Section 6 of the Finance Act 1894 shall be amended by the insertion of the following words after subsection (8):—
(9) Up to 10 per cent. of estate duty liability may be discharged by the surrender to the Exchequer of any government stock at its par value:
Provided such stock had been owned by the deceased person for five years or more.—[Mr. Willliam Clark.]
§ Brought up, and read the First time.
§ Mr. William Clark
I beg to move, That the Clause be read a Second time.
It will be realised by the House and the Government that this will not be such an emotional debate as we have just had. It will be remembered that the Finance Act, 1894, lays down the method of collecting and the method of payment of estate duty. The new Clause seeks to amend the method of payment of estate duty.
Estate duty is a capital tax and we should not forget that. It produces to the Exchequer between £350 million and £360 million a year. It is a great revenue raiser. What we seek by the new Clause to do is to give a boost or to give support to the gilt-edged market, in that part of estate duty payable could be settled by the surrender of gilt edged at par. Take the global figure of estate duty at £350 million, then up to 10 per cent. of that liability could be discharged by surrender of gilt edged at par. It means that the total amount which could be surrendered would be about £35 million or £36 million.
Gilt edged at the moment is in a depressed state. It has been in a depressed state under both Governments. I would urge upon the House the importance of the gilt-edged market, particularly 1172 to savings. I do not intend to be emotive about this, but there are small savers up and down the country who have purchased gilt edged and seen it gradually eroded and eroded in value. One has only to mention one instance, I suppose the most infamous, of a decline in value of gilt edged and that is the stock known as Daltons. It was issued in 1946 or thereabouts at £100 but the value now is £26 to £27 but its real value is £10. Obviously there are people who are very upset by this sort of erosion. I have seen in the paper, and I am sure my hon. Friend has seen it, that the Treasury has a writ issued against it by the Association of Gilt-Edge Holders. This organisation is trying to get a date put on undated stocks in gilt-edged. When my hon. Friend goes back to the Treasury he will be able to read that writ. I may say I have had nothing to do with it. However, there is a feeling that something should be done for gilt-edged. Of course, to put a date on undated stock would be, so to say, mortgaging the future. I do not think any Government could do this. It is quite impracticable for any Government to enter into a period for repayment of undated stock no matter how far hence.
There is one way we could support the market, and that is to allow the market forces themselves to increase prices. Our proposal is that if a person owns gilt-edged securities for five years prior to death then up to 10 per cent. of the estate duty liability may be discharged by surrendering gilt edged at par to the value of that 10 per cent. I am not wedded to the period of five years, but doubtless there must be some period stated.
Let us consider Daltons again. It stands at £27. One's estate duty liability is £1,000. One hundred pounds at par value of Daltons could be surrendered in settlement of one-tenth of estate duty. On paper that would cost the Government £73. If one looks at the machinations of the market one will see that there is an incentive for people with cash, whose estate will pay this duty, to hold gilt edged. But only if there is capital growth in the gilt edged market, one will see that Daltons and War Loan and so on will go up to something like £60 or £70 in value.
This would not cost the Revenue very much. Obviously, not everyone would 1173 take advantage of the new Clause but the total amount which could be satisfied would be £36 million. If one takes the average price of gilt-edged and a surrender price of £50 it means it would cost the Revenue £18 million. I would say that the cost in the first year to the Revenue would be about £10 million. There is no party consideration in this, but an advantage to the Government of doing this would be to keep faith with those savers who have put their money into gilt-edged.
§ Mr. John Nott (St. Ives)
There will be a social or political cost of dating gilts. What about the case of the old lady who bought war loan and has seen it sink below £50 or £40? Surely this old lady will not benefit very much if it is tendered for estate duty? My hon. Friend ought to remember that he can apply this argument equally well to preference shares. What is so special about gilts?
