legislation which provides that you, Mr. Deputy Speaker, can find yourself liable to tax on a Bahamian settlement of which you have never heard, made by somebody whom you do not know, and of which you will not get a penny; and in addition, the amount on which you will be assessed will be assessed also to the Chief Secretary, the Financial Secretary and the Chancellor, although they have never heard of it.
      I appeal to the Government to bring a little order into this ridiculous conception.
      It means that the Revenue will choose between A and B, and whom they will catch. It may say, "We like the Chancellor of the Exchequer, we work under him, and we shall not assess him at any time. He did not know about it, but that does not make any difference in the way we assess people. On the other hand, we do not like A and B so much and we shall assess them. True, they did not know about the settlement either, but that is no defence. True, also, we shall assess some real people who did know about it and who have a bit of money. They will be assessed as well, everyone will have to pay, and a good time will be enjoyed by all".
      I do not suppose that many people are interested in Section 412 of the 1952 Act, but, if that state of affairs were made known in the world and people realised that we drafted our tax laws in that way, providing that every person in this country could be liable under a settlement—if one had a schedule long enough to put 60 million names in—all being charged with reference to the same amount of income, we should be regarded as a very backward and inefficient nation.
      This series of Amendments is designed to bring some order into the matter and, so to speak, catch the right people. There was in the Financial Times an encomium to me, an undeserved encomium, giving me credit for drafting these Amendments so well, or something to that effect. I
      948
      do not deserve that credit. The only credit I deserve, perhaps, is for understanding the Amendments and understanding how Section 412 works, though I doubt that I am right about a lot of the details since Section 412 has been, so to speak, a pain in the neck to everyone because of its wide implications. I admit any criticism which the Financial Secretary will advance against it. Admittedly, Section 412 was brought in by a Conservative Government, and the right hon. Gentleman may well bring in all the tu quoque arguments which are introduced in the House from time to time but which are of no logical significance.
      I come now to the Amendments themselves. Amendment No. 121 is rather long and I can summarise its effect in this way, illustrating it by reference to the peculiar legal relationship introduced in the Cayman Islands. It gets rid of that peculiar legal concept by treating the relationship as though it subsisted under the law of England. Thus, this is a pure anti-Cayman legislation Amendment. I think that it achieves what the Government want to do. In Committee, I think, the Chancellor of the Exchequer said that people who, on the face of it, would have rights under English law do not have those rights in the Cayman Islands because such rights are concentrated in the Commissioner for Companies, or whatever he is called.
      We believe that Amendment No. 121 does what the Government want, and we assume that they are not so foolish as to want the Chancellor of the Exchequer to be liable under all settlements which contain his name. That practice has spread widely as what I call a tease. It is a bit of a tease because all right hon. and hon. Members opposite could appear as beneficiaries under Cayman settlements and all be assessed by the Revenue. It is an absurd state of affairs. I do not imagine that the Financial Secretary will deny that that is the effect of Section 412 as amended by Clause 37.
      Now, Amendment No. 126. This provides that, if one is not a party to the settlement, one cannot be assessed on the accumulated income of the trustees of the settlement. That seems reasonable enough. One did not know about the settlement, yet as matters stand one

      949
      could be liable on the accumulated income. That is why I say that the Chancellor of the Exchequer and the Financial Secretary could find themselves assessed not on any benefit which they receive—they would not receive a penny—but because that they are in the settlement and could, therefore, be liable on the whole of the income accumulated by the trustees. The Amendment would remove the wider abuse in that direction.
      6.15 p.m.
      Now, Amendment 127. Any beneficiary who was not concerned with the settlement, who did not acquiesce or know about it, can be taxed only to the extent that he received income or the equivalent assets. That stops him being assessed on income which other people receive, income on which other people are assessed, income which he has never heard of, perhaps, because he does not know anything about the details of the settlement. That goes to another of the mischiefs under Section 412.
      Amendment No. 122 is intended to cure another result of Section 412. The present position in this respect is so laughable that I am sure the House will excuse me if I smile about it. If a beneficiary under a foreign settlement—it could be made in Ruritania—is resident in England and if he receives a single advance of capital, he is assessable to income tax and surtax on the whole of the income for six years back, and probably, though this is not absolutely certain, the income for the rest of the time until the settlement is wound up. I was sure that the Financial Secretary would be amused by that. But, again, what a way to run a country. I commend Amendment No. 122 to remove that anomaly.
      Amendment No. 124 is designed to stop income tax being assessable twice, on the non-resident by deduction, if it is available for deduction—this does not apply to many cases but theoretically it can apply—and again on the resident when he receives the benefit from the non-resident. Under Section 413(1) a non-resident can be taxed by deduction on the income, and then, when it comes to the resident, tax can be levied again.
      Amendment No. 125 is easy to understand. It provides that: if X has already paid tax on the income, Y should not be taxed on it again. That seems only
      950
      just. As matters stand at present, this crazy Section 412 plus Clause 27 mean that everyone who is a beneficiary can be taxed on the whole of the income as well as everyone else. If all members of the Labour Party were beneficiaries named in a settlement, they could all be taxed, each one on the same income.
      I hope that the Financial Secretary will agree with my statement of the law. If he does, he will be in some difficulty. No doubt, he will say—it is always an interesting exercise to guess at what he will say—"Those are rather ridiculous points. The hon. and learned Gentleman has been too subtle in pointing out the absurdities of the law. We know that the Revenue is sensible and it does not tax people in that way. We can leave it to the good sense of the Revenue only to tax the people who are responsible for making these tax-avoidance settlements and those who will benefit".
      There are signs under Section 412 and in the questions asked under Section 414 that the Revenue is ranging further afield. I know one case where a person was asked this question with regard to foreign settlements, "Have you ever made a transfer of assets to any partnership or individual abroad?" The person who was asked this question happened to have been abroad, so he has begun by describing how, when he was five or six, he used to buy an ice from a partnership. It was a transfer of assets from himself to the person who sold him the ice. He has now got as far as the age of 10 and as he is in his seventies and has lived abroad for several years, travelling a great deal, he has a good way ahead of him to answer all these questions.
      I use that example to counter the right hon. Gentleman if he says that the Revenue is always sensible. It cannot be sensible to ask somebody if he has ever made any transactions of that kind. That is the danger of Section 412, because people with enthusiasm who suspect that something has gone wrong can abuse the position.
      The Amendments are designed to achieve what I conceive to be the object of Section 412 and the Government, which is to meet the device of the Cayman Islands, by changing the legal relationship in the Cayman Islands so that it does not fit into English law. I

      951
      have done that in the first Amendment in, I hope, a much more efficient and succinct way than the Clause. The Amendments then exclude people from being taxed twice and people who did not know about the settlement, and prevent people who have one advance of capital being taxed on the future income of the settlement for ever and on the past six years.
      Mr. Harold Lever: The House is indebted to the hon. and learned Member for Northwich (Sir J. Foster) for making this complex matter appear rather simple. It is true that because of our legal system we labour under the difficulty that the Legislature is told one thing by half-comprehending Conservative politicians as the meaning of the tax legislation and then the Inland Revenue is free to argue something wholly different from the basis on which the tax law was carried through Parliament.
      That is because of the principle of English tax law, with which the hon. and learned Gentleman is very familiar, that Parliament's intention must be construed from the legislation and not from any words used when it came before the House. It is difficult to know how one could sensibly abrogate that rule, because otherwise the courts would have to endure interminable sessions of HANSARD reading, especially Finance Bill Committee and Report stages, which might not be altogether desirable.
      In the end, I think that we must fall back on the sound principle of English law, caveat Legislature—the Legislature must beware that it does not pass anything that it does not understand or on which it is not satisfied, and perhaps it should be more cautious when a Conservative Chancellor and Financial Secretary tell them the meaning of legislation. We had the same problem under Section 28 of the 1960 Act. More than one point of view exists as to the meaning which Parliament was assured was the meaning before it was passed. It is a problem.
      Although I know that you, Mr. Speaker, would follow every particle of the complexities of Section 412 and the hon. and learned Gentleman's Amendments, I am not sure that the House is well constituted to act as a sort of Chancery court of appeal from the interpret-
      952
      tation which I might give of the Section in contrast with the hon. and learned Gentleman's interpretation. Very complex legislation is passed by the House. Hon. Members cannot understand it, and there may be a case for a Select Committee to look at very complex Clauses, consisting of small groups of Members who would understand what the Clauses were about and would spend time dealing with the intricacies.
      A group of Members not chosen from a party political point of view, would recommend them or otherwise to the House, or summarise the meaning of what Ministers were commending to it. Otherwise, it is just too easy for a Treasury Minister. He has all the briefs on the complexities, and his followers have no reason to doubt his word when he says that the legislation is innocent. When a protesting learned counsel, however much trusted, and with a smile on his face like the hon. and learned Gentleman, tells us that the legislation is full of dire possibilities and grievous oppressive consequences, Hon. Members are, naturally, not in a position to judge and they take the Government's word. We should look at this. But until we have some means of subjecting Section 412 and the later Sections to that sort of procedure we shall have to work on the basis we have adopted so far.
      I think that I am right in saying that the hon. and learned Gentleman's Amendment No. 126 is really to improve Section 412 and not Clause 27. He is really taking the opportunity of the Clause to seek to improve Section 412. It looks very innocent and logical that we should say that if a man is not party to, or did not acquiesce in, the transfer of assets, albeit those assets were transferred to avoid tax abroad, he should in no circumstances be made liable for tax.
      That will not do. The hon. and learned Gentleman will be undoing the effect of the interesting Bembridge case, where Rudyard Kipling, to preserve the fruits of his poetic endeavours from the rapacious grasp of the Inland Revenue, sought to make just such a settlement abroad for the benefit of his daughter, who neither acquiesced in it, nor was a party to it, but later she was to become the beneficiary. It was right that she should be taxed.

      953
      I do not think that the hon. and learned Gentleman's wording is satisfactory. He asserts that the words go too wide at present, but it is certain that the words he uses would destroy the impact of the Section. It would not take him long, if the House accepted his Amendment, and it certainly would not take me long, to nullify the effect of Section 412, if all one had to do to escape liability was to show that one was not a party to, and did not acquiesce in, the transfer of assets.
      Sir J. Foster: The Amendment is not to exempt such people altogether. It is only to exempt them if they do not receive any money. If they receive some, they are liable. Therefore, I am exempting the Chancellor of the Exchequer, not Rudyard Kipling's daughter.
      Mr. Lever: There is also the question of when they receive the money. A man may be going to get it in five or 10 years' time. Is he to be given protection by the Clause until 10 years have elapsed, to have a 10-year relief from the inconvenience of paying English tax and surtax on his income?
      The Clause comes into operation only if avoidance is involved. A person can take himself out of Section 412 by showing that the arrangement is nothing to do with tax avoidance. I do not think that the hon. and learned Gentleman's drafting will do. It may be that Section 412 should be looked at again to see whether there are any of the anomalies he fears. But they are exceedingly hypothetical ones at present. The hon. and learned Gentleman asserts that this is the law, and I shall not pose as a comparable authority to him and advise what is or is not the law on this. But it is an assertion only of the hon. and learned Gentleman, unsupported so far by a single case.
      There has not been a single case where somebody like the Chancellor, or you, Mr. Speaker, an innocent, unknowing beneficiary of a discretionary trust abroad, has been ruined, or sought to be ruined, by the Inland Revenue because he could notionally become the possessor of some of this transferred income. When the hon. and learned Gentleman is in a position to say to the House, "This is the law because the courts have said that it is", there will be more force in
      954
      the fears he seeks to arouse. This provision has been in force for many years and he is unable to say that what he claims is the law in the sense that the courts have so found it.
      6.30 p.m.
      Of course, it does not follow that, because the courts have not yet so ruled, the law is not as the hon. and learned Gentleman states, but it is interesting to note that the courts have not ruled because we have not given them a chance to do so. The Inland Revenue has never attempted to use Section 412 in the way he fears. I agree that this would not be enough if it were crystal clear that this was the law and that we could at will or discretion set machinery into action to make the change whereby a person was made liable for tax on an income with which he had no connection and no hope of enjoying and which was settled abroad. The situation would then not be satisfactory. But I do not accept that the law could be so used.
      I am not myself in a position to consider this provision in a challenge to the hon. and learned Gentleman, but one cannot merely say that, because one possible interpretation of the words is such and-such, it has the inevitable consequence of the Inland Revenue choosing to act in a repressive and, indeed, ludicrous way. The House can be reasonably satisfied that, first, we have never attempted to do it, and, secondly, if we ever attempted to produce such an extraordinary thing as to assess all those concerned in such a transaction as he has mentioned, the courts would find an interpretation of the Section possible which would exclude those malign consequences which he fears.
      If the hon. and learned Gentleman is pleading for greater clarity, then I agree that, in a general sense, this is desirable. But it is a demand more easily stated than achieved when dealing with a transfer of assets abroad for the avoidance purposes of income tax. I hope that this general answer suffices. I have dealt with Amendment 126, on which the hon. and learned Gentleman said that he would exempt anyone who was not a party or who did not acquiesce. That would be going far too wide.
      Amendment No. 127 is a good deal more complex. I understand that it

      955
      would protect from the provisions of Section 412 any beneficiary not concerned with the actual transfer of the assets until he had the ability to cause money to be paid out or used for his benefit. Here again, this would allow all kinds of avoidance devices which would defer for 15, 20, or 30 years the impact of Section 412 on the fortunate beneficiary. The drafting is again too wide. It may be that the provision as it stands needs a new look. There is certainly plenty to look at and there are plenty of legal authorities of a complex kind on it. I must reject these Amendments because they are clearly too wide.
      Amendment No. 121 raises rather different considerations. What the hon. and learned Gentleman proposes is to replace subsection (2) of Clause 27 by a subsection of his own devising. It seemed to me that this was not a bad drafting attempt. I hope that it was the hon. and learned Gentleman's own effort, because it is quite creditable. But we think that our own drafting is more effective because it is more direct and the difficulty of his drafting is that he has not covered the Herdman case.
      The Herdman decision in the House of Lords was to the effect that Section 412 did not apply in cases where a change of circumstances enabled arrangements which were originally innocent of the purpose of avoiding tax to be used later on for the purpose of tax avoidance. If anyone had the good fortune to find himself connected with a settlement abroad originally of the most innocent intent he was free, without the impact of Section 412, to exploit it without limit because Section 412 would not bite on it, according to the Herdman decision.
      It therefore became necessary to put back the teeth in Section 412 which had been knocked out by the Herdman case, If we are to have a Section 412, it has to bite on all settlements abroad which at any time are used for avoidance of tax even though originally started for innocent purpose. Supposing a man has transferred money to set-up a Bible society in Bulawayo and his heir being more sophisticated and perhaps more materialistic, finds himself connected with a settlement set up for unimpeachable purposes and decides that it would make a useful vehicle for the avoidance of all
      956
      income tax and surtax. The Herdman decision meant that Section 412 would not prevent this. Clause 27 therefore knocks out the Herdman decision and I think that the hon. and learned Gentleman would be fair enough to say that that is reasonable.
      However, the hon. and learned Gentleman made a satisfactory effort. On balance, we just think that our own drafting is a little better than his. I would not like to say that there is anything wrong with his drafting for dealing with the Cayman Islands problem, except that he misses out the Herdman problem.
      Amendment No. 123 would write into the legislation provisions laying it down that it would not operate more than once on any separate item of income. I must say again that at no point has the Inland Revenue taken the view that Section 412 gives it the power to tax income twice. There are certain fundamental obstacles in our tax law to any such attempt. Therefore, Amendment 123 is unnecessary. I would be interested to hear of any attempt made by the Inland Revenue to tax income twice over in the manner apprehended by the hon. and learned Gentleman. I know of none and there is no reason for the Amendment.
      Amendment No. 124 is intended to give more precision to the charge of taxation under Section 412. It would provide that the individual would be taxed by virtue of Section 412:
      "…on such part of the amount or value of the benefit as is justly referable to the income of the person resident or domiciled out of the United Kingdom…".
      It is possible that this Amendment could be construed by the courts as saying that the burden of proof was on the Revenue to establish if the amount of assessment was correct.
      For this reason the Amendment is not acceptable. The facts are always at the disposal of the taxpayer and the foreign person associated with him in the transfer and they can bring the facts to the Inland Revenue and the appeal tribunals. The onus of proof in these matters is rather lighter on the Inland Revenue than normally which is fair and reasonable.
      The Inland Revenue can raise presumptions of enjoyment on income and the amount of the income enjoyed, and if the taxpayer feels that these are false and can prove that this is so, he is in a

      957
      position to prove the facts. We are not. He is in a position to persuade the trustees or give the necessary evidence of the real income, and we do not tax income more than once. Nor do we seek to tax people on an amount unrelated to the benefits which they have or which they potentially are in a position to receive.
      Amendment No. 125 sounds fairly innocuous, but it has the effect of exempting from the operation of Section 412 any benefit which could be shown to be derived directly or indirectly from any income on which any other person had been taxed. Thus if a foreign trust contained shares in a United Kingdom company, any benefits from those dividends would be excluded as a result from the provisions of Section 412 because the foreign trustees would have borne United Kingdom tax at the standard rate on the dividend. I do not know whether that was the intent. I thought that the hon. and learned Gentleman wanted to prevent double income tax, but, as the Amendment is drawn, the beneficiary would pay no surtax on the income, and that is a result which we could not accept and which, I know, the hon. and learned Gentleman would not want us to accept.
      But, here again, his anxieties about our collecting double tax are over-estimated. Indeed, it is an open secret that the Revenue would be happy just to collect the right amount of income tax and surtax from all overseas settlements and I can offer this open invitation to guide any of the hon. and learned Gentleman's clients who are troubled. They need not have the smallest anxiety about any of the dire consequences which the hon. and learned Gentleman envisaged. All they have to do if they have any problem in this matter is to go to the Inland Revenue which, with the greatest of delight and the least difficulty, will accept from them normal taxation, income tax and surtax, on any income appropriately covered by the Section. Nobody will be anxious to tax them on more than that, or twice on the same income either for surtax or income tax.
      For those reasons, the hon. and learned Gentleman's Amendments would have the effect of so damaging and weakening Section 412 as to render it practically useless. That does not mean that he has not raised a case, which I shall certainly
      958
      reflect upon, for looking into the wording and clarification of the wording and of the operation of Section 412. I shall certainly see that that is done.
      I hope that I have set at rest the fears raised by the hon. and learned Gentleman and any fears which you may have had Mr. Speaker, for you were involved in the possible dangers, and, although the Chancellor is not here, I hope that he, too, will feel reassured, as I am certainly reassured, that no such dangers as were envisaged exist. Nor is protection needed against the Section and nor is the protection of the Amendment appropriate.
      Sir J. Foster: I shall ask my right hon. and hon. Friends to vote for the Amendment, because the situation is unsatisfactory and it has been made more unsatisfactory by Clause 27.
      While the right hon. Gentleman was speaking, I was going through the exercise of considering that perhaps one could get the question raised without the Revenue trying to assess anybody by a declaratory judgment or construction summons where one made the possibility of tax dependent on the settlement. I hope that a public-spirited person will do that so as to get a ruling from the courts that the Chancellor of the Exchequer is liable to tax on such a settlement.
      6.45 p.m.
      Mr. Harold Lever: If the hon. and learned Gentleman will come furnished with such a ruling, he will find an immediate response from me in terms of possible legislative action.
      Sir J. Foster: A construction summons would be an expensive way, but I should like a public-spirited millionaire to take it, involving a settlement where the liability to tax of the Chancellor of the Exchequer was a material factor.
      More seriously, as I apprehend it, the Financial Secretary says that nobody has done it and so there is no proof that the law is as I have said. But I think that he will find that the position is that people can be taxed twice and can be taxed on income which they have never had and never will have. I should have thought that the right hon. Gentleman could have said that, having considered Amendment No. 123, he agreed that it was possible to tax someone twice and that, although the Revenue had not done

      959
      so, that was not a reason for saying that the Amendment was unnecessary. The Amendment proposes to change the law, not to leave it as it is, dependent on the whim and good sense of the Inland Revenue, which in 99 cases out of 100, it uses in its operation of Section 412.
      In the circumstances, I hope that we shall maintain our position and divide the House on Amendment No. 126.
      Question put, That the Amendment be made:—
      The House divided: Ayes 157, Noes 211.

      Division No. 337.]

      AYES

      [6.43 p.m.

      Alison, Michael (Barkston Ash)

      Goodhart, Philip

      Nicholls, Sir Harmar

      Atkins, Humphrey (M't'n & M'd'n)

      Goodhew, Victor

      Nott, John

      Awdry, Daniel

      Grant, Anthony

      Orr-Ewing, Sir Ian

      Baker, Kenneth (Acton)

      Gresham Cooke, R.

      Osborne, Sir Cyril (Louth)

      Balniel, Lord

      Grieve, Percy

      Page, Graham (Crosby)

      Bell, Ronald

      Griffiths, Eldon (Bury St. Edmunds)

      Peel, John

      Bennett, Dr. Reginald (Cos. & Fhm)

      Grimond, Rt. Hn. J.

      Percival, Ian

      Berry, Hn. Anthony

      Gurden, Harold

      Peyton, John

      Bessell, peter

      Hall, John (Wycombe)

      Pike, Miss Mervyn

      Biffen, John

      Harris, Frederic (Croydon, N.W.)

      Pink, R. Bonner

      Biggs-Davison, John

      Harvey, Sir Arthur Vere

      Powell, Rt. Hn. J. Enoch

      Birch, Rt. Hn. Nigel

      Hawkins, Paul

      Prior, J. M. L.

      Black, Sir Cyril

      Heald, Rt. Hn. Sir Lionel

      Pym, Francis

      Body, Richard

      Higgins, Terence L.

      Quennell, Miss J. M.

      Boyd-Carpenter, Rt. Hn. John

      Hiley, Joseph

      Rees-Davies, W. R.

      Brinton, Sir Tatton

      Hill, J. E. B.

      Ridley, Hn. Nicholas

      Bromley-Davenport, Lt.-Col. Sir Walter

      Hogg, Rt. Hn. Quintin

      Ridsdale, Julian

      Bullus, Sir Eric

      Holland, Philip

      Rippon, Rt. Hn. Geoffrey

      Burden, F. A.

      Hordern, Peter

      Rossi, Hugh (Hornsey)

      Campbell, B. (Oldham, W.)

      Hornby, Richard

      Royle, Anthony

      Campbell, Gordon (Moray & Nairn)

      Howell, David (Guildford)

      Russell, Sir Ronald

      Carlisle, Mark

      Hunt, John

      Scott, Nicholas

      Carr, Rt. Hn. Robert

      Jenkin, Patrick (Woodford)

      Shaw, Michael (Sc'b'gh & Whitby)

      Channon, H. P. G.

      Jones, Arthur (Northants, S.)

      Silvester, Frederick

      Chichester-Clark, R.

      Joseph, Rt. Hn. Sir Keith

      Sinclair, Sir George

      Clark, Henry

      Kerby, Capt. Henry

      Smith, John (London & W'minster)

      Clegg, Walter

      Kershaw, Anthony

      Speed, Keith

      Cooke, Robert

      Kimball, Marcus

      Stainton, Keith

      Cooper-Key, Sir Neill

      King, Evelyn (Dorset, S.)

      Steel, David (Roxburgh)

      Costain, A. P.

      Kirk, Peter

      Taylor, Sir Charles (Eastbourne)

      Craddock, Sir Beresford (Spelthorne)

      Knight, Mrs. Jill

      Temple, John M.

      Crouch, David

      Lawler, Wallace

      Thatcher, Mrs. Margaret

      Crowder, F. P.

      Legge-Bourke, Sir Harry

      Turton, Rt. Hn. R. H.

      Currie, G. B. H.

      Lewis, Kenneth (Rutland)

      Van Straubenzee, W. R.

      Dance, James

      Lloyd, Rt. Hn. Selwyn (Wirral)

      Vickers, Dame Joan

      d'Avigdor-Goldsmid, Sir Henry

      Longden, Gilbert

      Waddington, David

      Deedes, Rt. Hn. W. F. (Ashford)

      Lubbock, Eric

      Wainwright, Richard (Colne Valley)

      Digby, Simon Wingfield

      McAdden, Sir Stephen

      Walker-Smith, Rt. Hn. Sir Derek

      Dodds-Parker, Douglas

      MacArthur, Ian

      Walters, Dennis

      Doughty, Charles

      Macleod, Rt. Hn. Iain

      Ward, Dame Irene

      Drayson, G. B.

      McMaster, Stanley

      Wells, John (Maidstone)

      Eden, Sir John

      McNair-Wilson, Michael

      Whitelaw, Rt. Hn. William

      Elliot, Capt. Walter (Carshalton)

      McNair-Wilson, Patrick (NewForest)

      Wiggin, A. W.

      Elliott, R.W.(N'c'tle-upon-Tyne, N.)

      Maddan, Martin

      Williams, Donald (Dudley)

      Emery, Peter

      Marten, Neil

      Wilson, Geoffrey (Truro)

      Errington, Sir Eric

      Maude, Angus

      Wolrige-Gordon, Patrick

      Eyre, Reginald

      Mawby, Ray

      Wood, Rt. Hn. Richard

      Fletcher-Cooke, Charles

      Mitchell, David (Basingstoke)

      Worsley, Marcus

      Foster, Sir John

      More, Jasper

      Wright, Esmond

      Galbraith, Hn. T. G.

      Morrison, Charles (Devizes)

      Younger, Hn. George

      Gibson-Watt, David

      Mott-Radclyffe, Sir Charles

      TELLERS FOR THE AYES:

      Gilmour, Ian (Norfolk, C.)

      Murton, Oscar

      Mr. Bernard Weatherill and Mr. Hector Monro.

      Glover, Sir Douglas

      Nabarro, Sir Gerald

      Neave, Airey

      NOES

      Abse, Leo

      Blenkinsop, Arthur

      Butler, Mrs. Joyce (Wood Green)

      Albu, Austen

      Booth, Albert

      Callaghan, Rt. Hn. James

      Archer, Peter

      Boston, Terence

      Cant, R. B.

      Atkins, Ronald (Preston, N.)

      Boyden, James

      Carmichael, Neil

      Atkinson, Norman (Tottenham)

      Bradley, Tom

      Castle, Rt. Hn. Barbara

      Bacon, Rt. Hn. Alice

      Bray, Dr. Jeremy

      Concannon, J. D.

      Barnes, Michael

      Brooks, Edwin

      Craddock, George (Bradford, S.)

      Beaney, Alan

      Brown, Bob (N'c'tle-upon-Tyne, W.)

      Crossman, Rt. Hn. Richard

      Bidwell, Sydney

      Buchan, Norman

      Dalyell, Tam

      Binns, John

      Buchanan, Richard (G'gow, Sp'burn)

      Davidson, Arthur (Accrington)

      Bishop, E. S.

      Butler, Herbert (Hackney, C.)

      Davies, G. Elfed (Rhondda, E.)

      Davies, Dr. Ernest (Stretford)

      Jackson, Colin (B'h'se & Spenb'gh)

      Palmer, Arthur

      Davies, Rt. Hn. Harold (Leek)

      Jackson, Peter M. (High Peak)

      Pannell, Rt. Hn. Charles

      Davies, Ifor (Gower)

      Jay, Rt. Hn. Douglas

      Parker, John (Dagenham)

      de Freitas, Rt. Hn. Sir Geoffrey

      Jeger, Mrs.Lena (H'b'n & St. P'cras, S.)

      Parkyn, Brian (Bedford)

      Defargy, Hugh

      Jenkins, Hugh (Putney)

      Peart, Rt. Hn. Fred

      Dewar, Donald

      Jenkins, Rt. Hn. Roy (Stechford)

      Pentland, Norman

      Diamond, Rt. Hn. John

      Johnson, Carol (Lewisham, S.)

      Perry, Ernest G. (Battersea, S.)

      Dickens, James

      Johnson, James (K'ston-on-Hull, W.)

      Perry, George H. (Nottingham, S.)

      Dobson, Ray

      Jones, Dan (Burnley)

      Prentice, Rt. Hn. Reg

      Dunnett, Jack

      Jones, J. Idwal (Wrexham)

      Price, Thomas (Westhoughton)

      Dunwoody, Mrs. Gwyneth (Exeter)

      Jones, T. Alec (Rhondda, West)

      Price, William (Rugby)

      Dunwoody, Dr. John (F'th & C'b'e)

      Kelley, Richard

      Probert, Arthur

      Eadie, Alex

      Kerr, Mrs. Anne (R'ter & Chatham)

      Randall, Harry

      Edwards, Robert (Bilston)

      Kerr, Russell (Feltham)

      Rankin, John

      Ellis, John

      Lawson, George

      Rees, Merlyn

      English, Michael

      Lee, Rt. Hn. Frederick (Newton)

      Richard, Ivor

      Evans, Fred (Caerphilly)

      Lever, Rt. Hn. Harold (Cheetham)

      Robinson, Rt. Hn. Kenneth (St. P'c'as)

      Evans, Gwynfor (C'marthen)

      Lewis, Arthur (W. Ham, N.)

      Rodgers, William (Stockton)

      Faulds, Andrew

      Lipton, Marcus

      Roebuck, Roy

      Fernyhough, E.

      Lomas, Kenneth

      Rogers, George (Kensington, N.)

      Finch, Harold

      Loughlin, Charles

      Rose, Paul

      Fitch, Alan (Wigan)

      Luard, Evan

      Ross, Rt. Hn. William

      Fitt, Gerard (Belfast, W.)

      Lyon, Alexander W. (York)

      Rowlands, E.

      Fletcher, Rt. Hn. Sir Eric (Islington, E.)

      McBride, Neil

      Ryan, John

      Fletcher, Ted (Darlington)

      McCann, John

      Shaw, Arnold (Ilford, S.)

      Foley, Maurice

      MacColl, James

      Sheldon, Robert

      Ford, Ben

      MacDermot, Niall

      Shinwell, Rt. Hn. E.

      Forrester, John

      Macdonald, A. H.

      Shore, Rt. Hn. Peter (Stepney)

      Fowler, Gerry

      McGuire, Michael

      Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

      Fraser, John (Norwood)

      Mackenzie, Gregor (Rutherglen)

      Short, Mrs. Renée (W'hampton, N.E.)

      Freeson, Reginald

      Mackie, John

      Silkin, Rt. Hn. John (Deptord)

      Ginsburg, David

      Mackintosh, John P.

      Silverman, Julius

      Gordon Walker, Rt. Hn. P. C.

      McNamara, J. Kevin

      Skeffington, Arthur

      Gregory, Arnold

      Mahon, Simon (Bootle)

      Slater, Joseph

      Grey, Charles (Durham)

      Mallalieu, J. P. W. (Huddersfield, E.)

      Spriggs, Leslie

      Griffiths, David (Rother Valley)

      Manuel, Archie

      Stonehouse, Rt. Hn. John

      Griffiths, Eddie (Brightside)

      Marks, Kenneth

      Summerskill, Hn. Dr. Shirley

      Griffiths, Will (Exchange)

      Marsh, Rt. Hn. Richard

      Taverne, Dick

      Gunter, Rt. Hn. R. J.

      Mason, Rt. Hn. Roy

      Thomas, Rt. Hn. George

      Hamilton, James (Bothwell)

      Mayhew, Christopher

      Thomson, Rt. Hn. George

      Hamilton, William (Fife, W.)

      Mellish, Rt. Hn. Robert

      Tuck, Raphael

      Hamling, William

      Mendelson, John

      Varley, Eric G.

      Hannan, William

      Mikardo, Ian

      Wainwright, Edwin (Dearne Valley)

      Harper, Joseph

      Millan, Bruce

      Watkins, David (Consett)

      Harrison, Walter (Wakefield)

      Miller, Dr. M. S.

      Weitzman, David

      Hart, Rt. Hn. Judith

      Milne, Edward (Blyth)

      Wellbeloved, James

      Hazell, Bert

      Mitchell, R. C. (S' th' pton, Test)

      Wells, William (Walsall, N.)

      Healey, Rt. Hn. Denis

      Moonman, Eric

      Whitaker, Ben

      Heffer, Eric S.

