(ESTATE DUTY, GIFTS, PERIOD OF CHARGE REDUCED FROM SEVEN TO FIVE YEARS). (Hansard, 5 July 1971)

§ Mr. William Clark
I beg to move, That the Clause be read a Second time.

§ Mr. Deputy Speaker (Miss Harvie Anderson)
I think it would be for the convenience of the House to discuss at the same time new Clause 18–"Estate Duty: property in which the deceased had an interest".

§ Mr. Clark
The last time this matter was debated was in May 1968. I approach this debate with some degree of confidence in that my hon. Friend the Financial Secretary in the May, 1968, debate took a leading part in criticising the Labour Government for changing the gift inter vivos rule from five to seven years. It will be remembered that before March, 1968, the gift inter vivos was over a five-year period. If death occurred within the first two years, 100 per cent. duty was levied, but if death occurred in the third, fourth or fifth year the amount of duty was proportionately reduced. Any period, whether it be two, three, five, seven or ten years is an arbitrary length of time, but seven years is far too long for a gift inter vivos. We think the time has come to go back to the five-year rule with suitable tapering, and I hope that my hon. Friend will look upon this sympathetically.
An investigation is going on within the Treasury into the whole of estate duty taxation, and possibly this point could be taken up in the investigation. I do not say this in any churlish sense, but I hope my hon. Friend will not give me a Treasury brief, because I would remind him of what he said in the May, 1968, debate: It is always surprising and a little regrettable when the Financial Secretary, for whom we have such a high regard, finds himself obliged to resort to a Treasury brief which is as unsympathetic and as unforthcoming as that brief was."—[OFFICIAL REPORT, Standing Committee A, 29th May, 1968; c. 1708.] 1080 I hope that, after he has replied, I shall not have to say to my hon. Friend what he said to the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) in a similar debate.
I urge upon my hon. Friend that the cost would be very small, and if we want to see the distribution of wealth before death, seven years is far too long. The five-year period was in force for some time and was very satisfactory. I commend the new Clause to my hon. Friend and look forward, in view of his past record in the May, 1968, debate, to a favourable response.

§ Mr. Patrick Jenkin
I am grateful to my hon. Friend the Member for Surrey, East (Mr. William Clark) for recalling my speech of 1968 when our predecessors introduced a provision to increase from five to seven years the period outside which a gift must be made to escape estate duty as part of the donor's estate. The part of that speech which I was particularly concerned to get on the record was that dealing with retrospection. I can now repeat that the principles I then annunciated will, I hope, be the principles which will motivate the present Government in dealing with retrospective legislation in relation to estate duty.
We attacked the proposal generally because the burden it would impose, particularly upon executors and to some extent upon donees, was thereby considerably exacerbated. The tapering did not take place until the fifth, sixth and seventh year and therefore a gift was left subject to the full charge of estate duty for the first four years after it had been made. It seemed to us that this provision exemplified much of what is wrong with the present estate duty and other capital tax systems, in that the tax pressed much too hardly upon much too narrow a base. It is for this reason that my right hon. Friend has, as part of our continuing review of the tax system, indicated that the taxation of capital is an important part of our studies.
My hon. Friend was kind enough to throw me, as it were, a lifeline which I gladly pick up. I can assure him that we have this point very much in mind. We would not think it right to legislate piecemeal for minor changes in the shape of the estate duty. Although we have increased the exemption limit from 1081 £10,000 to £12,500, more as an earnest of our desire to seek to help those who die leaving relatively small estates, we do not put that forward as our final word on estate duty. I hope that, with my assurance that this point will be considered as part of our review of the general system of taxation in the coming year, my hon. Friend will feel it right not to press the Motion.

§ Mr. Taverne
I am glad that the Financial Secretary has resisted the blandishments of the hon. Member for Surrey, East (Mr. William Clark). But some of the remarks which he has made about the review of estate duty fill me and my colleagues with alarm. The idea of a five-year period is acceptable if it is coupled with a gifts tax. It is surprising to find how many people, even Conservatives, favour the principle of a gifts tax as one which would extend justice. If one does not have a gifts tax, one must have a longer period, otherwise estate duty is too easy to evade. I welcome the hon. Gentleman's resistance of the new Clause, but I shall study carefully what comes out of the review of estate duty to which the Government have referred on a number of occasions.

§ Mr. William Clark
I do not entirely agree with the hon. and learned Member for Lincoln (Mr. Taverne) that my hon. Friend the Financial Secretary has resisted blandishments advocated on behalf of the new Clause. I would put it rather that he has temporarily resisted them. But with the assurance my hon. Friend has given that he will look at the whole question of gifts inter vivos and the tapering provisions in the Government's review, I beg to ask leave to withdraw the Motion.