§ Mr. Clark
There is something special about gilts in that the gilt market is, indirectly, the responsibility of the Government, whereas I should not think that this Government have issued many preference shares. There are a great many old people in this country who hold Daltons and who can get only £27 for them. By giving this concession for the repayment of 10 per cent. of estate duty, a boost will be given to the gilt-edged market, which will go up quite artificially since it will be in roughly the same position as agricultural land for duty purposes. I need not remind my hon. Friend that anyone holding agricultural land gets a 45 per cent. remission of estate duty.
This Clause gives an incentive to people to hold gilt-edged securities. My hon. Friend has sufficient financial acumen to realise that, if the incentive is there, people will start hedging and instructions will be given to executors about converting on death. Moreover, it will help the living who hold gilt-edged securities at £27 or £30. I hope that my hon. Friend was in the Chamber when I tried to explain the Clause. It may be that I did not explain it very well. However, I hope that the answer that I have now given him elucidates the point that I seek to make.
I realise that my hon. Friend the Minister of State is not able to give me 1174 a categorical response to the effect that the Clause is acceptable, irrespective of whether the wording is in order. However, I suggest that here is a way of giving a boost to the gilt-edged market. I do not think that it will result in a gilt-edged bonanza. However, I understand that the Treasury is actively looking into the whole estate duty problem as regards its payment and, presumably, its rates as well. I should be grateful for an assurance that my hon. Friend will at least look at the idea.
I do not suggest that the Clause is necessarily the ideal way of going about it, but I urge upon my hon. Friend that it is a way in which an incentive can be given to people who hold gilt-edged securities which, by their very nature, have no capital growth in them. To some extent, the Clause would introduce some sort of capital growth. For those reasons, I hope that my hon. Friend will consider it sympathetically.
§ Mr. Nott
It is not very often that I disagree with my hon. Friend the Member for Surrey, East (Mr. William Clark). However, in one sentence, I wish to say that the way in which the Government can best help the gilt-edged market is by running the economy properly and not by distorting the whole market with discriminatory concessions.
I cannot understand why anyone holding gilts should be helped in this way against other people who hold other fixed-interest stocks. I should have thought that there was a social and even a political reason for dating War Loan. It is not as impossible as it is always made out to be.
If the Government want to support the gilt-edged market, there are easier ways of doing it. As I have said, the principal way is by running the economy properly.
§ 6.15 p.m.
§ Mr. John Cronin (Loughborough)
With respect to the hon. Member for Surrey, East (Mr. William Clark), this is one of the most eccentric Clauses ever sought to be introduced into a Finance Bill. It suggests that some hon. Members opposite are obsessed with the Stock Exchange and the market to an extent which completely destroys their discretion as Members of Parliament.
I have no doubt that the hon. Gentleman has a very compassionate purpose 1175 in moving the Clause. There are undoubtedly people who have suffered considerable hardship as a result of buying gilt-edged securities. But the purpose of the Clause is to set up a privileged class of purchasers of securities in the stock market.
There is no doubt that people suffer hardship. But people who buy gilt-edged securities do so in the full knowledge that the price of those securities can vary. They can go up. They can go down. It seems to be an extraordinary proposition to suggest that one group of purchasers in the stock market should be exempt from events which cause the value of those securities to go down.
We all know that, in effect, the price of gilt-edged securities is a reflection of the interest rates at the time. A person buying gilt-edged securities should try to forecast in his mind what is likely to happen to interest rates in the future. If he loses money, he is in the same situation as a person who buys equity shares. The hon. Gentleman might feel sorry for those who bought Rolls-Royce shares and who suffered probably equally severely as those who bought the stock launched by a previous Chancellor of the Exchequer, Mr. Dalton.
§ Mr. Evelyn King (Dorset, South)
This endeavour to equate Rolls-Royce shares with gilt-edged securities will not hold water. Has the hon. Gentleman memories of the immense appeal to patriotism,Lend to defend to right to be free.That cannot possibly be compared with Rolls-Royce.
§ Mr. Cronin
I quite agree that in the last war there was an emotional appeal to people to save money. But there were many ways of saving money at that time other than putting it in these stocks which have decreased enormously in value.