      Morris, Alfred (Wythenshawe)

      Willey, Rt. Hn. Frederick

      Herbison Rt. Hn. Margaret

      Morris, Charles R. (Openshaw)

      Williams, Alan (Swansea, W.)

      Hilton, W. S.

      Morris, John (Aberavon)

      Williams, Alan Lee (Hornchurch)

      Hobden, Dennis

      Moyle, Roland

      Williams, Clifford (Abertillery)

      Hooley, Frank

      Murray, Albert

      Wilson, Rt. Hn. Harold (Huyton)

      Houghton, Rt. Hn. Douglas

      Newens, Stan

      Wilson, William (Coventry, S.)

      Howarth, Harry (Wellingborough)

      Ogden, Eric

      Winnick, David

      Howell, Denis (Small Heath)

      O'Malley, Brian

      Wyatt, Woodrow

      Howie, W.

      Oram, Albert E.

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Orme, Stanley

      TELLERS FOR THE NOES:

      Hunter, Adam

      Owen, Will (Morpeth)

      Mr. Ioan L. Evans and Mr. Ernest Armstrong.

      Hynd, John

      Padley, Walter

      Irvine, Sir Arthur (Edge Hill)

      Page, Derek (King's Lynn)

      Mr. Speaker: It might help the House if I reminded it that according to my calculations we have 14 debates ahead of us.

    Clause 27

      TRANSFER OF ASSETS ABROAD
      Sir J. Foster: I beg to move Amendment No. 128, in page 33, line 6, at end insert:
      (5) After subsection (4) of section 413 of the Finance Act, 1952, there shall be inserted the following subsection—
      '(5) The income of a person resident or domiciled out of the United Kingdom which
      962
      falls to be ascertained for any purpose of the last preceding section be computed in accordance with the Income Tax Acts'.
      When you look at HANSARD tomorrow, Mr. Speaker, you will find that the speeches so far have been short, except for mine on Amendment No. 121, which could not be helped. This is a very short Amendment. It is another attempt to bring some sanity into Sections 412 and 413 of the 1952 Act. The Amendment is designed to secure that a person resident or domiciled out of the United Kingdom shall be taxed on the ordinary principles applicable to such persons and not on the principles which could be

      963
      derived from Sections 412 and 413, which are contrary to the way in which a person of this status is treated.
      I need not say anything more at this stage. The Financial Secretary will perhaps say that, in practice, the Revenue assesses such persons under this principle. I hope so.
      Mr. Harold Lever: I am not quite clear why the hon. and learned Member for Northwich (Sir J. Foster) has this anxiety, because Section 412 speaks of:
      "…any income of a person resident or domiciled out of the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to Income Tax by deduction or otherwise…"
      There is prima facie no reason to suppose that the Section requires the income to be calculated by any method except that normally applicable for calculation of the various types of income to which invested capital can give rise.
      This has been brought up at rather short notice. I do not think that there is any difference of intent between the hon. and learned Gentleman and myself and I hope that he will see fit to withdraw the Amendment. I will certainly promise to see whether there is a problem here, and if there is I will put it right. I hope that the hon. and learned Gentleman will not think that I am admitting that there is any problem; we have not had time to look into this in depth.
      Sir J. Foster: This only shows that what the right hon. Gentleman has said is right, namely, that this is an impossible way of trying to settle the details of taxation legislation. However, in view of his reply, I beg to ask leave to withdraw the Amendment.
      Amendment, by leave, withdrawn.

    Clause 30

      CHANGES AS TO PROPERTY PASSING ON DEATH
      Mr. Patrick Jenkin: I beg to move Amendment No. 254, in page 35, line 45, after wise ' insert:
      'for the removal of doubt the retention of a reversionary interest which fails during the lifetime of the settlor or upon his death or upon the death of any other person shall not be
      964
      treated as the retention of such benefit as aforesaid and when such reversionary interest forms part of his estate it may at the option of the personal representatives be treated as an interest in expectancy for the purpose of ascertaining the aggregate principal value of all the property comprised in the estate'.
      I will begin by taking up the comment made by my hon. and learned Friend the Member for Northwich (Sir J. Foster), when he withdrew the previous Amendment. We come now to the estate duty provisions of the Bill. It seems that this is, par excellence, a case which supports his point. The procedure whereby we seek to enact complicated fiscal legislation is most inappropriate. My hon. Friend the Member for Guildford (Mr. David Howell) suggested that we should have a much more open procedure, with far more consultation. I was intrigued by the comment made by the Financial Secretary that a small Select Committee would perhaps be a suitable method. He will recollect that I put forward a similar suggestion on Second Reading.
      Clauses 30, 31 and 32 represent a useful consolidation of estate duty law as it effects settlement. The opportunity has been taken to tidy up, clarify, remove anomalies and to clear away uncertainties surrounding this complex branch of estate duty law. It is something which we must welcome. A number of people have been shaken by the complexity and length of the statutory provisions as they will be when we have finished with them. A great deal is due to the extension of the law on discretionary trusts, to which we shall come later. I want to clear up an uncertainly, or perhaps I should say to seek to codify a Revenue practice relating to settlements where the settlor has or might be taken to have reserved an interest out of the settlement so that he is not excluded from enjoyment of the property.
      Under Clause 30(2)(b)(ii) the requirement is that
      "the deceased was not at all times during that period entirely excluded from possession and enjoyment of the property and from any benefit to him by contract or otherwise."
      7.0 p.m.
      It is obvious that if a man is to make a settlement, if the statutory seven-year period is to run and exempt him from estate duty, he should not be able to retain advantages under the settlement and, as it were, both have his cake and eat it.

      965
      The Amendment is concerned with the reservation of an interest in expectancy, a remainder, which fails during the life of the settlor or on his death so that it never becomes an interest in possession. Is that to be regarded as the reservation of a benefit within the meaning of Clause 30(2)(b)(ii)? Clearly, from a commonsense point of view, it is the reservation of a benefit; it is a potential benefit. But the fact that it does not mature cannot be known when he reserves it.
      However, we must also have regard to one of the main features of estate duty law which is incorporated in Section 5(3) of the 1894 Act. In the case of a deceased man who had, as it were, an interest in a reversion which never matured—where he never enjoyed it—Section 5(3) says that is exempt from duty. It never becomes an interest in possession so as to constitute an asset in his estate. We have, therefore, a specific exemption.
      It might be argued—indeed, it has been argued—that it would be illogical to regard the reservation of such an interest in expectancy as the reservation of a benefit which would prevent the seven-year period from running. Yet, we had a case from Australia, which was heard by the Judicial Committee of the Privy Council in London in 1929, where, on the comparable provisions in Australia, it was held that such an interest in expectancy could amount to a reservation.
      We then come to the Revenue practice in this country. It might be convenient to refer a passage in the Sixth Edition of Green's Death Duties, page 170, where this matter is dealt with:
      "The exemption relating to the failure of an interest before possession would not appear to be in point. That exemption is restricted to claims arising by reason only of the failure or determination of the interest. Here"—
      and it is talking about the reservation of a benefit—
      "the basis of liability is that the deceased was the settlor. In practice, however, duty is not claimed in this country unless the interest takes effect in the settlor's lifetime."
      That final sentence is a statement of the present Revenue practice.
      The purpose of the Amendment is to do no more than codify the Revenue practice. Later, we shall come to other examples where the Government have accepted that this is an entirely proper
      966
      thing to do in the context of this codification and restatement of the existing law.
      For example, one need only mention pension funds and trusts. Amendment No. 254, if accepted, will make clear that if a settlor makes a settlement but reserves an interest in expectancy, which, in the event, never falls into possession during his lifetime, he will not be regarded as having reserved a benefit from the settlement to prevent the seven-year period running.
      The last two or three lines of the Amendment made clear that when a reversionary interest forms part of the estate then, it having been reserved out of a benefit and falling into possession, the rules in Sections 7(5) and (6) of the 1894 Act as to valuation shall apply in that case as they apply in the ordinary case where reversion is in the estate.
      This Amendment seems totally unexceptionable. I hope that the Government will feel able to take advantage of this codification to clear up yet one more uncertainty, one more extra practice, to make the legislation even tighter than it is now.
      Mr. Taverne: The question which the lion. Gentleman has raised arises, to some extent, from fears which have been expressed that perhaps potential possession and enjoyment of an interest amounts to non-exclusion. The firm answer is that it does not.
      I understand that the Amendment, in seeking to make this clear, deals not only with the narrow point of a reversionary interest, but the rather wider point of a contingent interest. Concerning a reversionary interest, on the determination of a settlor's life interest, the fact that on the creation of the settlement he might have retained an ultimate reversion would not, under the present law, amount to non-exclusion.
      On the wider problem, as the hon. Gentleman has said, the practice has never been to regard an interest in expectancy as constituting non-exclusion from property subject to a life interest, or whatever it may be. The estate duty provisions in the Bill do not change the law in any material respect.
      The hon. Gentleman has suggested that it would perhaps be useful to codify this and make it absolutely clear. But if the

      967
      Amendment is meant to cover a wider sphere, it does not seem to do so, and it is technically defective in this respect. My view is that it is superfluous, because an interest in expectancy does not constitute non-exclusion from the property in which the interest subsists.
      The Amendment is again difficult because it envisages that, if the reversionary interest did not fail but was part of the settlor's estate on his death, it would amount to non-exclusion. The Amendment provides that there should be an option to be charged on the value of the reversion on the settlor's death instead of on the basis of a limited interest which ceased.
      The intention is not entirely clear here and it may not be quite as suggested because different persons, I am instructed, would be accountable for the duty under the supposed alternatives.
      It may be that there is a case for stating explicitly what has long been accepted as the practice of non-exclusion in gifts legislation. But if there is such a case for specific legislation, the Amendment does not achieve it. It creates uncertainties. It does not deal with the wider problem to which the hon. Gentleman referred. I submit that the practice is clearly established and that there is no ground for the fears which have been expressed.
      Mr. Patrick Jenkin: I do not think that I put the case on the footing that fears had been expressed, but merely that it would be desirable to codify what the hon. Gentleman has conceded is a long established practice, but which, I remind him, is contrary to the decision of the Judicial Committee of the Privy Council under comparable Australian legislation.
      I think that the Minister went part of the way to accepting that it might be desirable that this matter should be codified. No doubt he will consider this between now and next year. On the wider point of the option, I appreciate that the Amendment takes the matter a little wider than codifying present practice, but it seemed to me to be a useful addition. No doubt the Minister will also consider that.
      The hon. Gentleman knows that we do not necessarily have the drafting resources available to Ministers. If the
      968
      drafting is defective, I can only offer my apologies. I am grateful that the Minister did not dismiss the Amendment out of hand.
      Having said that, I beg to ask leave to withdraw the Amendment.
      Amendment, by leave, withdrawn.
      Mr. Taverne: I beg to move Amendment No. 163, in page 36, line 1, leave out 'held by trustees on' and insert 'subject to'.
      Mr. Speaker: We are taking, also, Government Amendments Nos. 164 and 201; Amendment No. 256, in page 36, line 31, after 'aforesaid', insert:
      'and notwithstanding any rule of law or equity to the contrary a person shall be deemed to be so excluded if being sui juris he has executed a deed renouncing any interest in the trust';
      and Government Amendments Nos. 166, 167, 169, 172, 173, 174, 176 to 179, 192 and 187.
      Mr. Patrick Jenkin: On a point of order—
      Mr. Speaker: I promised the Opposition earlier this afternoon that I would take out Government Amendment No. 201. We will discuss it separately when we reach it.
      Mr. Jenkin: I am obliged.
      Mr. Taverne: The separate consideration of Amendment No. 201 will be extremely welcome to the Government as well as to the Opposition.
      Amendments Nos. 163 and 164 clarify the new charge on property the income of which is wholly or partly subject to a discretionary trust by indicating that the charge falls, subject to the provisions in Clause 31 for measuring the relevant slice, on the whole property subject to such a trust.
      There has been criticism of the provisions relating to discretionary trusts in the Bill as published. It was argued that they were not at all points apt to deal with the subject matter because a discretionary trust is one giving the trustees discretion only as to the application or distribution of income. Any advance or appointment of capital is outside the discretionary trust framework.
      The Amendments make it clear that the charge under the discretionary trust

      969
      head operates where property is comprised in settled property which is subject to a trust conferring discretions on the trustees or some other person as to the application of all or part of the total income of all the property subject to the trust which is for the time being available for distribution.
      The Amendments are technical. They do not affect the scope of the charges as was originally intended. Unless hon. Members wish me to go into greater detail, perhaps it might be sufficient if I explain the general scope of the Amendments.
      Amendments Nos. 166, 167, 169, 172, 173, 174, 176 and 187 are part of the same technical Amendment and can be called a drafting series of Amendments. The Government Amendments to which I have not referred are, in a sense, minor Amendments which can best be referred to later on Amendment No. 201 because they accept the situation under that Amendment.
      Mr. Patrick Jenkin: We on this side accept that all the Government Amendments to which the Minister of State has briefly spoken are correctly described as technical Amendments. They do not seek to extend or modify the scope of the Section but merely define its operation more accurately. On that ground we welcome them.
      We are also taking Amendment No. 256, which appears in the name of my right hon. and hon. Friends and myself. It raises an important issue on the whole operation of the new provisions relating to discretionary trusts. Its importance is rather topically highlighted by a letter appearing in The Times Business News this morning from Mr. Michael Nightingale which happened to be published when we are debating these matters.
      Mr. Nightingale was concerned to draw attention to the very wide scope of the charge, particularly as it affects accumulation trusts. As I read his letter, the changes which have been made—and they are welcome—in Amendment No. 201 do not touch the case which he has made. The Minister of State appears to be somewhat doubtful about that. Perhaps he will be able to explain it.
      7.15 p.m.
      Perhaps I may read the point which Mr. Nightingale makes, because it would
      970
      be met partly by our Amendment No. 256, which we have had on the Paper for some days. Having drawn attention to the basis of the charge on discretionary trusts, Mr. Nightingale goes on to say:
      "The Finance Bill as it stands at present has given the Revenue far wider powers than intended by the Chancellor. By taking Clause 29 (2) (b) (iii) (bb) in conjunction with Clause 30 (3) (c), now renumbered Clauses 30 and 31"—
      he was writing on the basis of the Bill as it was in Committee—
      "it would seem that a person 'not having received any benefit under that trust' but nevertheless 'having been eligible to benefit' and having been 'not entirely excluded' can be treated as if he had received the income of the Trust. Therefore where trustees have accumulated all the income of the trust over a period of years and one of perhaps many eligible beneficiaries dies, it would appear that the total capital of the trust could be charged with his estate."
      Mr. Nightingale acknowledges that we debated these issues in Committee, but he accuses my right hon. and learned Friends and myself of timidity. I take the whole weight of that accusation on my shoulders, as I was dealing with the matter, in not pressing the Government harder. Perhaps I may try to make amends, because Amendment No. 256 goes part of the way to deal with the problem.
      As I mentioned in Committee, the structure of the charge on discretionary benefits is that the beneficiary must be both eligible to benefit and have received actual benefits. If there is a trust for accumulation, however, the appropriate slice can be deemed to pass even if no actual benefit has been paid to the deceased, provided that he is eligible to benefit.
      In Committee, we moved an Amendment to provide that this should apply only to accumulations after Budget Day, hut this was rejected. Amendment No. 256 is another attempt to try to go part of the way to reach the same solution. It states that a beneficiary who is perhaps, unlikely to receive any actual benefits under the trust can firmly exclude himself so that after seven years he would be free from any risk of there being a charge to estate duty on his death as a result of his formerly having been a member of the discretionary class. That is to say, he is to be regarded as entitled to be removed from the category of those eligible to benefit.

      971
      It is the general view among lawyers who deal in this branch of the law that the object of a discretionary trust cannot exclude himself, because although he might bind existing trustees by his deed of exclusion, he cannot in law bind future trustees. Their discretion is in law to be unfettered. Therefore, he remains eligible in spite of all his efforts under the law as it stands, with the consequent potential liability to estate duty if the income of the trust is wholly or partly accumulated. Amendment No. 256 intends to make it clear that if he renounces his interest, he effectively ceases to be eligible to benefit and after the seven-year period the property is no longer at risk on his death.
      The Government have admitted—the Minister of State made the point—that the new provisions widen the scope of the charge where there is a trust to accumulate. Mr. Nightingale's point on the Bill as it was originally put forward is a sound one. Amendment No. 256 would go, I admit, only part of the way, but it would be part of the way to meet the legitimate objection which his letter puts forward. I say it goes only part of the way because infant beneficiaries and beneficiaries who are unborn cannot renounce their interests. If there is no renunciation the risk remains.
      I believe that this is a reasonable and necessary Amendment in the context of the new estate duty charge on discretionary trusts. Hitherto this has not been necessary because, unless the point was reached of the last two beneficiaries of the class, there was no risk to estate duty on the death of one of the class of discretionary beneficiaries. Now there is. Therefore, some provision must be made to enable a beneficiary to renounce his interest and, if he survives the seven year period, to take him out of the risk of estate duty liability on the trust property. I hope that the Government will feel that this is a reasonable Amendment and will accept it.
      Sir E. Errington: I do not quite understand how this position arises. It is a question of what the word "deceased" means. Does it refer to the deceased being a settlor, or does it refer to what happens on the death of one of the beneficiaries under this class of discretionary case? In other words is it
      972
      retrospective to the date of the actual settlement of the discretionary trust, or is it referable only to the date of the death of one of the persons benefiting from the discretionary trust? Supposing a discretionary trust was made in 1929 which included a number of people who are still alive. If one of them dies after 15th April, is that where the matter is, or does it go right back to 1929?
      Mr. Taverne: I am not quite sure that I have followed the question.
      Mr. Speaker: I think that the question relates to Amendment No. 201, which we are taking later.
      Mr. Taverne: With respect to the hon. Member for Aldershot (Sir E. Errington), perhaps I may return to the point he has raised when we deal with Amendment No. 201.
      One cannot entirely disregard Amendment No. 201 in considering this Amendment and the criticism which is expressed in today's letter in The Times Business News. That letter relates to the Bill as originally presented and does not have regard to Amendments which are on the Notice Paper, including Amendment No. 201 and the later Amendment No. 175.
      One of the criticisms made of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) was that he did not press further on the Question, That the Clause stand part of the Bill, a point which he had earlier raised. A similar criticism is made of me, that I did not refer to the point which he referred to in detailed discussion on the Amendment when we considered the Question, That the Clause stand part of the Bill.
      There was a good reason for this. Before we came to the Question, That the Clause stand part of the Bill, I had stated to the Committee that we were intending to revise the provisions of the Bill as presented, and would introduce a seven year limitation of liability under a discretionary trust. This involved a recasting of several provisions of the Bill and, amongst others, the Clause 30(3)(c) which he strongly criticised and which is now Clause 31(3)(c) goes under Amendment No. 175, and so it is no longer there. The criticism in the letter is directed at the Bill as it stands without regard to the Amendments which we shall later be discussing.

      973
      Under Clause 30 as it is proposed to be amended, the charge is limited to eligibility within seven years of death, plus either actual receipt of benefit or actual non-exclusion from benefit, which amounts to the equivalent of benefit. The charging provisions will refer to two concepts, that of a person who was eligibile to benefit as a result of a discretion as to the application of all or part of the combined income of all the property from time to time subject to the trust and, secondly, that of a person who, having ceased to become eligible in that sense, was nevertheless not entirely excluded from possession of or enjoyment of the property and from any benefit to him by contract or otherwise, and that non-exclusion would extend the time by which one would look back as one has to do with a life interest.
      The Amendment now before us, the purpose of which I find slightly difficult to follow, is intended to ensure that a discretionary beneficiary can take himself out of the class of potential beneficiary by a declaration under seal. That perhaps was relevant to the position under the Bill as formerly presented, but under the proposed Amendment No. 201 that position no longer has to be remedied. Since the terms of the Amendment are somewhat uncertain, and since the effect of the Amendment is somewhat uncertain—although the hon. Member explained it, I was not sure what he was intending—I think the House would be unwise to accept the Amendment and should look instead at Amendment No. 201 which meets the point to which this Amendment was fundamentally directed.
      Amendment agreed to.
      Further Amendment made: No. 164, in page 36, line 3, leave out 'income of that property' and insert
      'of the combined income of all the property from time to time subject to that trust which is'.—[Mr. Taverne]
      Mr. Speaker: We come now to Amendment No. 201, which I have separated from the other Amendments which are grouped.
      Mr. Taverne: I beg to move Amendment No. 201, in page 36, line 10, leave out from 'age)' to end of line 31 and insert:
      (aa) the deceased having immediately before the date of his death been eligible to benefit
      974
      as a result of the discretion aforesaid, and the property in question having at that date been subject to the trust, the deceased has so benefited at any time during the material period (that is to say, so much of the period of seven years ending with that date as falls after 15th April, 1963) at which the property was subject to the trust; or
      (bb) the deceased having ceased to be eligible as aforesaid, or the property in question having ceased to be subject to the trust, at a time within the period of seven years ending with the date of his death, the deceased has so benefited at a time during the material period (that is to say, so much of the period of seven years ending with the date when the deceased or, as the case may be, that property so ceased as falls after 15th April, 1963) at which that property was subject to the trust; or
      (cc) the deceased or the property in question having ceased as aforesaid before the beginning of the period of even years ending with the date of his death, but the deceased not having been entirely excluded from possession and enjoyment of that property and from any benefit to him by contract or otherwise at all times during that period, the deceased has so benefited at a time during the material period (that is to say, so much of the period of seven years ending with the date when the deceased or, as the case may be, that property so ceased as falls after 15th April, 1963) at which that property was subject to the trust; or.
      This is a major Amendment and it meets the major criticism on estate duty made in Committee, which I felt had some force. It means that if a beneficiary at the time of his death has had no income for seven years from a discretionary trust, then there is no charge on that beneficiary.
      If there has been property which has gone out of the trust within seven years of the death, or if the beneficiary ceased to be eligible within seven years of the death, then one finds the proportionate charge on that property by looking at the proportion of the income which the deceased received over the seven years before the property went out, or for the seven years before he ceased to be eligible.
      If the property went out more than seven years before and there has been no non-exclusion, and if he ceased to be eligible more than seven years before and he did not retain any benefit, then no charge arises.
      There is still the difficulty which I mentioned before of the diminution of estate duty through capital settlements being made instead of income settlements. Perhaps we can deal with that

      975
      when we come to a later Amendment, I think Amendment No. 175, which deals with that specific point.
      The Amendment meets the major criticism on the Clause as a whole. I should perhaps add that the new charge leaves out altogether the charge at present in the Bill at page 36 under the heading (bb). That provided for a charge if the deceased had had no income benefits before the settlement was determined, or an advance of capital was made, but he had had an occupation or enjoyment of property or other benefit afterwards within seven years before his death. That charge was aimed at a possible avoidance of the new liability, but it came under severe criticism from the legal profession because of the great difficulties envisaged in operating it. There clearly was weight in those criticisms, and that charge has been dropped. The question of non-exclusion is only relevant in seeing whether or not the seven year period of time runs; whatever benefit one has retained will not give rise to a separate charge. I hope that this part of the new scheme will prove acceptable to the House.
      Sir E. Errington: Will this arrangement operate in regard to all existing discretionary trusts?
      Mr. Taverne: Yes.
      7.30 p.m.
      Mr. Patrick Jenkin: I am glad that the Minister of State has recognised the importance of this Amendment. I believe that it is the most important single Amendment in the whole of the estate duty Clauses. I felt that it would be more desirable to discuss it separately.
      Subject to the point which the Minister has mentioned about capital withdrawals, the Amendment obviates the necessity which otherwise would have existed for trustees to keep records going back over the whole of the life of a trust to determine the liability for estate duty on the death of a discretionary beneficiary. This will be widely welcomed by the professions outside which have to administer these trusts.
      They and the Opposition can legitimately share the credit for having persuaded the Government—and the Government also may take credit for having
      976
      been persuaded—that the original proposal was so burdensome as to be virtually unworkable. I shall come later to the problem of capital and will say no more about it now.
      We very much welcome the disappearance of the original paragraph (bb). It always seemed to me to be a hypothetical risk of avoidance which it was designed to prevent, and it would have given rise to considerable difficulty of calculation of the duty. I am sure that the balance of advantage is firmly on the side of deleting it, as has been done by the Amendment. We warmly welcome the Government's readiness to meet criticisms on this matter and I know that the Amendment will be greeted with relief outside the House.
      Mr. T. G. D. Galbraith: This is a complicated matter and I am not a financier. Could the Minister clear my mind on one point? In the case of a discretionary trust which is accumulating, with no payments made and one of the beneficiaries dies—a person who has had nothing and nothing has been distributed—is he or his representative liable for his share, assuming that he would get an equal share with the other beneficiaries? If he has received nothing, is there any duty payable?
      Mr. Taverne: If he has received nothing for seven years, there is no duty. If he has received something for one year out of the seven, one must consider what proportion it bears to the total income paid out of the trust. That proportionate charge will be made on the capital of the trust.
      Amendment agreed to.
      Further Amendments made: No. 166, in line 35, leave out from beginning to 'or' in line 37 and insert:
      'that settled property was held on trust to accumulate'.
      No. 167, in line 40, leave out 'that income' and insert:
      'any income of that settled property'.—[Mr. Taverne.]
      Mr. Taverne: I beg to move Amendment No. 168, in page 36, leave out lines 42 to 44.
      Mr. Speaker: With this Amendment it will be convenient to take Amendment Nos. 249, 261, 248, and Government

      977
      Amendment No. 183, and sub-Amendments, and Government Amendments Nos. 184 to 186 and No. 189.
      Mr. Taverne: Amendment No. 168 is a drafting Amendment. The reliefs in question are dealt with in the proposed new paragraph 8A of Schedule 17. This is to be found in Amendment No. 183, which is the main Amendment and has some Amendments to it by the Opposition.
      Paragraph 8A does not give rise to any particular difficulty. It contains three separate exemptions from the estate duty charge on settled property. The first relates to charitable trusts and replaces the existing exemption for charity beneficiaries by a wider provision, taking the charitable trust completely outside the charge of duty. At the same time, it meets an undertaking which I gave in Committee to provide exemption for trustees of charitable trusts.
      The second exemption in the paragraph merely restates, in slightly different form, an existing exemption in favour of a corporation sole. The third exemption puts it beyond doubt that the new charge on settled property does not apply on the death of a pensioner or annuitant whose benefit was provided under approved superannuation arrangements.
      Paragraph 8B is a little more difficult It relates to the request for specific exemption for benevolent funds. This presented us with considerable difficulties. It is hard to draw a clear line between benevolent funds and family discretionary trusts. The opening words of paragraph 8B restrict the exemption to discretionary trusts as opposed to ordinary trusts conferring life interest. There are then further limitations imposed by the new paragraph. It is limited to certain classes only of beneficiary—those employed in a trade their spouses, relatives and dependants and charities. The further limit is that the exemption does not apply on the death of the settlor himself if he also is a beneficiary. Then it provides for associated operations to be excluded.
      Under sub-paragraph (2) shareholders of a company controlled by not more than five persons are excluded if they are beneficiaries. If they die a charge arises. Then under sub-paragraph (3) "relative" is defined. This was the
      978
      only way in which we could draw the line between family discretionary trusts with which the whole of the new recasting of the charge is concerned and the kinds of benevolent funds with which hon. Members opposite are rightly concerned and which, under the new sub-paragraph, are exempted from duty.
      Mr. Patrick Jenkin: Here again, the Minister of State has met substantially points which we pressed upon him in Committee. The charitable trustees remuneration which at first he was disposed to resist; he has clarified the position of pension funds. This is admirable that it is to be a statutory provision and that it does not rest merely on Inland Revenue practice. He has made some attempt to deal with benevolent funds as he has described to the House. But it is on this question of the non-charitable benevolent fund that the Government's new paragraph to Schedule 17 does not go far enough and could produce wholly ludicrous results. Under 8B, the Government's scheme is that a discretionary trust will be exempt from estate duty on the death of a beneficiary if the discretion was not exercised except to members of certain closely defined classes. Under sub-paragraph (b)—this is the provision to which I particularly wish to refer—we read that one of the conditions is that the deceased
      " … was neither a person by whom, or at whose expense, or out of funds provided by whom, the settlement was made nor a relative of such a person:"
      I thought that the Minister of State was a little coy when he passed over that subparagraph, saying that, if benefits were paid to the settlor, that would preclude the exemption applying.
      I have no doubt that he had in mind the case of the proprietor of a family company who sets up a benevolent trust for his employees. Clearly, he could not escape estate duty by seeing that the income was paid to himself. But it goes much wider than that. If the deceased provided any funds at all, a liability to estate duty will arise on his death. That trust is wholly excluded from the exemption and it is this which makes the Government's Amendment far too restricted and why we have had to put down a number of Amendments to it.
      The first of these, Amendment (z) would extend the ambit of the exemption

      979
      to trusts not merely where discretion is operated but where, for instance, annuities are paid, as happens with many of these benevolent trusts. Our Amendments (bb) and (cc) to the Amendment are drafting Amendments, but it is Amendment (dd) which is the nub of our Amendments on this. With this, we want to bring into the exemptions a class of benevolent fund which is contributory. The point of the provision in sub-paragraph (b) of 8B is that anybody who contributes to a benevolent fund is to be treated, in the language of the Minister of State, as a "settlor". All contributors are persons who have provided funds and they are all to be treated exactly as if they were settlors.
      For example, what about a trade union fund? This is clearly intended to be within the exemption, covering
      " … persons of a class specified in the trust instrument by reference to employment in a particular trade …".
      I am thinking of a fund in which the members contribute, perhaps, 6d. a week and the fund is available to make discretionary payments to members who fall on hard times, to their widows, to members who fall sick and have accidents and so on. If a member of such a fund dies, having had benefits in the previous seven years, the trustees of that fund will have to pay estate duty if, by reason of the size of the rest of his estate, he comes within estate duty charge.
      An example which comes rather nearer home is that of our own Members' Fund. Hon. Members will know that, every month, we have deducted from our pay the sum of £2, making £24 a year, which is paid to the Fund. It is not a charitable fund, but is available to ease the hardship of retired Members and members of their families. There is a scale of benefits, on which sums can be paid to individuals who fall on hard times and it is at the discretion of the management trustees of the Fund.
      But because we are all contributors, because, in the words of Amendment No. 183, a member who dies would be
      "… a person by whom, or at whose expense, or out of funds provided by whom, the settlement was made …",
      the Members' Fund will be liable to the estate duty on the death of someone who has had a benefit from it. I cannot be-
      980
      lieve that that is the Government's intention. Therefore, I feel that they have not directed their minds to the question of the contributory benevolent fund.
      I feel strongly that we cannot let this Amendment go through with a contributory benevolent fund, such as our own Members' Fund, or a trade union contributory benevolent fund having a potential liability to estate duty—I would be delighted if the Minister of State can say categorically that this is not so—on the death of someone who has had discretionary payments from the Fund in the last seven years before his death. It is a complete nonsense and our Amendment (bb) will provide the way out.
      7.45 p.m.
      It would add a new sub-paragraph (d) to provide that a person who makes periodic contributions
      "…of reasonable amount in all the circumstances so as to constitute or add to the settled property …"
      shall not be regarded as a person at whose expense the fund has been provided. Of course, whenever the word "reasonable" is used, some element of subjective judgment is introduced, but, having discussed this at some length with experts in this field, we have come to the conclusion that there is no other way by which one can exclude the contributory benevolent fund.
      I am delighted to see that the hon. Member for Bothwell (Mr. James Hamilton) has joined us. His position is well known as an important member of the Labour Party's trade union group. I have been explaining that a trade union contributory benevolent fund will become liable to estate duty under the Government's Amendment. The Minister of State will be entitled to say that there is no liability until the assets reach £10,000, and this will cover the great majority of people who are beneficiaries under benevolent funds. But if one has a house of any size in London, its value cannot be far short of £10,000.
      A Member of Parliament may have lived in such a house. When he dies—we know, tragically that this can happen—he can leave a widow with relatively little to live on, in circumstances in which she is entitled to look to the Member's Fund for help. She may nevertheless be the owner of the house and may follow

