HC Deb 05 March 1975 vol 887 cc1563-624
'.—(1) A disposition is not a transfer of value if it is made by one party to a marriage in favour of the other party or of a child of either party and is—
(a) for the maintenance of the other party, or
5 (b) for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.
(2) A disposition is not a transfer of value if it is made in favour of a child who is not in the care of a parent of his and is for his maintenance, education or training for a period ending not later than the year in which—
10 (a) he attains the age of 18; or

floor that the Division bells were not ringing. I wish to put it on record, so that somebody can be made aware, that the Division bells are not ringing throughout the Palace. They were not ringing on the interview floor or in other parts of the Palace. Will somebody please find out why, and do something about it?

Mr. Speaker

This is a matter which I shall certainly have investigated.

(b) after attaining that age he ceases to undergo full-time education or training; but paragraph (b) above applies only if before attaining that age the child has for substantial periods been in the care of the person making the disposition.
15 (3) A disposition is not a transfer of value if it is made in favour of a dependent relative of the person making the disposition and is a reasonable provision for his care or maintenance.
20 (4) Where a disposition satisfies the conditions of the preceding provisions of this section to a limited extent only so much of it as satisfies them and so much of it as does not satisfy them shall be treated as separate dispositions; and where a disposition satisfying those conditions is a disposal of an interest in possession in settled property, the interest shall not, by virtue of paragraph 4(1) of Schedule 5 to this Act, be treated for the purposes of that Schedule as coming to an end.
(5) In this section—
25 "child" includes a step-child and an adopted child and "parent" shall be construed accordingly;
30 "dependent relative" means, in relation to any person, a relative of his, or of his spouse, who is incapacitated by old age or infirmity from maintaining himself, or the mother of that person, or of his spouse, if the mother is widowed or living apart from her husband, or, in consequence of dissolution or annulment of marriage, a single woman;
"marriage", in relation to a disposition made on the occasion of the dissolution or annulment of a marriage, and in relation to a disposition varying a disposition so made, includes a former marriage; and
"year" means any period of twelve months ending with 5th April.'—[Mr. Healey.]

Brought up, and read the First time.

Dr. Gilbert

I beg to move, That the clause be read a Second time.

Mr. Speaker

With this we are to take New Clause 25 (Chargeable transfer of assets between relatives), and the following amendments:

No. 728, in Clause 20, page 16, line 25, at end insert: '(4A) A disposition is not a transfer of value if it is in favour of a child of the transferor who is under the age of 16 years at the time of the disposition or, if the child is at that time over the age of 16 years, the transfer consists of, the maintenance and education of the child, while he is receiving full time instruction at any university, college, school or other educational establishment'. (4B) Section 10 of the Taxes Act, shall apply for determining whether a child is receiving full time instruction at an educational establishment. No. 734, in page 16, line 25, at end insert: '(4A) A disposition is not a transfer of value if it consists of a payment to or for the benefit of a lineal descendant, brother, sister, nephew or niece of the transferor, or any such relative of the husband or wife of the transferor, who is by reason of some mental or physical disability incapable of maintaining himself and who if female, is not at the time of the disposition married'. No. 505, in page 16, line 27, at end insert: 'and other than a transfer made by an individual to a relative of himself or his spouse or to an employee or former employee if that relative, employee or former employee is disabled or incapacitated and the transfer provides or helps to provide special care, maintenance, education, equipment or modifications or additions to any building for the benefit of the disabled or incapacitated person'. Government Amendments Nos. 200 and 201 and the proposed amendments to new Clause 7.

Mr. Powell

I gather that it is agreeable to you, Mr. Speaker, that we may refer to Amendment No. 779, which seeks to insert in the Sixth Schedule a paragraph entitled "Trusts for handicapped child".

Mr. Speaker

Yes, that is so.

Dr. Gilbert

New Clause 7 results from an undertaking given by my right hon. Friend the Chief Secretary in Standing Committee upstairs to consider the treatment of payments for the maintenance of dependent relatives and for the maintenance, education and training of children, including children over 18 in full-time education. Such payments are, of course, normally made out of income, and others would be covered by the £1,000 annual exemption. But we have accepted that where payments are made out of capital for these purposes it would be right to give relief.

The clause puts beyond doubt also that a disposition made on the occasion of the dissolution of a marriage will be covered by the spouse exemption. Doubt was expressed about that in Standing Committee in the debate on Amendment No. 442.

It may be for the convenience of the House if I now go briefly through the salient provisions of the new clause. Subsection (1) exempts a disposition for the maintenance of the disponer's spouse or former spouse, and, second, for the maintenance, education or training of a child, including a step-child or adopted child, of either spouse, for a period ending not later than the year ending 5th April in which the child attains the age of 18 or ceases to undergo full-time education.

Subsection (2) exempts a disposition made for the maintenance of a child who is not in the care of either of his parents, including step-parents or persons who have adopted the child; and a disposition for maintenance in this case after the child has attained the age of 18 may qualify for the exemption, but only if before that age the child has for substantial periods been in the care of the disponer.

Subsection (3) exempts reasonable provision for the care or maintenance of a dependent relative of the disponer. What is reasonable must necessarily depend on the circumstances of the disponer and the relative and the degree of incapacity or infirmity of that relative. The term "dependent relative" is defined in subsection (5) in the same terms as those used in the Finance Act 1965, which exempts from capital gains tax a house provided rent-free for a dependent relative.

Subsection (4) accomplishes two objectives. First, it provides that a disposition which would not be exempt merely because it did not wholly satisfy the conditions of subsections (1) to (3)—that is, where, for example, a disposition for a dependent relative was more than could be considered reasonable in the circumstances—may be split into two dispositions, the part that would be treated as exempt and the part that is chargeable.

Second, subsection (4) provides that a disposition of an interest in possession in settled property which satisfies the conditions in subsections (1) to (3) is not to be chargeable by virtue of paragraph 4(1) of Schedule 5, which treats an interest in possession as coming to an end when it is disposed of.

With respect further to the provisions of subsection (4), with reference to divorce and separation settlements and variations of existing settlements, I was pressed in Standing Committee by, I think, the hon. and learned Member for Dover and Deal (Mr. Rees) to take care of the situation where there were variations of settlements, and I undertook so to do. I hope that in this respect the new clause meets the point which the hon. and learned Gentleman made and the undertaking which I gave.

There is one basic point here which, I think, should be made for the assistance of the House. The relief provided by the new clause is in no respect less generous than that provided by paragraph 15 for settlements made on the occasion of a divorce or separation. If there are any questions relating to divorce and separation settlements, I shall gladly deal with them.

7.15 p.m.

Mr. Graham Page

Can the hon. Gentleman be a little more explicit about variation? It is difficult to follow how that would be covered by the proposed clause. If the hon. Gentleman has a little note in his brief about it, will he tell us a little more?

Dr. Gilbert

I am only too happy to oblige the right hon. Gentleman. I was seeking to make progress because I know that hon. Members are anxious to conclude this debate and move on to other things as soon as possible.

The second half of subsection (4) meets the point which the right hon. Gentleman has raised. It provides that where there is a disposal of an interest in possession which satisfies the qualifying conditions—that is to say, being in satisfaction of a claim for maintenance—there shall be no charge on the coming to an end of an interest in possession. This is linked with the definition of "marriage" in subsection (5), which makes clear that a disposal by variation of a settlement on a former spouse attracts the relief. I hope that that answers the question.

I come now to the amendments to the new clause, and I take first, Amendments (b) and (i), which I understand have basically the same effect—that is, to exempt from the tax a disposition by a person for the maintenance of his or her illegitimate child. Subsection (1) of the Government's new clause, to which Amendment (b) attaches, exempts from tax a disposition made by one party to a marriage in favour of a child of either party. Because Amendment (b) fails to define the parties to the marriage as the mother and the reputed father, I have to advise the House that it holds no meaning as it stands.

However, with respect to Amendment (i), I take it that the right hon. and learned Member for Surrey, East (Sir G. Howe) and his hon. Friends have in mind the case where the reputed father does not wish to adopt the child or take it into his care or marry the mother but is willing to pay for the child's maintenance. Such a case is not covered by the new clause as drafted, and I am happy to tell the House that the Government are prepared to accept Amendment (i).

The set of amendments (e), (f), (h), (j), (l) and (m) would have three effects. The first would be to take out of the new clause the requirement that the provision must be reasonable and to substitute the requirement that it must be made solely for care or maintenance. If this substitution has any significant meaning at all, it would enable a very large gift to be exempted provided that it was labelled as being solely for care or maintenance, and this would be going further than I could advise my hon. Friends to go.

The second effect—this attaches also to Amendment (f)—would be to exempt a provision for the care or maintenance of a former employee. I must say that I hardly think it appropriate to lump together amendments dealing with both ex-employees and members of the family, but, however that may be, there are two points to be made. First, we have provided relief for bona fide superannuation schemes in paragraph 16 of Schedule 5. I am aware that in Standing Committee there was discussion about gifts to old family retainers which could be deemed to stand in lieu of pension plans. I undertook to look at that. I regret to have to tell the House that I am not yet in a position to put final proposals before it, but we are looking into the matter as diligently and as sympathetically as we can, and I hope to be able to come back to it before very long.

