§ In the harsher new climate into which the world has moved, when the increase in real earnings must be severely confined, I believe that the whole nation will see it is essential to achieve a fairer distribution of wealth as well as income, and to block the loopholes which enable so many of the richest in our society to escape their proper share of sacrifices which the poor cannot avoid.
§ I told the House in March that I proposed to ensure that the estate duty fulfilled the function first laid down for it 80 years ago, and to introduce an annual tax on large concentrations of personal wealth. In August I published a Green Paper on the wealth tax and a White Paper which outlined my proposals to replace the estate duty by a tax on all gratuitous transfers of capital both by way of lifetime gift and on death. The necessary legislation for the latter will be included in this Finance Bill.276
§ The new capital transfer tax will replace the estate duty on deaths after the Bill has received Royal Assent, although, as I have already announced, it will apply to all lifetime gifts made on or after 26th March this year. The rates of tax will be those set out in the White Paper.
§ These rates will apply also for the estate duty chargeable in respect of deaths after today, as will the exemption for transfers between husband and wife and the withdrawal of the special reliefs for agricultural land, business assets and woodlands.
§ I have, however, decided to ease the burden which would fall on agricultural land which is owned and farmed by full-time working farmers if capital transfer tax were charged in full on the present exceptionally high capital values of agricultural land.
§ The value of his farm land transferred by a fulltime working farmer in his lifetime or on his death may be reduced to 20 times the gross rent obtainable on an open market letting of the land. This will be subject to a cumulative maximum of 1,000 acres in extent or £1¼ million in value, whichever is the more favourable. This relief will apply also for estate duty chargeable on deaths after today.
§ I have considered whether some new relief should be introduced for business men to replace the old 45 per cent. reduction in the estate duty chargeable on their assets, but have concluded that the case has not been made out for any relief except in one particular.
§ The estate duty on land and interests in businesses may now be paid by instalments spread over eight years, subject to payment of interest of, at present, 3 per cent. This arrangement will be continued under the capital transfer tax, except that the time has come to charge a more realistic rate of interest; this will in general be 6 per cent. on tax charged on death and 9 per cent. on tax charged on lifetime gifts. But in the case of an interest in a business, including substantial shareholdings in unquoted companies, the tax on the first £250,000 in value will be payable by instalments free of interest. The same arrangement will apply for the estate duty on deaths after today.
§ Because the new tax will apply to all transfers of capital and will not be open 277 to avoidance by gifts made in life, it will in the long term produce a higher yield than the existing estate duty despite the reduction in the rates and the exemption for transfers between husband and wife. But in the early years there will be a somewhat lower yield. The yield will be reduced by £15 million this year and £25 million in 1975–76.
§ I confess that I have been somewhat shocked by the volume and intensity of protest generated in some quarters by my determination to ensure that the estate duty is no longer a voluntary and avoidable tax. I should have expected the moderation of my proposals, particularly the exemption for transfers between husband and wife, to have brought me gratitude rather than abuse from those concerned. The House will form its own judgment. For myself, I can construe the current protests only as testimony to the scale on which estate duty has hitherto been avoided, and as a tribute to the efficacy of my proposals for ending this avoidance.
§ No doubt, there will be a similar storm of protest about my proposals for a tax on wealth; indeed, it has already begun. But I look forward, as I am sure will at least my hon. Friends, to the discussion which will shortly take place in the Select Committee which will soon be considering the wealth tax.
§ Perhaps this is a convenient point at which to deal with two matters which are not wholly unrelated to the social contract and the problems of the distribution of wealth.
§ First, I must refer briefly to our proposal for imposing a new tax on land, payable when development value is realised. The introduction of this "development land tax" is an essential step towards achieving our aim of bringing land needed for development into community ownership. As has already been announced, the tax will be at a flat rate, initially 80 per cent. It will be outside the general arrangements for the taxation of companies and individuals and will apply both to those who trade in land and those who do not. The legislation will inevitably be complex, and I have decided that it should be contained in a separate Bill, which will be introduced in the course of the present Session. The general form of the tax will be as outlined in the White 278 Paper on Land, Cmnd. 5730, but it is intended to issue a more detailed statement as soon as possible.
§ Second, I intend to reintroduce a provision to restore the provident benefit tax relief to those trade unions which ceased to qualify for the exemption as a result of the Industrial Relations Act 1971. Nothing was said in the House earlier in the year to alter my conviction that this was a relief which should never have been tampered with. I accept that the Government of the day did not intend that it should happen and, indeed, genuinely thought that they had found a way of preserving tax relief for the union provident funds. In the last Finance Act we put the position right for the future. Now we shall put it right for the period from 6th April 1972 to the commencement of the Trade Union and Labour Relations Act 1974.