      981
      her husband very few months later. The house may bring her within liability for estate duty and, if she has had benefits from the Members' Fund, the Fund will have to pay estate duty on her death. This can only be described as a bizarre situation and I cannot believe that the Government intended it.
      Our new sub-paragraph (d) could, perhaps, give rise to some loophole for avoidance. We may not have drafted it with exactly that degree of skill which Government draftsmen might have used, but it would not be right to let this paragraph go as it stands. Our sub-paragraph (d) provides a way of exempting these contributory benevolent funds. Even if the Government's paragraph were on the Statute Book for only a year, so that it could he tidied up in next year's Finance Bill, if the Minister of State has any doubt at all, he should be prepared to accept our Amendment (dd).
      It would not be essential to our case to accept the other Amendments, although we believe that they would improve Amendment No. 183, but Amendment (dd) is essential if we are not to impose a ludicrous charge to estate duty, which will fall, not on the widow in the case which I suggested, or the deceased trade union beneficiaries, but on the trustees of the fund.
      Trade unionists, employees and others who gladly contribute their sixpences and shillings each week to build up benevolent funds to help colleagues who fall on hard times will resent their contributions being used to finance a charge to estate duty, particularly when such a charge has come in by a side wind.
      We must remember that the Bill cannot be amended in another place and that this is the last chance of doing something to solve this problem. I trust that the Amendment will be accepted, even if it is law for only a year and is amended in next year's Finance Bill.
      Mr. John Smith: If this legislation causes us to take a long, hard look at our Members Fund, a most old fashioned Fund miserably invested, we shall have received benefit from an unexpected quarter.
      When drawing up discretionary trusts, people have been in the habit of making
      982
      the discretion wide and including in it perhaps more people than it was the settlor's intention should, in the ordinary way, benefit. There is a class of discretionary trust—I am thinking of a large one to which my attention has been brought—where the settlor includes members of his family, perhaps not necessarily close ones, as well as employees and past employees of his family business. Amendment No. 183 refers to the exemption applying only if
      "… the discretion referred to … has not at any time been exercisable with respect to any person other than …"
      and it goes on to list the classes of person, one of whom is the class I have mentioned, namely employees or past employees. If such a trust includes members of the settlor's family, does that take the entire trust out of this exemption?
      If the trust includes members of the settlor's family but was not primarily intended for that purpose, is there anything which the settlor can do to put the matter right for the benefit of his family business, employees and past employees?
      The words "at any time" are not familiar to me in this context and, having done no more than read the OFFICIAL REPORT of the Committee proceedings, I am led to wonder if the phrase "at any time" still means at any time since the start of the trust or whether it is modified by the provisions to which the Minister referred relating to the past seven years.
      If there is a charge for estate duty—perhaps I should know the answer to this—is the rate of estate duty calculated solely by reference to the share of the trust or by reference to the share of the trust plus the deceased's own free estate, because in that case it could have deleterious effects on just the people whom the settlor wished to benefit?
      Mr. Taverne: I will first answer the questions asked by the hon. Member for the Cities of London and Westminster (Mr. John Smith). If a trust can be exercised in favour of member; of the family as such—not employees who happen to be members of the family—then there is no exemption for such a trust. If, however, they are employees and if the trust has been exercised in their favour, then while they themselves are not exempted and while the trust will bear estate duty in proportion to the

      983
      benefit that they have received, it will not lead to the disqualification of the trust as a whole. It means that, in so far as beneficiaries die and are not members of the family, their deaths will not give rise to a charge.
      "At any time" means at any time since the trust was settled. It is not whether it has been exercised because the word used is "exercisable". Involved in this question is the matter of whether the family trust gave exemption to employees and members of the family or to employees who may have been members of the family as well. The estate duty is determined by the proportion which the beneficiaries' income bears to the total income from the trust, and that proportion of the trust will bear the estate duty.
      If, therefore, there is an estate of less than £10,000 then, as I understand the position, there will be no charge. If the estate is more than £10,000, then there will be an appropriate charge. It will bear no relationship to the free estate of the deceased but will be determined by the chargeable portion of the trust fund itself.
      As the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) said, the Opposition do not intend to press the first four of the proposed Amendments, which are concerned with an interest in possession. There has never been an exemption from estate duty charged on the death of a life tenant, and in this respect the Bill has not altered the law.
      It is to Amendment (dd) that the Opposition attach importance, and there are two points to be remembered about this proposal. First, I cannot advise the House to accept the Amendment because there seems little doubt that it is drafted in terms so wide that it could lead to the widespread use of the exemption in cases where it is not intended that the exemption should prevail. What are regular
      "…annual, weekly or other periodic contributions of reasonable amount in all the circumstances …"
      when it is difficult to imagine what all the circumstances are?
      One may need to have regard to the total of the settlement or the total income of the settlor. It could cover settlements which could give rise to a payment if
      984
      there is a loss or a reduction of income, It could refer to someone who was himself the settlor and who would, therefore, get a considerable benefit. All the estate would escape a charge, when I do not think that that is intended by the Amendment.
      However, while I cannot advise the House to accept the Amendment, I admit frankly that I am not entirely happy about the points of criticism that have been adduced in connection with 8B of the Amendment proposed by the Government. The official view is that the words
      "…neither a person by whom, or at whose expense, or out of funds provided by whom, the settlement was made nor a relative of such a person … "
      are not an apt description of the sort of situation the hon. Member for Wanstead and Woodford has in mind. It is not apt to describe a person who makes modest periodic contributions to a fund and, therefore, the official view is that the Amendment is unnecessary.
      The kind of employees' contributory sickness or benevolent fund to which the hon. Gentleman referred is a different kind of arrangement from the settlements covered by 8B, in the general context of that provision, where the settlor, as the employer, makes provision for the benefit of his employees.
      8.0 p.m.
      So the official view is that the Amendment is unnecessary, but I frankly confess that I am not entirely happy about the official view. There is no intention whatsoever to exact a charge in the case of the benevolent or sickness fund, and I can give an assurance that in the kind of case the hon. Gentleman mentioned no charge will be made in the course of the next year. Nevertheless, I should like to look at the matter again, because it seems to me that one could possibly take a different view—that the contributors would be settlors and, therefore, unintentionally might be caught by 8B and that we might be settlors under the Membership Fund.
      If, as is the intention of the Revenue, no charge will be made in the case of these funds, the usual objection which is raised, I think reasonably, by hon. Members that they do not wish to rely on undertakings made by the Revenue will not be as serious an objection as it normally is. I want to look at this matter myself very carefully in order to be quite

      985
      certain that this kind of situation is avoided.
      There is some force in the point by the hon. Member for Wanstead and Woodford. The provision will not affect these funds in the course of the next year, but we want the law to be clear, and we do not want to rely simply on Ministerial or Revenue undertakings.
      Amendment agreed to.
      Mr. Patrick Jenkin: I beg to move Amendment No. 255, in page 37, line 14, at end add:
      'and when a partnership agreement provides that on the death or retirement of a partner his share in the partnership assets shall vest in the continuing partners who shall pay to him and on his death to his widow (if she survive him) or to his dependants an annuity and such provisions have been in force for at least seven years before the death of the partner the property which vests in the continuing partners on the death or retirement of such partner shall be deemed to have passed to them by reason only of such a bona fide purchase as is referred to in the said section 3'.
      The Amendment deals with the vexed case of partnerships. In Committee, the Minister of State sought to allay the anxieties that I have expressed, and which have been expressed outside, that the new provision brings in a new charge on the death of a partner. The hon. and learned Gentleman said:
      "I can assure the Committee that there is no change in the position of partnerships. The new charge does not extend the existing charge at all."—[OFFICIAL REPORT, Standing Committee F, 24th June, 1969; c. 730.]
      I must tell the Minister of State that that assurance has not succeeded in allaying fears.
      He will remember that the Ralli case in 1936 held that where partners make a mutual agreement that on the death of one, the reserves and good will, etc., should vest in the survivor, it was to be regarded as a case where consideration had been given, and should be excluded. But I am told that, in practice, the Inland Revenue is extraordinarily reluctant to apply the rule. It does not seek to treat the case of the accrual by survivorship to surviving partners as a passing, as it was in Section 1 and, it is now suggested, within this new substituted Section 2(1)(b).
      I myself am quite sure that this is wrong. This is a mutual promise, and full consideration has therefore been given. Therefore, it is wise, in view of the fears expressed, and what I am told
      986
      is the practice of the Estate Duty Office, to state the position fairly and squarely so that no doubt can in future arise. That is what the Amendment seeks to do, and I very much hope that the Minister of State will feel it right that it should be incorporated in the Bill.
      Mr. Taverne: I really do not understand why these fears persist. Paragraph (e) of the substituted Section 2(1)(b) which is to be inserted imposes a charge on the partnership interest which passes on death to the continuing partners. It does not extend the existing charge on partnerships in any way. The charge under paragraph (e) relates only to partnership property passing otherwise than for consideration. The kind of arrangement which is referred to in the Amendment where the annuity is payable to the widow, quite a common arrangement, is one where the annuity is valuable consideration. There is no doubt about this whatsoever. The annuity itself does not attract duty. It was not chargeable to duty before, because of court decisions, and as Section 2(1)(d) is being repealed annuities as to widows under partnership agreements will never be chargeable to duty. But that fact does not in any way prevent them from being valuable consideration. Therefore, as I say, I do not see where the doubts can arise.
      Even if the supposed difficulty about annuities had existed, I am afraid that the Amendment would not have been a suitable way of dealing with it. The hon. Gentleman himself understands that an Amendment which appears to be appropriately drafted can never, perhaps, have been as fully discussed by a large number of people looking at all the difficulties, as happens with Government Amendments, and it is inevitable that some points will from time to time be overlooked.
      There are some difficulties here. The Amendment refers to an interest vesting on death or retirement, although the charge under paragraph (e) arises only on death. Again, instead of providing for the annuity to be treated as consideration for the passing of the share, it provides that the share itself is to be treated as passing by reason only of a bona fide purchase, however small the annuity. But under the existing law, if the value of the obligation to pay the annuity equals the value of the partnership there is full consideration, but if it

      987
      is less there will be a proportionate exemption only. There would be a total exemption under the Amendment.
      Finally, the requirement in the Amendment that the agreement must have been in existence for seven yars before death is illogical, because if the disposition is to be exempted as a bona fide purchase it should be exempted whenever made.
      I therefore cannot recommend the House to accept the Amendment. I do not see the need for it. I do not see how any possible argument can be mounted that the charge has been in any way extended. It is only because the old difficulty under Section 1 has led to the repeal of the Section that specific words are needed, but they do not in any way extend the existing law.
      Mr. Patrick Jenkin: I am sure that what the Minister of State has just said will be read by those concerned in the matter outside the House. I hope that in his second attempt he will prove to have succeeded in removing the anxieties that have been expressed. I beg to ask leave to withdraw the Amendment.
      Amendment, by leave, withdrawn.
      Amendment made: No. 169, in page 38, line 11, leave out 'received by the trustees in their capacity as such' and insert 'of that property'.—[Mr. Taverne.]
      Mr. Taverne: I beg to move Amendment No. 170, in page 38, line 27, after 'on', insert:
      'or at a date ascertainable only by reference to'.
      The Clause as it stands provides that
      "In the enactments relating to estate duty … the expression
      " … 'settlement' … shall include a lease of property which is for a life or Lives or for a period ascertainable only by reference to a death or which is terminable on a death, that property"—
      is to be treated:
      "as the property comprised in the settlement."
      This definition does not cover the lease of property for a period terminable, not actually on death but on a date ascertainable only by reference to death; that is., three months after death. The Amendment is intended to meet this point.
      Mr. Patrick Jenkin: The Minister of State will know that we objected in Com-
      988
      mittee to this extension of the charge to estate duty to cover leases terminable on death. It would be out of order if I pursued that case on this Amendment. We recognise that if the charge is to be made this Amendment is necessary to make it comprehensive, but I should like the Minister to realise that our hostility to this provision remains unabated.
      Amendment agreed to.
      Further Amendments made: No. 171, in page 39, line 16, after 'and' insert:
      '(notwithstanding the provisions of section 34(2) of this Act)'.
      No. 172, in line 37, leave out 'held by trustees as' and insert:
      'subject to such a trust as is'.
      No. 173, in line 47, leave out from 'interest' to end of line 3 on page 40 and insert:
      'subject to that trust subsists, shall be treated for the purposes of that sub-paragraph as being the property subject to that trust'.
      No. 174, in page 40, line 4, leave out from 'to' to 'shall' in line 6 and insert:
      'the income of any property'.—[Mr. Taverne.]

    Clause 31

      PART ONLY OF PROPERTY TO BE TREATED AS PASSING IN CERTAIN CASES
      Mr. Taverne: I beg to move Amendment No. 175, in page 41, line 40, leave out from beginning to 'an' in line 27 on page 43 and insert:
      'subject to such a trust as is mentioned in that sub-paragraph, but the whole of the combined income of all the property from time to time subject to that trust arising during the relevant period was not paid to or applied for the benefit of the deceased as a result of the discretion so mentioned, there shall be treated as passing on the death by virtue of that sub-paragraph part only of the property in question, being a part bearing to the whole of the property in question the same proportion as, subject to paragraph (d) of this subsection, the part of the combined income of that property which was so paid or applied during that period bears to the whole of that income arising during that period; and for the purposes of this subsection—

      (a) the expression "the relevant period" means such period during which the property in question was subject to the trust and the deceased was eligible to benefit as a result of the discretion aforesaid as falls within the material period for the purposes of head (aa), (bb) or (cc). as the case may require, of the said sub-paragraph (iii);

      (b) subject to paragraph (c) of this subsection, any sum paid to or applied for the

      989
      benefit of any person eligible to benefit as a result of the discretion aforesaid out of any of the property subject to the trust, whether purporting to be so paid or applied out of income or by way of a distribution of capital, being a sum paid or applied after 15th April, 1963 and not being a sum paid as mentioned in section 30(5)(d) of this Act, shall be treated as having been paid or applied out of income as a result of that discretion if or to the extent that the sum in question does not exceed the amount, if any, by which the aggregate amount of all the income with respect to which that discretion was exercisable arising during the period beginning with 16th April, 1963 and ending with the date when the sum in question was so paid or applied exceeds the aggregate amount or all sums previously paid or applied out of that property during that period to persons eligible as aforesaid and, if or to the extent that the sum in question does not fall to be treated under this paragraph as having been paid or applied out of income, it shall be treated as having been paid or applied by way of a distribution of capital;

      (c) in determining, for the purposes of the application of paragraph (b) of this subsection to a particular sum paid or applied as therein mentioned, the aggregate amount of all sums previously so paid or applied, there shall be left out of account any sum so previously paid or applied if or to the extent that it falls to be treated under that paragraph as having been made by way of a distribution of capital; and if two or more sums were so paid or applied on the same date, that paragraph shall apply as if both or all of those sums had been a single sum of their aggregate amount, and, if part only of that aggregate amount falls to be treated under that paragraph as having been paid or applied out of income and both or all of those payments or applications were not to or for the benefit of the same person, that part shall be apportioned between the different payments or applications in proportion to the sums respectively paid or applied;

      (d) if, in consequence of paragraphs (b) and (c) of this subsection, the aggregate amount which falls to be treated as having been paid or applied during the relevant period as a result of the discretion aforesaid out of income exceeds the amount of the income with respect to which that discretion applies which arose during that period, the combined income of all the property from time to time subject to the trust arising during that period shall be treated as increased by the amount of the excess;

      (e) the amount of the combined income of the property from time to time subject to the trust during any period shall be treated as increased by'

      Mr. Deputy Speaker: With this Amendment I understand it will be convenient for the House to consider the following Amendments: No. 258, in line 42, leave out from 'period' to first 'the' in line 44 and insert:
      990
      'of seven years ending with the date of the deceased's death, or so much of that period as falls after 15th April, 1963)'.
      No. 259, in page 42, line 18, leave out 'after 15th April, 1963' and insert 'during the relevant period'.
      No. 260, in line 25, leave out 'after that date' and insert 'during that period'.
      No. 180, in page 43, line 44, leave out 'paragraph (a)' and insert 'paragraphs (b) and (c)'.
      No. 181, in line 47, leave out 'paragraphs (b) to (d)' and insert 'paragraph (e)'.
      No. 302, in Schedule 17, page 135, line 42, leave out 'subsisting at the date of the earlier death'.
      No. 303. in line 49, after '2(1)(b)', insert:
      'then, if either the earlier death occurred before the said substitution had effect or the relevant period referred to in section 31(3) of this Act was not the same in regard to that death as in regard to the later death,'.
      Mr. Taverne: Amendment No. 175 makes the necessary modifications to the computation of the charge on discretionary trusts which flow from the limitation of the charge by reference to receipt of benefits within seven years but it also clarifies the rules determining whether payments are income or capital. This is the problem to which I referred in Committee and also when I moved Amendment No. 201.
      On the determination of the charge I do not think that in the ordinary course of income benefit this will give rise to considerable difficulty, but when it comes to paragraph (b) we are in rather more controversial territory. Paragraph (b) provides the rule determining whether the payment is income or capital. The difficulty we face is that it is very easy to get round or limit the charge by making advances of capital but it is difficult to determine what is capital in dealing with cases where the income has been accumulated.
      We looked at it in every possible way to devise a satisfactory method of getting round the difficulty of having to keep accounts of past income payments, both income paid out and total income of the trust, to determine how far something has been payment of capital or payment of income, but it is not possible to find a

      991
      satisfactory way of getting over the difficulty without requiring a comparison beginning at the fixed starting point of 16th April, 1963.
      Other possibilities were looked at but they had to be dismissed because they were artificial or more burdensome for the trustees. It is very important for the trustees to know at any particular time whether a payment is of income or a capital payment. It must be known at the time it is made because the charge will depend on whether it was income or capital.
      It was, therefore, felt that the way of doing it is to start at the period of 16th April, 1963, and look at the aggregate income of the trust up to that time when the distribution was made to see whether it was less than the total of earlier distribution. This still involves keeping a number of accounts but it is less onerous than the previous presentation of this Clause. There will no longer be a need to keep track of beneficiaries who have disappeared or to find exactly who died. This will resolve difficulties about past payments but there will still be a need to keep records of the income of the trust and all payments out.
      In the next few years this will not give rise to particular difficulties because the starting date is April, 1963, and it may be expected that we shall be able to find a way round which will mean that one can identify what is capital and what is income and when the period of time becomes onerous those past records will no longer be kept. At present every alternative arrangement we looked at would have been more onerous or more artificial or difficult and unsatisfactory and the only way we could see was to have regard to the accumulations of income from 15th April, 1963. If a better method comes forward or we can agree on one which the professions regard as more suitable no doubt it can be incorporated in a future Finance Bill.
      8.15 p.m.
      Mr. Patrick Jenkin: The Minister of State recognised what is going to be the source of contention between the two sides of the House on paragraph (b). When the Bill was originally issued it contained the calculation of the charge under a
      992
      discretionary trust by reference to payments to beneficiaries going back over the whole life of the trust up to 1963. In those circumstances it was perhaps not unreasonable when considering what payments are income and what are capital that the same time-scale should apply. It we are to keep the records to determine the amount of the charge it is not unreasonable to keep the records for the capital point as well.
      Now the Minister of State, having accepted on an earlier Amendment that the calculation of the charge should be made only by reference to income payments in the last seven years, it is very unreasonable that the capital question should still require records to be kept over the whole life of the trust. Unless all the income is distributed every year, so long as there are no accumulations during the period of the trust and no distribution of capital—unless all those things apply—the trustees will have to keep records throughout the life of the trust of payments of income and capital. I cannot accept what the Minister of State said about the removal of the obligation to trust beneficiaries who have long since ceased to benefit and to maintain records of beneficiaries who may have died offers any amelioration to the duties of the trustees.
      In the vast majority of trusts all records will have to be kept as they would have to be as the Bill was originally drafted. As the Bill stands, if there is an accumulation of interest in year 1 and then in years 2 to 24 and it follows year by year and the records have to show what is income and what is capital and will be treated as income up to the amount of the accumulation 25 years earlier. The advantage has been mainly nullified by paragraph (b) in this Amendment.
      We on this side of the House are gravely disappointed. I recognise the difficulties which the hon. and learned Gentleman faces, but our Amendments Nos. 258, 259 and 260 would deal with them. We agree that if accumulations made outside the seven years period are ignored—as would be the case under our Amendments—and followed by a capital payment inside the period, then, if the whole of the income has been distributed within the seven-year period, there could be some reduction in the charge.

      993
      Against that must be weighed the arguments of the massive inconvenience to trustees, the cost of maintaining records, the risk of the loss of records over the life of a long trust, changes in I the identity of trustees, and so on, over the whole period of the trust. We have little doubt where the balance of advantage lies.
      The Minister of State was good enough to say that he will reconsider this, but we must make it perfectly clear that we thoroughly disapprove of the decision the Government have made in paragraph (b), and I hope that, when the time comes, my right hon. and hon. Friends will feel it right to mark their disapproval by dividing against the Amendment.
      Before we come to that, however, there is another point arising on this group of Amendments with which I must deal. We are discussing also Amendments Nos. 302 and 303. Schedule 17 deals with quick succession relief. In Committee, I expressed anxieties when the Government sought to include certain words in paragraph 6(1) of Schedule 17 relating to quick succession relief. On that occasion the Minister was delightfully frank; he said that he did not understand his own Amendment. Perhaps in mitigation I should say that it was after midnight.
      Having studied the matter with the benefit of a letter which the Minister of State was good enough to write to me, I am more than ever convinced that I was right, though I recognise that the matter is somewhat complicated. Quick succession relief is an abatement of duty if two deaths happen within five years covering the same property. The shorter the interval, the higher the abatement. It can go up to 75 per cent.
      However, the property must be the same; or, under rather elaborate rules in the 1958 Act, it can be regarded as being the same. Let me take a relatively simple case. The life tenant dies. Duty is paid on his death. Subsequently the settlement ends. The assets are sold. The cash is distributed. One of the residuary beneficiary gets it, and he dies within five years. That is treated as the same property and the relief applies.
      Paragraph 6 of Schedule 17 is intended to extend the application of the quick succession allowance to discretionary trusts. If a discretionary trust comes to an end,
      994
      the slice that is dutiable is fixed by reference to the benefits in the seven years before the death. The quick succession elief, therefore, should apply where two beneficaries die within a year or two after the settlement ends.
      If that were all, I gain the impression that the Minister of State would not disagree. However, in Committee the Government added words in the third line of paragraph 6 to provide that the settlement should be
      "subsisting at the date of the earlier death".
      This has the effect of preventing the operation of quick succession relief where two discretionary beneficiaries die after the settlement has come to an end and the quick succession allowance applies only if the first death occurs while the settlement still subsists.
      I cannot see why this limitation should apply. If the seven-year period is the same for the two beneficiaries, I agree that there can be no overlapping slice and no relevance of the quick succession relief. This appears to be the delusion under which the Minister of State is labouring. He said this in the letter he wrote to me on 3rd July:
      "There can however have been no 'accruer' or reallocation when the discretionary trust has come to an end before the death of either beneficiary, because the shares prospectively chargeable in the ensuing seven years on the death of any of the beneficiaries are fixed at the date when the trust comes to an end by reference to their enjoyment of income up to that date, and are not altered by later events. The Amendment therefore provided that paragraph 6 should not apply in this one case."
      This assumes that the sum of their shares of the slice of capital cannot add up to more than 100 per cent., but it can. Let us suppose that there is a beneficiary who has enjoyed 'all seven years—it would be slightly less than that, because we are assuming the deaths after the end of the trust, but we will suppose that he has enjoyed up to nearly seven years of benefit under the trust, during which he has had most of the income, except during the last couple of years when he married and his wife had most of the income. Then, after the settlement comes to an end on some other event, they are both killed in a car crash. On those two deaths the effect of the calculation—
      Mr. Taverne indicated dissent.
      Mr. Jenkin: The Minister of State shakes his head, but I have consulted Chancery lawyers and they assure me that there well can be cases where then, is a substantial overlap in circumstances where quick succession relief should apply in these circumstances and that the view expressed by the Minister of State in the paragraph of the letter which I have read that there can be no overlapping is a mistaken one.
      Amendments Nos. 302 and 303 would put this right by removing the requirement that the settlement should have been subsisting on the date of the earlier death. I believe that this is necessary if quick succession relief is to apply properly in the case of discretionary trusts. I drew the attention of the Minister of State to this in Committee. I have studied his letter. I have discussed this question with experts. I am satisfied in my own mind that the case which I have advanced is a justified one. I hope that the Minister of State will be able to accept this.
      Sir E. Errington: Though I have some legal training, I should not presume to intervene in the detailed discussion on the Amendment were it not for the fact that I am very worried about the difference of opinion which arises between the views expressed by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) and those implicit in the shaking of the head of the Minister of State showing disagreement. This extraordinary position resembles the problem of Schleswig Holstein, in which there were three people who knew all about it—one was dead, one was mad, and I shall say nothing about the third, who might be my hon. Friend. These problems must be worked out and understood by people who have to go into them very minutely and with the greatest possible care and they are not helped by this sort of Clause.
      The answer which the Minister of State gives is that the problem will be dealt with next year. However, people have to make their arrangements. They must understand these matters early on certainly. Things go on during the intervening twelve months. This is an example of those occasions when the best that the Opposition can do is to table an Amendment which they believe to be helpful. The situation should never have arisen
      996
      because the original Clause should have been thought out carefully. If greater care had been devoted to this question, the problems that have been so skilfully adumbrated from the Opposition Front Bench would not have arisen.
      This will involve considerable expense. It will add to the considerable amount of work which must be done by the Estate Duty Office of the Inland Revenue. The answer will be nil until next year. This is most unsatisfactory. Without going into the detailed merits of the Amendment, I suggest that the Clause, which runs to four pages, should not have been produced until it had been properly thought out.
      8.30 p.m.
      Mr. Taverne: There must be some artificial quick succession relief in the case of discretionary trusts. If beneficiaries die successively, and the second has received a larger share than he did previously after the death of the first, it is reasonable that he should have some relief on the earlier property. If, for example, the rule is laid down in paragraph 6 of Part II of the Schedule that 30 per cent. of the property subject to such a trust is charged on the first death and 40 per cent. of the second, one could say that 40 per cent. of the earlier 30 per cent. is the same property for quick succession relief.
      On the other hand, one would normally take the case where both are receiving their share of the income, or have received for a period of seven years shares of the income, which means that if they die a fixed proportion of the capital would be subject to a charge, and at that point the trust ceases to subsist. One would say that there could be no question of quick succession relief, because there would be no question of the same property later, after the trust had ceased to exist, bearing duty, because when the trust ceased to exist different parts of that property would give rise to a charge.
      The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has put forward the idea that in certain cases there could be some overlapping and possibly a charge of more than 100 per cent. I would like to consider the case. At first sight, it is a somewhat startling proposition, but I would not like to rule out on first impression something that he says he

      997
      has not only carefully considered himself—and he is no mean expert on estate duty—but has discussed with members of the Chancery Bar. In the circumstances, I would like to look at that point to see whether a change must be made subsequently. But the point does not appear very clearly from Amendments Nos. 302 and 303. I was not clear what kind of case was in mind. I wondered whether perhaps it was a case such as one of the parties ceasing to be eligible to benefit under a trust before the settlement ended, and both dying after it ended.
      As I am sure the hon. Gentleman would concede, it would be unwise to incorporate in the law at this stage, when we have no further chance to look at it, something which may be uncertain in its effect and may go rather wider to the benefit and advantage of the taxpayer. In the circumstances, I hope that he will accept that we want to have a further look at the problem and perhaps come back on the subject next year, if necessary.
      I mean no disrespect to Amendments Nos. 302 and 303 when I say that the more important part of the hon. Gentleman's observations was directed to Amendments Nos. 258, 259 and 260, and Government Amendment No. 175. There are two disadvantages about the way in which it was proposed to deal with the problem in Amendments Nos. 258, 259 and 260. One is that there is not sufficient protection for the Revenue. I think that the hon. Gentleman conceded this. It is obviously a case where estate duty could be avoided where income arising before the beginning of the seven-year period is accumulated and distributed as capital within the seven years. It is not only the Revenue and the body of taxpayers as a whole that must be protected. The position of trustees must also be protected, and that is something which Amendment No. 258 fails to do.
      The second and third Amendments affect the rule determining whether a particular payment is to be treated as income or capital, and they say that regard must be had to the income which arose within seven years before the deceased's death. But the trustees cannot look subsequently at a payment and retrospectively decide in the light of what happens later whether a particular payment was capital or income.
      That difficulty is not met by the Amendment. They must know which is which, because the charge on a discretionary trust is on two main parts—on the fund in existence at the death of the beneficiary, based on the income benefits he has had up to the date of the death, and on advances of capital. Therefore, they must know at the time which is capital and which is income, and they cannot decide retrospectively as they would have to do under Amendment No. 258.
      It is not only anti-avoidance with which we are concerned. The provision is at present the only feasible way in which we can see the new estate duty code, with its charge on discretionary trusts, working where the distinction between capital and income must be made.
      Although I recognise that there is still a considerable burden imposed on trustees in some cases, I think that the hon. Gentleman under-stated the burden previously imposed on them, of which they have been relieved. At present we can see no way round the problem within the code, though we shall see whether between ourselves, the professions and anyone else who can help we can perhaps find a more suitable way round it in the future.
      Question put, That the Amendment be made:—
      The House divided: Ayes 198, Noes 134.

      Division No. 338.]

      AYES

      [8.35 p.m.

      Abse, Leo

      Bishop, E. S.

      Callaghan, Rt. Hn. James

      Albu, Austen

      Blenkinsop, Arthur

      Cant, R. B.

      Archer, Peter

      Booth, Albert

      Carmichael, Neil

      Armstrong, Ernest

      Boston, Terence

      Castle, Rt. Hn. Barbara

      Ashton, Joe (Bassetlaw)

      Boyden, James

      Concannon, J. D.

      Atkins, Ronald (Preston, N.)

      Bradley, Tom

      Craddock, George (Bradford, S.)

      Atkinson, Norman (Tottenham)

      Bray, Dr. Jeremy

      Crossman, Rt. Hn. Richard

      Bacon, Rt. Hn. Alice

      Brown, Bob (N 'c'tle-upon-Tyne, W.)

      Dalyell, Tam

      Barnes, Michael

      Buchan, Norman

      Davies, G. Elfed (Rhondda, E.)

      Beaney, Alan

      Buchanan, Richard (G'gow, Sp'burn)

      Davies, Ifor (Gower)

      Bidwell, Sydney

      Butler, Herbert (Hackney, C.)

      de Freitas, Rt. Hn, Sir Geoffrey

      Binns, John

      Butler, Mrs. Joyce (Wood Green)

      Delargy, Hugh

      Dewar, Donald

      Johnson, Carol (Lewisham, S.)

      Padley, Walter

      Diamond, Rt. Hn. John

      Johnson, James (K'ston-on-Hull, W.)

      Page, Derek (King's Lynn)

      Dickens, James

      Jones, Dan (Burnley)

      Palmer, Arthur

      Driberg, Tom

      Jones, J. Idwal (Wrexham)

      Pannell, Rt. Hn. Charles

      Dunnett, Jack

      Jones, T. Alec (Rhondda, West)

      Parker, John (Dagenham)

      Dunwoody, Mrs. Gwyneth (Exeter)

      Kelley, Richard

      Parkyn, Brian (Bedford)

      Dunwoody, Dr. John (F'th & C'b'e)

      Kenyon, Clifford

      Pavitt, Laurence

      Eadie, Alex

      Kerr, Mrs. Anne (R'ter & Chatham)

      Pentland, Norman

      Edelman, Maurice

      Kerr, Russell (Feltham)

      Perry, George H. (Nottingham, S.)

      Edwards, Robert (Bilston)

      Lawson, George

      Prentice, Rt. Hn. Reg

      Edwards, William (Merioneth)

      Lee, Rt. Hn. Frederick (Newton)

      Price, Thomas (Westhoughton)

      Ellis, John

      Lee, Rt. Hn. Jennie (Cannock)

      Price, William (Rugby)

      English, Michael

      Lee, John (Reading)

      Probert, Arthur

      Evans, Fred (Caerphilly)

      Lever, Rt. Hn. Harold (Cheetham)

      Randall, Harry

      Evans, Gwynfor (C'marthen)

      Lewis, Arthur (W. Ham, N.)