The third effect of this group of amendments would be to eliminate the requirement that the relative should be dependent—that is to say, that the relative should be incapacitated by old age or infirmity from maintaining himself. The result would be to enable gifts to be made under the label of care or maintenance for relatives who were perfectly able-bodied or, indeed, perhaps extremely wealthy. It will come as no surprise to the Opposition to learn that this also is not a proposal which I could commend to my hon. Friends.

Amendment (g) would also widen the exemption to a great extent. In this case it would exempt dispositions for the care or maintenance of a relative residing with the disponer, again irrespective of the age, need or health of the relative. If the Opposition have in mind with this amendment the case of a child who is being brought up by a relative other than one of his parents, I can assure them that such a child, though admittedly not a dependent relative as defined under subsection (5), would be taken care of by a disposition for his maintenance which would be exempted under subsection (2).

New Clause 25 seeks to provide that the tax on any transfer of assets to a member of a transferor's family shall be reduced to 45 per cent. of the tax which would otherwise be payable on a lifetime scale, and, moreover, that it should be paid by interest-free instalments, but that the relief should cease if the transferee disposes of the assets within three years. The clause is drawn so widely that it would apply to the great majority of transfers likely to come within the charge of the capital transfer tax. A member of the transferor's family is defined as including relatives, which means ancestors, descendants, brothers, sisters, uncles, aunts, nephews and nieces of the transferor or of the transferor's spouse, and spouses and relatives. This clause could well include almost every likely beneficiary of the average donor and testator. It will come as no surprise to the Opposition that this would result in such a diminution of the charge to tax that we are not able to recommend its acceptance.

I think I have dealt with all the amendments other than that which was referred to by the right hon. Member for Down, South (Mr. Powell). I was not anticipating having to deal with that amendment at this stage, but I shall look into it while the right hon. Gentleman is on his feet and hope to return to it if I am fortunate enough to catch your eye, Mr. Speaker, and receive the consent of the House at the end of the debate.

Mr. John Nott (St. Ives)

We are naturally satisfied that the Government should have put down new Clause 7, but we feel that gratitude is not the emotion we should express because it only clarifies matters which should have been much better expressed originally. It is good to see the position over the maintenance of children and dependent relatives expressed more succinctly than was originally the case.

Anybody reading the debate on Clause 18 in Committee must be a little astonished that the legislation should ever have been presented in the form in which it originally came before the House. It took one whole sitting of the Committee to find out exactly what the clause was expressing, and now it is rather unfortunate that we should be considering the whole crucial question of family life and obligations under the pressure of the guillotine. I shall move ahead fairly quickly because we want to get on to the later debates on agriculture and small businesses, although it is entirely up to the House as to whether or not it wishes to proceed at the sort of speed I have in mind.

Those of us who did not serve on the Standing Committee have been treated with a fair amount of—perhaps "contempt" is too strong a word—disdain in the presentation of marshalled amendments. To give but one example of the problems we have faced throughout the passage of the Bill I shall refer to Amendment No. 200. It is down for debate and was published only this afternoon in marshalled form. Although the amendment was in the great sheaf of papers we received on Monday it should have been possible to have obtained Government amendments in a marshalled form more than just a few hours before we were due to debate them.

I have only two substantive points on the new clause. In spite of the remarks of the Financial Secretary, the dependent relative definition is very narrowly drawn. Perhaps I misunderstand the wording, but the new clause says: 'dependent relative' means, in relation to any person, a relative of his, or of his spouse, who is incapacitated by old age or infirmity from maintaining himself, or the mother of that person— I do not see why the father of that person should be excluded. Is there something special about the mother in such a case? The provision appears to apply only to the female side of the family. That may be a minor point, but it could be of great importance to a family.

The clause is generally rather narrowly drawn. We are very glad to hear that the Government will accept Amendment (i) in the names of my right hon. and hon. Friends. It deals with the case of an illegitimate child and we are grateful that the provisions can be broadened in this way.

We are grateful to hear that the Government are still considering what might be done in the case of an ex-employee of a family. That might be a nurse, who has devoted the whole of her life to looking after a disabled child, and it would seem unfortunate, in spite of the reference by the Financial Secretary to bona fide superannuation schemes, if a wealthy family—it would have to be above the threshold, but the cumulative totals would build up—were presented with a major disincentive from providing for that nurse in her retirement.

I come to new Clause 25, which is the main Opposition new clause. The Financial Secretary's answer to it was unsatisfactory. Our clause seeks to include a lower rate of capital transfer tax where a disposition is made in favour of a person's family. I accept that it may appear to go very wide, but it does no more than propose a principle which is accepted in virtually every country, and certainly a principle accepted in almost every European country that has a gifts or wealth tax.

The Select Committee on the Wealth Tax is considering in respect of the wealth tax, the question of consanguinity, but why, if the Government have an open mind on consanguinity in relation to the wealth tax, should the Financial Secretary feel that it is somehow wrong in relation to the capital transfer tax. When the Chancellor spoke on the first new clause he made rather snide comments about gifts in consideration of a marriage, but if the right hon. Gentleman had followed his own Bill—and I regret to say that, having heard him speak several times, I feel he has not followed it closely—he would have found the principle of consanguinity already contained in the legislation.

7.30 p.m.

I have had great difficulty ploughing my way through the amendments, because I did not serve on the Standing Committee. Under paragraph 5(1)(a) of Schedule 6 an outright gift to a remoter descendant of the transferor is exempt up to £2,500. If somebody who is not connected directly with a family gives a gift in consideration of marriage, the sum of £2,500, as opposed to the normal £1,000, is exempt for the purposes of the capital transfer tax. The Government have on the Notice Paper another amendment which has not yet been marshalled. It is extraordinarily difficult for us to follow the point when we do not have marshalled amendments. A Government amendment which appeared in the blue Notice Paper of 25th February said that if a parent makes a gift in consideration of marriage to one of his children the exemption is £5,000.

Therefore, it appears that the principle of consanguinity, the principle that the rate of tax should be lower where dispositions are made in favour of both relatives has already been accepted by the Government. We are seeking an extension of this in new Clause 25.

The Green Paper on the inheritance tax published by the Conservative adminitration in March 1972 pointed out—and I have no reason to believe that the rates have changed—that the maximum rate on bequests and gifts to surviving spouses and direct dependants was 20 per cent. in France and 15 per cent. in Germany. In Germany the top rate and in France the flat rate on bequests to strangers is 60 per cent. France and Germany are examples of countries where gifts made to close relatives and to members of the family are on a far lower rate than gifts made outside the family.

We should certainly wish the Government to consider the whole principle of a lower rate of capital transfer tax for dispositions within a family than is enshrined in the Bill. The rates of tax are the most pernicious aspects of this measure. They will destroy the family farms and businesses. Coupled with capital gains tax, they have led to the Bill being referred to as a geriatric charter.

If it were possible to include generous reductions for transfers within a family on exactly the same principle as applies in almost every country of the world with the exception of Sri Lanka—that is the only country we have been able to discover that does not have a lower rate for gift-passing within a family—much of the Opposition's criticism of the whole measure would be mitigated.

I shall have to ask my right hon. and hon. Friends to divide on new Clause 25 if we cannot get a better answer from the Financial Secretary on the whole principle of dispositions within a family. I accept that possibly it is slightly too widely drafted and needs to be looked at in more depth. If the Financial Secretary were to give an undertaking now that he will enshrine in the forthcoming Finance Bill the principle of consanguinity, we should probably be able to leave the matter there. Short of any such undertaking I must ask my right hon. and hon. Friends to divide on new Clause 25.

That is all I wish to say now. If any hon. Members wish to raise other points, I may ask the leave of the House to reply, very briefly.

Mr. Powell

I was grateful to the Financial Secretary for the concluding remarks of his opening speech, in which he expressed himself ready to consider the subject matter of Amendment No. 779 to Schedule 6. Nevertheless, I was rather surprised at his surprise, because when my hon. Friend the Member for Londonderry (Mr. Ross) moved an identical amendment in Committee he withdrew it after a very short debate—the report of which will be found at col. 893 and following of the Official Report of the Standing Committee proceedings—after the Chief Secretary had indicated that the point involved would be covered by what it was intended to do more largely, as I gather is now proposed to be done by the Government's new clause.

I should be grateful if the Financial Secretary could indicate in more detail how the clause will cover the special position of a disposition made for the exclusive benefit of a handicapped child. When we envisaged the problem in Committee we were concerned with a child so severely mentally or physically handicapped that he or she would require constant care or protection.

When we look at the clause with such a child in mind, we see that it is evident that subsections (1) and (2) would not meet the case. I suppose it could be argued that under subsection (2) such a child might be under training after the age of 18, and, indeed, indefinitely, but I cannot believe that that is a satisfactory way of bringing such a child within the scope of the clause.

One is driven forward to subsection (3) concerning a disposition in favour of a dependent relative. I hope that the Financial Secretary will confirm that a dependent relative—I am not sure that it is clear—would include a child prevented by infirmity from maintaining himself or herself. At any rate provisionally, unless I am mistaken in that, I will accept that subsection (3) covers such a child. It requires not merely that the disposition is made in favour of a dependent relative but that it is a reasonable provision for his care or maintenance.

I was slightly alarmed when I heard the Financial Secretary, in his commentary upon the word "reasonable", indicate that reasonableness would be judged in relation to the means of the parent or the degree of incapacity of the child. I can quite understand that, the subsection being at large as it stands in the clause, some limitation is desired to be placed upon it by the Government, and I understand, when it is general, what is the function of the word "reasonable". But I cannot think it right that any such consideration should be applied by the Treasury in deciding on a disposition in favour of a severely handicapped child, a child handicapped so severely that he or she will be in some form of care, for physical or mental reasons, for the whole of his or her life.