It is natural for the Government of the day to encourage people to buy securities. It is a form of salesmanship which one must expect. However, this Clause will create a privileged class of purchasers of stocks, and it seems to be another way——
§ Mr. William Clark
The hon. Gentleman will appreciate that this is precisely what happens with Victory Bonds. At death, they are surrendered at par.
§ Mr. Cronin
But those are bonds which were issued in special circumstances. The hon. Gentleman seeks to change the arrangements under which Government stocks have been issued in the past.
To return to my main argument, what concerns some hon. Members on this side of the House is that the Clause is opening another enormous door for the avoidance of estate duty. The hon. Gentleman said that estate duty can be avoided by purchasing and holding agricultural land in that there is a 40 per cent. reduction. Here again is an enormous loophole for people to escape estate duty on a tremendous scale.
The hon. Member for St. Ives (Mr. Nott) put his finger on a most important point. The hon. Gentleman spoke in compassionate terms about the poor old lady who has bought gilt-edged stocks in the past. However, that same poor old lady will not pay estate duty in normal circumstances since she will leave only a sum which will not be liable to duty. The Clause will have the effect simply of enormously increasing the opportunities to avoid estate duty.
The hon. Member for Surrey, East spoke about the importance of keeping the gilt-edged market high. That may have a special significance for some wealthy people who have bought gilt-edged stocks on a large scale. I cannot see that it helps the national interest to keep the gilt-edged market at a high level.
I suggest that the Clause is intended to benefit only a small section of wealthy members of the community who have been unfortunate in their speculation in that they have purchased gilt-edged stocks.
§ Mr. Spencer Le Marchant (The High Peak)
I completely fail to understand what the hon. Member for Loughborough (Mr. Cronin) was talking about. Does he not realise that the last Government robbed all holders of gilt-edged stock by devaluing the currency? It is obvious to me that if the currency is devalued people are being robbed of what they have earned. For that reason, and because I believe there is a real risk for the investing community, be it private or public, in holding gilts, I support what was said by my hon. Friend the Member for Surrey, East (Mr. William Clark). 1177 He pointed out that this is a method by which people investing in the currency of this country, by believing in Britain, will get their reward. The hon. Member for Loughborough must understand that by devaluing the currency the Labour Government stole money from every holder of gilt-edged stock.
What is wrong about this proposal? One could say, as the hon. Member for Loughborough said, that we are changing the prospectus. If the new Clause is accepted, we are definitely changing the prospectus. But we have changed the prospectus before. We changed the prospectus when we allowed capital gains to come into gilts, and we changed it back. We changed it to a certain extent when, for patriotic reasons, we did the conversion to war loans. When we had a date on war loans, again for patriotic reasons, we changed the prospectus. I should not think that it would be a serious thing to do it again.
My hon. Friend said that this will not affect the money supply, that it will not be inflationary, and that it will not cost the country much.
What is right about the whole matter? The first point is that it will help Government borrowing. There are many ways in which we can help Government borrowing. I believe that it is correct that Government stocks should be treated in the long term in the same way as under five years. If one is buying a stock up to five years duration one buys or sells the interest when buying or selling. That is important. If Government stocks are static, as they are now, one does not get the institutional holders interested in them as much as they should be. If they can show more performance by getting a little more interest, if only for a few days, I think that that would do it. Therefore, the Government should consider that as an additional method of making Government borrowing easier.
§ Mr. Nott
Surely my hon. Friend cannot want to make it easier for the Government to borrow. This is not what I should describe as a particular Tory sentiment. My hon. Friend rightly gave a lecture on devaluation. We do not want to make it easy for the Government to borrow; we want to make it difficult.
§ Mr. Le Marchant
No. I believe in Government credit. I believe that it 1178 should be as high as possible. Obviously, my hon. Friend for St. Ives (Mr. Nott) feels that just because his constituents have land they are not interested in gilt-edged.
I believe that it will also help people in all income groups. The rich man who went into this would be paying a great deal of his interest away. Therefore, the hon. Member for Loughborough is not correct in thinking that it affects only one side.