      Rees, Merlyn

      Faulds, Andrew

      Lomas, Kenneth

      Richard, Ivor

      Fernyhough, E.

      Loughlin, Charles

      Robinson, Rt. Hn. Kenneth (St. P'c'as)

      Finch, Harold

      Luard, Evan

      Rodgers, William (Stockton)

      Fletcher, Raymond (Ilkeston)

      Lyon, Alexander W. (York)

      Roebuck, Roy

      Fletcher, Ted (Darlington)

      McBride, Neil

      Rogers, George (Kensington, N.)

      Foley, Maurice

      McCann, John

      Rose, Paul

      Ford, Ben

      MacColl, James

      Ross, Rt. Hn. William

      Forrester, John

      MacDermot, Niall

      Rowlands, E.

      Fowler, Gerry

      Macdonald, A. H.

      Ryan, John

      Fraser, John (Norwood)

      McGuire, Michael

      Shaw, Arnold (Ilford, S.)

      Freeson, Reginald

      Mackenzie, Gregor (Rutherglen)

      Sheldon, Robert

      Ginsburg, David

      Mackie, John

      Shore, Rt. Hn. Peter (Stepney)

      Gordon Walker, Rt. Hn. P. C.

      Mackintosh, John P.

      Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

      Gregory, Arnold

      McNamara, J. Kevin

      Short, Mrs. Renée (W'hampton, N.E.)

      Grey, Charles (Durham)

      Mallalieu, J.P.W.(Huddersfield, E.)

      Silverman, Julius

      Griffiths, David (Rother Valley)

      Manuel, Archie

      Skeffington, Arthur

      Griffiths, Eddie (Brightside)

      Marks, Kenneth

      Spriggs, Leslie

      Gunter, Rt. Hn. R. J.

      Marquand, David

      Stonehouse, Rt. Hn. John

      Hamilton, James (Bothwell)

      Marsh, Rt. Hn. Richard

      Summerskill, Hn. Dr. Shirley

      Hamling, William

      Mason, Rt. Hn. Roy

      Taverne, Dick

      Hannan, William

      Mayhew, Christopher

      Thomas, Rt. Hn. George

      Harper, Joseph

      Mellish, Rt. Hn. Robert

      Thomson, Rt. Hn. George

      Harrison, Walter (Wakefield)

      Mendelson, John

      Varley, Eric G.

      Hart, Rt. Hn. Judith

      Mikardo, Ian

      Wainwright, Edwin (Dearne Valley)

      Hattersley, Roy

      Millian, Bruce

      Watkins, David (Consett)

      Hazell, Bert

      Miller, Dr. M. S.

      Weitzman, David

      Healey, Rt. Hn. Denis

      Milne, Edward (Blyth)

      Wellbeloved, James

      Heffer, Eric S.

      Mitchell, R. C. (S'th'pton, Test)

      Wells, William (Walsall, N.)

      Herbison, Rt. Hn. Margaret

      Molloy, William

      Whitaker, Ben

      Hilton, W. S.

      Moonman, Eric

      Willey, Rt. Hn. Frederick

      Hobden, Dennis

      Morgan, Elystan (Cardiganshire)

      Williams, Alan (Swansea, W.)

      Hooley, Frank

      Morris, Alfred (Wythenshawe)

      Williams, Clifford (Abertillery)

      Houghton, Rt. Hn. Douglas

      Morris, Charles R. (Openshaw)

      Wilson, Rt. Hn. Harold (Huyton)

      Howell, Denis (Small Heath)

      Morris, John (Aberavon)

      Wilson, William (Coventry, S.)

      Howie, W.

      Moyle, Roland

      Winnick, David

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Murray, Albert

      Hughes, Hector (Aberdeen, N.)

      Newens, Stan

      TELLERS FOR THE AYES:

      Hunter, Adam

      O'Malley, Brian

      Mr. Ioan L. Evans and

      Hynd, John

      Oram, Albert E.

      Mr. Ernest G. Perry.

      Irvine, Sir Arthur (Edge Hill)

      Orme, Stanley

      Jenkins, Rt. Hn. Roy (Stechford)

      Owen, Will (Morpeth)

      NOES

      Baker, Kenneth (Acton)

      Crouch, David

      Hall, John (Wycombe)

      Balniel, Lord

      Crowder, F. P.

      Hall-Davis, A. G. F.

      Bell, Ronald

      Dance, James

      Harris, Frederic (Croydon, N.W.)

      Berry, Hn. Anthony

      d'Avigdor-Goldsmid, Sir Henry

      Harvey, Sir Arthur Vere

      Bessell, Peter

      Dean, Paul

      Hastings, Stephen

      Biffen, John

      Digby, Simon Wingfield

      Heseltine, Michael

      Biggs-Davison, John

      Dodds-Parker, Douglas

      Higgins, Terence L.

      Black, Sir Cyril

      Doughty, Charles

      Hiley, Joseph

      Boardman, Tom (Leicester, S.W.)

      Drayson, G. B.

      Hill, J. E. B.

      Body, Richard

      Eden, Sir John

      Holland, Philip

      Boyd-Carpenter, Rt. Hn. John

      Elliot, Capt. Walter (Carshalton)

      Hordern, Peter

      Boyle, Rt. Hn. Sir Edward

      Emery, Peter

      Hornby, Richard

      Brinton, Sir Tatton

      Errington, Sir Eric

      Hunt, John

      Bullus, Sir Eric

      Eyre, Reglnald

      Iremonger, T. L.

      Burden, F. A.

      Foster, Sir John

      Jenkin, Patrick (Woodford)

      Campbell, B. (Oldham, W.)

      Gilmour, Ian (Norfolk, C.)

      Jones, Arthur (Northants, S.)

      Campbell, Gordon (Moray & Nairn)

      Glover, Sir Douglas

      Joseph, Rt. Hn. Sir Keith

      Carlisle, Mark

      Goodhart, Philip

      Kershaw, Anthony

      Channon, H. P. G.

      Goodhew, Victor

      Kimball, Marcus

      Chichester-Clark, R.

      Grant, Anthony

      King, Evelyn (Dorset, S.)

      Clark, Henry

      Gresham Cooke, R.

      Kirk, Peter

      Cooke, Robert

      Grieve, Percy

      Knight, Mrs. Jill

      Cooper-Key, Sir Neill

      Griffiths, Eldon (Bury St, Edmunds)

      Lawler, Wallace

      Costain, A. P.

      Gurden, Harold

      Legge-Bourke, Sir Harry

      Lewis, Kenneth (Rutland)

      Peel, John

      Turton, Rt. Hn. R. H.

      Lubbock, Eric

      Percival, Ian

      van Straubenree, W. R.

      McAdden, Sir Stephen

      Pike, Miss Mervyn

      Vickers, Dame Joan

      MacArthur, Ian

      Pink, R. Bonner

      Waddington, David

      Macleod, Rt. Hn. Iain

      Powell, Rt. Hn. J. Enoch

      Wainwright, Richard (Colne Valley)

      McMaster, Stanley

      Prior, J. M. L.

      Walker, Peter (Worcester)

      McNair-Wilson, Michael

      Pym, Francis

      Walker-Smith, Rt. Hn. Sir Derek

      McNair-Wilson, Patrick (NewForest)

      Quennell, Miss J. M,

      Ward, Dame Irene

      Maddan, Martin

      Rees-Davies, W. R.

      Weatherill, Bernard

      Maude, Angus

      Ridley, Hn. Nicholas

      Wells, John (Maidstone)

      Mawby, Ray

      Ridsdale, Julian

      Whitelaw, Rt. Hn. William

      Mitchell, David (Basingstoke)

      Rippon, Rt. Hn. Geoffrey

      Wiggin, A. W.

      Monro, Hector

      Russell, Sir Ronald

      Williams, Donald (Dudley)

      More, Jasper

      Scott, Nicholas

      Wilson, Geoffrey (Truro)

      Morrison, Charles (Devizes)

      Shaw, Michael (Sc'b'gh & Whitby)

      Wolrige-Gordon, Patrick

      Murton, Oscar

      Silvester, Frederick

      Wood, Rt. Hn. Richard

      Nabarro, Sir Gerald

      Sinclair, Sir George

      Wright, Esmond

      Nicholls, Sir Harmar

      Smith, John (London & W'minster)

      Younger, Hn. George

      Nott, John

      Speed, Keith

      Orr-Ewing, Sir Ian

      Steel, David (Roxburgh)

      TELLERS FOR THE NOES:

      Osborne, Sir Cyril (Louth)

      Taylor, Sir Charles (Eastbourne)

      Mr. R. W. Elliott and Mr. Humphrey Atkins.

      Page, Graham (Crosby)

      Thatcher, Mrs. Margaret

      Further Amendments made: No. 176, in page 43, line 28, leave out 'the property in question' and insert 'any of that property'.
      No. 177, in page 43, line 37, leave out 'received by the trustees in their capacity as such' and insert
      'of the settled property in which the property in question was comprised arising'.
      No. 178, in page 43, line 41, after 'property', insert 'in question'.
      No. 179, in page 43, line 42, after 'property', insert 'in question'.
      No. 180, in page 43, line 44, leave out 'paragraph (a)' and insert 'paragraphs (b) and (c)'.
      No. 181, in page 43, line 47, leave out 'paragraphs (b) to (d)' and insert 'paragraph (e)'.—[Mr. Taverne.]

    Clause 33

      OBJECTS OF NATIONAL, SCIENTIFIC, HIS TORIC OR ARTISTIC INTEREST
      8.45 p.m.
      Mr. H. P. G. Channon: I beg to move Amendment No. 250, in page 47, line 41, after 'If', insert
      'the object was acquired by the deceased or any other person within the period of three years ending with the date of the death and'.
      Mr. Deputy Speaker (Mr. Harry Gourlay): It may also be convenient if, with this Amendment, we discuss the following Amendments: No. 251, in page 48, line 7, after 'If', insert
      'the object was not acquired within the period of three years ending with the date of the death or'.
      1002
      No. 252, in page 48, line 9, leave out 'aforesaid' and insert
      'of three years beginning with the date of the death'.
      Mr. Channon: It is accepted on both sides of the House, and has been for many years by all political parties and successive Governments, that it is not in the public interests for great British collections of pictures, furniture, books, or whatever it may be, to be broken up. Successive Governments have done their best to safeguard collections and previous Finance Acts have contained exemptions designed to achieve that end. I assume that that is still the general position on both sides of the House.
      Until Budget day, wt en the Chancellor of the Exchequer made the new proposals which have resulted in Clause 33, collections of objects of national interest, as defined in the Clause, were exempted on the death of the owner from estate duty provided that the, owner complied with certain conditions, the principal condition being that the objects were not sold. It is essential that there should be such forms of exemption if there are to be any treasures left in the country. If, in spite of the exemption, the objects were later sold, duty had to be paid on them at the rate which the estate had had to bear.
      It was alleged by the Chancellor that this gave rise to an anomaly and to a loophole in the estate duty law. Someone with a large estate of, say, £100,000 shortly before his death might have bought a work of art costing £80,000, which would form the principal portion of the estate. Exemption might be given,

      1003
      but if the object were later sold, it would bear duty only at the rate payable on the £20,000 remainder of the estate and not at the rate which would have been payable on the £100,000. The Chancellor has introduced provisions to close this loophole and no one has any objection to closing it, and in that respect I support the Chancellor.
      However, in closing it he has gone too far and may do serious damage to the art market in this country. Under the new provisions, if a picture is sold within a three-year period of the date of death, the duty on the picture will be at the rate payable on the value of the picture aggregated with the estate, so that the higher level of duty becomes payable on a valuable picture as well as on the estate as a whole. Subsection (3) provides that duty on the sale after three years will be chargeable on the proceeds of the sale of the object at the rate which would have been the rate of duty on the whole estate if the object had not been originally exempted.
      I hope that that is clear to the House—I hope that it is clear to me. I must ask the Minister of State whether he would be kind enough to confirm that that is the position, because there is considerable confusion about the effects of subsections (2) and (3). It would be of great assistance to people outside the House if he would spell out the meaning of these subsections in simple language. The Chancellor's proposed remedy has gone too far, he has thrown the baby out with the bath-water.
      What are the executors of an estate which includes objects of art, which would properly be exempted, to do? In column 742 of the Committee proceedings the Minister of State implies that there would not be any difficulty for such executors. I have been advised by people involved in this that there may be considerable difficulty in winding-up estates containing such objects, when there may be uncertainty as to whether any of them would be sold within the three-year period. What are the executors to do to protect the interests of the estate?
      This places a new burden upon genuine collectors. I am not concerned about the people who used the provisions in the past as a loophole to avoid estate duty.
      1004
      We are trying to safeguard genuine collectors. The effect of these Amendments would be that if an object was acquired more than three years before death it would not be subject to the provisions of Clause 33. By Amendments Nos. 251 and 252, if the objects are sold after three years from the date of death, the provisions would not apply unless the objects were acquired in the three-year period before death.
      Our aims are to safeguard the genuine collector and help retain genuine collections in this country. At the same time, we want to meet the point about the loophole. As the Bill is drafted, the desire and ability to collect will be severely hit. I am convinced that the home market for pictures may suffer. This will have the inevitable effect that more of our pictures and treasures will go abroad. There will be an increased flow of treasures and pictures leaving the country, perhaps at diminished prices.
      This would be very sad. In purely practical terms, too, if I am right about the effect on the London art market, it will have a serious effect on invisible exports. It will also damage the London art market which is a remarkable success story, over the past few years. I do not suggest that this damage will occur overnight but rather—over a gradual period this important and growing trade will be severely hit. I therefore recommend the Amendments on these three grounds.
      First, there is the point about the executors, a very serious one, and secondly, there is the effect on our invisible exports which will be considerable if the London art market were to suffer and if the art centre of the world were to move from New York to London, as it might, unless something is done on the lines of these Amendments.
      The third and perhaps most important point is the damage which will be done to genuine collections because of the diffulty of retaining them in future, the inevitable break up that may occur, and the possible export of great treasures and pictures. This would be extremely sad. I suggest that the Government, by accepting the Amendments, can still deal with the loophole which has given rise to them.
      I hope that the Minister of State will consider these Amendments sympathetically. They will not result in the loss of

      1005
      much revenue. It will still be possible to close the loophole and, at the same time, safeguard the genuine collector. In this way a great deal of good will be done for the London art market which has had an increasing reputation over the last few years and has done such an excellent job for this country.
      Mr. Taverne: I have been asked to make clear, once again, what the charge would be under the new provisions. If a work of art is sold within three years, that work of art and the rest of the estate is taken together and the appropriate estate rate fixed. For example, if a man had a general estate worth £50,000 and works of art worth £100,000 and the works of art are sold within three years, the appropriate estate rate on both the works of art and on the general estate will be that appropriate to a total of £150,000. If the works of art are sold more than three years after death, they will be aggregated with the rest of the estate and will bear duty at the rate of £150,000, but the original estate of £50,000 will be at the estate rate appropriate to £50,000. Therefore, the hon. Member for Southend, East (Mr. Chan-non) was right in his analysis of what the Bill means.
      In Committee, an Amendment, which was out of order but which was put down by the Opposition, put forward what I regarded as a reasonable alternative which we carefully considered. The alternative put forward, which was further argued on the Question, That the Clause stand part of the Bill, was that exemption should not be given in cases where works of art had been bought within three years of death. That seemed a reasonable alternative, but the disadvantage was considerable. It meant that a genuine collector who died soon after he had purchased a work of art would fail to get exemption.
      The Amendment proposes that the taxpayer should have the best of both worlds. It suggests that these two tests should not be alternative, but should both be applied. Therefore, if a man lived for three years after buying a work of art his executors could claim exemption and sell it at once, or, if he had bought it just before he died, it could be sold after three years. In that event, only the extreme cases would be caught and the vast majority of cases would be ex-
      1006
      empted. Therefore, I do not think that the hon. Gentleman lives up to his desire to close the loopholes if both tests have to be satisfied.
      The hon. Gentleman said that this was a better alternative, because the Government's test involves considerable inconvenience to executors. But we must have placed a time limit of three years on a work of art. It means that in some cases estates will not be wound up completely before the end of three years. But, in practice, this problem concerns large estates, and it it not uncommon for the winding up of such estates to take three years in any event. Even if it is not possible to wind up an estate totally in three years, there will be no difficulty in making provision, because the executor will know the maximum liability which will have to be met. Therefore, there should be no great inconvenience suffered and no practical difficulties arising.
      9.0 p.m.
      Mr. W. R. Rees-Davies: This is the economics of bedlam. Fine arts happen to be my hobby-horse. When a person dies, the executor has not the remotest idea whether the collection is worth £2 going to William Coe's in auction or £200,000 at some later occasion. Is it really to be suggested that he may be liable three years later when he divides up among the beneficiaries the various pictures to which they are entitled under the estate? Who on earth will pay three years later when, perchance, one finds that something turns out to be of considerable value?
      Mr. Taverne: If it is after three years, the executor does not pay. If it is before three years, I suggest that in the kind of case mentioned by the hon. Member the executor would not be in the difficulty which he envisages. I would not normally call the hon. Member naive, but it is naive to suggest that the executor would have no idea that a collection worth in the region of £200,000 was valuable. In that kind of situation, the estate would obviously be large. In any event,. a considerable time would be taken in dividing it. I am not satisfied that the argument on inconvenience is made out.
      More serious would be the argument advanced by the hon. Member for Southend, West (Mr. Channon), and adumbrated also in Committee, if it were valid,

      1007
      that the world standing of London as an art centre would be damaged as a result of the Clause. I cannot see that that could possibly arise. The Clause is aimed only at the purchase of works of art as an estate duty avoidance device. Works of art will remain an extremely attractive investment, provided that they are kept for three years after death, because they will still be left out of account in fixing the estate rate payable on the rest of the estate. It will, therefore, be of benefit to the immediate heirs and not merely to succeeding generations.
      Secondly, if one has regard to the total art market and the problem involved here, it may lead to considerable avoidance of duty but the number of purchases for avoidance purposes are a tiny proportion of the total number of purchases. It cannot be seriously alleged that the art market as a whole will suffer, particularly when the advantage in the bulk of the cases will exist because the difference between the burden which an estate must bear if there is only partial exemption for works of art sold after three years and the burden which they would otherwise bear is still very considerable.
      Mr. Patrick Jenkin: The Minister of State will recognise that he has—I mean it in no unkind sense—trotted out the same arguments as he gave in Committee, which I found unconvincing then and which on a rehash are even more unconvincing. The hon. and learned Gentleman's first argument was that our Amendments would create hardship in the case of the genuine collector who died within three years of adding to his collection.
      Mr. Taverne: I did not say that these Amendments created the hardship. It was the previous Amendments which would have done so. The trouble with the present Amendment is that avoidance is wide open.
      Mr. Jenkin: The hon. and learned Gentleman advanced the argument, however, in his speech. When somebody dies in unexpected circumstances, there is likely to be difficulty with estate duty. I would not think that the hon. and learned Gentleman's argument carried weight.
      The Minister rather pooh-poohed the question of inconvenience to executors. I have made inquiries about this to find
      1008
      whether the case which I put in Committee was not as strong as I thought it was, and my impressions have been entirely reinforced. It has been suggested that the difficulties can be avoided by executors going to the Estate Duty Office and getting an agreed valuation of the picture, which, it must be remembered, is not necessarily within their control. The picture may have been given to a donee or somebody else who will be responsible for the estate duty on it. It is notoriously difficult to value a work of art unless there is the evidence of the auction or sale to go by. My hon. Friend the Member for Southend, West (Mr. Channon) was reminding me, when the Minister of State was speaking, about the Duccio. That may be an extreme case, but we all read regularly in the Press about works of art, the value of which had not been appreciated and which had realised sums which were either enormously greater than anticipated, or smaller. If the value of the work of art is agreed with the Inland Revenue, and if it is sold within a three year period after death, under the Bill as it stands, estate duty will have to be paid on a much larger sum than would otherwise have been the case. One could imagine in an extreme case—and perhaps we should not put too much weight on this—that the estate might be made insolvent if there were a 70 or 80 per cent. rate of estate duty. The suggestion that the executors should agree valuation with the Inland Revenue is an extremely doubtful safeguard.
      We are left with the difficulty that the executors cannot distribute the estate until they are satisfied that the work of art will not be sold or, if it is sold, that they know what is the value for estate duty purposes. This detracts substantially from the advantage of owning a collection of pictures.
      It will make the art market in this country less buoyant and, without a buoyant home market for works of art, eventually prices will drop. Those who bring their works of art to London to sell will find that the market is not as good as it was and will move to other markets—as my hon. Friend suggested, to New York—and invisible earnings will be lost. This will not result in fewer pictures going abroad, but in pictures going abroad on a lower realisation, and the nation will be worse off.

      1009
      Nothing that the Minister of State has said, either in Committee or in the House, has convinced me that the Government solution of the problem, which we all recognise, will not be harmful to the art market of this country, damaging to the interests of genuine collectors and the source of severe difficulties for executors of estates which contain such works. I believe that our solution provides a workable
      system, and that the Government would have been wise to accept it. I hope my right hon. and hon. Friends will agree that we are justified in pressing the Amendment to a Division.
      Question put, That the Amendment be made:—
      The House divided: Ayes 135, Noes 196.

      Division No. 339.]

      AYES

      [9.8 p.m.

      Atkins, Humphrey (M't'n & M'd'n)

      Grieve, Percy

      Page, Graham (Crosby)

      Baker, Kenneth (Acton)

      Griffiths, Eldon (Bury St. Edmunds)

      Page, John (Harrow, W.)

      Balniel, Lord

      Gurden, Harold

      Peel, John

      Bell, Ronald

      Hall, John (Wycombe)

      Percival, Ian

      Berry, Hn. Anthony

      Hall-Davis, A. G. F.

      Pike, Miss Mervyn

      Bessell, Peter

      Harris, Frederic (Croydon, N.W.)

      Pink, R. Bonner

      Biffen, John

      Harvey, Sir Arthur Vere

      Powell, Rt. Hn. J. Enoch

      Biggs-Davison, John

      Hastings, Stephen

      Prior, J. M. L,

      Birch, Rt. Hn. Nigel

      Heseltine, Michael

      Pym, Francis

      Black, Sir Cyril

      Higgins, Terence L.

      Quennell, Miss J. M.

      Boardman, Tom (Leicester, S.W.)

      Hiley, Joseph

      Rees-Davies, W. R.

      Body, Richard

      Hill, J. E. B.

      Ridsdale, Julian

      Boyd-Carpenter, Rt. Hn, John

      Holland, Philip

      Rippon, Rt. Hn. Geoffrey

      Boyle, Rt. Hn. Sir Edward

      Hordern, Peter

      Russell, Sir Ronald

      Brinton, Sir Tatton

      Hornby, Richard

      Scott, Nicholas

      Bullus, Sir Eric

      Hunt, John

      Shaw, Michael (Sc'b'gh & Whitby)

      Burden, F. A.

      Iremonger, T. L.

      Silvester, Frederick

      Campbell, B. (Oldham, W.)

      Jenkin, Patrick (Woodford)

      Sinclair, Sir George

      Campbell, Gordon (Moray & Nairn)

      Jones, Arthur (Northants, S.)

      Smith, John (London & W'minster)

      Carlisle, Mark

      Joseph, Rt. Hn. Sir Keith

      Speed, Keith

      Channon, H. P. G.

      Kershaw, Anthony

      Steel, David (Roxburgh)

      Chichester-Clark, R.

      Kimball, Marcus

      Taylor, Sir Charles (Eastbourne)

      Clark, Henry

      King, Evelyn (Dorset, S.)

      Thatcher, Mrs. Margaret

      Cooke, Robert

      Kirk, Peter

      Turton, Rt. Hn. R. H.

      Cooper-Key, Sir Neill

      Knight, Mrs. Jill

      van Straubenzee, W. R.

      Costain, A. P.

      Lawler, Wallace

      Vickers, Dame Joan

      Crouch, David

      Legge-Bourke, Sir Harry

      Waddington, David

      Crowder, F. P.

      Lewis, Kenneth (Rutland)

      Wainwright, Richard (Colne Valley)

      Dance, James

      Lubbock, Eric

      Walker, Peter (Worcester)

      d'Avigdor-Goldsmid, Sir Henry

      Dean, Paul

      McAdden, Sir Stephen

      Walker-Smith, Rt. Hn. Sir Derek

      Digby, Simon Wingfield

      MacArthur, Ian

      Walters, Dennis

      Dodds-Parker, Douglas

      Macleod, Rt. Hn. Iain

      Ward, Dame Irene

      Doughty, Charles

      McMaster, Stanley

      Weatherill, Bernard

      Drayson, G. B.

      McNair-Wilson, Michael

      Wells, John (Maidstone)

      Eden, Sir John

      McNair-Wilson, Patrick (NewForest)

      Whitelaw, Rt. Hn. William

      Elliot, Capt. Walter (Carshalton)

      Maddan, Martin

      Wiggin, A. W.

      Elliott, R.W.(N'c'tle-upon-Tyne, N.)

      Maude, Angus

      Williams, Donald (Dudley)

      Emery, Peter

      Mawby, Ray

      Wilson, Geoffrey (Truro)

      Errington, Sir Eric

      Mitchell, David (Basingstoke)

      Wolrige-Gordon, Patrick

      Foster, Sir John

      More, Jasper

      Wood, Rt. Hn. Richard

      Gilmour, Ian (Norfolk, C.)

      Morrison, Charles (Devizes)

      Wright, Esmond

      Glover, Sir Douglas

      Murton, Oscar

      Younger, Hn. George

      Goodhart, Philip

      Nabarro, Sir Gerald

      Goodhew, Victor

      Nott, John

      TELLERS FOR THE AYES:

      Grant, Anthony

      Orr-Swing, Sir Ian

      Mr. Reginald Eyre and Mr. Hector Munro.

      Gresham Cooke, R.

      Osborne, Sir Cyril (Louth)

      NOES

      Abse, Leo

      Boston, Terence

      Crossman, Rt. Hn. Richard

      Albu, Austen

      Boyden, James

      Dalyell, Tam

      Archer, Peter

      Bradley, Tom

      Davies, G. Elfed (Rhondda, E.)

      Armstrong, Ernest

      Bray, Dr. Jeremy

      Davies, Ifor (Cower)

      Ashton, Joe (Basssetlaw)

      Brown, Bob (N'c'tle-upon-Tyne, W.)

      Delargy, Hugh

      Atkins, Ronald (Preston, N.)

      Buchan, Norman

      Dewar, Donald

      Atkinson, Norman (Tottenham)

      Buchanan, Richard (G'gow, Sp'burn)

      Diamond, Rt. Hn. John

      Bacon, Rt. Hn. Alice

      Butler, Herbert (Hackney, C.)

      Dickens, James

      Barnes, Michael

      Butler, Mrs. Joyce (Wood Green)

      Driberg, Tom

      Beaney, Alan

      Caliaghan, Rt. Hn. James

      Dunnett, Jack

      Bidwell, Sydney

      Cant, R. B.

      Dunwoody, Mrs. Gwyneth (Exeter)

      Binns, John

      Carmichael, Neil

      Dunwoody, Dr. John (F'th & C'b'e)

      Bishop, E. S.

      Castle, Rt. Hn. Barbara

      Eadie, Alex

      Blenkinsop, Arthur

      Concannon, J. D.

      Edelman, Maurice

      Booth, Albert

      Craddock, George (Bradford, S.)

      Edwards, Robert (Bilston)

      Edwards, William (Merioneth)

      Kelley, Richard

      Parker, John (Dagenham)

      Ellis, John

      Kenyon, Clifford

      Parkyn, Brian (Bedford)

      English, Michael

      Kerr, Russell (Feltham)

      Pavitt, Laurence

      Evans, Fred (Caerphilly)

      Lawson, George

      Pentland, Norman

      Evans, Gwynfor (C'marthen)

      Lee, Rt. Hn. Frederick (Newton)

      Perry, Ernest G. (Battersea, S.)

      Evans, Ioan L. (Birm'h'm, Yardley)

      Lee, Rt. Hn. Jennie (Cannock)

      Perry, George H. (Nottingham, S.)

      Faulds, Andrew

      Lee, John (Reading)

      Prentice, Rt. Hn. Reg

      Fernyhough, E.

      Lever, Rt. Hn. Harold (Cheetham)

      Price, Thomas (Westhoughton)

      Fletcher, Raymond (Ilkeston)

      Lewis, Arthur (W. Ham, N.)

      Price, William (Rugby)

      Fletcher, Ted (Darlington)

      Lomas, Kenneth

      Probert, Arthur

      Foley, Maurice

      Loughlin, Charles

      Randall, Harry

      Ford, Ben

      Luard, Evan

      Rankin, John

      Forrester, John

      Lyon, Alexander W. (York)

      Rees, Merlyn

      Fowler, Gerry

      McCann, John

      Richard, Ivor

      Fraser, John (Norwood)

      MacColl, James

      Robinson, Rt. Hn. Kenneth (St. P'c'as)

      Freeson, Reginald

      Macdonald, A. H.

      Rodgers, William (Stockton)

      Gardner, Tony

      McGuire, Michael

      Roebuck, Roy

      Ginsburg, David

      Mackenzie, Gregor (Rutherglen)

      Rogers, George (Kensington, N.)

      Gordon Walker, Rt. Hn. P. C.

      Mackie, John

      Rose, Paul

      Gregory, Arnold

      Mackintosh, John P.

      Ross, Rt. Hn. William

      Grey, Charles (Durham)

      McNamara, J. Kevin

      Rowlands, E.

      Griffiths, David (Rother Valley)

      Mallalieu, J.P.W.(Huddersfield, E.)

      Ryan, John

      Griffiths, Eddie (Brightside)

      Manuel, Archie

      Shaw, Arnold (Ilford, S.)

      Gunter, Rt. Hn. R. J.

      Marks, Kenneth

      Sheldon, Robert

      Hamilton, James (Bothwell)

      Marquand, David

      Shore, Rt. Hn. Peter (Stepney)

      Hamling, William

      Marsh, Rt. Hn. Richard

      Short, Rt. Hn. Edward (N'c'tle-u-Tyne)

      Hannan, William

      Mason, Rt. Hn. Roy

      Silverman, Julius

      Harrison, Walter (Wakefield)

      Mayhew, Christopher

      Skeffington, Arthur

      Hart, Rt. Hn. Judith

      Mellish, Rt. Hn. Robert

      Spriggs, Leslie

      Hazell, Bert

      Mendelson, John

      Stonehouse, Rt. Hn. John

      Healey, Rt. Hn. Denis

      Mikardo, Ian

      Summerskill, Hn. Dr. Shirley

      Heffer, Eric S.

      Millan, Bruce

      Taveme, Dick

      Herbison, Rt. Hn. Margaret

      Miller, Dr. M. S.

      Thomas, Rt. Hn. George

      Hilton, W. S.

      Milne, Edward (Blyth)

      Thomson, Rt. Hn. George

      Hobden, Dennis

      Mitchell, R. C. (S'th'pton, Test)

      Varley, Eric G.

      Hooley, Frank

      Molloy, William

      Wainwright, Edwin (Dearne Valley)

      Houghton, Rt. Hn. Douglas

      Moonman, Eric

      Watkins, David (Consett)

      Howell, Denis (Small Heath)

      Morgan, Elystan (Cardiganshire)

      Weitzman, David

      Howie, W.

      Morris, Alfred (Wythenshawe)

      Wellbeloved, James

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Morris, Charles R. (Openshaw)

      Wells, William (Walsall, N.)

      Hughes, Hector (Aberdeen, N.)

      Morris, John (Aberavon)

      Whitaker, Ben

      Hunter, Adam

      Moyle, Roland

      Willey, Rt. Hn. Frederick

      Hynd, John

      Murray, Albert

      Williams, Alan (Swansea, W.)