We are all acquainted with cases where the entire thoughts, efforts and lives of a couple are devoted to just such a child. Such a couple might be poor or very affluent. Their dominating thought for the future is what will happen to that child when they have gone. One can well see that many of them would wish to make a disposition of their entire estate for the benefit of that child. They would not wish to say to themselves "What portion of the estate would be regarded as reasonable by the Treasury in regard to our means and to the state of the child? Let us try to fix upon a figure and leave that figure, and that figure alone, for the child in our will, or make it over by gift during our lifetime." They would think it wholly unreasonable that they should not be allowed to make over for the benefit of that child whatever they were able to provide and whatever they wished to provide.

I very much doubt whether in drafting the clause the Government have taken into account this special category. I want the Financial Secretary to make reference to it and to indicate that there will be no restrictive intention in the application of this relief in cases of the kind that I have mentioned. There can be no defeat of the objectives of the Bill in such an approach, and there is no question of this matter becoming a loophole for the transfer without tax of large masses of wealth. Nor is there any question of such wealth being in any ordinary sense enjoyed by the recipient.

I feel that the whole House will be in sympathy with what I am asking for, and I hope that the Financial Secretary will ensure that the clause covers without any restriction what my hon. Friend the Member for Londonderry was seeking in Standing Committee. Perhaps, when the hon. Gentleman is doing that, he will ensure that there is nothing which will operate in this respect differently in Northern Ireland from the rest of the United Kingdom. I say that as I am advised that the law in Northern Ireland is differently drawn at any rate in regard to care and protection.

Mr. John MacGregor (Norfolk, South)

I take the point that was made by my hon. Friend the Member for St. Ives (Mr. Nott) that the provision should have been in the Bill in the first place. However, as one who participated in the lengthy debate in Standing Committee on this subject, I express my gratitude to the Financial Secretary not only for listening to all the representations that were made at that stage but for covering most of them in the new clause.

I wish to make only three points. I shall make two points on new Clause 7 and one on new Clause 25. On new Clause 7, I must say to the Financial Secretary that it is a pity that he did not extend the exemptions in subsection (1) to certain transfers of value made by those other than parties to the marriage in specific circumstances.

I have in mind gifts by grandparents to grandchildren for such expenditure as university fees. I do not wish to get into the area of school fees as I do not wish to prolong the debate or to be tendentious, but if a grandchild wishes to go to university and it so happens that the parents' income is such that the means test is applied, it is often the situation that it is difficult for the parents to find the wherewithal to meet the extra expenditure required for university fees and the maintenance thereof.

The effect of inflation coupled with tax levels not keeping pace with inflation is such that for many families it is extremely difficult to meet the commitment of university fees. That is particularly so when the parents have no capital. If they have capital subsection (1) assists them, but if they do not have capital they may have to turn to grandparents or to others for assistance in the highly worthwhile objective of meeting university fees on behalf of their children. The Financial Secretary may say that there is the £1,000 exemption. Nevertheless, that is an exemption that is used for all general purposes.

I believe that gifts to meet university expenditure are highly worthwhile objectives which should be taken outside that exemption. There is unfair discrimination involving children whose parents have to meet the means test. Those parents come within the means test criteria for university fees. In many cases that will mean that the children do not go to university or training college. Surely the provisions could be extended to the extent that I have suggested. I am sorry that the Financial Secretary could not extend it as far as that. I hope that he will look at the matter again in a future Finance Bill.

7.45 p.m.

My second point concerns subsection (2). Why is it necessary to put in the condition to paragraph (b)? This relates to a situation where the child is not in the care of his parents. I am bound to say that I cannot see that there would be many loopholes were the child beyond the age of 18, if the condition were removed. I shall give one or two examples. First there is the means test situation. If the child at the age of 17 is moved into somebody else's care I suppose it could be argued that that child becomes eligible for a student grant, but if somebody is prepared to contribute to the child's education why is it necessary to go to these lengths? Would it not be better to allow the exemption to stop there? Given the present level of university expenditure we know that student grants are not meeting the total expenditure that the student has to find.

Where gifts are made to assist the student further, they will be caught by the clause. That does not apply only to universities. It may well be that the child is an orphan or in the care of a guardian, and that it moves on into the care of somebody else and wishes to undertake a professional education to acquire professional qualifications. Again, he will be disadvantaged by that condition remaining in the clause. It seems that fiscal objectives have been allowed to overcome educational objectives. From that latter point of view it seems desirable that we should encourage anyone in any situation to contribute to somebody else's education. I believe that that condition in the clause will not assist the objective that I have outlined.

My third point relates to new Clause 25. I agree with all the points that have been made by my hon. Friend the Member for St. Ives, but I have one additional reason for advocating the clause. The Financial Secretary will recall that on many occasions in Standing Committee mention was made of what became known as the famous "Gilbert and Sullivan shop". The owner of the shop was able to pass on to his children by taking advantage of all the various exemptions. I have taken quite a lot of professional advice on this matter. We may or may not be able to debate it, but it is relevant to the clause. I understand that one of the Government amendments will remove the cumulative possibility of having the £1,000 exemption, the small gifts exemption, which the Government have introduced, and various other matters of that sort. That is the reading that we have all been getting of one amendment that the Government have brought forward, and which was raised with the Financial Secretary earlier this afternoon.

I believe that as matters now stand, and as we interpret the provisions, gifts to charities will be affected and that we will be taken backwards from the additional exemption which the Government have provided. As I understand it, where somebody makes a gift of £1,000 a year to a charity he will not get an exemption if he wants to give a further gift to his own relatives. On top of all the other arguments that have been put by my hon. Friend, I believe that if we were able to have a lower eventual tax bill on all gifts to relatives—for example, to immediate children—and others we would help to alleviate the damage that would be done by a later Government amendment. I hope that the Financial Secretary will be able to persuade me that I am wrong in my interpretation, but that is the interpretation held by many people outside the House. It will mean that people will have to choose between making annual gifts to charities or gifts to their relatives.

If the rate of tax on lifetime gifts to relatives were lower there would be more of an incentive to pay it. That is an additional argument for new Clause 25.

Mr. Pardoe

I wish to address my remarks to Amendment No. 201, which is bracketed with others following Amendment No. 200. The hon. Member for St. Ives (Mr. Nott) said that he had some difficulty in finding Government Amendment No. 200. I had difficulty in finding my Amendment No. 201. It is on page 747—in case the Financial Secretary should wish to read it.

Amendment No. 201 goes marginally wider than new Clause 7. It is an amendment to Schedule 5 but it is extremely relevant to the new clause. Schedule 5 deals with changes in settlements already created. Paragraph 15 of the Schedule exempts the creation of a settlement on divorce which would have been a chargeable event outside the scope of Schedule 5, but does not exempt a chargeable event inside settlements where the settled property has been relied upon in the divorce maintenance arrangements.

If Amendment No. 201 to Schedule 5 is not accepted it will mean that the making or the variation of a settlement on divorce will be exempt, but the subsequent changes of interest in the settlement will not. That would heavily penalise settlements. I am sure that the Financial Secretary will agree that divorce provision in settled form is normal and standard practice approved by the courts and Parliament, with additional factors such as income provision during widowhood. Very often a settlement will be varied on divorce, and quite often a settlement, whether or not varied, will be envisaged at the divorce as providing for the wife until remarriage and thereafter for the child or children. The amendment is needed to avoid the taxation of a change on the variation of a settlement or on the termination of the wife's interest on remarriage.

The amendment is consistent with estate duty practice as it has been over the years. It is consistent with estate duty practice as it has been in the case of a variation of settlement, though estate duty law was not entirely clear on the matter and probably much of this fell in the area of concession rather than statute law. We should not leave it for discretion and concession in future. We should write it into statute law.

I hope that the Financial Secretary will recognise, first, that the amendment is necessary to do what I want it to do, secondly, that what I want it to do is perfectly reasonable, and, thirdly, that it will cost peanuts and therefore should be accepted. I hope that he will accept it.

Mr. Brian Sedgemore (Luton, West)

I was surprised to hear the hon. Member for St. Ives (Mr. Nott) say that he was not grateful for the introduction of the clause. In so saying he was being less than his usual generous self. The clause and the Opposition amendment which my hon. Friend the Financial Secretary has accepted show all the signs that he is doing precisely what the Opposition wanted him to do. The Government listened carefully, took note and have come back to the House with just the amendments that were asked for.

I was equally surprised when the hon. Member for St. Ives suggested that the House should move on quickly from the clause, possibly without examining it properly. Yesterday we had a hysterical and wretched debate on the timetable motion. Now it seems that the hon. Gentleman, who spoke from the Front Bench, is imposing a guillotine on his side. I think that we should look at the clause carefully before we decide whether to accept it.

I sincerely believe in subsection (3), which is in these terms: A disposition is not a transfer of value if it is made in favour of a dependent relative of the person making the disposition and is a reasonable provision for his care or maintenance. In subsection (5) the definition of "dependent relative" is as follows: dependent relative" means, in relation to any person, a relative of his, or of his spouse, who is incapacitated by old age or infirmity from maintaining himself, or the mother of that person, or of his spouse, if the mother is widowed or living apart from her husband, or, in consequence of dissolution or annulment of marriage, a single woman; That is an eminently sensible amendment which, as has been said, should have been in the Bill from the beginning.