My main reason for supporting the Clause is that it is good for the country; it is giving a bonus to people who are supporting Britain by buying Government stocks.
§ The Minister of State, Treasury (Mr. Terence Higgins)
My hon. Friend the Member for Surrey, East (Mr. William Clark) has certainly raised some interesting questions, if not a little controversy on the benches behind me.
I did a little research into the history of the new Clause and discovered that my hon. Friend had tabled a similar Clause in 1963. Therefore, he has both the virtues of consistency and persistence in promoting this idea. I noticed that there was some difference in the objections to it on that occasion from those put forward now in at least one respect. In 1963 there were references in the objections to the Clause to the Colwyn Committee on National Debt and Taxation, 1927. It is worth quoting one passage from that report for the benefit of the House. As was said in answer to a point made by the hon. Member for Loughborough (Mr. Cronin), there are two particular Government stocks which are redeemable for estate duty. The 4 per cent. Victory Bonds which are acceptable at par value in payment of estate duty, and similarly the 4 per cent. Funding Loan 1960/90 is acceptable for this purpose on the basis of £80 for each £100 stock, and so on. They are very unusual in this respect. The Colwyn Committee pointed out:Such a privilege is valueless to the holder unless it covers some bonus or special monetary advantage; it is apt to work exceedingly unequally as between individuals, and it involves a concealed loss to the Exchequer. While under the stress of war borrowing, the concession was. perhaps, justifiable, we are glad to note that it has not been repeated in later issues.The arguments against my hon. Friend's proposal are substantial. Though 1179 I share his concern about the position of many holders of War Loan stock, it is curious that as a matter which frequently comes up in constituencies it rarely comes up in this House. I am tempted, but I shall resist the temptation, to go into this question in greater depth because, in answer to hon. Members' queries, I have signed a large number of letters on this topic.
The points raised by my hon. Friend are open——
§ Mr. Joel Barnett (Heywood and Royton)
Does the Minister of State accept that if he were to accept the Clause in relation to the 3½ per cent. War Loan it would be almost a pleasure to die to get paid out in full?
§ Mr. Higgins
That would take us very wide indeed. I shall not fall to the temptation put before me by the hon. Gentleman.
What is clear about the new Clause is that the main benefit would accrue only to the beneficiaries of estates becoming liable for duty, that it would tend to work unequally between different holders, and that it would infringe the long established principle that all holders of a particular Government security should be treated alike. That is an important principle which one would be right to defend.
I do not think that the effect on the market would be very significant. As has been rightly pointed out, the crucial question is the general management of the economy and of the money market. On those grounds the Clause would not be justified.
It was suggested that the cost would not be great or might be non-existent. However, it should be remembered that while it is true that the Government would receive an amount of their own debt in return for the estate duty forgone and that on this debt they would save the future interest which they would otherwise have paid, they would still be short of the money that they would have received in estate duty and, assuming that there is no change in taxation on this account, they would need to borrow an equivalent sum. Because the borrowing would naturally be at current rates of interest rather than the rate of interest which is paid on a number of the stocks which my hon. Friend has in mind, there 1180 would be a considerable extra cost, albeit concealed, to the Exchequer.
Finally, an overriding objection of principle to applying the concession on outstanding stocks which are already issued would be that we were effectively altering the terms of issue.
My hon. Friend the Member for The High Peak (Mr. Le Marchant) suggested that this had happened in the past. However, the situation when the war loan was changed was different. It was a conversion or the option to take cash. I will not go over the history of those days when different economic circumstances prevailed. Basically, it is extremely important, if we are to maintain confidence in the gilt-edged market, that we should maintain the principle that the terms of a particular stock which has been issued do not change. For that reason, while appreciating the reasons which motivate my hon. Friend in proposing the Clause, I cannot recommend the House to accept it.
§ Mr. William Clark
In view of what my hon. Friend has said, I do not wish to put the matter to a vote. I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.