      Irvine, Sir Arthur (Edge Hill)

      Newens, Stan

      Williams, Clifford (Abertillery)

      Jackson, Colin (B'h'se & Spenb'gh)

      O'Malley, Brian

      Wilson, Rt. Hn. Harold (Huyton)

      Jackson, Peter M. (High Peak)

      Oram, Albert E.

      Wilson, William (Coventry, S.)

      Jenkins, Rt. Hn. Roy (Stechford)

      Orme, Stanley

      Winnick, David

      Johnson, Carol (Lewisham, S.)

      Owen, Will (Morpeth)

      Johnson, James (K'ston-on-Hull, W.)

      Padley, Walter

      TELLERS FOR THE NOES:

      Jones, Dan (Burnley)

      Page, Derek (King's Lynn)

      Mr. Joseph Harper and Mr. Neil McBride.

      Jones, J. Idwal (Wrexham)

      Palmer, Arthur

      Jones, T. Alec (Rhondda, West)

      Pannell, Rt. Hn. Charles

    Schedule 17

      ESTATE DUTY
      Mr. Patrick Jenkin: I beg to move Amendment No. 318, in page 134, line 20, leave out 'indefensibly' and insert 'indefeasibly'.
      We have become used to debating doctrinaire Socialist legislation, but I am bound to say that I was somewhat surprised to find in the Seventeenth Schedule, in paragraph 2(1), the following words:
      "… the deceased's having become absolutely and indefensibly entitled to the property or having attained full age."
      I took the view that we could not possibly allow this to stand, so I tabled an Amendment, with my hon. Friend the Member for Worthing (Mr. Higgins) to change "indefensibly" to "inde-
      1012
      feasibly". I must make it clear that the gremlins seem to be mutually, or possibly, liberal. My Amendment appeared on the Notice Paper with the new word spelled "indefeasibily". I can only say that the printer has got his own back.
      Mr. Taverne: On a matter of major importance like this, I have no wish to be unduly intransigent. I am happy to see the offending "n" replaced by a third ''i"
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 182, in page 134, line 41, at end insert:
      3A. Where, in the case of any property which at the death of any person is or has been comprised in a settlement, the deceased was entitled to an interest in that property which determined before his death, he shall

      1013
      not be treated for the purposes of the substituted section 2(1)(b) as not having been entirely excluded from possession and enjoyment of the property and from any benefit to him by contract or otherwise at any time after the date of the determination by reason only of his having been entitled at that time to another interest in that property if estate duty would have been, or would but for section 28(2) of the Finance Act, 1949 have been, or would if he had received any benefit by virtue of that other interest have been, chargeable on the property by virtue of the substituted section 2(1)(b) by reason of that other interest on his death at that time.
      This Amendment simplifies one area of the charge of estate duty on settled property by adding a new relieving paragraph to the Schedule. It deals with the case where a person's interest in settled property has come to an end and he has another interest in the same property—say, under a new settlement—in which case it provides that if the second interest is within the estate duty charge it is not to be treated as preserving a charge in relation to the first. Thus, once a person has lived for seven years after the first interest came to an end, there will be no charge on the grounds of non-exclusion on his death.
      The Amendment also meets a point which was raised by the Opposition in Committee when we debated what was then Amendment No. 552. Where a British settlement is transferred abroad, because the beneficiaries have emigrated, the effect of the new charge on settled property, it seemed, might be to place a liability on the settled fund on the death of a beneficiary more than seven years after the transfer of the settlement because the interest under the new foreign settlement would count as non-exclusion. That point has been met by the Amendment.
      Mr. Patrick Jenkin: It is always gratifying when one finds that an injustice to which one has drawn the attention of the Government is put right in an Amendment on Report. It is doubly gratifying when one discovers that a further injustice has been disclosed and that that, too, has been put right. The Amendment is, therefore, doubly welcome.
      Amendment agreed to.
      Amendments made: No. 183, in page 136, line 24, at end insert:
      8A. Estate duty shall not be chargeable on any property on any death by virtue of any of the sub-paragraphs of the substituted section 2(1)(b)—
      1014

      (a) where the property is held on trusts which make provision for charitable purposes only (including any reasonable remuneration which may be authorised by the trust instrument for the trustees thereunder) and under which no payment for any other purpose is authorised or has been made; or

      (b) by reason of any benefit to the deceased as a corporation sole; or

      (c) by reason of an interest of the deceased under such a scheme or in such a fund as is described in section 387(1) or (2) of the Income Tax Act, 1952, being an interest by way of a pension or annuity other than a pension or annuity under a trust, whether or not established by the instrument establishing that scheme or fund, with respect to the application of some benefit provided under that scheme or from Mat fund otherwise than by way of a pension or annuity.

      8B.—(1) Where, in the case of any property which is or has been comprised in settled property subject to such a trust as is mentioned in sub-paragraph (iii) of the substituted section 2(1)(b), estate duty would, apart from the provisions of this paragraph, be chargeable on that property on a death by virtue of that sub-paragraph, that duty shall not be so chargeable if—

      (a) the discretion referred to in that subparagraph has not at any time been exercisable with respect to any person other than—

      (i) persons of a class specified in the trust instrument by reference to employment in a particular trade, profession or statutory undertaking or by reference to employment by, or the holding of office in, a body carrying on a trade, profession or statutory undertaking; or

      (ii) persons of a class so specified by reference to marriage with, relationship to, or dependency on such persons as are mentioned in the foregoing sub-paragraph; or

      (iii) a body or trust established for charitable purposes only; and

      (b) the deceased was neither a person by whom, or at whose expense, or out of funds provided by whom, the settlement was made nor a relative of such a person; and

      (c) the settlement was not made, and any benefit received by the deceased from the exercise of the discretion aforesaid was not received, as part of associated operations as defined by section 59 of the Finance Act. 1940, the purposes of which included the provision of benefit for, or for a relative of, any such person as is referred to in paragraph (b) above.

      (2) Where any such person as is referred to in sub-paragraph (1)(b) of this paragraph was such a company as is mentioned in section 58(1) of the Finance Act, 1940, each of the persons who at the date of the making of the settlement would in the circumstances mentioned in section 56(1) of that Act have been included among the persons on trust for whom the assets of the company were held shall be deemed to have been such a person as is referred to in the said subparagraph (1)(b).

      1015
      (3) In this paragraph—

      (a) the expression 'relative' in relation to any person means—

      (i) the wife or husband of that person;

      (ii) the father, mother, child, uncle or aunt of that person; and

      (iii) any issue of any person falling within paragraph (i) or (ii) of this subparagraph and the other party to a marriage with any person so falling or with any such issue;

      (b) references to 'child' and 'issue' include references to an illegitimate or adopted child;

      (c) references to benefit received by the deceased from the exercise of the discretion aforesaid include references to any such non-exclusion of the deceased as is referred to in sub-paragraph (iii) of the substituted section 2(1)(b).

      No. 184 in line 39, after '3', insert '3A'.
      No. 185 in line 39, leave out 'and 8' and insert '8 and 8A(c)'.
      No. 192 in page 137, line 2, leave out 'from that property under' and insert:
      'under, or on that property ceasing to be subject to.'
      No. 186 in line 36, at end insert:
      1A. In section 2 of the Finance Act 1894, for subsection (3) there shall be substituted the following:
      (3) Where in the case of any property the deceased was entitled to an estate or interest therein in a fiduciary or representative capacity or by way of security, that property shall not be treated as passing on his death by reason of that entitlement'.
      No. 187 in page 138, line 5, leave out
      'settlement is held by trustees as'
      and insert:
      'a settlement is subject to such a trust as is'.
      No. 188 in page 141, line 8, at end insert:
      19A. In section 19 of the Finance Act, 1956, in subsection (3), for the words from ' an amount' onwards there shall be substituted the words—
      '(a) if the death occurred after 3rd June, 1969—

      (i) subject to sub-paragraph (ii) of this paragraph, the amount which would be produced by levying estate duty on the amount of that income at the estate rate applicable to the estate in question under the law in force in Great Britain or, as the case may be, in Northern Ireland or, if estate duty is payable both in Great Britain and in Northern Ireland, whichever is the higher of the respective amounts which would be so produced;

      (ii) where section 16(3)(b) of the Finance Act 1894 or any other provision for corresponding purposes of the law in
      1016
      force in Northern Ireland applies for the purpose of determining the amount of the estate duty payable in Great Britain or, as the case may be, in Northern Ireland in respect of property consisting of or including that income, the amount which would be produced as aforesaid shall be taken to be an amount equal to so much of that amount of estate duty as may reasonably be regarded as attributable to that income;

      (b) if the death occurred before 4th June, 1969 but after 15th April, 1969—

      (i) in a case where estate duty is payable in Great Britain but not in Northern Ireland, the amount which would be applicable if in paragraph (a) of this subsection for the reference to 3rd June, 1969 there were substituted a reference to 15th April, 1969;

      (ii) in a case where estate duty is payable in Northern Ireland but not in Great Britain, the amount which would be applicable under this section if the amendments and repeals made therein by the Finance Act, 1969 had not been made;

      (iii) in a case where estate duty is payable both in Great Britain and in Northern Ireland, whichever is the higher of the amount which would be applicable under sub-paragraph (i) of this paragraph if estate duty were payable in Great Britain but not in Northern Ireland and the amount which would be applicable under sub-paragraph (ii) thereof if estate duty were payable in Northern Ireland but not in Great Britain';

      and subsection (4) and paragraph (a) of subsection (7) of the said section 19 shall be omitted.—[Mr. Taverne.]

    Clause 35

      GILT-EDGED SECURITIES EXEMPT FROM TAX ON CAPITAL GAINS
      Mr. John Hall: I beg to move Amendment No. 52, in page 51, line 6, after second 'gains' insert:
      `or case VII of Schedule D income tax'.
      Mr. Speaker: With this Amendment we may take the following Amendments:
      No. 54, in line 29, leave out subsections (4) to (6).
      No. 111, in page 144, line 27, leave out Part II.
      Mr. Hall: I come to the starting stocks for the third time, and I hope that I will get off to a good start. These Amendments begin a group of Amendments dealing with capital gains. In the course of our discussions in Committee, the Chief Secretary, who was then replying to some of the Amendments I moved, said that

      1017
      he nearly always accepted my Amendments. I hope that I shall enjoy that same good fortune from the Financial Secretary, because these Amendments are eminently reasonable, and should, I am sure, commend themselves to the Government. I expect no real difficulty in persuading the Government to accept them, especially as I can speak comparatively briefly.
      The Amendments are designed to relieve gilts of all capital gains tax whether they have been held for twelve months or for a longer period. Amendment No. 52 deals with the liability of the individual under Case VII of Schedule D, whereas Amendment No. 54, together with the consequential Amendment No. 111 to Schedule 18, excludes companies from liability.
      It will be remembered that in the Finance Act, 1965, short-term gains resulting from the sale of listed Government and Government guaranteed stocks were exempted from capital gains tax. That exemption was withdrawn by Section 33 of the Finance Act, 1968, in the case of aquisitions and disposals after 19th March of that year. This year, much to the gratification of the bodies concerned when first announced, the Chancellor of the Exchequer exempted gilts from future penalties of capital gains tax, although in view of the fact that the losses which were built up on gilts before the relevant date—which must be considerable—can no longer be offset against gains, I should think that the enthusiasm with which the concession was first greeted was rather diminished as time went on.
      Presumably, when the Chancellor of the Exchequer gave this concession for gilts he had in mind the importance of strengthening the gilt-edged market. He must realise that failure to allow relief from tax on short-term gains prejudices, and must prejudice the attainment of that objective. The Financial Secretary will doubtless have seen the letter written by the Life Offices Association and the Associated Scottish Life Offices, to the Chancellor of the Exchequer on this point. It is worth recalling one or two of the points they made, because they are associations with considerable experience in the gilt-edged market.
      They pointed out:
      "Life assurance offices are big institutional investors and the long-term nature of their
      1018
      business makes them major dealers in the gilt edged market."
      They went on to say:
      "The attractions of the market still, however, remain greatly diminished owing to the imposition of a tax on the short-term gains on gilt-edged operations of the institutions. May we therefore make a plea to the Government to go the whole hog and free the gilt-edged market altogether for full institutional participation? Your decision on this could be vitally important from a long-term point of view because of the influence it would have on the amount big institutional investors, like life offices, would trade in the gilt-edged market and therefore invest in it."
      It is a very powerful point, and I have on other occasions pointed out the necessity of abolishing the tax on short-term gains in any case.
      Why does not the Financial Secretary go the whole hog, as the life offices have urged, and abolish the tax on short-term gains on gilts? I should have thought that both logic and self interest would dictate the wisdom of freeing the gilt-edged market from all capital gains liability. It would help to strengthen the market, and might go some way to offset the unfortunate impression perhaps created by the refusal to allow past losses on gilts to be set against capital gains in the market, a point that we have already discussed.
      This simple series of Amendments would give effect to something that everyone would welcome, and which I feel sure the Government themselves would welcome. I commend them to the Financial Secretary in the happy confidence that he will find himself able to accept them.
      9.30 p.m.
      Mr. Harold Lever: I start with a considerable prejudice in favour of the Amendment because of course the short-term capital gains tax was an introduction of the Conservative Chancellor and at the time it came in, although it has been continued by the present Government, I was not vociferous in applause for the concept of a short-term capital gains tax. I start therefore with a deal of sympathy in supposing that it is a bad tax.
      There are difficulties, however, in giving the relief requested by the Opposition Amendment, on two heads. Firstly, it is true that the more active the dealing impulse in this market the greater the strength of the gilt market ultimately. I have a great deal of sympathy with

      1019
      that argument and if there were no other argument against it than the simple one that the Chancellor in making the concession was trying to encourage people to buy and hold gilts for some time and not go in and out, I might have been in some difficulty in claiming that the argument for holding was stronger than the active dealing impulse.
      But the difficulty is that the market does not lend itself to the exemption of gilts from short-term capital gains tax if there is no long-term capital gain because of the inevitable consequences of any rules and devices to cope with it and as stocks reach a point of coupon dividend they tend to have accrued in their price a rough approximation and sometimes a very exact appraisal of the amount of dividend about to fall due. It is quite clear that if we exempted gilt-edged from capital gains tax on short sales we would allow anyone who wanted to buy gilt-edged and sit for five months to accrue the coupon in the form of capital gains and then to sell.
      If the Opposition said that at some point it is worth reviewing the whole rather complex problem involved in disposing of this danger it would have a good point, but in the present state of our affairs, it is not possible to make this concession because of the danger that people would simply buy for four, five or nearly six months before selling gilts and then realise them as capital gains what in fact is nearly six months income.
      We have to have regard to the encouragement which the Chancellor seeks to give to people to hold for a rather more substantial period than active dealing. In those circumstances I have to reject the Amendment but I am not out of sympathy with a review of the whole position in due time for reasons which might be advantageous to the Revenue. It may have occurred to hon. Members that this is not in the long term to the advantage of the Revenue. Hon. Members of the opinion that there should never be a tax on gilts may be glad to know that the Revenue are not the gainers but the losers, but for the reasons I have given I think they will agree that in the present state of our tax law and in the present state of accruing coupons we could not consider the exemption of short-
      1020
      term gains. At present we want a more pronounced encouragement to the somewhat longer holders of gilts by giving them the long-term tax exemption.
      Mr. Peter Hordern: The Financial Secretary did not seem to be altogether happy with that reply. Has any appraisal been made of the loss of revenue by the selling of gilt-edged securities with the interest involved? Surely it is now of great advantage to insurance companies and other institutions to sell gilt-edged securities on a short-term basis before the year is up, simply because that is the only way in which they can reasonably offset some of their short-term capital gains in other directions. I wonder if the countervailing balance and advantage which the Financial Secretary says is gained by the Revenue by not allowing the capital gains tax not to be applied to short-term transactions is not completely lost by the practice of dealings in this way.
      Mr. Harold Lever: My fundamental objection to doing it is the present state of the law governing accrued coupons. I do not think that we could remove altogether short-term gains tax, because it would simply be a licence to anybody to invest in gilt-edged securities and derive the whole of the income of his investment as tax free capital gain.
      Without going into a statistical inquiry, I am sure that the loss to which we would be open on that head would be much greater than the other source of loss to which the hon. Gentleman referred, which is one of the reasons why I hinted that I can see revenue advantages in abolishing the short-term capital gains tax. However, before that can be undertaken the whole taxation system of accruing coupons would have to be reviewed. This is a rather complex business. We do not want to upset the market by doing it for any foreseeable time ahead. Therefore, I am afraid that we shall have to sacrifice the possibility of removing short-term capital gains tax.
      Amendment negatived.
      Mr. Harold Lever: I beg to move Amendment No. 233, in page 51, line 44, at end add:
      'and
      (c) in relation to a disposal of specified securities to which, by virtue of this subsection, subsection (1) above does not apply,

      1021
      the expenditure allowable under paragraph 4 of Schedule 6 to the Finance Act, 1965 (cost of acquisition, etc.) shall, notwithstanding the provisions as to the pooling of securities in Schedule 7 to that Act, be determined by reference to the acquisition of the securities identified in accordance with paragraph (b) above'.
      The purpose of this official Amendment is to clarify the method of computation to be adopted when under Clause 35(4) corporation tax becomes chargeable on a gain realised by a company on a disposable of British Government securities that it has held for not more than 12 months. I hope that this rather technical Amendment will prove acceptable to the House.
      Amendment agreed to.
      Mr. Harold Lever: I beg to move Amendment No. 234, in page 52, line 11, at end insert:
      (7) Part III of Schedule 18 to this Act shall have effect in relation to certain disposals of 6½ per cent. Treasury Stock, 1971 issued by way of compensation in accordance with section 10 of the Iron and Steel Act, 1967.
      I suggest that with this Amendment we take the related Amendment No. 235, which will add a new Part III to Schedule 18.
      This is a concession which allows taxpayers who have had a loss on a holding of steel shares or stock on the time of nationalisation and who received 6½ per cent. Treasury stock by way of compensation to claim relief for this loss if they disposed of their holding of Treasury stock after Budget day, notwithstanding that the disposal of Treasury stock cannot, under Clause 35, give rise to any chargeable gain or allowable loss. This is a provision to deal with the losses of steel share-holders who losses have been converted into a loss in gilts and they are made, I think rightly, the exception to the general rule.
      Amendment agreed to.

    Schedule 18
      GILT-EDGED SECURITIES EXEMPT FROM TAX ON CHARGEABLE GAINS
      Amendment made: No. 235, in page 145, line 25, at end add:
      GILT-EDGED SECURITIES EXEMPT FROM TAX ON CHARGEABLE GAINS

        PART III
        Disposals of securities issued in exchange for steel shares
        4.—(1) The provisions of this Part of this Schedule apply in relation to a disposal to
        1022
        which section 35(1) of this Act applies of 6½ per cent. Treasury Stock, 1971, (in this Part of this Schedule referred to as 'compensation stock') in relation to which the conditions in sub-paragraph (2) below are fulfilled.
        (2) The conditions referred to in sub-paragraph (1) above are—

        (a) that the stock disposed of consisted or formed part of a holding of compensation stock held on 15th April, 1969 by the person making the disposal, and

        (b) that the stock disposed of was acquired by that person, by virtue of section 10 of the Iron and Steel Act, 1967, by way of compensation for the vesting in the British Steel Corporation under section 9 of that Act of securities (in this Part of this Schedule referred to as 'steel shares') previously held by him.

        (3) For the purpose of determining whether a disposal of compensation stock is one to which this Part of this Schedule applies, the rules of identification in paragraph 8 of Schedule 9 to the Finance Act, 1962 shall apply in place of the provisions of paragraph 2 of Schedule 7 to the Finance Act, 1965.
        5.—(1) Notwithstanding anything in section 35(1) of this Act, where this Part of this Schedule applies in relation to a disposal by any person of compensation stock then, subject to sub-paragraph (2) below, there shall accrue to him on the disposal an allowable loss calculated in accordance with the following provisions of this paragraph.
        (2) For the purpose of determining the allowable loss referred to in sub-paragraph (1) above, it shall be assumed that the person making the disposal had on the vesting date, within the meaning of the Iron and Steel Act, 1967, disposed of all the holdings of steel shares held by him on that date for a consideration equal to the value of those shares as determined for the purposes of section 10 of that Act, and if on the disposal of any such holding an allowable loss would have accrued to him, or would have accrued to him if the disposal had not been one chargeable to income tax under Case VII of Schedule D (tax on short-term gains), the aggregate of those allowable losses shall be determined for the purposes of this paragraph; but if no such losses would have accrued, sub-paragraph (1) above shall not apply.
        (3) The allowable loss accruing to the person making the disposal referred to in sub-paragraph (1) above is equal to the appropriate proportion of the aggregate of allowable losses referred to sub-paragraph (2) above, and for this purpose the appropriate proportion is that which the compensation stock disposed of by him bears to the total compensation stock received by him by virtue of section 10 of the Iron and Steel Act, 1967.—[Mr. Harold Lever.]
        Mr. John Hall: I beg to move Amendment No. 115, in page 150, line 35, at end insert:
        (3a) Section 25(4) of the Finance Act, 1965 shall not be applied by virtue of section 25(7) of that Act on any date falling after 15th

        1023
        April, 1969, but sections 25(4), (5) and (6) and 26(9) of the Finance Act, 1965 shall apply as if a life interest in possession in settled property terminated on any occasion when (after taking account of section 31(3) of this Act) all or any part of the settled property either—

        (a) passed for the purpose of estate duty by virtue of sub-paragraph (iii) of section 2(1)(b) of the Finance Act. 1894 (as substituted by section 30(2) of this Act); or

        (b) would have passed as aforesaid but for any exemption from estate duty.

        This Amendment arises from the need to change the 15-year rule now that estate duty is payable on the death of a beneficiary under a discretionary trust. I understand that the House discussed earlier today some of the effects of the new legislation regarding discretionary trusts, but I should be out of order in following that on the present Amendment.
        If the Amendment is accepted, it may be necessary—this was an oversight on my part—to introduce a manuscript Amendment, because we should find it necessary to delete paragraph 10 of Schedule 17.
        As I understand, if the Bill is enacted without the Amendment, the effect of the existing capital gains legislation on discretionary trusts will be as follows. First, capital gains tax will continue to be payable at 15-year intervals as now. Second, capital gains tax will not be payable on the death of a beneficiary except where the trust comes to an end. Third, estate duty will be payable on the death of a beneficiary under a discretionary trust but, in valuing the settled property for estate duty—I hope that I read paragraph 10 aright—allowance will be made for capital gains tax prospectively payable at the next 15-year interval.
        It seems to me that, now that discretionary trusts are subject to extra estate duty in this way, there is no reason why they should suffer capital gains tax every 15 years on a notional disposal. When I first looked at it, it seemed such an eminently reasonable proposal that my first instinct was to table a simple Amendment repealing the 15-year rule. However, on closer examination, I came to the conclusion that that rather straightforward approach was not quite so simple or in some respects so equitable as might at first sight appear. For that reason, I put down the Amendment the effect of which is to replace the automatic 15-year rule
        1024
        which now applies by a rule the effect of which is that the trust be treated as though a life interest has come to an end on each occasion when settled property passes for estate duty purposes.
        The new rule will not put discretionary trusts on a more favourable footing than other trusts. It will not result in notional disposals occurring more frequently than hitherto. The Chief Secretary will realise that that follows from Section 25(6) of the Finance Act 1965. It could result in trustees holding property longer than 15 years without any notional disposals. It could result in the trustees of a discretionary trust obtaining a part of the £5,000 exemption on death which otherwise might be unused.
        For all those reasons, I take it that the right hon. Gentleman will regard this as a reasonable Amendment, and I commend it to the House.
        Mr. Diamond: I am attracted by the idea that, instead of having to deal with assets on two separate occasions, one should as a matter of convenience value them on one occasion, that one occasion serving for both estate duty and capital gains tax. To the extent that that is incorporated in the proposal put by the hon. Member for Wycombe (Mr. John Hall), it seems an idea which we ought to watch and consider whether we can make use of it.
        I could not accept the Amendment, so the hon. Gentleman can relax about the manuscript Amendment to his Amendment which he had in mind. None the less, I feel that we should watch during the coming year how this matter might be worked out and consider whether we can put forward a proposal to meet the timesaving purpose of his Amendment. Considerable investigation would have to take place. I should have to make sure that it would be convenient and that it could be capable of being worked in a number of ways which one has not had time yet to examine.
        It is an idea well worth pursuing, however, and I hope that, on the understanding that we shall give it careful thought during the coming year and, if we can make use of it, bring something forward in a year's time, the hon. Gentleman will feel that, as on previous occasions in Committee, his time and energy spent on the matter has once more borne fruit.
        9.45 p.m.
        Mr. John Hall: In view of the kindly words addressed to me by the Chief Secretary, I would be hard-hearted indeed if I did not respond. Therefore, in view of his undertaking to examine this suggestion over the next year and possibly introduce something in the next Finance Bill, I beg to ask leave to withdraw the Amendment.
        Amendment, by leave, withdrawn.

    Schedule 19

      CAPITAL GAINS
      Mr. Diamond: I beg to move Amendment No. 130, in page 151, line 3, leave out
      'by a person other than a company'.
      It may be convenient to discuss with it Government Amendments Nos. 131 and 132.
      The purpose of the Amendments is to make a small extension to the scope of paragraph 10 of the Schedule, under which the proceeds of small part disposals of land are allowed to be deducted from the original acquisition cost, so that the charge to tax of any gain is postponed until the remaining land is disposed of. The effect of the Amendments is to apply the paragraph to disposals of land by companies.
      Originally, disposals of land by companies were excluded from its operation, for the simple reason that a company goes on for ever and one might never collect the tax in those circumstances. But, on reconsideration, we think that the amounts involved could be very small. There could be a saving in work. There have been suggestions that we should reconsider the provision. We have done so and have tabled the Amendment, which I hope will be acceptable to the House.
      Amendment agreed to.
      Further Amendments made: No. 131, in page 151, line 4, after 'where', insert (a)'.
      No. 132, in page 151, line 6, at end add:
      `and
      (b) the transfer is not one which, by virtue of paragraph 20 of Schedule 7 to the Finance Act 1965 (transfers between husband and wife) or paragraph 2 of Schedule 13 to that Act (transfers within groups of
      1026
      companies), is treated as giving rise to neither a gain nor a loss'.—[Mr. Diamond.]
      Mr. Diamond: I beg to move Amendment No. 133, in page 152, line 26, at beginning insert:
      Unless the person receiving the compensation makes an election under section 33(3) of the Finance Act 1967.
      With permission, I would like also to refer to Government Amendment No. 134. The two Amendments correct a minor drafting defect in paragraph 11.
      Amendment agreed to.
      Further Amendment made: No. 134, in page 152, line 27, after 'shall', insert
      'in the case of land in Great Britain'.—[Mr. Diamond.]
      Mr. John Hall: I beg to move Amendment No. 116, in page 152, line 32, it beginning insert:
      (1) In subsection (1) of section 35 of the Finance Act, 1965, the following words shall be inserted before the word 'Subject' in line 1, namely 'A gain shall not be a chargeable gain if accruing to a person on the disposal of assets held by him in favour of a charity and'.
      The Amendment arises from a plea made by the Chairman of The Wilberforce Home for Multiple Handicapped Blind. It started with a letter he wrote to The Times on 21st January, which was followed up by letters to various right hon. and hon. Members on both sides who I think have from time to time taken up this point with the Chancellor. The point he made must command sympathy. He suggested that it was wrong in principle, and a deterrent to would-be donors, that the donor of assets to a charity should be sujected to a tax on a notional gain when he gifted the assets to that charity, when no gain had been realised and might never be realised even by the charity, though if it were realised by the charity it would be exempted by Section 35 of the 1965 Act.
      The layman might be excused for thinking that the wording of Section 35 meant that all gifts to charities were free of capital gains tax, but refers only to the disposal of those assets in the hands of the charity after it receives them. It appears to be clear that anyone who passes over assets to a charity might incur liability for capital gains tax and have to meet that liability, unless, as has been suggested in one exchange of correspondence, the donor either sells the assets and

      1027
      then gives the net proceeds to the charity, after paying the capital gains tax, or keeps back a certain part of the assets to meet what he expects would be the liability. Either way, of course, the charity will receive less than by a straight donation without a deduction of that kind.
      The arguments deployed in favour of the present state of affairs are, first, that the gains have accrued while the assets were in the hands of the donor and therefore should be chargeable to him before he passes them over to the charity. It must be borne in mind that the donor himself has no intention of making any money out of this but wants to give a complete asset to the charity as it stands without taking any advantage of any sale or capital gain which may have accrued in the meantime. The way this operates, it seems that the State is determined that it will have its share of a gift given to a charity if legally possible. This seems an undesirable and mean attitude on the part of the Treasury.
      The second argument, I understand, is that it would be inequitable to change the law in this respect because it would create a difference between those who sell their assets and give the net proceedings to charity and those who give the whole asset to the charity, which, under this Amendment, would be free of tax.
      We had considerable debate on this matter during the proceedings on the 1965 Act, when we discussed the effects of the fiscal proposals on charities, and we have had a recent debate on the effect of a certain fiscal action on spastics. This is an opportunity for the Government to be generous. This is a case where the donor makes no profit. He wants to give an asset to charity with no gain to himself whatever. If he is able to give it without the imposition of a capital gains tax, then the charity itself will get more than if he keeps back a part with which to pay the liability or sells the asset and hands over the proceedings net.
      I do not believe that the Government should try to deny a charity this particular advantage. We know that charities are in a special position and, indeed, our legislation contains a number of examples where they are put in a specially privileged position. We
      1028
      should stretch Section 35 to the point where we give charities the advantage of gaining from the donor an asset free of the burden of capital gains tax, which would have to be paid before it received the proceedings.
      I hope that the Amendment commends itself to the right hon. Gentleman. He was kind enough to receive my last Amendment with some sympathy. I hope that he will take the same attitude now. If he cannot accept the Amendment, I hope that he will at least give further consideration to this matter during the coming year and introduce an appropriate Amendment in next year's Finance Bill.
      Mr. R. H. Turton: I hope that the Chief Secretary will give further consideration to this matter. It is a gap in the charity law which most hon. Members are aware of. It is hitting not only the Wilbeforce Home for the Multi-Handicapped Blind, but many other charities as well. Someone is willing to give a donation to a charity, but finds that he can be liable for tax, dependent on the cost of the purchase of the security many years ago or the 1965 value. That deters charitable people from trying to help the charities.
      The House should look at the whole question of the position of charities with greater sympathy than it does. I believe that charities such as the Wilberforce Home and many of the charities for the deaf are helping the country and other taxpayers over obligations that we all have to the handicapped. It would be an excellent gesture if the Government either accepted the Amendment or proposed further consideration, before the next Finance Bill, of how the problem for the charities can be overcome.
      I am convinced that the cost to the Exchequer of making this concession would be negligible. At present, it is difficult to get securities given to charities because of what I regard as a loophole in the law. If the Government were to make this concession in this or the next Finance Bill, they would not lose any revenue, because they would encourage more people to give securities to charities. I hope that for once the Chief Secretary will be generous and that, if he cannot be generous on this occasion, he will consider a future change in the law in this respect.
      Mr. Diamond: I am grateful to the hon. Member for Wycombe (Mr. John Hall) for making it clear that charities are exempt from capital gains tax on all capital gains accruing to a charity; that is to say, when a charity has an asset which increases in value and is then realised and would otherwise be liable for capital gains tax, no capital gains tax is charged. What we are not considering is whether a charity is subject to capital gains tax; it is not. What we are considering is whether an individual is subject to capital gains tax on a gain; he is, but only when it is realised.
      Capital gains tax becomes due when the gain is realised. Therefore, if an individual has an asset which is gaining, there is a liability to capital gains tax accruing the whole time the individual is holding that increasing asset, but he does not have to pay it until the gain is realised. If that individual before realising the asset decides to give it to a charity, it is suggested that two things should be given to the charity—the asset and the debt which the individual owes, but which has not yet matured. It is suggested that the debt to the State should be handed to the charity.
      That is not an argument which I can accept. Nor did we find it an argument which we could accept when this matter was fully considered when capital gains tax was introduced and when it was decided that it should follow the ordinary rule of estate duty, which it does, and be treated in exactly the same way.
      While we do not charge capital gains tax or estate duty on charities, individuals and estates pay capital gains tax and estate duty no matter to whom the asset in question is given or disposed of under a will. For those reasons, it is not possible to accept the Amendment. I have demonstrated my full sympathy for charities by reminding the House that charities are wholly exempt from capital gains tax and estate duty.
      10.0 p.m.
      Mr. John Hall: Before the right hon. Gentleman sits down, would he make clear whether his resistence to this Amendment is dictated by the thought that this might provide, in some way not clear to me, a loophole for evasion, or is the reason really that he wants the State to take the full share of what he regards as a legal liability to tax and therefore
      1030
      deny that advantage to the charity, to whom it would otherwise have passed?
      Mr. Diamond: There is no question of tax avoidance. The hon. Gentleman is putting to me that the recipient should receive two gifts because it is a charity; it should receive a gift from the donor of the assets and a further gift from the Exchequer on the capital gains tax which has accrued to the Exchequer but has not been paid, because the liability to pay has not matured. I say that that is an argument which does not appeal to me. There is no real reason why the Exchequer should be required to make a present to the charity just before an individual wants to make a present to it.
      Let the individual make the present to the charity. Very often an individual does, usually by cash. That cash is what remains to the donor after he has paid all of his taxes, income tax, surtax if any, and capital gains tax, if any. Out of that net taxed disposable income in 99 cases out of 100 he makes a gift to the charity. Once the charity receives the gift, if it earns a capital gain on that gift it is free of capital gains tax. I am saying that we should not distinguish between the man who makes a cash gift out of his taxed income and a man who makes a gift in kind by transferring an asset which has accrued liability to capital gains tax. I am sure that I have made the position clear. It is no lack of generosity; it is just following the sensible process of our tax system.
      Mr. Tom Boardman: I had not intended to intervene, but the reply of the Chief Secretary omits the type of circumstance which I am sure my hon. Friend had in mind, not the case of a gift of cash, but a case in which land is given to a charity. I have a particular case in mind. When the owner of land next door to a charity is perfectly willing to give that land to it such gift would be an invaluable asset to the charity, but neither the donor nor the charity would have the cash to pay the capital gains tax which would arise. If the right hon. Gentleman could make this concession the charity could take this land and the property and make use of it. The donor would rid himself of this liability to capital gains tax.
      This would be a great benefit to the country and it would encourage people