I go along with the right hon. Member for Down, South (Mr. Powell) in expecting the Inland Revenue to interpret the clause to the point of generosity for someone who is incapacitated. It would be churlish to limit the maintenance of someone who was genuinely incapacitated, and I am sure that the Financial Secretary will give us some encouragement on that matter.

My admiration for the clause stops at that point. Subsection (1) reads as follows: A disposition is not a transfer of value if it is made by one party to a marriage in favour of the other party or of a child of either party and is—

  1. (a) for the maintenance of the other party, or
  2. (b) for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training."
This is a financial statute in which we deal with taxation and revenues. As in all taxation matters, we are talking about the social, economic and political policies which the Government wish to pursue. Paragraph (b) refers to children, but the words "maintenance, education or training" are not defined. One could put almost any interpretation on them. Even if the concept of reasonableness were introduced, within the confines of those words concessions could be made about which we should not be happy. One does not have to stretch the meaning of those words to show that they could be offensive to the Labour Party and to the manifestoes which it presented to the electorate in February and October last year.

The hon. Member for Norfolk, South (Mr. MacGregor) touched on the making of a disposition, not a transfer, in relation to education. He carefully and skilfully spoke of university fees, which the right hon. Member for Finchley (Mrs. Thatcher) discussed in Committee. It must be obvious to anyone who considers the clause with any realism that when we talk about education and transfers of value of capital transfer tax in relation to the new clause we are not talking about university fees. We are talking about fees for children who go to school, and that means fees for independent and public schools.

Mr. Bob Cryer (Keighley)

Would not the clause also exempt fees paid to direct grant schools? Would not that be contrary to the policy announced by the Secretary of State for Education and Science, who wishes direct grant schools to be brought within the State system? Would not that be welshing on the programme of the Secretary of State for Education and Science?

8.0 p.m.

Mr. Sedgemore

I was coming to that point. I would expect the Financial Secretary in replying to tell the House how much consultation there has been with the Secretary of State for Education. I find this subsection extraordinary. It concerns not merely public schools but direct grant and independent schools. It even touches the question of private universities. I understand that a private university has been set up. The subsection could be used for fees involved in sending people to that university, which presumably has been set up with a view to destroying the State university system.

I was under the impression that it was part of the Government's policy to exempt direct grant and public schools from charitable status. Now we are proposing a clause which, if we exempt these institutions from charitable status, will enable parents who are determined to send their children to independent, direct grant and public schools to do so by the back-door method of a transfer of capital. The Financial Secretary must come clean, together with the Chief Secretary and the Chancellor and tell us whether he is directly opposed to the educational policies set out in our manifesto. We must have an explanation.

If we are to allow people to deal with educational expenses through a transfer of capital we are doing exactly what Tawney said in one of his famous books. We are encouraging people to send their children to public schools. We are encouraging the social vanities of the middle classes. If we approve this clause we shall be encouraging people to send their children to public schools, thereby encouraging divisions in our society which we find most objectionable. We would also be encouraging the misuse of resources as between the public school sector and the State school sector. We are trying to encourage these middle class people to send their sons and daughters to the State schools so that they will use the energies about which Tory Members are always telling us to improve the State sector.

This subsection goes against all those aims of the Labour Party. We must have an explanation. If we do not, I must tell my hon. Friend that we shall be standing outside the Division Lobby and directing the troops on the Labour side of the House into our Lobby. It may well be that we shall get the bulk of our back benchers and, in this case, most Front Bench members of the Labour Party. It may be that by a side wind the Treasury has completely misunderstood the purport of this subsection.

It does not end there. What do we mean by the word "training"? There is no definition. I have looked at the definition clause and at the interpretation clause but have failed to find "training" defined. It is not defined in the clause. The clause defines "child", "dependent relative", "marriage", and "year". It is good of the Treasury to define "year". I would have been more obliged if it had defined "training". What does it mean? Tax lawyers and tax dodge accountants will get hold of this and advise people how to make transfers of capital which they might not otherwise make and so avoid paying tax.

What about someone in one of Her Majesty's training establishments, commonly known as a detention centre or borstal, who is under the age of 18? Are we to discover that under this subsection transfers of capital made to boys and girls at borstal are exempt from tax? That would appear to be contrary to public policy. Is it really the intention of the Treasury to act in this way and to give criminals, or potential criminals, favoured treatment when their parents have enough capital to come within the ambit of this subsection?

People can train for all kinds of things. They can train for the ballet. No doubt that would come within the ambit of this clause. People can train as apprentices. I would like to know whether the clause covers apprenticeship training. A person can train to become the world's finest athlete. What happens if a boy of 16 decides that he wants to become the fastest miler in the world and asks his rich father to provide him with a private running track at a cost of £7,000? A transfer of capital is made and the running track is given to the son. Is that £7,000 to be exempt from the tax?

I do not want to pick on unlikely examples, although I remember that in 135 hours in Committee there were some of the most unrealistic examples imaginable. I can remember a young athlete age 16 who decided to become the world's best shot putter. His name was Arthur Rowe. One of the things he needed, apart from a shot to putt, was 100 lbs of steak a week to build up his body. If we are to remain in the Common Market 100 lbs of steak a week could become an expensive business. It could not be borne out of income. It could mean a transfer of capital. Are we to say that a budding Arthur Rowe, eating 100 lbs of steak a week, is to gain exemption from a transfer of capital from his parents merely because he decided one night that he wanted to become the world's great shot putter? This seems absurd.

In some circles it is deemed to be training for life to learn how to handle oneself at a debutantes' ball. Are we saying that 16-year-old girls should be encouraged to attend debutantes' balls as a training for life and that the expense of those balls, paid for out of transfer of capital, is to be exempt from this tax? Is that what the Financial Secretary has in mind?

I turn to "maintenance". Under Section (1)(a) maintenance applies not merely to the children but to the maintenance of one spouse by or for the other. In some circles it may be considered a normal part of the maintenance of the one spouse by or for the other that they should have a decent wine cellar. Most working-class people in Luton have a couple of empty, rusty cans of beer in their wine cellars. Are we saying that for the maintenance of one spouse by the other the provision of a wine cellar with the best red and white wines of France is to be included and that if those wines are bought out of a transfer of capital these people will be exempt from the tax?

I ask the Financial Secretary to look at this clause again and see whether these definitions should not be tightened up.

I move to new Clause 25, the purport of which seems to be special exemptions for transfers to relatives. What I find offensive about the clause is that it stands against every Conservative principle we have ever heard since the days of Edmund Burke. As I understand it, the fundamentals of Conservatism are concerned with individuals going through life and exerting qualities of enterprise, thrift and determination by standing on their own feet. Surely that central pillar of Conservatism should be upheld by Conservative Members—or do they intend to attack their own political philosophy? Certainly that philosophy will be vitiated if we approve the new clause, which will give preference to any transfer of gifts between one citizen and another and between one relative and another. Adam Smith would never have stood for that, nor would Bentham or Ricardo—and certainly Malthus would probably have had a fit and given up the church at the same time.

Provisions on the lines of new Clause 25 have led to some of our industrial problems. The Labour Government have introduced the capital transfer tax for the precise purpose of preventing vast accumulations of wealth being handed down from father to son, father to daughter, father to cousin and father to third cousin and father to even more distant relatives.

The Opposition in their wrecking, irresponsible amendments inform us that we should make special exemptions to prevent what the provision is all about. New Clause 25 and the other amendments strike at the heart of the tax.

If we look at British industry, we know that there is some good management, some second generation management and some third generation management. What encourages such a system? Management of that kind is encouraged by giving preference in the transfer of gifts from one relative to another relative. That form of management has been encouraged because since 1884 we have had on the statute book estate duty—which, as the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said, was admirable because one did not always have to pay it and could avoid it, unless one was unlucky in the timing of one's death.

New Clause 25 would take us back to estate duty and to second generation management. It does not follow that because a father hands money down to his son or daughter or hands down his business and thus avoids paying tax the business will continue to flourish under the second and third generation of management as it flourished under the father's guidance. I plead with my hon. Friend the Financial Secretary to define the terms in his own new clause and, secondly, emphatically to reject the irresponsible Conservative wrecking amendments.

8.15 p.m.

Mr. Peter Rees

There were occasions in Committee upstairs when I thought that the Financial Secretary was not giving full rein to the generosity which we know lurks in the recesses of his character. The reason has become more and more apparent. It is quite clear that behind him was the glowering figure of the hon. Member for Luton, West (Mr. Sedgemore), who in Committee represented the interests of the Tribune Group. It is not for me to comment on the balance of power in the Labour Party, but I thought that it was a little arrogant for the hon. Gentleman to claim that on this issue he spoke for all Labour Party Members.

I wonder whether those hon. Members opposite who send their sons to private schools—and I do not deplore their judgment on this matter—are grateful to the hon. Gentleman for suggesting that school fees paid out of their own taxed income should now be subject to capital transfer tax. I wonder whether people outside the House will feel that this is a fair way of conducting their affairs.

I do not think this is the time or the place to discuss public or private education; we can do so on other occasions. However, it is a pity that we did not hear the hon. Member for Luton, West on these matters upstairs in Committee, when we had plenty of time at our disposal, rather than in the short discussions which we are now allowed on Report following the Government's machinations.