      1031
      to make this kind of gift. The Treasury will lose nothing by it because if it is not given to a charity it will remain there frozen.
      Amendment negatived.
      Mr. Diamond: I beg to move Amendment No. 135, in page 157, line 10, leave out '(3) The said fraction' and insert:
      (3) A disposal of shares or loan stock by the transferor company which, by virtue of Schedule 13 to the Finance Act 1965 (groups of companies), is treated as giving rise to neither a gain nor a loss shall be disregarded for the purposes of sub-paragraph (2)(b) above but on the first occasion after such a disposal that there is a disposal which is not so treated of all or any of those shares or that loan stock, that sub-paragraph shall apply as if the disposal were a disposal by the transferor company.
      (4) The fraction referred to in sub-paragraph (2) above.
      Mr. Speaker: With this Amendment it will be convenient if we take Amendment No. 199, in page 156, line 44, at end insert—
      'the transferor company disposes of all or any of the shares issued on exchange by the transferee company, provided that where the transferor company is a member of a group as defined in Schedule 13 to the Finance Act, 1965, this sub-paragraph shall apply only by reference to a disposal outside the group in accordance with the provisions of that Schedule, and the gain shall be deemed to accrue to the member making that disposal'.
      No. 200, in page 156, line 45, leave out from beginning to end of line 9 on page 157.
      No. 290, in page 157, line 4, leave out head (c).
      Mr. Diamond: This is a relieving Amendment. It deals with the charge to tax on capital gains accruing to a company resident in the United Kingdom, carrying on a trade outside the United Kingdom through a branch, which transfers this trade, together with its assets, to a company not resident in the United Kingdom in exchange for shares in the company. Under the law, the charge is postponed until for example the disposal by the transferor company of any of the shares received from the transferee company in exchange for the assets transferred. If that happens, then the charge matures.
      It has been represented to us by the accountancy bodies that transfers of shares within a group of companies
      1032
      should be disregarded for the purpose of this paragraph. As this would accord with the principle generally followed in relation to tax on capital gains, that transfers of assets between members of a group of bodies should be disregarded, we propose to do so in this case.
      For these reasons we have introduced this Amendment to make the necessary changes to paragraph 18(2).
      Mr. John Hall: I do not know, Mr. Speaker, whether we are taking this Amendment separately and then coming on to the other Amendments which are in my name and in the name of my hon. Friend, or whether we are to have a general debate.
      Mr. Speaker: I had suggested that we should take this one and the other three together. The hon. Gentleman will not be inhibited from speaking about his own Amendments.
      Mr. Hall: Then I shall speak to the other Amendments at the same time.
      I welcome the Government Amendment No. 135. It meets one of the objections I had in mind in both Amendments Nos. 199 and 200. Amendment No. 290, which we are taking at the same time, deals with a much narrower point, to which I shall come later. It refers only to the period of 10 years which was referred to in the paragraph.
      Paragraph 18 is somewhat complicated. It recognises that transfer of trade to a non-resident company for shares in that company gives rise to a chargeable gain which is potential only and is not realised in a material sense at the time of exchange. It defers the actual charge by reference to four alternative conditions laid down in the Schedule in paragraphs 18(2)(b). Paragraph 2(b) has been changed by the Amendment No. 135. There are objections to the other conditions. For that reason it seems to be a logical step to impose a charge only on the effective realisation of the shares. That is the effect of the two Amendments 199 and 200.
      The Amendments, in addition to producing a more logical state of affairs, have also been tabled because of the objections to the four provisions laid down in paragraph 18(2)(a) to (d). Paragraph 2(a) refers to the cessation and use of an asset and brings about a liability

      1033
      to charge. The difficulty is that if one has only 25 per cent. of the shareholding of the overseas, company it is difficult to police what happens to that asset; it is even more difficult if there is any further watering down by the issue of other shares at a later stage to a third party.
      That in itself is a slight difficulty, although I appreciate that there could be conditions with assurances and guarantees to enable the Treasury to be assured that some watch was kept over assets transferred; the Treasury could get the necessary information about it. This would not arise if my Amendment were accepted.
      Paragraph 2(c) deals with the period of 10 years. I shall go into that matter in more detail when I come to deal with Amendment No. 290.
      Paragraph 18(2,d) seems to be neither necessary nor logical. The present position is that there is no disposal on the appointment of a liquidator, but as a result of this provision chargeable gain may arise which the company may not be able to offset against losses incurred during liquidation.
      I hope that I have demonstrated sufficiently the unsatisfactory nature of these provisions, and that it will be possible to accept Amendments Nos. 199 and 200. If, however, through a mental abberation brought about by the hot weather, the Chief Secretary finds it difficult to accept those Amendments, I will turn to Amendment No. 290, which deals with a much more narrow point.
      It is difficult to understand why the period of 10 years has been inserted. It means that any chargeable gains arising on the assets transferred are frozen—although they are payable if the asset is disposed of or in the event of certain other developments; but if the assets are not disposed of within 10 years, the chargeable gains become payable. It is difficult to understand precisely why this should be, except, possibly, that the Treasury has the same fear as I expressed in commenting on paragraph 18(2,a) that it may be difficult to police the future of these assets to find what happens to them.
      Before I come to the answer to that one, perhaps I may briefly summarise the situation since the 1965 Act. The Chief Secretary will remember that originally
      1034
      paragraph 8 of Schedule 7 to the 1965 Act provided for exemption from the tax on chargeable gains where a business was transferred to a company as a going concern in exchange for shares. That was at least understandable, although it was, perhaps, the most undertandable of the many complicated matters of the 1965 Act.
      In 1968, under paragraph 16 of Schedule 12, that exemption was restricted to individuals. The British Insurance Association, which was rather affected by the matter, pointed out, I believe, at the time to the Chief Secretary that the withdrawal of the exemption granted in the 1965 Act was of particular concern to insurance companies trading overseas which had found it necessary in some countries to convert their branch operations into local established companies, and in some cases to sell a portion of the capital locally. We all understand the necessity for this action, which arises from time to time and may be likely to arise more frequently in future as a result of growing nationalist pressure in the countries concerned.
      There is another reason for this type of transfer. It applies particularly, I suppose, in North America, where there would be a considerable saving of expense by integrating branches and subsidiary companies. I believe that it was pointed out last year by the British Insurance Association, although I cannot recollect that it was discussed during the debates, that if a tax was to become chargeable on the conversion of an overseas branch into a subsidiary company, there would be a tendency for tax concessions to override commercial considerations in what was, quite rightly, described as an important section of our invisible exports.
      During the discussions at the time, the Chief Secretary said that he would look at this matter, and this he did. As a result, he introduced the measures which we have been debating partly this evening. These are very satisfactory as far as they go, but it is still extremely difficult to understand why the 10-year provision has been included, unless, to revert to my opening remark, the Treasury thinks that for administrative convenience, or because of fears that it might be difficult to keep track of the assets which have passed, there must be

      1035
      a limited time in which the concession can be allowed to operate.
      It has been suggested to me that in giving Section 468 approval, conditions could be laid down by the Treasury which would ensure that it was informed of the future of the assets and what happened to them over a period of time and that, therefore, it would not be necessary to impose a restriction of this kind.
      I am not certain whether the existence of this limit and the possible liability which might arise at the end of 10 years—when, although the assets would not have been disposed of, the frozen period would come to an end—is sufficient to discourage companies taking certain commercial steps, which in normal circumstances they would take, for fear of the fiscal consequences. I do not think that that is likely to weigh heavily with them. Nevertheless, there is the possibility that in considering the possible future of their investments and the possible liability to capital gains tax at the end of a given period, they might be dissuaded from taking action which otherwise would be commercially desirable, both for the insurance companies concerned—and, for that matter, for other companies—and for the nation as a whole.
      Although I do not think with any optimism that the Chief Secretary will be disposed to accept Amendments Nos. 109 and 200—I should be delighted if he did—I think that he might give close attention to Amendment No. 290, because this deals with a very real point, and I do not think that the Treasury needs to oppose it. The Treasury is expressing groundless fears in trying to cover the possibility of losing sight of assets which have been moved overseas.
      10.15 p.m.
      Mr. Diamond: The hon. Member for Wycombe (Mr. John Hall) was good enough to say that the main case which he made in Committee has been met by the Amendment which I have introduced. That is the case of the transferor company disposing of all or any of the shares received in exchange.
      The hon. Gentleman is now asking me to go a good deal further and to extend the same privilege where the transferee company makes any disposal of the assets transferred. I did not hear what was
      1036
      the argument for that, except that it was a request. I can see no argument for doing that. We are concerned here with the case where liability to capital gains tax has in the normal sense arisen but, because the transaction takes the form of any exchange of an asset for another asset, one is rolling over for the time being the collection of the duty.
      But once the person to whom an asset has been transferred on which capital gains tax would otherwise have been payable has parted with possession of that asset, there is no longer justification for holding over the collection of the capital gains tax, whatever the amount may be. I cannot see what is the argument for suggesting that that provision should be varied.
      Mr. John Hall: I was suggesting that the tax should become liable on the effective realisation of shares which were obtained by the company in this country.
      Mr. Diamond: The hon. Gentleman is not altering the case which he originally made. He is saying that where a transferee company makes its disposal the hold-over of the tax should still continue either for a short or a long time until the effective realisation to which he refers has taken place. The relevant happening is the disposal by the transferee company of the asset, and, once that happens, the link has been broken and there is no longer any justification for continuing to hold over the collection of the capital gains tax.
      The hon. Gentleman then concentrated on the provision under which the assets are not transferred by the transferee, but are held over for 10 years and capital gains tax, notwithstanding that the assets are not transferred, then becomes payable
      The hon. Gentleman is quite right. The reason for this is that there is very little control and very limited possibility of following up and vouching for what has happened to the asset. It is therefore necessary to have a simple formula, and 10 years is a reasonable period for which to continue to withhold collection of the capital gains tax.
      The hon. Gentleman says that that might just be enough to make a sensible board act uncommercially, having regard to the weight of the capital gains tax which would otherwise become payable.

      1037
      We are talking of 45 per cent. of the gain on an asset. I do not know what the gain would be. But 45 per cent. of a gain is 45 per cent. of a proportion of the asset. If it was a 10 per cent. gain, it is 4½ per cent.
      We are talking about the present discounted cash value of 4½ per cent. in 10 years. Anybody who cares to work that out at current rates would not regard it as of such magnitude that the president of a board would regard it as sufficient to deter the company from carrying out its functions in a normal commercial way.
      I do not regard this as weighty an argument as the hon. Gentleman normally puts forward. I hope that he will agree that I have met his main point fully in relation to the transferor company disposing of its shares. In those circumstances, I hope that he will feel that his endeavours have met with adequate success and he will not feel it necessary to press the Amendments.
      Amendment agreed to.
      Further Amendments made: No. 136, in page 157, line 39, leave out paragraph (c) and insert:
      (c) the company charged to capital all or any of the interest on that borrowed money referable to a period or part of a period ending on or before the disposal, and.
      No. 137, in line 43, at end add 'charged to capital'.—[Mr. Diamond.]
      Mr. John Hall: I should like to thank the Chief Secretary for tabling these two Amendments, which give effect to something that he promised to do in Committee.
      Further Amendments made: No. 138, in page 159, line 11, leave out `first and second companies' and insert 'companies concerned'.
      No. 139, in page 160, line 10, leave out 'that Act' and insert 'the Finance Act 1965'.—[Mr. Diamond.]

    Clause 39

      BASE VALUE OF OWNER-OCCUPIED DWELLING-HOUSE
      The Minister for Planning and Land (Mr. Kenneth Robinson): I beg to move Amendment No. 57, in page 57, line 32, at end insert:
      (4A) If the grantor is a trustee, and the dwelling-house has been the sole or main residence of a person who—

      (a) is entitled to occupy it under the terms of the settlement, or

      (b) is a beneficiary under the settlement and allowed by the trustee to occupy it, sub-paragraph (1)(a) and sub-paragraph (4) above shall have effect as if that person were the grantor.

      I think that perhaps we could take with this Amendment, Mr. Speaker, Amendment No. 60, in page 58, line 25, after '(4)', insert '(4A)'.
      Mr. Speaker: If the House has no objection, so be it.
      Mr. Robinson: The House will recall that when this Clause was considered in Committee of the whole House on 14th May, the hon. Member for Acton (Mr. Kenneth Baker) moved an Amendment designed to extend the benefit which is to be conferred on owner-occupiers to trustees who sell houses which have been occupied by a beneficiary under the trust. I felt unable to accept the Amendment which the hon. Gentleman put down, but I agreed to consider whether a suitable Amendment could be tabled on Report. I think that this Amendment achieves the end which the hon. Gentleman sought.
      The Amendment provides that the improved base value for owner-occupiers shall also be available to a person selling a house, within the prescribed limits of size and value, where that person is a trustee and the occupant of the house is a beneficiary under the trust. To say simply "a beneficiary" may be an oversimplification and I ought perhaps to add a word of explanation about this.
      First, the Amendment provides for the case where the beneficiary is a person who, under the terms of the trust, is specifically entitled to occupy the house. The Amendment then goes on to provide for the case where any other person who is a beneficiary under the trust occupies the house; that is, any beneficiary who is
      1040
      not specifically entitled under the terms of the trust to occupy it. The Amendment is thus, if I may say so, generously wide, for any beneficiary under a trust who occupies the house concerned is put into the position of an owner-occupier even though the value of his interest under the trust may be less than the value of the house that he occupies.
      Amendment No. 60 is consequential on the first.
      Mr. Kenneth Baker: I thank the Minister for generously acceding to the case which I and some of my colleagues made in Committee. Any improvement of betterment levy is to be welcomed, and I am sure that it is welcomed on both sides of the House.
      This is the only significant relief which we have secured during the long Committee stage of the Bill. We should have liked to see many others, the most important of which was to have owner-occupied houses taken out of the charge to betterment levy all together. Nevertheless, this is a step in the right direction, and I welcome it. I thank the Minister for turning his sympathetic consideration to helpful action.
      Amendment agreed to.
      Further Amendments made: No. 58, in page 57, line 34, after 'person', insert:
      'sub-paragraph (1)(a) above shall apply to a dwelling-house which was the deceased's sole or main residence and'.
      No. 60, in page 58, line 25, after '(4)' insert '(4A)'.—[Mr. K. Robinson.]

    Clause 40
      ALLOWANCE FOR COSTS OF SALE
      Amendment made: No. 203, in page 59, line 1, after 'and', insert 'except'.—[Mr. K. Robinson.]
    Clause 43

      MINOR AMENDMENTS
      Mr. Graham Page: I beg to move Amendment No. 270, in page 63, line 13, at beginning insert:
      (1) At the end of section 44 of the Land Commission Act 1967 (Notice of Assessment of Levy) add—
      '(5) In any case where after notification of a chargeable act or event it appears to

      1041
      the commission that no levy is payable as a result thereof, the commission shall serve upon the person on whom a notice of assessment of levy would be served under this section if levy were payable a notice that no levy is payable'.
      This certainly is not just a drafting Amendment, as the three previous ones have been. It has a great deal of substance. It deals with the question of the person who sells, rents or develops his property and, as a result, may become liable to betterment levy. The Amendment is designed to put him out of his agony.
      In some parts of the Land Commission Act of 1967, the Commission has six years in which to decide whether or not the vendor, the lessor or the developer of property is liable to betterment levy. This is framed as an Amendment to Section 44 of the Land Commission Act, which is one of those Sections so frequently found in connection with the collection of taxes, which thinks only of the tax collector and not of the victim of the tax. It seems in Section 44 as if there is a horrible delight in the hue and cry after the victim of the levy, with no thought of releasing him when it is known that he is not liable to levy.
      But to get behind the statutory jargon of Section 44, the circumstances of a case are that someone has sold, let or developed property. Under the present provisions, the Land Commission is directed to serve him with a notice of assessment if it thinks that he is liable to levy. Then, all that procedure starts as a result of that notice. But if the Commission decides that he is not liable, it can just keep silent and for six years he may have the sword of Damocles over his head and wonder whether he is liable to levy.
      In those circumstances, it is difficult to deal with any trust estates. How can one deal with a trust estate which has a contingent liability to levy? It is almost impossible to wind up the estate of a deceased person who happened to sell property recently before he died. It is almost impossible to wind up a bankrupt's estate if the bankrupt sold property before he died—all because one never has any sort of clearance from the Land Commission that levy is not payable.
      1042
      10.30 p.m.
      This will become particularly important under the reforms in this Measure, for the Government have seen what was wrong in at least five cases under the Land Commission Act and have reformed the law in connection with those cases. It becomes even more important that the potential levy-payer should know whether or not he is free from levy. The Land Commission will be quick enough to come down on him if he is liable to levy.
      Under Section 44 of the Act he receives a notice of assessment and the procedure starts. The Land Commission receives a P.D. form—particulars delivered—which is filed with the Stamp Duty Office when a conveyance is completed. By merely looking at that form the Land Commission knows whether the case comes within any of the concessions granted under this Measure. If it does and if the Commission decides that the vendor, lessor or developer will not have to pay any levy, the Commission should say so immediately. At present, there is no provision to oblige it to do so. The Amendment seeks to put some obligation on the Commission to put the man out of his agony and tell him that no levy need be paid.
      Mr. K. Robinson: The hon. Member for Crosby (Mr. Graham Page) made it clear that the Amendment seeks to require the Land Commission to serve a notice saying that no levy is payable on anybody who would have been chargeable to levy in any trarsaction of which the Commission had been notified had a liability to levy arisen. I will explain why this is not acceptable.
      As the hon. Gentleman will appreciate, every sale of land constitutes a chargeable act or event under the Land Commission Act. There are over 1 million such sales each year and every one of them is notified to the Land Commission when the purchaser, or usually the purchaser's solicitor, sends particulars of the sale to the Inland Revenue Stamp Office.
      The Betterment Levy (Notification) Regulations provide that this constitutes notification to the Land Commission. The vast majority of these transactions, of which a clear example is the sale of a house without any question of the land being developed, give rise to no liability to levy. That this is so is clear to both

      1043
      parties and their advisers, and I am satisfied that nobody is uneasy about the incidence of betterment levy in such cases.
      Only one case in every 20 notified is even investigated as showing a potential liability to levy. The Opposition are surely not suggesting that the Land Commission should solemnly send out 1 million negative notices a year, mainly to people who never imagined that they would be liable, anyway.
      Mr. Graham Page: The right hon. Gentleman and I know the technicalities of this legislation, but we cannot expect the layman to know them. He gives the particulars of his transaction to the Commission. How is he to know that he is not liable to levy when he does not know the technicalities of this almost unintelligible Bill?
      Mr. Robinson: The hon. Gentleman is constanly making this point, usually in different though equally picturesque phraseology. Nevertheless, he is asking for notification to be given in every case, including the hundreds of thousands of cases of people who probably do not even know that notification of their cases is virtually automatic. The result would be the Land Commission sending out about 1 million notices a year to people who, for the most part, would be staggered to get them.
      I appreciate the hon. Gentleman's argument that it is not always apparent whether or not levy will be chargeable. I appreciate that this is so even in the case of houses where there is no immediate prospect of development, particularly if they stand in grounds which possibly invite future development. In these circumstances, it is always open to the vendor to inquire at the appropriate offices of the Land Commission about the prospect of levy being charged. They will inform him whether, on the facts before them, levy appears to be payable.
      The Opposition are asking for more than this. There are at present three circumstances in which the Commission notify prospective levy payers that no levy will be payable: first, as I have said, when it is asked to do so; second, in Case C where the prospective levy
      1044
      payer himself notifies his project of material development; and third, where, following the sale of land and notification by the purchaser, the Commission has made inquiries of the vendor.
      The hon. Gentleman appears to be suggesting in his Amendment that instead of the qualified advice which the Commission gives it should make a positive declaration that no levy is payable where this appears to be the case. But the Commission has power under Section 55 of the Act to serve a further notice of assessment on the discovery of any fact which was not known to the Commission when the first notice was served. This is all that the Commission's present qualified advice preserves for itself. I cannot believe that even hon. Members opposite would regard that as an unreasonable precaution on the part of the Commission.
      The hon. Gentleman made some play with the fact that the Commission has six years in which to make up its mind whether or not to assess levy, but if the full facts of a transaction are disclosed when it is being investigated it is of little significance, because the Commission will be able to give an answer as soon as the investigation is complete. If, on the other hand, the facts are not known, it is perfectly normal to have a six-year period over which past transactions can be reopened. It is not even clear that the Amendment would encroach on that limit, but it is not the Government's intention to do so.
      As this is the last of the betterment levy Amendments, perhaps I can, as a somewhat fleeting member of the Government's Finance Bill team, pay my tribute to the way in which the Opposition have dealt with Amendments both in the Standing Committee and on the Floor of the House. Despite the differences that we may have had on the existence of the Land Commission itself and the nature of retrospection, generally speaking, I think that their contributions have been helpful and constructive.
      Mr. Graham Page: I am grateful to the Minister for the kind words he has said about the Opposition team dealing with betterment levy. The team has tried to be constructive, and to assist the Government in the sort of concession they have decided to make in the Bill.

      1045
      I was interested to hear of the occasions when the Land Commission is prepared to notify a potential levy payer that he is not liable for the levy. I do not think that this is generally known. It is valuable that the right hon. Gentleman has put it on the record that those who have estates to wind up, particularly, will be able to ask the Commission for a clearance that they are no longer liable to levy. But these things are only a slight veneer, as it were, on the hateful levy itself, and the abominable Commission, which, we hope, will be abolished very soon.
      Mr. Robert Cooke: I cannot entirely go along with my hon. Friend the Member for Crosby (Mr. Graham Page) in thanking the Minister, or in any way endorsing what the Minister has said in this cosy little exchange—
      Mr. Graham Page: Not cosy.
      Mr. Cooke: I am glad to hear my hon. Friend say that it has not been cosy. The point is that my hon. Friend and the Minister will still appear to be on speaking terms, and that shows considerable restraint on the part of my hon. Friend, because there has been a good deal of provocation.
      I am not entirely convinced by what the Minister said. He said that those concerned would be staggered to get a notice from the Commission saying that no betterment levy was involved. People have been staggered to have letters quite out of the blue saying that levy was involved. I am not sure that they would mind being staggered by being told that they were clear once and for all and discovering exactly where they stood.
      What the Minister said did not satisfy me, because he said that the matter could still be open, that a new fact might come to light which would mean that levy could be charged: there might be a purely fortuitous change in planning; the village might suddenly be zoned differently and, far from being protected from development, it might be changed into an expansion point, and then the State might be forced to regard it as being capable of development and tax could be recovered. We just do not know where we are with this Government. Even in death there is no escape. The
      1046
      Land Commission will pursue assets beyond the grave. Even the two square yards in which one might hope to find one's final resting place could no doubt, in certain circumstances, be liable for betterment levy. There will be a tax on tombstones next.
      Sir E. Errington: I want, not to use honeyed words of the type that have just fallen from the lips of my hon. Friend the Member for Crosby (Mr. Graham Page), but to seek a little information from the Minister. The point is important, because it might happen to anybody who is concerned with land. A small portion of a large house was sold to an electricity board to enable it to erect a substation. The owners were assessed by the Commission to the extent of about £10. Subsequently, the matter was discussed and I was informed—I hope that this is accurate—that what had happened was that the creation of this small building as a substation did not require any levy to be paid on it because of the injurious effect to the larger house. This is a rather extraordinary position, which was brought about only as the result of considerable effort—
      Mr. Deputy Speaker (Mr. Harry Gourlay): Order. On this Amendment the hon. Gentleman cannot discuss the operation of the Land Commission. He must direct his remarks to the Amendment.
      Sir E. Errington: That is what I am seeking to do, Mr. Deputy Speaker. I am trying to discover what information would be given in the circumstances that I have indicated. If a statement is made, as is suggested by the Amendment, that no levy is payable, I can see considerable difficulties when it is a question of levy, instead of being payable, being credited to the person who might otherwise have had to pay a levy. This point arises clearly and definitely on the Amendment.
      Mr. K. Robinson: The hon. Gentleman is really asking on an Amendment dealing with negative notices why a negative notice was sent in this instance. The short answer is that, as betterment levy is payable on development value, the development value was offset by the amount by which the district valuer considered the house had depreciated as a result of the electricity substation. This

      1047
      is a not uncommon factor, and I do not think that it should need any greater effort or investigation to bring it out.
      Sir E. Errington: The point I am trying to put is whether a final statement is ever given.
      Amendment negatived.

    Clause 45

      SELECTIVE EMPLOYMENT PAYMENTS
      10.45 p.m.
      The Chancellor of the Exchequer (Mr. Roy Jenkins): I beg to move Amendment No. 143, in page 65, line 34, leave out subsection (5).
      This Amendment arises from the undertaking given by my hon. and learned Friend the Minister of State during the Committee stage to look again at the effects of this subsection. The Government's reasons for originally inserting the subsection were, first, the reclassification of milk processing as a manufacturing industry in the 1968 Edition of the Standard Industrial Classification which, under Clause 45(3) of the Bill, is adopted for purposes of selective employment tax. That reclassification will, in itself, reduce the yield of S.E.T. by£ 1½ million in a full year and will also cost about £250,000 in R.E.P.
      The second reason for putting in this subsection was that it was probable, but not certain, that, as a result of the earlier reclassification, associated transport and distribution establishments owned by processing companies would also be exempt. To avoid this, special provision was needed and was made by the subsection we are seeking to delete.
      During the Committee stage, some of my hon. Friends associated with the Cooperative movement and right hon. and hon. Gentlemen opposite opposed this principle on the following grounds: first, that milk was an essential food and its distribution an essential service and that this subsection would make it difficult to maintain this service; and, secondly, that the subsection discriminated against the milk industry by singling it out instead of allowing it to be dealt with in the normal S.E.T. groups.
      Bearing in mind the arguments from both sides of the Committee, the Gov-
      1048
      ernment reconsidered the matter. In outlining the various factors in that reconsideration, I need not argue the case for the subsection which was considerable, not least because the cost of the concession is £7 to £8 million a year. Nevertheless, especially in view of the representations put to me by my hon. Friends in the Co-operative group, I accept that it would not be right deliberately to enforce special treatment, which would be involved in this subsection, for milk processors.
      It is better to look at the whole problem when we have Professor Reddaway's report. In the meantime, we propose to withdraw the subsection and to treat milk roundsmen in the same way as bread and soft drink salesmen engaged in the distribution of these goods; and an establishment of milk processors including distribution depots will be eligible for refunding of tax, provided that they satisfy the normal tests.
      This is intended as a temporary measure until the position can be comprehensively reviewed in the light of the Reddaway report. Accordingly, I must reserve the right to reverse the position, conceivably for all delivery workers, if that should turn out, in the light of the report, to be the best long-term solution. I hope that hon. Members on both sides will agree that the Government, by bringing forward this Amendment, of considerable significance in its revenue effects, have fully carried out my hon. and learned Friend's undertaking in Committee.
      Hon. Members, possibly again on both sides, will also be glad to know the decision I announced today in a reply to a Question by my hon. Friend the Member for Dundee, West (Mr. Doig), that electricity and gas board showrooms shall cease to rank for refund of S.E.T.
      Mr. Higgins: The Chancellor of the Exchequer has just made an extraordinary statement on this Amendment which seems to be entirely irrelevant, though directly relevant to another Amendment on the Notice Paper. Is it not strange to do that rather than suggest that, perhaps, that other Amendment should have his name added to it and be debated?
      Mr. Jenkins: No, it is not necessary. I was hoping that you, Mr. Deputy

      1049
      Speaker, would accept a passing reference to that associated point. It does not require an Amendment to the Bill. It does not require to be legislated upon; it can be done by reclassification Order, which is the best and most convenient way to do it. But, as this is the only Amendment selected on S.E.T., I thought it reasonable to mention the point in passing.
      The withdrawal of this subsection gets us over one problem, but there is also the continuing difficulty that those whom are now exempting from S.E.T., like all employers who are exempt—this is a general point—are obliged under the present arrangements to pay the tax and then apply for refund later on. I see no practical way of overcoming that in the immediate future, though the problem should disappear with the introduction of the earnings-related national insurance scheme, when national insurance contributions and S.E.T. will be collected by the Inland Revenue through the P.A.Y.E. machinery.
      Mr. Alison: The Chancellor has just kindly announced an Amendment the fiscal effect of which will deprive him in this financial year of £7 to £8 million. He tells us that this is only a temporary measure, and he is doing it so that the Reddaway Committee and other specialist bodies concerned with investigating changes in taxation should have opportunity to consider the matter and make pronouncements.
      It will be within the recollection of the House that the many long and agonising hours which we here and others affected outside spent in considering his proposals for the disallowance of interest on borrowing were concerned with exactly that sum of £7 or £8 million in this financial year. [Interruption.] My impression was that the right hon. Gentleman said in his Budget speech that it would yield £7 or £8 million this financial year and £25 million in a full year.
      Would it not have saved the Committee and the House an enormous amount of time if the Chancellor of the Exchequer had a great deal earlier made exactly the same announcement about Clauses 18 and 19—
      Mr. Deputy Speaker: Order. The hon. Gentleman must not refer to debates on
      1050
      the Bill which have already been concluded.
      Mr. Alison: I relate it to the factor of £7 million or £8 million, Mr. Deputy Speaker, which I am sure is in order. We are discussing the possibility of docking the Revenue of that amount at short notice. The Chancellor will not fail to appreciate the significance of that sum in the context of other fiscal measures. Would it not have been more satisfactory if he gave greater priority to a sum such as this affecting other parts of the Budget, which would have made a great difference to people both inside and outside the House and helped the House to consider some of these matters, as the Reddaway Committee is considering S.E.T., to see whether disallowance of interest on borrowed money should be treated in the same way?
      Mr. Alfred Morris: I declare my interest in this matter as a Co-operative-sponsored Member of Parliament. My right hon. Friend has been kind in his references to the persuasive advocacy of the Co-operative Parliamentary Group. We gratefully acknowledge his tribute to our efforts in this important matter.
      The Amendment is welcome to the Co-operative movement. Our view is that taxation of essential foods is taxation of needs, not of means, and is often calculated to harm the interests of the poorer sections of the community.
      The Co-operative Parliamentary Group argued strongly the case for this Amendment. We also argued against the inequity of excluding the nationalised industries from the payment of selective employment tax in respect of their showroom staffs. Therefore, we also welcome the decision announced today to remove this inequity. My right hon. Friend is to be congratulated on these two short steps along the road commended to him by the Co-operative movement. But there is still a very long way to go. Those of us in the Co-operative Parliamentary Group very much hope that in the next Finance Bill—
      Mr. Deputy Speaker: Order. The hon. Gentleman can only discuss the Amendment. We are not discussing the next Finance Bill.
      Mr. Morris: I acknowledge your Ruling, Mr. Deputy Speaker.