Mr. Cryer

I find the comments of the hon. and learned Gentleman about my hon. Friend the Member for Luton, West (Mr. Sedgemore) a little churlish. Since we are now discussing a new clause, it is hardly likely that my hon. Friend could have elaborated on it upstairs in Committee when at that time its terms were unknown.

Mr. Rees

The hon. Member for Keighley (Mr. Cryer) reinforces our point that the Bill which we are now debating is not even the Bill that emerged from Committee but is an entirely new Bill following the major amendments tabled during the past 10 days. I was seeking to make the point that if the hon. Member for Luton, West feels as strongly as we do on these matters, he could have voted against the guillotine motion.

I agreed with the hon. Member for Luton, West when he suggested that the implications of the clause deserve close consideration. There is an important principle at stake, but it was not the one to which the hon. Gentleman drew attention. The principle in question relates to the question of how far, for tax purposes, we should regard the family as a unit. We have been remarkably inconsistent on this score. Under capital gains tax it was possible to make a transfer free of capital gains tax to wives but not to children. In other words, wives and husbands were treated as one unit but whole families were not so treated. On the question of income tax it appears that in a matter of weeks we shall be debating a new clause which the Chancellor, ever conscious of his undertakings to his back benchers, will introduce to aggregate the investment income of children with that of their parents. I hope that we may look for consistency and logic. If children are to be treated as one unit with their parents for income tax purposes, let them be treated as one unit for CTT purposes.

The Chancellor of the Exchequer, with stern, unbending Marxist principles, takes no account of these ties of blood and affection. However, I am happy to say that on this occasion he has evidently paid some attention to the debates upstairs in Committee. No doubt the Chief Secretary and the Financial Secretary relayed to him the interesting points that were made. But the right hon. Gentleman has not advanced far down the road along which we are endeavouring to coax him. The fruits of our coaxing are embodied in new Clause 7, but I do not believe that its provisions go far enough. However, they show that the right hon. Gentleman recognises that some consideration is due to family feeling and that people should be entitled to pass on, without excessive charge, the fruits of their labours. One of the most deeply founded instincts is the desire to provide for one's family and to pass on what one has created.

As my hon. Friend the Member for St. Ives (Mr. Nott) pointed out, the only country in the world which in its tax system does not recognise this deep-seated human instinct is Sri Lanka. Although perhaps we share that country's political objectives, I do not believe we should look to it for fiscal innovation, particularly when it has been counselled in these matters by Lord Balogh and Professor Kaldor. On another occasion we can perhaps explore the consequences in the countries to which the two gentlemen I have mentioned have offered their fiscal advice.

While I congratulate the Financial Secretary on having deferred to our susceptibilities in introducing new Clause 7, I ask him to go further along the road, taking with him the diffident hand of the Chancellor. I ask him to consider new Clause 25 more closely than he might otherwise be disposed to do.

I hope that the Financial Secretary will deal with the three detailed points concerning new Clause 7. He said that the clause would cover provision for wives and former wives, and he referred to a point which the Opposition made in Committee concerning Schedule 5, paragraph 15. The definition provision refers to the varying of a former disposition relating to a former marriage. Possibly a provision for maintenance after the dissolution of a marriage would be covered by that. However, will it cover provision for a former wife after the dissolution of a marriage, since she would then no longer be a party to the marriage?

It is wrong that relief should turn on fine points such as whether the maintenance agreement or settlement was made before or after the decree became absolute, because very often these matters are not finalised until after the decree is made absolute, when the former wife will no longer be a party to the marriage.

New Clause 7 applies to dispositions. I have assumed that it will cover notional disposition on death. I hope so, because I see no distinction. If it is right to exempt from capital transfer tax a provision made by the father during his lifetime, it is even more important that that exemption should apply on his death when he is no longer in a position to care for his family. The variation of a settlement is covered by subsection (4), which was introduced in deference to the arguments of the Opposition.

As regards Schedule 5, paragraph (15), let us assume that the life interests of the husband and wife in a marriage settlement are to be succeeded on their deaths by a discretionary trust in favour of their children. Let us assume that on the dissolution of their marriage the life interests of husband and wife are to be extinguished so that the discretionary trust is accelerated. As I read subsection (4), notwithstanding the extinction of those life interests the interest in possession is to be regarded as continuing. Therefore, does it follow that there will be no periodic charge on the discretionary settlement which arises in favour of the children?

These points are of some technicality but are nevertheless important, and I hope that the Financial Secretary will address himself not only to the more general points exemplified by new Clause 25 but also to the narrower points.

Mr. Tomlinson

I was surprised that the hon. and learned Member for Dover and Deal (Mr. Rees) began his remarks with a long, rambling and irrelevant diatribe against my hon. Friend the Member for Luton, West (Mr. Sedgemore), when he speculated how uniformly held were the sentiments which my hon. Friend expressed. As a totally unrepentent member of the Manifesto Group, I give the assurance that I endorse much of what my hon. Friend said. There is in the Labour Party a basic degree of common understanding on such principles, which does not divide us.

Mr. Cryer

Will my hon. Friend accept that the Labour Party stands on the manifesto? Will he accept further that one of the manifesto principles was that tax relief for the so-called public schools should be ended and that there is solid unanimity within the Labour Party that there should be close scrutiny of the private sector of education? We believe that direct grants should be absorbed into the public sector so as to allow more sons and daughters of underprivileged people to attend these schools, if necessary.

Mr. Tomlinson

I congratulate my hon. Friend on his assiduity and understanding of the party manifesto in that regard.

Mr. Kilroy-Silk

Will my hon. Friend give way?

Mr. Tomlinson

No. I had better not. The right hon. Member for Yeovil (Mr. Peyton), who has just left the Chamber, muttered something about a filibuster during the relevant contribution of my hon. Friend the Member for Luton, West.

I should like to deal with one aspect of the contribution of the hon. and learned Member for Dover and Deal who seems to have an obsession with Marxism and Marxists. We have heard that insinuation from him before. I am sure that he will take no offence if I suggest that the quality of that kind of contribution makes him more akin to Groucho than to Karl.

Mr. Sedgemore

Does my hon. Friend agree that the hon. and learned Member for Dover and Deal (Mr. Rees) could not distinguish between a Marxist and a priest?

Mr. Deputy Speaker (Sir Myer Galpern)

There is a great deal of business to be completed before 12 o'clock. I hope that hon. Members will try to avoid interventions of the kind that we have experienced recently.

Mr. Tomlinson

I respect the decision of the Chair. Having dealt with the irrelevancies which have infiltrated into the debate, I come to the real issues.

Despite the reservations of some of my hon. Friends about the terminology of the clause and the effects of that terminology, the clause will give effect to the points raised in Committee by the Opposition. Here we have an example of a clause where the Government, with the openness of mind for which they are renowned, have listened to the arguments, accepted the good and rejected the bad. The Government have now decided to incorporate the good points into legislation. Yet we have experienced a further demonstration of the churlishness of the Opposition. The new clause is to the credit of the Government, since they have kept the promise they gave in Committee.

The hon. and learned Member for Dover and Deal expressed his doubts about the circumstances of the dissolution of a marriage. I am convinced that the clause puts beyond any doubt the fact that a disposition made on the occasion of the dissolution of a marriage will be covered by the spouse exemption. That is made clear in new Clause 7. I cannot see the reason for his reservations.

I want now to deal with one or two of the specific matters raised by the hon. Member for Norfolk, South (Mr. MacGregor). He talked about education and training and was concerned especially with the effect on university fees. I do not want to take up any of the examples quoted by my hon. Friend the Member for Luton, West but it is clear that many of the arguments that he advanced in the debate have to be considered closely by the Treasury. However, in view of the obsession about university fees, even when we know that there are more extreme examples, we have to remember that there are a great many people undergoing education and training who are in a much more serious position than people in universities. I have in mind especially people in colleges of further education studying for higher national certificates and higher national diplomas. Many of the more backward Conservative-controlled authorities are not even giving them grants, let alone worrying about the consequences of their having to meet commitments after parental contributions have been deducted from them.

The hon. Member for Norfolk, South went on to talk about the qualification in line 12, which he did not like. It says that the … above applies only if before attaining that age the child has for substantial periods been in the care of the person making the disposition. The qualification is wholly reasonable, in my view. At this stage of the argument, it is totally wrong of the hon. Member for Norfolk, South to say that if we remove that qualification it will not create many loopholes. Our aim should be not to create any more loopholes but to block up the many loopholes which have existed for far too many years in the area of capital taxation.

8.30 p.m.

New Clause 7 will meet with the approval of most Government supporters. If we get the assurances that we seek about some of the definitions, it will probably meet with our unqualified approval.

When we come to new Clause 25, however, the situation is very different. I urge my hon. Friend the Financial Secretary not to be too receptive to the blandishments of the Opposition. The hon. Member for St. Ives (Mr. Nott) gave us a very interesting discourse on consanguinity. But then he went on to say that he would ask his right hon. and hon. Friends to support new Clause 25 despite the fact that in his view it was already too widely drafted and needed to be looked into in depth. The hon. Gentleman is engaging in an exercise in irresponsibility if he is prepared to seek to get the clause on the statute book when he accepts that in major areas it is far too wide. I hope that my right hon and hon. Friends will reject his arguments.

I am very concerned about the comments made by the right hon. Member for Down, South (Mr. Powell). The concern that he showed about new Clause 7(3) is exceedingly important. The use of the word "reasonable" always worries me. In far too many areas of legislation the word "reasonable" seems reasonable at the time this House is considering a Bill, and then we see the effect of it afterwards. We have a good example of the use of the word in the Offices, Shops and Railways Premises Act. Reference is made there to "a reasonable temperature". A great many industrial disputes have arisen over the interpretation of the word "reasonable".

If we are to leave subsection (3) as it is drafted at present, there must be a clear understanding not only of the criterion on which "reasonable" will be interpreted but that the person who believes that he has been affected adversely by the interpretation of the word shall have a right of appeal. Failing such an understanding, the inclusion of the word will be regarded by many people as unsatisfactory.

On the whole, I congratulate my right hon. and hon. Friends for bringing forward this new clause. It is yet another example of the redemption of promises made in Committee. I hope that the Opposition will accept it in good faith and with good grace and not continue with their churlishness and criticism. After all, to a large extent they have got what they wanted.

Dr. Gilbert

I am not sure whether this is the first time that the hon. Member for St. Ives (Mr. Nott) has been back on the Opposition Front Bench. It is the first time I have had the pleasure of debating with him, and I am glad to see him there again. I sympathise with him in his difficulty concerning the marshalling of amendments. I am afraid that I cannot add anything useful at this stage. It is a situation that we all regret.

My best course, I believe, will be to deal with the matters of detail raised by the hon. Gentleman rather than with his general points. He asked me about dependent relatives. "Dependent relative" is defined in the same way as it is defined under the 1965 capital gains tax relief. As I understand it, it covers the case of the father who is incapacitated. To that extent, therefore, there is symmetry, although it is not perfect.

The hon. Gentleman again pressed the point about the family retainer. I hope to come back to the House before too long with concrete proposals on that matter. I am sure that the hon. Gentleman recognises—indeed, he did in his temperate speech—that unless it is defined fairly tightly there could be scope for very large avoidance of tax. For example, a close relative could be taken on as a quasi employee for a month or so and thereafter be treated as an ex-employee. In that way a coach and horses could be driven through the tax provisions.

The hon. Gentleman talked at some length, quite properly, about new Clause 25 and my hon. Friend the Member for Meriden (Mr. Tomlinson) also reverted to the general principle. I am sure the hon. Member for St. Ives will recall that in the Green Paper published by the then Chancellor of the Exchequer, now Lord Barber, there was no commitment to the principle of consanguinity. That matter was left in the air for discussion.

I cannot accept the principle of new Clause 25. We have gone some way in making a preferential distinction regarding gifts on marriage. The particular instance cited by the hon. Gentleman of a £5,000 transfer from a parent was introduced into the Bill to take account of the one-parent family.

The hon. Gentleman made some international comparisons. I am sure that with his sophisticated knowledge of the international fiscal scene—I say that in no way with tongue in cheek—the hon. Gentleman will recognise that international comparisons are not very useful. He referred to France and Germany, where the surviving spouse rate is so much lower than the rate to other donees. I think that makes my point. The hon. Gentleman had to pray in aid that there was a 20 per cent. rate to a surviving spouse in France and a 15 per cent. rate in Germany and he asked why we could not be as generous in that respect. In fact, we are being more generous than either the French or German provisions because there will be a nil rate to surviving spouses under our tax system. I do not wish to make a major point of that. However, it helps to keep in perspective many of the international comparisons that we hear from time to time when discussing this tax.

Mr. Nott

On a point of clarification. My point related to surviving spouses and direct descendants in France.

Dr. Gilbert

So be it. I am happy to take that point on board as well. The fact is that it is not profitable to compare isolated elements in the tax system of one country with those of another. These matters will vary as long as we do not have harmonisation imposed on us.

The right hon. Member for Down, South (Mr. Powell) was rightly concerned about the problems of the severely handicapped child. As I construe our new clause, the case about which the right hon. Gentleman was concerned will be covered by subsection (3). The right hon. Gentleman asked more questions arising from the fact that he inferred that subsection (3) would cover the case he was putting forward.

The right hon. Gentleman asked about the word "reasonable". My hon. Friend the Member for Meriden was also concerned about this. We have the word "reasonable" in the Bill, as I am sure that right hon. Gentleman recognises, to cover all possible situations from the very serious case that he introduced to the rather less serious case. The application of the provision is subject to the right of appeal if reasonableness is not, in the taxpayer's view, deemed to have been interpreted in a fair way. The right of appeal is enshrined in Schedule 4, paragraph (7).

The right hon. Gentleman asked whether we had any restrictive intention. We do not intend to operate subsection (3) in a restrictive way. I hope that this gives the right hon. Gentleman the assurance he was seeking.

The right hon. Gentleman asked about different circumstances in Northern Ireland. I have no immediate knowledge of any situations in Northern Ireland which would affect the application of this provision. If the right hon. Gentleman has in mind anything in particular, I shall be grateful if he will write to me about it and I shall look into it.

The hon. Member for Norfolk, South (Mr. MacGregor) raised three questions. He asked why we did not under this relief cover gifts by grandparents to their grandchildren for university fees. If grandparents are paying for the education of their grandchildren this will be tantamount to a gift to the parents, because in the normal course of events the parents would be expected to pay. If the parents are not in a sufficiently strong financial position to do that, and if somebody else stands in to provide the necessary money, clearly that is tantamount to a gift to the parents.

The hon. Gentleman asked me not to pray this argument in aid but I cannot avoid doing so. The exemption of £1,000 a year is available to grandparents. That should cover university fees, even in this inflationary age, particularly if one adds to that the gifts out of income relief.

The hon. Gentleman asked about the removal of the cumulative effect of various reliefs according to an amendment which appears later on the Paper. I was asked about this earlier today. I assure the hon. Gentleman that there is no intention on our part to remove the cumulative effect of the relief, but I shall look into it. The hon. Gentleman has his advisers and I have mine. In the last resort these things are interpreted neither by us in this House, on either side of it, nor by our advisers, but by the courts. I am advised that the relief is as good as it was always intended to be.

The hon. Member for Cornwall, North (Mr. Pardoe) referred to Amendment No. 201 and talked about the variation of a divorce separation settlement when the wife remarried. The exemption applies so long as the maintenance condition is settled. This relates also to one of the points raised by the hon. and learned Member for Dover and Deal (Mr. Rees). It covers subsequent variations as well as the first variation of a settlement. There will be no exemption if the former wife remarries and the variation is not in satisfaction of a maintenance claim. Other than that, I am sure the House will be aware that Government Amendment No. 200, to which I did not refer, removes paragraph 15 of Schedule 5 completely to make way for the new clause. As far as we can see, all the situations covered by Amendment No. 201 where there is a case for relief should be within the ambit of the new clause.

The hon. and learned Member for Dover and Deal asked three questions. He asked about the provision for a former wife after the dissolution of marriage and where settlement came after the decree absolute. The words "former marriage" could have no purpose at all if they did not apply where the marriage had ended. Perhaps this is one of the things which seem self-evident to a layman but not to a lawyer; but that, I am informed, covers the point raised by him.

With regard to disposition on death, the provision as it stands applies.

The hon. and learned Gentleman asked about discretionary trusts where, following the dissolution of a marriage, the extinction of a life interest discretionary trust would come into effect. If there is a discretionary trust it will be subject to periodic charge. There will be no interest in possession in the settled property. Therefore, the normal discretionary trust rules will apply.

Mr. Peter Rees

Subsection (4) of the new clause states: where a disposition satisfying those conditions is a disposal of an interest in settled property, the interest shall not … be treated for the purposes of that Schedule as coming to an end. It seems to follow that, whatever the subsequent interest after the extinction of the interest in possession, the interest in possession would be treated as in existence and, therefore, there could not be a periodic charge. Will the Minister reconsider what he said? If he cannot give me the answer now, perhaps he will write to me.

Dr. Gilbert

I am much obliged to the hon. and learned Gentleman. I certainly undertake to do that.

8.45 p.m.

Mr. MacGregor

Will the hon. Gentleman also look again at the question I raised about lines 12 and 13 in the new clause and why they are necessary? On his other point about cumulative gifts, I hope that it will be possible to return to this matter later so that we can argue the point that he has put back to me.

Dr. Gilbert

I apologise to the hon. Gentleman for not covering his point about lines 12 and 13. If they were withdrawn, as the hon. Gentleman suggests, the grandparents could take over the parental responsibilities whether or not they had ever been in loco parentis. The prime responsibility and the natural responsibility is on the parents for taking care of the children. Again, we are back to the situation about which the hon. Gentleman was talking. In other words, it would be, in effect, a concealed transfer for the benefit of the parents to relieve them of responsibility which they would otherwise normally assume.

I hope that I have dealt with most of the points raised by Opposition Members.

I turn now to the extremely powerful speeches made by my hon. Friend the Member for Luton, West (Mr. Sedgemore) and my hon. Friend the Member for Meriden. I listened with admiration to the analysis of my hon. Friend the Member for Luton, West. It may well be that some of the points of definition about maintenance and training that he raised will need to be looked at. I am indebted to him for raising them. I thought that some of the examples he put before us were a little fanciful—about large transfers to donees in borstal institutions and other institutions provided by Her Majesty for the training of the less fortunate members of the community, and the provision for debutantes' balls to be a form of on-the-job training. These are all matters that need to be looked at. If it turns out that there are abuses of the sort to which my hon. Friend has referred, I assure him that we shall not be backward in dealing with them. We shall be happy to have him chasing us to see that we do so.