      1051
      I wish to emphasise that I regard these two steps as preliminary steps which, I hope, indicate that we shall soon see the removal of so many other anomalies in the implementation of selective employment tax. I hope that there will be no unavoidable delay in letting us have the Reddaway report.
      Mr. Eldon Griffiths: I very much welcome what the Chancellor has said in the spirit of never looking a gift horse in the mouth. But I find it a little odd, to say the least, particularly for those of us who have not had the advantage of sitting on the Committee upstairs, that when these important concessions on S.E.T. are announced they should be made at this hour, at the very end of the Bill. But it would be churlish to do anything other than to welcome what the Chancellor has said.
      I note that the right hon. Gentleman says that the concession in respect of the milk roundsmen may be temporary, and that after the publication of the Reddaway report he may be constrained to put the S.E.T. back, or even put it up. For all that, the concession is welcome, but I hope that the right hon. Gentleman is not saying that he has given in to the blandishments of the Co-operative movement solely.
      When the matter was discussed earlier I among others argued very strongly for this to be done. I argued as one representing a rural area where the problem is very severe, and instanced a number of cases, as did some of my hon. Friends representing other remote rural constituencies, showing that it is a very real problem for those living in remote villages, whether S.E.T. has resulted in there being no deliveries at all. People have found themselves cut off from milk supplies from, among others in my constituency, the Co-operative movement.
      I hope that now that this concession has been made those who felt it necessary to stop delivering milk to rural areas will start delivering again. It would not be enough if as a result of this concession they simply managed not to lose as much money, or perhaps to make a little more. With this concession they owe it to their customers to carry out what I take to be the Chancellor's intention, that they should resume their deliveries to remote rural areas.
      1052
      I am sure that that is what he has in mind for many country constituencies. and this will be very welcome.
      Mr. Michael Shaw: I echo the words of my hon. Friends about the way in which the announcement about the sales staff at the gas and electricity showrooms was made. I find it extraordinary and undesirable that we are debating the subject tonight on the Finance Bill. We have an Amendment that is in order on the Notice Paper. which could have been accepted for debate on the Chancellor's request, and yet that occasion is not chosen to announce this change in the law, but it is done by a Written Answer—
      11.0 p.m.
      Mr. Deputy Speaker: Order. We have left that aspect. We cannot discuss gas and electricity showrooms on this Amendment. The Chancellor made an incidental reference to them and I will allow other hon. Members to do the same, but not at length.
      Mr. Shaw: Incidentally, then, Mr. Deputy Speaker, I voice my displeasure and distress at the way in which this has been done.
      Mr. Robert Cooke: I shall not mention gas and electricity show rooms, because that is not the point I wish to raise. I have a serious point which I hope the Chancellor will consider. He said that it would eventually be possible to avoid the situation in which S.E.T. has to be paid by people who are automatically to get it refunded. I hope that he will contemplate this matter, because he might be able to say something helpful to us on the problem.
      The right hon. Gentleman referred to the immediate possibility—I am not sure how immediate—under a new system of tax collection whereby it will be possible not to have to pay S.E.T. on employees in respect of whom it will automatically be refunded. The present situation is unsatisfactory.
      If one plays the game, one pays S.E.T., thus lending money to the Government for quite a long time before getting it back, such as in the case of agricultural workers. Six months could elapse. When the time comes to claim back the tax, a month or six weeks go by before the money is refunded. But there is a built-in incentive not to play the game.
      Mr. Deputy Speaker: Order. The hon. Gentleman is discussing an aspect of S.E.T. that is not in order on this Amendment.
      Mr. Cooke: That is why I was about to bring my remarks to a close, Mr. Deputy Speaker, and give the Chancellor another opportunity to refer to it incidentally.
      If one does not stick to the rules, one can claim for S.E.T. which one has not paid in order to get money to put the stamps on the card. No one knows whether one has stuck the stamps on or not. The man who plays the game lends the money to the Government; the man who does not play the game does not pay the money but claims a refund. When will it be possible in the case of those who automatically get an exemption—
      Mr. Deputy Speaker: Order. The hon. Gentleman is pursuing that argument despite the Ruling of the Chair.
      Mr. Cooke: I bring my remarks to a conclusion with an incidental reference and I hope that the Chancellor will be able to clear up the point and tell us when his proposal will be carried out.
      Mr. Patrick Jenkin: It is worth making the point that this is the only opportunity we shall have had on Report of even mentioning S.E.T. I make it clear that I make no criticism of the selection of Amendments by Mr. Speaker. I am merely mentioning the fact that this is the only Amendment on which anything has been able to be said about S.E.T. on Report.
      On this side and, I have no doubt, on the other side of the House, we continue to get a growing flood of protests following the recent increase in S.E.T. I am sure that those who have voiced these protests will realise that it is not always possible, within the confines of the rules of order, for us to give vent to them immediately across the Floor of the House.
      Of course, we welcome the concession on milk roundsmen. I reiterate that it was always a nonsense that they should be regarded as salesmen and not as transport workers, like virtually every other delivery man. When my hon. Friend the Member for Oswestry (Mr. Biffen) moved an Amendment in Committee which
      1054
      would have had exactly the same effect as this one, there was a manifestly strong feeling on both sides that it was high time that a ridiculous anomaly was removed. It is right to express our thanks to the Chancellor for that.
      It may be a little jejune of him and slightly naive of the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) to claim for the Co-operative movement the whole of the credit for this. Protests have come from far wider afield than that. I would be more impressed if the representatives of the Cooperative movement in the House had used their power to vote as a block with the Opposition to defeat Clause after Clause on S.E.T.
      Mr. Alfred Morris: I do not wish to be out of order, but have to say that there has been a great deal of hypocrisy among hon. Members opposite on this matter. They do not attack S.E.T. because they are against indirect taxation. On the contrary, they are asking for the biggest ever increases in indirect taxation by the introduction of the value-added tax. They should stop misleading the electorate.
      Mr. Patrick Jenkin: It would be out of order to comment on that, but I have already asked the hon. Member to accept that a value-added tax which excluded food would tax food less than does S.E.T. which taxes the whole of the distribution of food.
      Finally, I should like to make a passing reference, but only a passing reference, to the gas and electricity showrooms. We regard it as a very sly manoeuvre that this should have been slipped into the debate, particularly, as my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) said, when for some days we have had on the Notice Paper an Amendment which would achieve exactly that.
      Many people will be dismayed that the Chancellor should have said that the concession may be only temporary and that he may have to reconsider it in the light of Professor Reddaway's report. It will come as no surprise to the Minister of State, although it may to the Chancellor, to hear that there is increasing scepticism in the House and in the country about Professor Reddaway's report. We were told the other day that

      1055
      his report was substantially to cover only the figures of firms embodying the original charge to S.E.T. and that only relatively little account was to be taken of last year's 50 per cent. increase and no account whatever of this year's 28 per cent. increase. The value of anything that Professor Reddaway may produce is correspondingly diminished.
      Increasingly, I am forced to the conclusion that this is no more than an excuse to try to put off some of the right hon. Gentleman's more gullible Cooperative hon. Friends from challenging selective employment tax all along the line.
      Mr. Eldon Griffiths: Would it not in any event be quite wrong if the Chancellor were to admit that it was the result of pressure from one group? Have we not had far too many examples of the Government giving way to particular interested groups?
      Mr. Patrick Jenkin: I entirely take the point. I do not think that I need say more. We recognise that the Chancellor has made a concession for which both sides of the House have pressed for a long time and we welcome it, but we protest at the manner in which the Chancellor slipped in the gas and electricity showrooms.
      Mr. Roy Jenkins: I welcome the somewhat varying degrees of graciousness with which the concession has been received. I am grateful to my hon. Friend the Member for Manchester, Wythenshawe (Mr. Alfred Morris) and, to a substantial extent, to the hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths), and I endorse what he said at the end of his speech about rural milk distribution.
      The hon. Member for Barkston Ash (Mr. Alison) addressed a slightly confused argument to the House, and it was an argument which had doubtful validity for the future. It was that if we made this Amendment, for which he pressed in Committee, why should we not do so in another case at the same amount. It is unwise to advance that argument as it is rather liable to make Governments less anxious to make Amendments that he supports. It is also the case that the demand effect of this Amendment, like that of most of the taxation changes,
      1056
      is somewhat less than the financial effect, whereas the demand effect of the Amendment on bank interest is substantially larger and it would substantially reduce revenue in the forthcoming year.
      The hon. Member for Bury St. Edmunds made the rather surprising point as to why I had introduced this Amendment at this late stage on Report. It would have been rather odd if I had tried to introduce it to Clause 5 or Clause 6, and the fact that this subject fell to be debated at a late stage is something which it would have been rather difficult to avoid.
      The hon. Member for Scarborough and Whitby (Mr. Michael Shaw), in a brief speech, made a substantial point about gas and electricity salesrooms issue being done in this way, whereas clearly the proper thing to have done would have been to have accented Amendment No. 76. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) got rather excited about this and talked about "sly manoeuvres". I think that he really does use rather hyperbolic language sometimes. May I tell him that we did not do it by Amendment No. 76 because it would have been out of order, outside the terms of the Resolution, and, therefore, not possible to accept.
      The hon. Gentleman does talk rather foolishly. Is he interested in the substance or the shadow of these things? I met the point in Amendment No. 76, and this, I think, commands the support of both sides of the House. It is extremely foolish to argue about the fact that we did it by Section 9 Order and not by accepting an Amendment which would have been out of order.
      Mr. Higgins: I thank the Chancellor for giving way. He is quite mistaken in what he has just said about the Amendment being out of order.
      Mr. Robert Cooke: May I ask the right hon. Gentleman, before he sits down—
      Mr. Deputy Speaker (Mr. Harry Gourlay): Order. The right hon. Gentleman has resumed his seat. We are on Report stage, not in Committee.
      Mr. Cooke: Perhaps with the leave of the House I might just ask the Chancellor this question—
      Mr. Deputy Speaker: Order. I have said that the Chancellor has resumed his seat.
      Mr. Robert Cooke rose—
      Sir Glover: On a point of order, Mr. Deputy Speaker. Cannot my hon. Friend the Member for Bristol, West (Mr. Robert Cooke) speak again with the leave of the House?
      Mr. Deputy Speaker: If the hon. Gentleman is seeking the leave of the House, and leave is granted, by all means. But it is not customary to do so.
      Mr. Robert Cooke: On a point of order. Before I get into more trouble, may I say that I did preface my remarks by asking whether I might just put a question to the Chancellor. There is no attempt to cheat, or in any way to get round the rules. I did inquire whether, with the leave of the House, I could ask the Chancellor—
      Mr. Deputy Speaker: Order. I understand the Chancellor had resumed his seat, and that, therefore, it would not be in order for the hon. Gentleman to ask the question. He has asked the leave of the House, but as I recollect it, objection was taken.
      Mr. Roy Jenkins: If it is of any help, Mr. Deputy Speaker, I am prepared to take the view that I only very tentatively resumed my seat.
      Mr. Robert Cooke: Perhaps now, before the Chancellor has finally sat down, I could ask him the question about those people who are bound to get a refund of S.E.T. It is those who stick to the law who are at a disadvantage.
      Mr. Jenkins: I do not propose to go into that. What I would propose to do is to say to the hon. Member for Worthing (Mr. Higgins) that I am most firmly informed that Amendment No. 76 is out of order, and was ruled so to be by the authorities of the House.
      Amendment agreed to.

    Clause 46

      TREASURY BORROWING THROUGH TRUSTEE SAVINGS BANKS
      11.15 p.m.
      Mr. Taverne: I beg to move Amendment No. 287, in page 67, line 26, at end add:
      1058
      (5) This section shall extend to the Channel Islands.
      This Amendment extends the powers under Clause 46 of the Bill to the Channel Islands. There are Trustee Savings Banks in Guernsey and Jersey. Although the "Save as you earn" scheme may not be so attractive to the islanders because of their tax position, as it is to citizens of Great Britain, we still expect it to attract small savers and it has been thought that they would wish to have this power.
      Amendment agreed to.

    Clause 52

      DISCLOSURE OF INFORMATION FOR STATISTICAL PURPOSES BY BOARD OF INLAND REVENUE
      Mr. Hordern: I beg to move Amendment No. 161, in page 70, line 11, after 'disclose', insert:
      '(in the case of such information as is mentioned in paragraph (a) of this subsection, only with the consent of the employers concerned)'.
      Mr. Deputy Speaker (Mr. Sydney Irving): With this Amendment we can also discuss Amendments No. 80, in page 70, line 11, after 'Revenue', insert:
      'with the consent of the employer and the employees concerned'
      No. 82, in line 14, after 'employers', insert:
      'with the consent of the employer concerned'
      No. 84, in line 28, at end insert:
      'with the consent of the employee concerned'.
      and No. 85 in page 71, line 1, leave out subsection (5).
      Mr. Hordern: This Amendment is concerned with the disclosure of information. This house has been surprised to find, when discussing milk-float men that information concerning gas and electricity showrooms has been revealed to it. It is becoming a habit of the Government, when disclosing such things as the trade figures that they find they are suddenly at an advantage of £10 million a month, due to research errors and another £8 million in a month due to a machine going wrong in the Central Statistical Office. Next week we shall find that we are without any international obligations of any kind.
      This Amendment concerns disclosure of information by the Revenue to various Departments of State, but, in particular,

      1059
      to the Department of Employment and Productivity and the Statistics Office of the Board of Trade. That information is the names and addresses of employers and employees given under Section 157 of the Income Tax Act 1952 in connection with the "pay as you earn" scheme.
      The Clause further provides that this information may be disclosed to any other Department of State apart from the Department of Employment and Productivity. Our Amendment says that such information shall only be provided if the permission of the employer and employee concerned has been given. We regard that as an important principle. In Committee, the Minister of State said that the receiving Departments could already obtain this information. He said:
      "…the question is whether a special exception can be made to the general principle without harming the general principle. In this case it was felt there could be no possible harm to the general principle."—[OFFICIAL REPORT, Standing Committee F. 26th June, 1968; c. 837.]
      Once the general principle has been established, as this one has been, for many years, it is broken as soon as an exception is made. We should not regard this lightly. The fact that this long-established principle is breached for such a paltry reason makes the breach worse, not better. It might be argued that if this information is already available, why is it necessary to breach this important principle? To establish this it is worth looking at some of the history of this principle.
      The oath of secrecy under which the Inland Revenue operates, was first mentioned in the Income Tax Act 1842, and is well over 120 years old. This Act was incorporated in the subsequent Income Tax Acts of 1918 and 1952.
      In 1955, the Royal Commission on the Taxation of Profits and Incomes, in paragraph 949, stated:
      "We think that occasion should be taken to make more general legal provision for secrecy in Revenue affairs. It was brought to our notice that the declarations of secrecy prescribed by law to be made by Inspectors of Taxes and other Revenue staff are drawn in terms which are limited to returns, statements and other documents relating to income tax chargeable under Schedule D. In fact, the Inland Revenue Department has a long and scrupulous tradition of secrecy with regard to the whole of the taxpayer's sources
      1060
      of income, so that the words of limitation are misleading. We think it would be advantageous if the wording was made more general".
      That recommendation was carried out under the last Conservative Government in 1964. The result of that Act was not to diminish the powers of the citizen, but to extend them in relation to the obligation of secrecy on the Inland Revenue Department.
      We should turn now to the question whether the Government can provide this information to their various Departments in any other way. My feeling is that the experience of the United States could be followed. In the United States the Inland Revenue Department issues its own statistics, It is well aware of the requirements of every Department of State. If it is not, I am sure that those Departments of State make their requirements known to the Inland Revenue. So this information could be provided by the Inland Revenue sticking strictly to its obligations under the various Income Tax Acts.
      The real difficulty arises, and will arise even more strongly in future, because of the development of statistics, the requirements of statisticians and, more particularly, the advance in techniques of computer technology.
      I have been privileged to see some of the operations of computer networks in the United States. I believe that it will be very few years before the information that could be made available on large computers will be available for Government Departments and will cover everyone in the country. It will be possible in a few years for information from the Inland Revenue, the National Health Service and the National Insurance Service to be fed into several large machines. When this stage is reached an important matter of principle will arise in any case. Therefore, the House must consider carefully whether we should breach this important principle of confidentiality now when we know that these issues are likely to loom ever larger as time goes on.
      I feel that this principle should only be breached in the sense that information that is provided by the Inland Revenue should only be provided with the consent of the citizen. The oath of secrecy on the Inland Revenue was designed to protect the citizen. Therefore, nothing should be revealed without his consent.

      1061
      It does not matter how far computer technology develops or how much more convenient it will be to amass all this information centrally. I have no doubt that in time it will be possible to have a form of negative income tax; that rapid calculations can be made and all this information about the citizen can be stored in a large data bank.
      But the important principle should be established that no information now held by the Inland Revenue should be revealed to other Departments of State without the consent of the citizen concerned.
      Mr. Eldon Griffiths: I should like to speak to the Amendments in the names of myself and some of my hon. Friends. I think that there is no more private or personal matter to the ordinary citizen than his income tax return. This, above all else, is the instrument by which the State intrudes most of all into our private lives. It seeks out how we earn our living, how we bring up our children, how we spend our money and whether we are well or sick.
      The instrument of the income tax return is one of the most intimate investigations into the private citizen. For that reason, as the Chief Secretary knows probably better than anyone else, it has always been the practice and the pride in this country that whatever else is kept confidential, the income tax return shall be. This principle is enshrined, as my hon. Friend the Member for Horsham (Mr. Hordern) mentioned, in the very solemn oath which is sworn by commissioners of Inland Revenue.
      I wish to read the oath as it is sworn:
      "1, A.B., do solemnly declare that I will not disclose any information received by me in the execution of my duties, except for the purposes of those duties or for the purposes of any prosecution for an offence relating to the Inland Revenue."
      That oath is sworn by all commissioners of the Revenue. What the House is being asked to do in the Clause—as far as I have been able to ascertain, for the first time in history—is to breach that principle of confidentiality.
      One can describe this as the thin end—a very thin end so far—of an extremely nasty wedge. It is a wedge that comes close to breaching the citizen's confidence that his income tax return is a matter personal to him and to the Revenue and to no one else. It strikes me as the beginning—only the beginning, of course
      1062
      —of a practice that each one of us as individuals, safeguarding the privacy of our lives, should regard as highly obnoxious and which we should most strenuously resist.
      It is true that the power which is being taken by the Clause is very limited. All these things start in that fashion. The commissioners can make available, so far, more or less to any Government Department which asks for the information and which happens to be making a survey, only the names and addresses of employers who collect P.A.Y.E. The Revenue will also be able to disclose information regarding the numbers of people employed by those firms. Further, under subsection (2), the Revenue may select out of its list of employees the names and addresses of those who employ such groups of them as may be the subject of any sample survey or sample investigation being carried out by a Government Department.
      When I read the Clause, the first thing I did was to attempt to find out exactly to how many people the Clause would allow the Revenue to disclose information. The important thing was to find out to whom it would, de disclosed. I therefore put down two Questions, to the Board of Trade and to the Department of Employment and Productivity, asking how many of these surveys they carry out each year, who does them and, therefore, who would be entitled to request and obtain this information from the Revenue.
      The House will be surprised and, possibly, disturbed by the Answers, which shed some light on why Government spending is going up and why so many employers have to spend so much time answering questions; but that is on the side. The Board of Trade informed me that during the last five years the following Divisions had carried out statistical surveys: Accountants, Civil Aviation, Distribution of Industry, Economic Services, Industries, Insurance and Companies, and Tax. I have here an immensely long list, with which I will not weary the House of the many surveys that have been carried out by these Divisions of the Board of Trade.
      I do not quarrel with that, but when I read of the surveys that have been conducted into the tax and private car hire business, the catering trades, the registered clubs and the 44 monthly inquiries

      1063
      which have been made into the production and textile converting businesses, I am disturbed that the Inland Revenue may now he required to provide the names and addresses of employers engaged in these multifarious activities throughout the whole nation to these many surveyors of the national scene.
      11.30 p.m.
      I had a similar answer from the D.E.P. As we all know, this Department is even more of a busybody than the Board of Trade. Indeed, the list of statistical surveys which is has conducted between 1965 and 1969 would take me the rest of tonight to read out, and I do not propose to do so. Here again, whether in respect of manpower studies in food retailing, the training of overseas nationals or scientific manpower—all of them justifiable activities—the Inland Revenue may be asked by these Departments to provide what has previously been confidential information, the names and addresses of employers. The House should hesitate to give authority for this to be done.
      The Inland Revenue will be asked to do this, not with a "By your leave" or a "Please and thank you" to the individual firms whose names and addresses are to be supplied. On the contrary, in secrecy, from the files of income tax returns which the citizen has supplied in secret and which he believes to be confidential, the Inland Revenue will break out information and pass it on to any Government Department that requests it.
      That is not all. Government Departments, having obtained this information, can do two things with it. They can pass it on, under subsection (4), to "another officer of the Department". What other officer—the P.R.O., the Press officer? What has it to do with him? If this information is to be supplied, there should be a limit on the Departments to which it can be given.
      Secondly, they can, without restriction, summarise the information and hand it out in summary form to anyone—to a journalist, a foreign diplomat, even to a Member of Parliament, and he comes last, as usual. The only restriction is that the identity and the personal particulars of the employer or the employee should not become known through that summary.
      Mr. William Hamling: The hon. Gentleman must recognise that that is the basic qualification to everything which he has said.
      Mr. Eldon Griffiths: I am dealing with one narrow point. The summaries may be handed to anyone. The information not in summary form is confined to this proliferating bureaucracy throughout the country, including Northern Ireland.
      I understand why the Minister of State wanted this information to be made available. He said in Committee that it was necessary because statistics were necessary—one of those wonderful circular arguments—and that it was harmless. Business statistics are the heart of any kind of national planning, and with the rapid advance of the computer it is important to have statistical matter to feed into it. But we must weigh against the needs of the computer, the planner and the bureaucrat the higher principle of the citizen's right to privacy about his private affairs.
      Our citizens take it for granted that their tax returns are private and confidential and they would be very disturbed if they felt that even the slightest chink was being driven into that armour of confidentiality. I am not accusing the Government of breaching confidentiality yet. Nevertheless, all these pernicious practices have small beginnings and I am concerned to prevent such a breach before and not after it gets out of hand.
      My other objection is that businessmen of all kinds, particularly those employing large numbers, already have more than enough form-filling to do. I have lists here of some of those forms. If the Clause is not amended, it opens up the danger of even more statistical form-filling demanded by Government Departments. It will waste even more of the time of employers.
      Will this power extend to Government agencies, as well as to Government Departments? When I put this question to the Board of Trade, I was told:
      "There is no commonly accepted definition of what constitutes an agency of the Board of Trade, so I will write to the hon. Member about this part of the Question."—[OFFICIAL REPORT, 11th July, 1969; Vol. 786, c. 339]
      There is no "later" after tonight. We are at the end of the line. Does this power extend to the very numerous agencies of the Board of Trade?

      1065
      I also want an assurance about subsection 3, which says that the power
      "…shall have effect notwithstanding any obligations as to secrecy…"
      This is the heart of the matter. Nothing in the Bill suggests that the Government are about to breach confidentiality. In Committee, the Minister of State was quite clear. He said that the information was relatively harmless, that it could in any event be obtained in other ways through the National Insurance card, and that it was necessary. I accept his reassurances, but we are at the beginning of something new. We are crossing a frontier and breaching the principle of confidentiality for the first time. Parliament should be very hesitant about crossing that frontier.
      I should like the Minister to ponder very carefully before he lets it be known that the secrecy of a man's tax returns may in future be breached because we have started here with a story that it is harmless. It may be harmless now: what we have to worry about is whether it will be harmless tomorrow or the day after tomorrow.
      Mr. Hamling: I had not intended to intervene until I heard the astonishing speech of the hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths). I am not sure whether he is aware of the discussions that have already taken place in the House on the Report of the Select Committee on the Government's statistical services, in which the points he made about Government statistics were made and countered.
      I suggest that the hon. Gentleman reads not only that report—a lengthy document which is regarded by the Royal Statistical Society and other statisticians as a landmark in connection with Government policy for the collection of statistics—but also studies the OFFICIAL REPORT of the debate which subsequently took place, which lasted a whole day and which underlined the Government's attitude towards, in particular, the question of confidentiality.
      The issue of confidentiality was one of the main questions asked of witnesses in the Select Committee's inquiries. I know because I was the Chairman. We constantly asked business people, civil servants and others about the extent to
      1066
      which the Government or any agency of the Government should be entitled to ask questions. Business people were particularly concerned about the absence of a great deal of statistical information; and obviously much of the information can be obtained only if the Government ask questions. It should not be forgotten that some of these questions must be asked if business and industry is to be more efficient.
      Another piece of evidence which I commend to the hon. Member for Bury St. Edmunds is the report of a conference which was held some time ago under the auspices of the Royal Statistical Society. It was attended by all the leading statisticians in the country and their papers have gone all over the world. I suggest that the lesson to be drawn from that exercise is that the Government seriously and conscientiously consider the important questions which the hon. Gentleman raised; but he should not think that he has just discovered something.
      Sir D. Glover: I, too, had not intended to intervene until this important subject had been raised. An extraordinary feature of our debates is that important matters which one would normally expect to arise early in the day often crop up late at night.
      We live in a technological age in which a great deal of information is required. However, nothing said by my hon. Friend the Member for Horsham (Mr. Hordern) or my hon. Friend the Member for Bury St. Edmunds (Mr. Eldon Griffiths) alarmed me. However, they highlighted how close we are getting in our search for efficiency and statistical knowledge to interfering with the freedom of the individual. Indeed, many hon. Members consider that it is time we debated a new Bill of Rights for the citizen. We must be careful, in this search for efficiency, not to create a battery chicken atmosphere in which the individual matters less than the need for efficiency.
      The hon. Gentleman the Member for Woolwich, West (Mr. Hamling) has referred to the Royal Statistical Society, but we expect statisticians to be in favour, because this is their business. But I would like the hon. Gentleman, who is a very broadminded man when he gets away from his Socialist ideologies, to realise that we can go on searching for

      1067
      efficiency, but what have we produced in the end?
      11.45 p.m.
      Mr. Hamling: American business people are constantly saying that what is wrong with British industry is that our statistics are lacking in both quality and quantity.
      Sir D. Glover: I accept that statement, but will the hon. Gentleman tell me—and I am sure he goes to America—whether there is a happy society there? America may be more efficient and more productive, but is it a happy society? Our job in Parliament is to try to produce an efficient but a happy society. We must not forget that we are dealing with human beings.
      Mr. Hordern: The intervention by the hon. Member for Woolwich, West (Mr. Hamling) was, in any case, irrelevant, because the Inland Revenue Department of the United States is specifically excluded from giving any information to any other Department in the United States.
      Sir D. Glover: Quite contrary to what he has tried to convey, the hon. Member for Woolwich, West has conveyed to the House the impression that statisticians are prepared to grind all individuals down in order to get the information which they think is necessary to run an efficient society even though, in the process, they make the individual's position less substantial, less moral, less independent, and so on.
      We are dealing now with a financial problem, but it is just a different facet of an idea, of which the House is becoming very well seized, that we can mould the population into some great machine because, though it may be bad for each individual it is good for the nation. Many hon. Members on both sides, and of all shades of opinion, are saying that it is about time that the House produced a Bill of Rights which would protect the rights of the individual much more substantially. My hon. Friends have referred to another aspect of this growing danger, and the House should deal with it much more urgently than has so far been the case.
      There is a feeling which cuts right across party lines, that in the search for
      1068
      efficiency, and getting statistics, and this and that and the other, we are grinding down the individual into a cipher in a corporate State in which he becomes less and less important. That is why this demand has been growing up in the last two years for a new Bill of Rights. The subject is becoming much more urgent than we may previously have thought.
      Mr. Robert Cooke: I hope that the Government will not be wholly bemused by the statistics they hope to get as a result of this provision. It is a great mistake wholly to rely on bald statistics—figures on punched cards. We must always remember that we are dealing with real people, and perhaps a few conversations with real people does a great deal more good than the collecting of this information, however it is done.
      Statistics can be very misleading. Recently, we have seen some conclusions drawn from the published amounts claimed by hon. Members as expenses. One draws some most unhappy conclusions from that. Certainly, some newspapers have done so. Wholly misleading conclusions have been drawn about the way in which Members have been coping with their work from published statistics.
      The provisions of the Bill which we are challenging are to replace those relating to the activities of—I am not sure which Department it is. It is a department which sends out questionnaires asking all sorts of questions about people engaged in commerce. So infuriated do people in industry become that a Socialist millionaire in my part of the country sent me a whole suitcase full of papers which he had been asked to fill up, under penalty of imprisonment. I cannot put my hands on these papers now, nor have I heard from the gentleman concerned for some time. Perhaps he is inside now.
      Mr. Hamling: The reason the hon. Gentleman has not heard from the alleged Socialist millionaire for so long is that the Government have set up a committee to reassess the worth of this magnificent collection of paper that he is talking about and are in the process of streamlining this thing so that business people will not be harassed in future as they were in the past.
      Mr. Cooke: It would be out of order for me to pursue that at length. It has taken a long time to streamline the

      1069
      system. I gather that the paper is still spewing out, whatever happens to it. I want an assurance from the Government that the spewing out of paper will stop. However, if the alternative is the somewhat secret operation involved in these proposals, I have my doubts about those, too.
      Mr. Tom Boardman: The hon. Member for Woolwich, West (Mr. Hamling) was right in saying that the quality and quantity of statistics within government leave much to be desired. The disturbing thing is that this is despite the vast amount of paper work and administrative form filling in which industry is engaged to provide so much information which apparently produces such a poor tale at the end of the day.
      I support the Amendment, because the information which the Clause seeks permission to make available comes under three headings—the name and address of the employer, the number of employees, and the specific employment. I find it impossible to tell what deductions can be drawn from that. I had not intended to speak. I therefore have not read the report of the proceedings in the Standing Committee. I will not prolong this argument.
      I find it impossible to understand what the name and address of the employer will reveal which could not be found from any trade telephone directory. This is what gives rise to my worry and suspicion. What is the motive behind this? As my hon. Friends have said, it is the trend which we are worried about. If these statistics are needed for data processing, it would not be beyond the wit of the Treasury to provide the statistical information in the form of normal data processing. If what the Department of Employment and Productivity wants to know is the number of employers in the North of England who employ more than 100 people, the Revenue can go through its files and produce the information in coded form in a way which does not disclose the name and address.
      I cannot understand why it is necessary to know the name and address. No doubt we shall be told. If the information is required, let it be produced in a coded form. I fear that this is the thin edge of the wedge, that it is breaching the confidentiality which we look to and which is such a tradition of the In-
      1070
      land Revenue. I urge the Government to accept the Amendment, which would place some brake upon this power.
      Mr. Taverne: The hour is late, but I think it right that the House should spend some time on the Clause, because as hon. Members have said, I think rightly, there are important issues involved. In Committee, we had little time; we had to finish by one o'clock and there was a rapid reference only to some of the background to the Clause. I think that I should give slightly more information about the background on this occasion, particularly in view of the fears which have been expressed.
      The information which will be obtained will not reveal any income or any personal circumstances or any other information given by taxpayers in confidence in their tax returns. That is the first and most important point about the power which is sought. The power is sought because at the moment the employment statistics which are vital to the running of the economy, as the right hon. Gentleman will agree, are obtained from the insurance cards, but in 1972, under the new earnings-related schemes, insurance cards will disappear and the source of information on which to base employment statistics will no longer be there.
      The information is needed, first, in connection with employment statistics. If the Clause remains unamended by certain of the amendments, the Inland Revenue may supply the Department of Employment and Productivity with the names of all employers who operate the P.A.Y.E. scheme, and to replace the information which has been gathered so far from the cards. It is intended to have an annual employment census, and the P.A.Y.E. records are the best source of employers' names and addresses. One cannot get this information by leafing through telephone directories.
      It is also intended to disclose to the Department of Employment and Productivity the number of employees of each employer to help carrying out the census.
      Information is also needed for purposes of an earnings survey. The Inland Revenue would be authorised to supply the Department of Employment and Productivity with the names and addresses of employers and a sample of employees for the: purposes of an earnings survey,