The new clause goes wider than that. I am sure that my hon. Friend the Member for Luton, West would agree with my hon. Friend the Member for Meriden that there are circumstances in which people are taking courses at colleges of further education to gain diplomas and higher national certificates where it would be appropriate for relief to be given. This is one of the difficulties that all my hon. Friends, including my hon. Friend the Member for Keighley (Mr. Cryer), would accept as being a proper case for relief.

As to the more general point, I have a great deal of sympathy with my hon. Friend the Member for Luton, West. I would not by any means go as far as agreeing with him that second generation management is necessarily second-rate management—of course not. On the other hand, it has never been any part of our philosophy to believe that entrepreneurial talents are transmitted hereditarily any more than are academic or athletic talents. It might well be to the greater health of the British economy if those businesses which are relatively successful were sold outside the family before a second, third or fourth generation was running them. All the most successful businesses that were quoted to us in Standing Committee time after time were examples of businesses which had started as family businesses and had then gone public or been taken over by bigger enterprises. Opposition Members made the case for us many times. However, it is inappropriate to go much wider on that general theme, although the contributions of my hon. Friend the Member for Luton, West were very valuable on that point.

Mr. Cryer

My hon. Friend has given a very good assurance, but will he address his mind to the specific point about payments for public schools being exempt under the clause? That is a cause of very great concern, as my hon. Friend the Member for Luton, West (Mr.

Sedgemore) pointed out. I do not think that my hon. Friend has satisfied the House that the clause will not provide a loophole and afford these people a tax advantage when, as he knows, the Labour manifesto states that this will be excluded.

Dr. Gilbert

I am obliged to my hon. Friend. I take his point seriously. I assure him that this is a matter that we shall consider. There will be difficulties again about drawing a line between support for people attending such institutions and the sort of situation to which my hon. Friend the Member for Meriden referred. I certainly undertake to look at the matter again.

I commend the clause to the House. I am prepared to recommend my hon. Friends to accept Amendment (i). I can give the hon. Member for St. Ives no encouragement that I can look favourably on new Clause 25.

Mr. Nott

With the leave of the House, may I clarify what the official Opposition would like to do? We wish to divide on Amendment (e). We reserve our position to move new Clause 25 formally at the appropriate stage after new Clause 20 has been debated.

Question put and agreed to.

Clause read a Second time.

Amendment proposed to the proposed Clause: (e), in line 14, leave out 'dependent'.—[Mr. Nott.]

Question put, That the amendment be made:—

The House divided: Ayes 238, Noes 286.