      1071
      and the sample would consist of all employees whose insurance number ends with certain digits.
      Safeguards in the Clause prevent some things being done about which the hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths) is worried. It specifically prohibits the disclosure outside the Statistics Divisions of Government Departments. There is no question of supply to agencies.
      When it comes to summaries, there are summaries of how many employers and employees are found and the summaries, which can be disclosed more widely, cannot refer to individual details with names and addresses.
      Mr. Hordern: If the Minister of State will look at Clause 52(4)(b) he will see that it says that information may not be disclosed except—
      "to another department (including a department of the Government of Northern Ireland) for the purpose of a statistical survey."
      It says nothing about a statistical section.
      Mr. Taverne: It is part of the Department which is conducting the statistical survey.
      Mr. Hordern: It does not say that.
      Mr. Hamling: That is what it means.
      Mr. Taverne: In particular, it is the Department of Productivity and the Business Statistics Office of the Board of Trade which will be getting the information from the Inland Revenue. Legislation is necessary because our law has recognised the importance of confidentiality of information supplied to the Inland Revenue. In the Income Tax Management Act 1964, Schedule 1, Part III, to which one hon. Member has referred, the board is bound not to disclose information received in the course of their duties except for the purposes of their duties
      "or in such other cases as may be required by law".
      That is the kind of situation envisaged, where law is to specifically provide for a piece of information which can be passed on. It is a measure of the importance attached to the confidentiality of the information that a change in the law is needed.
      Mr. Eldon Griffiths: The Minister of State refers to the oath and says that this
      1072
      information can be passed on by law, but we are debating whether we should pass the law.
      Mr. Taverne: I know that. The hon. Member is not making a new point.
      One hon. Member raised the point that he was disturbed that there might be a breach of the obligation in the 1964 Act. I read out the specific provision in the 1964 Act which enshrines that confidentiality. The only information which is passed on is the names and addresses of employers and numbers of employees. It can be said that this information derived from the function of the employer in collecting P.A.Y.E. for the Revenue rather than information supplied by him or by employees as taxpayers. It is in their collecting capacity that they are being asked to supply information. There will be no breach of confidentiality.
      12 m.
      The receiving Departments could, with enormous expenditure of time, obtain this information. The hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths) expostulated about the proliferation of bureaucracy, about increasing work, and about extra civil servants, which he wants to avoid. This is one of the ways to avoid extra civil servants and to prevent a proliferation of bureaucracy. In Committee, I was criticised for this proposal on the ground that the statistics were not necessary. The hon. Gentleman must agree that statistics are necessary. Of course, employment statistics are important.
      The suggestion was made by the hon. Member for Horsham (Mr. Hordern), and echoed by his hon. Friend the Member for Leicester South-West (Mr. Tom Boardman), that the information should be available from the Inland Revenue itself. But the information needed is not necessarily available within the Inland Revenue. The P.A.Y.E. information does not cover people who are outside the P.A.Y.E. system. Moreover, the industry classification used for P.A.Y.E. purposes is that of the employer and does not distinguish between different establishments of the same employer, which might be classified as different industries and, perhaps, be in different areas. The only way in which this information can be adequately obtained in

      1073
      the way it is now obtained from insurance cards is by sending a questionnaire to the employers concerned.
      The second group of Amendments, to which the hon. Member for Bury St. Edmunds has put his name, would make it totally impossible for this information to be collected, and that is, in a way, what I understand he wants.
      Mr. Tom Boardman: What possible use is the name and address of the employer? It will not necessarily give the locations where the people are employed. I cannot see the relevance of that as opposed to a code number.
      Mr. Taverne: One finds out from the employer by asking him, once one has his name and address, how many people he employs, and where. That is in the questionnaire which is sent out.
      In effect, Amendment No. 161 does not raise objection to this procedure in general, but it would lay down that it should be done only if the employer himself consents. There is nothing confidential involved here. There are two objections to that proposal. First, it would create an enormous amount of extra work and would again lead to the proliferation of bureaucracy, which hon. Members want to avoid. It would be an enormously expensive business to write to each one to obtain his consent.
      Further, if only a few employers refused consent, the whole employment statistic operation would be rendered nugatory and would be frustrated. Therefore, that Amendment also would prevent the collection of the employment statistics which, I am sure, all hon. Members will, on reflection, regard as extremely important to collect.
      It is right that hon. Members should be deeply concerned about this matter. But it is not a serious breach of any rule of confidentiality. It is not really a breach of the rule which prevents the giving of information supplied by people as taxpayers. It is information being supplied by employers in their capacity as tax collectors. The information is extremely valuable and necessary for the running of the country. It is information which can only in this way be cheaply and efficiently collected when the national insurance card disappears.
      Mr. Hordern: The more the Minister of State has dealt with the matter, the more concerned I have become. It is not the revelation of information by individuals that matters, nor the information provided by employers. The point of principle is the information provided by the Inland Revenue; this is the new principle.
      The Minister of State admitted in Committee that it was a breach of principle, and what we have tried to adduce is that although it is a small breach it is a breach of a most important and ancient principle, which we should be very careful before we break.
      Furthermore, we have adduced that the information and statistics could be provided by the Inland Revenue, which knows very well what information is required by other Departments. The Minister said that the information would be given only to statistical Departments of other Ministries, but that is not what the Bill says.
      It was a most unsatisfactory reply, and but for the fact that the House was kept up discussing the Bill after late last night and is discussing it after midnight tonight the reaction to the Amendment and the hon. and learned Gentleman's reply would have been very different.
      Mr. Eldon Griffiths: In seeking to withdraw the Amendments in my name, I just wish to say—
      Mr. Deputy Speaker (Mr. Sydney Irving): Order. The hon. Gentleman cannot withdraw them, because they are not down for Division. The debate arises on Amendment No. 161, so the hon. Gentleman cannot use that device to speak again.
      Mr. Griffiths: With the leave of the House, may I just put this point to the Minister on the names and addresses. I forgot to ask him an important question: which address will be provided? Will he make it clear that if any address is to be provided it will be the business address of the employer and not his private address? That would be wholly wrong.
      Mr. Taverne: Of course, it is the business address in which they are interested. It is the business address which appears on the P.A.Y.E. cards. It is the busines address that the Inland Revenue has, and

      1075
      would want to supply for the statistical purposes of other Departments.
      Amendment negatived.

    Clause 53
      DISCLOSURE OF INFORMATION BY COM MISSIONERS OF CUSTOMS AND EXCISE
      Amendment made: No. 87, in page 71, line 25, after 'Commissioners', insert `of Customs and Excise'.—[Mr. Taverne.]
    Schedule 21

      REPEALS
      Mr. Taverne: I beg to move Amendment No. 310, in page 184, line 44, leave out '12' and insert '7'.
      This Amendment rectifies a typing error.
      Amendment agreed to.
      Further Amendment made: No. 189, in page 187, line 34, leave out `and (3)'.—[Mr. Taverne.]
      Mr. Taverne: I beg to move Amendment No. 190, in page 189, line 33, column 3, at beginning insert:
      In section 19, subsection (4) and paragraph (a) of subsection (7).
      This Amendment is consequential on Amendment No. 188.
      Amendment agreed to.
      Mr. Taverne: I beg to move Amendment No. 140, in page 190, line 25, column 3, at end add `and the proviso to paragraph 20(1)'.
      This is the last Amendment on the Bill at this stage. It is a minor consequential Amendment.
      Amendment agreed to.
      Bill to be read the Third time this day.

  DOUBLE TAXATION ORDERS
  12.10 a.m.
  The Chief Secretary to the Treasury (Mr. John Diamond): I beg to move,
  That an humble Address be presented to Her Majesty, praying that on the ratification by the Government of the Italian Republic of the Protocol set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (Italy) Order 1969, a draft of which was laid before this House on 24th June, an Order may be made in the form of that draft.
  Mr. Deputy Speaker (Mr. Sydney Irving): Although this and the following two double-taxation Orders differ in scope and content, they may be considered sufficiently similar to be debated together if that is convenient to the House.
  Mr. Diamond: I am sure that that course would meet the convenience of the House, Mr. Deputy Speaker. I hope, too, that it will be convenient to it if I speak to the Orders in place of my right hon. Friend the Financial Secretary to the Treasury, who is the expert in these matters but who, I think, would be better occupied in bed rather than staying here at a late hour in view of certain circumstances.
  The first of these Orders relates to Italy and gives effect to a protocol amending the comprehensive Convention which was signed in 1960. The two main features of the protocol are as follows. First, it withdraws from United Kingdom residents with portfolio investments in Italy the title to credit here for tax suffered by an Italian company on profits out of which dividends are paid. Secondly, in general, it limits the withholding tax in the source country on dividends to 15 per cent. in the case of portfolio investment and 5 per cent. in the case of direct investment.
  I turn now to the Jamaican Order. This is yet another in the series of Orders relating to amending agreements with the smaller Commonwealth countries which are intended primarily to withdraw credit relief from portfolio shareholders. There is one special feature of this agreement to which I should draw the House's attention. The agreement expressly excludes from the benefits of the principal agreement any companies which, under special provisions of Jamaican law, are liable to a merely nominal rate of tax on their investment income. Such companies could otherwise take advantage of the double taxation agreement to escape almost entirely from tax on dividends paid by United Kingdom companies.
  Double taxation agreements are made to deal with the problems that arise where two countries tax the same income and, as my right hon. Friend indicated when the House considered amending agreements with Antigua and St. Vincent last year, we are not prepared to allow

  1077
  them to be abused so that some taxpayers pay virtually no tax anywhere on income leaving the United Kingdom.
  The final Order relates to a new comprehensive double taxation Convention with Austria. This is to replace the existing Convention which was signed in 1956. The new Convention with Austria follows the general pattern of our recent Conventions with which the House will already be familiar, so that I do not think I need to go into a detailed summary of its provisions.
  Perhaps, however, I might mention the withholding rates. The Convention provides, as a general rule, that the tax which can be charged in the source country on income flowing from one country to the other is, in general, not to exceed 15 per cent. in the case of dividends and 10 per cent. in the case of royalties paid to a company which controls more than 50 per cent. of the voting power of the company paying the royalties. Other royalties and interest are normally to be taxed only in the country of the taxpayer's residence.
  I hope that these Orders will meet with approval of the House. If there are any particular points which hon. Members wish to raise, I will do my best to answer them.
  12. 13 a.m.
  Mr. Patrick Jenkin: I assure my hon. Friend the Member for Birmingham, Selly Oak (Mr. Gurden) that I shall be extremely brief. I have only two points which I would be grateful if the Chief Secretary would answer.
  One arises on the Italian agreement. It is a point I have made on previous occasions and which I shall continue to make every time I feel that it is relevant. This is the back dating of the operation of these agreements—to a date, in this case, over two years before the coming into effect of the Order. I appreciate that there is a saving clause that no one is going to pay any more tax as a result of the change of the rules than they would have paid under the old rules, but this only goes part of the way to meet the case.
  It is in principle undesirable that rules should be changed and should be expressed to operate retrospectively, and I hope that those whose business it is to negotiate these agreements with foreign
  1078
  countries will take note of what is said about this matter on the Floor of the House. The Financial Secretary, who we are sorry is not with us, has repeatedly recognised that the point has substance I hope, as I have said, that those concerned will take notice and seek to ensure—although it is not always possible, I agree—that when these agreements are negotiated the commencement provisions do not operate with retrospective effect.
  There is a curious point which rises under the agreement with Austria. I refer to Article 24, which is the operative article for relieving the taxpayer from double taxation, and in particular to the phrase in brackets in paragraph I which refers to the case of dividends and excludes tax payable in respect of profits out of which the dividend is paid. At first sight that would appear to preclude any relief for underlying tax paid in Austria by a company which is paying the dividend to a United Kingdom shareholder.
  However, am I right in believing that that is not in fact the result of this provision? Am I right in believing that the relief which the United Kingdom taxpayer is entitled to for underlying tax if he is an investor in a direct investment with 25 per cent. of the shareholding continues to be governed by paragraph 2 of the 16th Schedule of the Finance Act, 1965, that is to say, that the apparent exclusion under Article 24(1) of the Convention would not appear to override the relief which the United Kingdom Revenue gives unilaterally under the 16th Schedule of the Finance Act, 1965?
  If the Chief Secretary would comment on those two matters, I am sure that we could let these Motions go through without further delay.
  12.17 a.m.
  Mr. Diamond: I am grateful to the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) for his courtesy in giving me notice of the questions he intended to raise.
  He referred to Article 24 of the Austrian Agreement. He is, as usual, correct on his reading of the document. The explanation is that during the course of the negotiations it emerged that it would be right not to provide for any reciprocal obligation to give relief for

  1079
  indirect tax, or underlying tax. Where that reciprocity is not available in the case of the holder of 25 per cent. or more of the voting power, the normal unilateral relief applies.
  He referred to the Italian Agreement and correctly drew the attention of the House to the fact that no damage is being suffered, in the sense that any taxpayer automatically, without exercising the option, gets whichever is the better treatment, either under the old or under the new, provision.
  He drew our attention to the apparent retrospective effect of an Order beginning on 6th April, 1967. I am talking now only about this negotiation. I am not aware of the circumstances of the other negotiations for which my right hon. Friend has taken responsibility and about which he has responded to the hon. Member on previous occasions.
  I understand that in this case that is the date inserted in the preliminary agreement as being an appropriate date, but time elapses during the course of which negotiation takes place. I fully take on board the hon. Member's point that negotiation should be speedy. However, with this and with all others it takes two people to make an agreement, and one cannot say more than that at this stage. I note what the hon. Member has said about it being far better for all of us if the date had been more contemporaneous.
  Question put and agreed to.
  Resolved,
  That an humble Address be presented to Her Majesty, praying that on the ratification by the Government of the Italian Republic of the Protocol set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (Italy) Order 1969, a draft of which was laid before this House on 24th June, an Order may be made in the form of that draft.
  To be presented by Privy Councillors or Members of Her Majesty's Household.
  Resolved,
  That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Jamaica) Order 1969 be made in the form of the draft laid before this House on 24th June—[Mr. Diamond.]
  To be presented by Privy Councillors or Members of Her Majesty's Household.
  Resolved,
  That an humble Address be presented to Her Majesty, praying that on the ratification
  1080
  by the Republic of Austria of the Convention set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (Austria) Order 1969, a draft of which was laid before this House on 24th June, an Order may be made in the form of that draft.—[Mr. Diamond.]
  To be presented by Privy Councillors or Members of Her Majesty's Household.

  MR. ALAN LAW
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Concannon.]
  12.20 a.m.
  Mr. Harold Gurden: I have a disagreeable duty to do tonight. Nevertheless it is a duty, and that is to expose as much as possible in the short time at my disposal the activities of Mr. Alan Law, who is a trade union organiser for the Transport and General Workers' Union in Birmingham.
  I am grateful to the Minister for coming down to the House for this debate. I do not mean to attack the Government or him in any way; neither do I intend to attack the trade unions, employers or employees. This is purely a matter of the disruptive activities of this particular individual who seeks to sabotage, and does in fact sabotage, the productivity of industry in the Midlands.
  We hear a lot about bad examples of employers and strikers, but this case is one of the worst I have ever heard of in industrial relations. To this man codes of practice, points of honour, gentleman's agreements, even signed agreements by him, and national agreements, mean nothing at all. He breaks all these things at will. He ruins businesses and throws workers out of a job and prevents many good men from earning a living.
  I would not have thought this was a proper field of activity for a trade union organiser, but there is more to it than that. This man, in settling industrial disputes which he has caused, also extorts money from employers, and, in fact, from employees, and the sums of money which he has extracted to settle disputes and put men back into jobs vary from £5 to £5,000 in individual cases.
  I call in evidence one particular case, that of a Mr. Richardson of an Oldbury

  1081
  transport business, who had to pay Mr. Law £350 to end a strike. Whether or not the strike was justified does not concern me so much in this particular case. I have not gone into it, and neither has Mr. Law explained it to anybody, but he did receive £350 to end the strike. Very shortly afterwards, Mr. Law went back to Mr. Richardson and asked him for £500, otherwise there would be another strike.
  By this time, much had gone on, and Mr. Richardson, the manager, had learned his lesson and refused this money. He chose to close down his business rather than pay it. This indeed he had to do.
  Mr. Law has been challenged about this. He is not very forthcoming; all he would say to the Press was that he was not prepared to say where the money went to. Mr. Law has never denied receiving the money, as far as I know.
  I take one other instance, that of Mr. Fleetwood, because he has been known to me in the past, and I read about his case in the newspaper. He arrived at his business one day to find the men on strike, without any warning. The strike had been called at Mr. Law's instructions and some employees did not know what it was about. A meeting was fixed immediately for negotiations after Mr. Fleetwood had discovered, through the Press, that the strike had been called by Mr. Law. Mr. Law prevented the union representatives attending the meeting so that the strike continued. There was no means by which Mr. Fleetwood could settle the matter. He wrote to his Member of Parliament, the hon. Member for Birmingham, Northfield (Mr. Chapman), who I am sure is as concerned about this as I am. Shop stewards were instructed to black Mr. Fleetwood's deliveries if any should be made.
  I mention this to show the type of activity in which Mr. Law engages. He shuts down businesses and sabotages industry. He was not concerned to get a settlement with Mr. Fleetwood or to get better terms for the employees. His first duty, whatever he intended later, was to get a strike and stop Mr. Fleetwood's business. Money was extracted to settle strikes. It is difficult to find out where the money goes to. We have finished discussing the Finance Bill, but it would be interesting to know whether
  1082
  the Revenue has any way of collecting tax on this money. In one case £5,000 was extracted during a strike caused not by any action of the employer but through an inter-union dispute between Mr. Law representing the Transport and General Workers' Union and the United Road Transport Union.
  Now we come to Mr. Dennis Mills—I call him one of the stormtroopers of Mr. Dictator Law. He says that all the activities are the rule of law. Firms have been closed down, he admits, and goods carried by other unions are blacked on the instructions of Mr. Law. He says that this is a legitimate way of going on. Wherever Mr. Law decides to settle we find there are immediately lightning strikes, breaches of agreement, deliberate delays in negotiations and, although I realise that this is a serious thing to say, I consider that it is nothing short of a blackmail and protection racket that Mr. Law is running.
  He considers that he is operating within the law, and it may be that the reversal of the Rookes v. Barnard legislation enables him to go a long way. We have studied some serious cases of blackmail and protection rackets. The most famous one that comes to mind is that of Rachman. This case, if it were not a trade union involved, would compare with Rachman.
  Mr. Kevin McNamara: No.
  Mr. Gurden: There is no question of bad relations between employer and employee until Mr. Law creates it. One worker I know was asked for £5 to keep his job. Another man whom I was asked to go and see, in the constituency of the hon. Member for Northfield, was a very sad case indeed. He had crossed Mr. Law after working very closely with him over a number of years. But he annoyed Mr. Law in some way or other—probably at a trade union branch meeting—and shortly afterwards found himself out of a job. This man could not get another job, because every new appointment made through the Transport and General Workers' Union has to go through Mr. Law. Therefore, no employer could employ this man in his sphere of activity unless Mr. Law agreed, and he would not. This man appealed to Mr. Urwin, and he showed me the

  1083
  sympathetic correspondence that he had with him. What happened to him ultimately I do not know. The last time I say him he had been out of work for some time, after being a good reliable employee.
  Mr. McCumesky, a senior representative of the United Road Transport Union, who knows all about Mr. Law, has protested about Mr. Law's activities to Mr. Urwin, to Mr. Jack Jones, to Mr. Woodcock, and even to Mr. Feather, but he has got nowhere. He says that out of 100 lorry drivers, 60 are for ever Alan Law, and 40 will lose their jobs. That is the gain to the union.
  The Government have employed Mr. Jack Scamp on one trouble that arose, but at the end of the day he found himself quite ineffective. A lot of sugar talk and reconciliation went on and the strike ended. But this does not worry Mr. Law. He simply moves on to a new activity.
  It is interesting to read Mr. Jack Scamp's report. At one stage Mr. Law did not even turn up to give evidence and he could not be found. His stock in trade is the excessive tolerance and good will of both sides of industry, the bosses of his union, the Government and, as I said earlier, the reversal of the Rookes v. Barnard legislation.
  One would think that the employers, the employees, the newspapers, the B.B.C. or could do something about such an exceptional case if what I have described is true. But Mr. Law is really quite smart and seems to defeat them all. He either is not available or does not want to explain, so we cannot get the complete story of why he does what he does. I suppose that some of the newspapers, the B.B.C. and I.T.V. may be in fear of libel actions.
  If what I have described is as serious as I say—which really amounts to blackmail—why do we not get more information? One newspaper has been bold enough to publish on its front page four or live examples, but many people and the newspaper reporters know that we cannot get anything like the full amount of information on the activities of Mr. Law.
  The employers do not want to know, because they can keep going as long
  1084
  as they keep Mr. Law happy. The employees do not want to know. Otherwise, they may lose their jobs. Nobody wants to disclose just how deep this goes.
  I have spoken on the telephone to one or two employers whose names have been given to me by employees, but they have said, "Please leave me out of this, old chap. I have nothing more to say." This is what they tell the newspaper reporters, too.
  One reporter in Birmingham assured me that he saw Mr. Law and invited him to make some comment, but he was as good as thrown out of his office. Mr. Law always says, "I do not want to explain. This is my business and not yours."
  If the Government's agreement with the Trades Union Congress means anything, they must surely realise that this type of man has to be taken out of this sort of job by somebody. It is not in the interests of the country; it is certainly not in the interests of exports. We have had enough stoppages to damage the output of the Midlands. The Government might well wish to have as much peace in industry as possible. I hope that they will get some co-operation from the union itself or from the T.U.C. to help them get over this problem.
  I do not think that inquiries will do anything concerning Mr. Law. We really all know the facts. I know that the Government have a lot of information. I have sent them information. The hon. Member for Northfield has sent them information, and, no doubt, Mr. Jack Scamp has told them what he thinks about it. They have had letters from other people. If they can possibly do anything, it may be only through their influence with the top officials of the unions. If I can help in any way, I shall be pleased to do so.
  It seems to me, however, that only by the protection that hon. Members have in this House can we really tell the truth about Mr. Law. Nobody wants to give the whole story. I certainly have not the time tonight to give the other 20 or 30 cases which have come to my knowledge, but I can hand details of them to the Government if that would be of help.
  12.37 a.m.
  Mr. John Ellis: I am a member of the Transport and

  1085
  General Workers' Union, and, indeed, a sponsored Member. In so far as the hon. Member for Birmingham, Selly Oak (Mr. Gurden) was quite specific in wishing to withdraw any responsibility from the Transport and General Workers' Union, I say to him that the man in question is an officer of that union and, to that extent, the union must have a responsibility.
  I have spoken today to Harry Urwin, the regional secretary, who will shortly be the assistant general secretary of the Transport and General Workers' Union, who was a senior officer at the time and, therefore, has a measure of responsibility also. I have his authority to say to the hon. Member that the union will be prepared to meet the hon. Member wherever he wishes to debate this issue in public with him.
  Of course, I knew nothing in detail about the charges to which the hon. Member has tonight referred. I have certainly read things in the Press, some of them very detailed, but largely a lot of innuendoes. I merely say to the hon. Member that in this House we have privilege to say anything we like. A man outside, whom the hon. Member names as Mills and describes as a storm-trooper, has been drawn into it. Terms like that have been used.
  If the hon. Member has this information, he should now make these statements outside this Chamber, where he will not be protected by privilege. He should adduce the facts, because there is redress at law for people who could have done the things that he alleges they have done. The hon. Member has used language like "extorting money", "blackmail" and "sabotage". All those words have been used.
  All I would say to the hon. Member, after using the privilege of this Chamber, is that, as he says that he has the evidence, let him make outside this Chamber the statements that he has made tonight. Then we shall perhaps get at the truth in one way or another without the cover of privilege. I ask the hon. Member to be a man and do just that.
  12.40 a.m.
  The Under-Secretary of State for Employment and Productivity (Mr. Harold Walker): The hon. Member for Birmingham, Selly Oak (Mr. Gurden) has
  1086
  exercised his right to raise on the Adjournment a matter which, although it relates to incidents within the area he represents, has an important national significance. He has done so in a way which I am sure seems right to him, but I must make it clear at once that I am unable to reply in the same terms.
  To the hon. Gentleman the merits of the issue were already decided. He gave us an account of events based partly on reports made to him by companies in disputes involving Mr. Alan Law, and partly in articles in the Daily Mail and other newspapers. I do not in any way wish to contradict the evidence supplied to the hon. Gentleman or to the newspapers, but there are two things that need to be said.
  The first is that the allegations about the industrial relations situation in the West Midlands private road haulage industry have yet to be objectively investigated, and I have noted that he said in reference to his own allegations, "if they be true". Obviously, he accepts that these allegations have yet to be fully substantiated by an objective inquiry. It may be that full inquiries would disclose a situation which is a great deal more complex than the hon. Gentleman suggests.
  If the allegations are true, they are certainly uncharacteristic of normal union behaviour, and the whole trade union movement will wish to bring to an end any practice which is demonstrably out of line with normal union conduct.
  Secondly, even if his account is not only an accurate picture but also the whole picture, I very much doubt if the situation will be improved by the sort of language that the hon. Gentleman has employed.
  Let me, however, make it clear at once that the mere existence of allegations of the sort made by the hon. Gentleman and others is in itself a matter which the First Secretary believes requires urgent attention, and for that reason she welcomes the investigation which is already being carried out by the T.U.C. The T.U.C. is already acting, and has made requests for reports from the Transport and General Workers' Union and the United Road Transport Union, who have lodged a formal complaint with the T.U.C. I have today been in contact with

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  the Acting General Secretary of the T.U.C. on this matter, and he has already convened a meeting between the officers of the unions concerned. The First Secretary has asked that the T.U.C. should make the results of its inquiries available to hear at the earliest opportunity, and I am glad to say that the T.U.C. has readily agreed to do so. In this, no doubt the T.U.C. will readily receive the support of the hon. Gentleman who has asked for such a step in the form of a Motion which demanded such a procedure.
  While these inquiries are proceeding I suggest it would be inappropriate, indeed perhaps improper, for me to comment in detail on the allegations that have been made. But it is not out of place for me to say something about them in general terms. Four main allegations have been made against this union officer, either during this Adjournment debate or in the newspapers.
  The first is that he is party to behaviour which is, by any standards, illegal—immobilisation of company vehicles, and so on. If this is true, the remedy lies in legal action by the offended companies.
  Secondly, there is the allegation of intimidation of union members and potential members—as in the previous allegation, behaviour which, if it exists, is certainly not typical of normal union conduct. It is the Government's view that powerful—properly powerful—trade unions should demonstrate to the nation that their powers are never used to the unjust disadvantage of individuals. Many unions, including the Transport and General Workers' Union, include in their rules appeals machinery against union decisions. The importance of that appeals machinery being easily available to members and used absolutely fairly cannot be overstated.
  Perhaps I might draw attention to the White Paper on Industrial Relations, which proposes that, in addition to unions being required to have rules adequately covering procedures on this matter, when these procedures have been exhausted there should be a right of complaint to an independent review body.
  The third allegation concerns the use of lightning strikes and other forms of constant and intemperate demands
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  against individual companies. It hardly needs me to say that the Government believe that every industry should have proper negotiating machinery and adequate procedures which are honoured by both sides. Unfortunately, few companies in the private sector of the road haulage industry possess such procedures. The Road Haulage Wages Council deals with little more than minimum rates, hours, overtime, holidays and subsistence allowances. The Road Haulage National Negotiating Committee is a purely voluntary body which, following some initial success, has not found it easy to operate as arbiter of the many and diverse problems which this industry faces.
  It is no coincidence that allegations of this sort arise in an industry composed of many small firms, where new firms are often established and old firms go quickly out of business. In their Report No. 94, the National Board for Prices and Incomes showed that, in 1963, 85 per cent. of all operators had five vehicles or fewer and that 50 per cent. had only one vehicle. The total number of operators then was 46,000. It is an industry in which there is reluctance on the part of companies to act together in any federation and where there is total and inadequate machinery for peaceful solving of disputes.
  Of course, this does not imply that, in any situation, the Government sympathise with tactics which begin with industrial action rather than negotiation, and neither, of course, does the T.U.C. I hope that one certain outcome of its investigation into these allegations will be an attempt by the industry—an attempt which must be led by management—to work out proper procedure agreements.
  The fourth allegation simply concerns the ferocity with which this officer of the T. & G.W.U. bargains—the allegation that, by strength of his bargaining tactics, he has so increased wages in the industry that firms on the margin of economic viability are forced out of business. Apart from the incomes policy implication, that allegation in itself is not one on which the Government can properly comment, even though related allegations are matters for proper concern. If, for instance, agreements are obtained by tactics which exceed the sort of peaceful picketing which has been

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  for nearly 100 years a right in law, then the Government are properly concerned. If agreements have been reached by intemperate strikes rather than by proper discussion and negotiation, then the T.U.C. will be rightly concerned, but the simple accusation of tough negotiations to which, because of the peculiar economics of this industry, companies have chosen to acquiesce rather than to fight, is not a proper matter either for the T.U.C. or for us.
  I repeat that my comments on the four allegations should in no way be taken either as support for what has been alleged or refutation of what has been suggested. They are simply the Government's general views on a situation about which much more needs to be known. I can only repeat that the T.U.C. is making urgent inquiries.
  Mr. Gurden: Those notes were typed before I made my speech. I made another allegation, which the hon. Gentleman has not mentioned, about the extortion of money. On his other point, about employers taking legal action against Mr. Law, I explained why this was impossible—they know that they will be closed down if they do so.
  Mr. Walker: I hope that, in my general comments I am covering all the allegations, but the specific one, which the hon. Gentleman described as extortion, has been the trigger point, the complaint has been registered with the T.U.C. and I do not think that I should comment further until we know more about its inquiry.
  I repeat that the T.U.C. is making urgent inquiries and when it has acted, as I have no doubt it will, in a general
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  desire to establish the truth of this matter, and has made its findings known to the First Secretary, it is then, and only then, that she can decide what action, if any, is necessary.
  Whatever the outcome however, there can be no doubt about the inadequacy of the negotiating procedures and the defects of collective bargaining machinery in the industry. I have already referred to the fragmented character of the industry, which contributes to this situation, and I have also referred to the responsibilities of management. Let me repeat, and emphasise, that the major initiative for reform must come from that source. I hope and expect that the action of the T.U.C. will be matched by an equal readiness on the part of the R.H.A. to respond to the needs of the situation. Certainly, some of the firms mentioned are in that membership.
  The Report of the N.B.P.I., No. 94, dealt with productivity agreements in road haulage and examined some of the agreements entered into by firms in the West Midlands. It spotlighted some of the difficulties in the industry's present arrangements and made some useful and constructive suggestions. I hope that there will be early evidence of a speedy and positive response to those proposals and an effective use made of the proposed guide lines—
  The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to Standing Order.
  Adjourned at ten minutes to One o'clock.