Division No. 127.] AYES [8.52 p.m.
Adley, Robert Budgen, Nick Douglas-Hamilton, Lord James
Aitken, Jonathan Bulmer, Esmond du Cann, Rt Hon Edward
Alison, Michael Burden, F. A. Durant, Tony
Atkins, Rt Hon H. (Spelthorne) Butler, Adam (Bosworth) Dykes, Hugh
Awdry, Daniel Carlisle, Mark Eden, Rt Hon Sir John
Banks, Robert Chalker, Mrs Lynda Edwards, Nicholas (Pembroke)
Bell, Ronald Churchill, W. S. Elliott, Sir William
Bennett, Dr Reginald (Fareham) Clark, Alan (Plymouth, Sutton) Ewing, Mrs Winifred (Moray)
Berry, Hon Anthony Clark, William (Croydon S) Eyre, Reginald
Biffen, John Clarke, Kenneth (Rushcliffe) Fairbairn, Nicholas
Biggs-Davison, John Clegg, Walter Fairgrieve, Russell
Blaker, Peter Cockcroft, John Farr, John
Bowden, A. (Brighton, Kemptown) Cooke, Robert (Bristol W) Fell, Anthony
Boyson, Dr. Rhodes (Brent) Cope, John Finsberg, Geoffrey
Brittan, Leon Cormack, Patrick Fletcher, Alex (Edinburgh N)
Brotherton, Michael Corrie, John Fletcher-Cooke, Charles
Brown, Sir Edward (Bath) Costain, A. P. Fookes, Miss Janet
Bryan, Sir Paul Crouch, David Fowler, Norman (Sutton C'f'd)
Buchanan-Smith, Alick Crowder, F. P. Fox, Marcus
Buck, Antony Dodsworth, Geoffrey Fraser, Rt Hon H. (Stafford & St)
Fry, Peter Lloyd, Ian Roberts, Wyn (Conway)
Galbraith, Hon. T. G. D. Loveridge, John Rossi, Hugh (Hornsey)
Gardiner, George (Reigate) Luce, Richard Rost, Peter (SE Derbyshire)
Gilmour, Rt Hon Ian (Chesham) MacCormick, Iain Sainsbury, Tim
Gilmour, Sir John (East Fife) McCrindle, Robert Scott, Nicholas
Glyn, Dr Alan Macfarlane, Neil Scott-Hopkins, James
Goodhart, Philip MacGregor, John Shaw, Giles (Pudsey)
Goodlad, Alastair Macmillan, Rt Hon M. (Farnham) Shaw, Michael (Scarborough)
Gorst, John McNair-Wilson, M. (Newbury) Shelton, William (Streatham)
Gow, Ian (Eastbourne) McNair-Wilson, P. (New Forest) Shepherd, Colin
Gower, Sir Raymond (Barry) Madei, David Shersby, Michael
Grant, Anthony (Harrow C) Marten, Neil Silvester, Fred
Gray, Hamish Mates, Michael Sims, Roger
Grieve, Percy Mather, Carol Sinclair, Sir George
Griffiths, Eldon Maudling, Rt Hon Reginald Skeet, T. H. H.
Grist, Ian Mawby, Ray Speed, Keith
Hall, Sir John Maxwell-Hyslop, Robin Spence, John
Hall-Davis, A. G. F. Mayhew, Patrick Spicer, Jim (W Dorset)
Hamilton, Michael (Salisbury) Meyer, Sir Anthony Spicer, Michael (S Worcester)
Hampson, Dr Keith Miller, Hal (Bromsgrove) Sproat, Iain
Hannam, John Miscampbell, Norman Stainton, Keith
Harrison, Col Sir Harwood (Eye) Mitchell, David (Basingstoke) Stanbrook, Ivor
Harvie Anderson, Rt Hon Miss Moate, Roger Stanley, John
Hastings, Stephen Monro, Hector Steen, Anthony (Wavertree)
Havers, Sir Michael Montgomery, Fergus Stewart, Donald (Western Isles)
Hawkins, Paul Moore, John (Croydon C) Stewart, Ian (Hitchin)
Hayhoe, Barney More, Jasper (Ludlow) Stokes, John
Henderson, Douglas Morgan-Giles, Rear-Admiral Stradling Thomas, J.
Heseltine, Michael Morrison, Charles (Devizes) Tapsell, Peter
Higgins, Terence L. Morrison, Hon Peter (Chester) Taylor, R. (Croydon NW)
Holland, Philip Mudd, David Taylor, Teddy (Cathcart)
Hordern, Peter Neave, Airey Tebbit, Norman
Howe, Rt Hn Sir Geoffrey Nelson, Anthony Temple-Morris, Peter
Howell, David (Guildford) Neubert, Michael Thatcher, Rt Hon Margaret
Howell, Ralph (North Norfolk) Newton, Tony Thompson, George
Hunt, John Normanton, Tom Townsend, Cyril D.
Hurd, Douglas Nott, John Trotter, Neville
Irving, Charles (Cheltenham) Onslow, Cranley Tugendhat, Christopher
James, David Oppenheim, Mrs Sally van Straubenzee, W. R.
Jenkin, Rt Hon P. (Wanst'd & W'df'd) Osborn, John Vaughan, Dr. Gerard
Jessel, Toby Page, John (Harrow West) Viggers, Peter
Jones, Arthur (Daventry) Page, Rt Hon R. Graham (Crosby) Wakeham, John
Jopling, Michael Parkinson, Cecil Walker, Rt Hon P. (Worcester)
Joseph, Rt Hon Sir Keith Pattie, Geoffrey Walters, Dennis
Kaberry, Sir Donald Percival, Ian Warren, Kenneth
Kellett-Bowman, Mrs Elaine Peyton, Rt Hon John Watt, Hamish
Kilfedder, James Pink, R. Bonner Weatherill, Bernard
Kimball, Marcus Pym, Rt Hon Francis Wells, John
King, Evelyn (South Dorset) Raison, Timothy Welsh, Andrew
King, Tom (Bridgwater) Rathbone, Tim Whitelaw, Rt Hon William
Kirk, Peter Rawlinson, Rt Hon Sir Peter Wiggin, Jerry
Kitson, Sir Timothy Rees, Peter (Dover & Deal) Wilson, Gordon (Dundee E)
Knight, Mrs Jill Rees-Davies, W. R. Winterton, Nicholas
Lamont, Norman Renton, Rt Hon Sir D. (Hunts) Wood, Rt Hon Richard
Lane, David Renton, Tim (Mid-Sussex) Young, Sir G. (Ealing, Acton)
Langford-Holt, Sir John Rhys Williams, Sir Brandon Younger, Hon George
Latham, Michael (Melton) Ridley, Hon Nicholas
Lawrence, Ivan Ridsdale, Julian TELLERS FOR THE AYES:
Lawson, Nigel Rifkind, Malcolm Mr. Spencer le Marchant and
Lester, Jim (Beeston) Rippon, Rt Hon Geoffrey Mr. W. Benyon.
Lewis, Kenneth (Rutland) Roberts, Michael (Cardiff NW)
Abse, Leo Bradley, Tom Conlan, Bernard
Allaun, Frank Bray, Dr Jeremy Cook, Robin F. (Edin C)
Anderson, Donald Brown, Hugh D. (Provan) Corbett, Robin
Archer, Peter Brown, Robert C. (Newcastle W) Cox, Thomas (Tooting)
Ashley, Jack Brown, Ronald (Hackney S) Craigen, J. M. (Maryhill)
Ashton, Joe Buchan, Norman Cronin, John
Atkins, Ronald (Preston N) Butler, Mrs Joyce (Wood Green) Crosland, Rt Hon Anthony
Bagier, Gordon A. T. Callaghan, Jim (Middleton & P) Cryer, Bob
Barnett, Rt Hon Joel (Heywood) Campbell, Ian Cunningham, G. (Islington S)
Bates, Alf Canavan, Dennis Cunningham, Dr J. (Whiteh)
Bean, R. E. Cant, R. B. Dalyell, Tam
Beith, A. J. Carmichael, Neil Davidson, Arthur
Benn, Rt Hon Anthony Wedgwood Carter, Ray Davies, Bryan (Enfield N)
Bennett, Andrew (Stockport N) Carter-Jones, Lewis Davies, Denzil (Llanelli)
Blenkinsop, Arthur Castle, Rt Hon Barbara Davies, Ifor (Gower)
Boardman, H. Clemitson, Ivor Davis, Clinton (Hackney C)
Booth, Albert Cocks, Michael (Bristol S) Deakins, Eric
Boothroyd, Miss Betty Cohen, Stanley Dean, Joseph (Leeds West)
Bottomley, Rt Hon Arthur Colquhoun, Mrs Maureen de Freitas, Rt Hon Sir Geoffrey
Boyden, James (Bish Auck) Concannon, J. D. Dempsey, James
Doig, Peter Judd, Frank Robertson, John (Paisley)
Dormand, J. D. Kaufman, Gerald Roderick, Caerwyn
Douglas-Mann, Bruce Kelley, Richard Rodgers, George (Chorley)
Duffy, A. E. P. Kilroy-Silk, Robert Rodgers, William (Stockton)
Dunn, James A. Kinnock, Neil Rooker, J. W.
Dunnett, Jack Lambie, David Roper, John
Dunwoody, Mrs Gwyneth Lamborn, Harry Rose, Paul B.
Eadie, Alex Lamond, James Ross, Stephen (Isle of Wight)
Edelman, Maurice Latham, Arthur (Paddington) Ross, Rt Hon W. (Kilmarnock)
Edge, Geoff Leadbitter, Ted Rowlands, Ted
Edwards, Robert (Wolv SE) Lee, John Ryman, John
Ellis, John (Brigg & Scun) Lewis, Ron (Carlisle) Sandelson, Neville
Ellis, Tom (Wrexham) Lipton, Marcus Sedgemore, Brian
English, Michael Litterick, Tom Selby, Harry
Evans, Gwynfor (Carmarthen) Lomas, Kenneth Shaw, Arnold (Ilford South)
Evans, Ioan (Aberdare) Loyden, Eddie Sheldon, Robert (Ashton-u-Lyne)
Evans, John (Newton) Lyon, Alexander (York) Shore, Rt Hon Peter
Ewing, Harry (Stirling) Lyons, Edward (Bradford W) Short, Rt Hon E. (Newcastle C)
Fernyhough, Rt Hon E. McCartney, Hugh Short, Mrs Renée (Wolv NE)
Fitt, Gerard (Belfast W) McElhone, Frank Silkin, Rt Hon John (Deptford)
Flannery, Martin MacFarquhar, Roderick Sillars, James
Fletcher, Ted (Darlington) McGuire, Michael (Ince) Silverman, Julius
Ford, Ben Mackenzie, Gregor Skinner, Dennis
Forrester, John Mackintosh, John P. Small, William
Fowler, Gerald (The Wrekin) Maclennan, Robert Smith, Cyril (Rochdale)
Fraser, John (Lambeth, N'w'd) McMillan, Tom (Glasgow C) Smith, John (N Lanarkshire)
Freeson, Reginald McNamara, Kevin Snape, Peter
Freud, Clement Madden, Max Spearing, Nigel
Garrett, John (Norwich S) Magee, Bryan Spriggs, Leslie
Garrett, W. E. (Wallsend) Mahon, Simon Steel, David (Roxburgh)
Gilbert, Dr John Marks, Kenneth Stewart, Rt Hon M. (Fulham)
Ginsburg, David Marquand, David Stott, Roger
Golding, John Marshall, Dr Edmund (Goole) Strang, Gavin
Gould, Bryan Marshall, Jim (Leicester S) Strauss, Rt Hon G. R.
Gourlay, Harry Mason, Rt Hon Roy Summerskill, Hon Dr Shirley
Graham, Ted Meacher, Michael Taylor, Mrs Ann (Bolton W)
Grant, John (Islington C) Mellish, Rt Hon Robert Thomas, Dafydd (Merioneth)
Grocott, Bruce Mikardo, Ian Thomas, Mike (Newcastle E)
Hamilton, James (Bothwell) Millan, Bruce Thomas, Ron (Bristol NW)
Hamilton, W. W. (Central Fife) Miller, Dr M. S. (E Kilbride) Thorne, Stan (Preston South)
Hamling, William Miller, Mrs Mille (Ilford N) Thorpe, Rt Hon Jeremy (N Devon)
Hardy, Peter Mitchell, R. C. (Soton, Itchen) Tierney, Sydney
Harper, Joseph Molloy, William Tinn, James
Harrison, Walter (Wakefield) Moonman, Eric Tomlinson, John
Hart, Rt Hon Judith Morris, Alfred (Wythenshawe) Torney, Tom
Hattersley, Rt Hon Roy Morris, Charles R. (Openshaw) Urwin, T. W.
Hatton, Frank Murray, Rt Hon Ronald King Varley, Rt Hon Eric G.
Hayman, Mrs Helene Newens, Stanley Wainwright, Edwin (Dearne V)
Healey, Rt Hon Denis Noble, Mike Wainwright, Richard (Colne V)
Heffer, Eric S. Oakes, Gordon Walden, Brian (B'ham, L'dyw'd)
Hooley, Frank Ogden, Eric Walker, Harold (Doncaster)
Hooson, Emlyn O'Halloran, Michael Walker, Terry (Kingswood)
Horam, John O'Malley, Rt Hon Brian Ward, Michael
Howell, Denis (B'ham, Sm H) Orbach, Maurice Watkins, David
Howells, Geraint (Cardigan) Orme, Rt Hon Stanley Watkinson, John
Hoyle, Doug (Nelson) Ovenden, John Weitzman, David
Huckfield, Les Owen, Dr David Wellbeloved, James
Hughes, Rt Hon C. (Anglesey) Padley, Walter White, Frank R. (Bury)
Hughes, Mark (Durham) Palmer, Arthur White, James (Pollok)
Hughes, Robert (Aberdeen N) Pardoe, John Whitehead, Phillip
Hughes, Roy (Newport) Park, George Whitlock, William
Hunter, Adam Parker, John Wigley, Dafydd
Irving, Rt Hon S. (Dartford) Parry, Robert Willey, Rt Hon Frederick
Jackson, Colin (Brighouse) Peart, Rt Hon Fred Williams, Alan (Swansea W)
Jackson, Miss Margaret (Lincoln) Pendry, Tom Williams, W. T. (Warrington)
Janner, Greville Penhaligon, David Wilson, Alexander (Hamilton)
Jay, Rt Hon Douglas Perry, Ernest Wilson, Rt Hon H. (Huyton)
Jeger, Mrs Lena Phipps, Dr Colin Wilson, William (Coventry SE)
Jenkins, Hugh (Putney) Prentice, Rt Hon Reg Wise, Mrs Audrey
Jenkins, Rt Hon Roy (Stechford) Prescott, John Woodall, Alec
John, Brynmor Price, C. (Lewisham W) Wrigglesworth, Ian
Johnson, James (Hull West) Price, William (Rugby) Young, David (Bolton E)
Johnson, Walter (Derby S) Radice, Giles
Johnston, Russell (Inverness) Rees, Rt Hon Merlyn (Leeds S) TELLERS FOR THE NOES:
Jones, Alec (Rhondda) Richardson, Miss Jo Mr. Donald Coleman and
Jones, Barry (East Flint) Roberts, Albert (Normanton) Mr. David Stoddart.
Jones, Dan (Burnley) Roberts, Gwilym (Cannock)

Question accordingly negatived.

Amendment made: (i), in line 16, at end insert: '(4) A disposition is not a transfer of value if it is made in favour of an illegitimate child of the person making the disposition and is for the maintenance education or training of the child for a period ending not later than the year in which he attains the age of 18 or, after attaining that age, ceases to undergo full-time education or training'.—[Mr. Nott.]

Clause, as amended, added to the Bill.

  1. New Clause 8
    1. cc1605-24
    2. RELIEF FOR WOODLANDS 7,296 words
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