PENSION FUNDS: INTERESTS IN LAND HELD ON 12TH SEPTEMBER 1974

HC Deb 23 June 1976 vol 913 cc1603-41

(1) Development land tax which would otherwise be chargeable in accordance with section (Reduced Rate of Tax for Pension Funds) shall not be chargeable on any realised development value accruing to a pension fund on the disposal of an interest in land which—

1. (a) was held by the pension fund on 12th September 1974; or
2. (b) was held by another pension fund on that date and has at no time between that date and the time of the disposal been held otherwise than by a pension fund; or
3. (c) is the retained interest or the granted interest in relation to a previous disposal of an interest in land which, immediately before that disposal, fell within paragraph (a) or paragraph (b) above or this paragraph and which has at no time between the time of its acquisition and the time at which it is disposed of been held otherwise than by a pension fund;

and for the purposes of this section an interest in land shall be treated as held by a pension fund on 12th September 1974 if, under the will of a person who died before that date, the pension fund would on that date have been absolutely entitled to that interest if the administration of the deceased's estate had been completed.

(2) Subject to subsection (3) below, in any case where—

1. (a) on 12th September 1974 a lease was held by a pension fund, and
2. (b) subsequent to that date, but without its ever having been held otherwise than by pensiion fund, the lease became merged in another interest (in this subsection and subsection (3) below referred to as "the greater interest"), and
3. (c) after the merger the greater interest was acquired by another pension fund, without its ever having been held otherwise than by a pension fund,

paragraph 8 of Schedule 2 to this Act shall have effect on a disposal of the greater interest by a pension fund which acquired it as mentioned in paragraph (c) above as if, immediately before the acquisition of the greater interest by the pension fund—

1. (i) the lease continued to exist as a separate entity, and
2. (ii) the pension fund acquired the lease for an appropriate proportion of the consideration given by it for the acquisition of the greatest interest.

so that the lease constitutes a part of the relevant interest for the purposes of the said paragraph 8.

(3) Subsection (2) above shall cease to apply in relation to a lease at such time as the lease would have come to an end, had it not become merged in another interest, and, for the purpose of that subsection, references (other than in paragraph (b) thereof) to the greater interest include references to an interest in land of which on a disposal thereof by a pension fund, the greater interest was a part for the purposes of part I of Schedule 2 to this Act.

(4) In any case where—

1. (a) on 12th September 1974 a pension fund held an option falling within section 8(1) above, and
2. (b) the option was subsequently exercised, without it ever having been held otherwise than by a pension fund, and
3. (c) the interest acquired by virtue of the exercise of the option (in this subsection and subsection (5) below referred to as "the substantive interest") was subsequently acquired by another pension fund, without its ever having been held otherwise than by a pension fund,

paragraph 8 of Schedule 2 to this Act shall have effect on a disposal of the substantive interest by a pension fund which acquired it as mentioned in paragraph (c) above as if—

1. (i) the option had not been exercised at the time of that acquisition and the pension fund had acquired the option instead of the substantive interest, and
2. (ii) immediately after its acquisition of the option the pension fund had acquired the substantive interest in exercise of the option,

so that the option constitutes a part of the relevant interest for the purposes of the said paragraph 8.

(5) References in subsection (4) above to the substantive interest include references to an interest in land of which, on a disposal thereof by a pension fund, the substantive interest was a part for the purposes of Part I of Schedule 2 to this Act.

(6) If an interest in land which falls within any of paragraphs (a) to (c) of subsection (1) above ceases at any time, otherwise than on the occasion of a disposal, to be held for the purposes of a pension fund—

1. (a) the interest shall be treated for the purposes of this Act (other than this subsection) as having been disposed of at that time for a consideration equal to its market value and as having been immediately reacquired at that value; and
2. (b) any realised development value which accrues on the disposal referred to in paragraph (a) above shall be treated as not having accrued to a pension fund.

(7) If, at any time after the disposal of an interest in land falling within any of paragraphs (a) to (c) of subsection (1) above, the body which made the disposal ceases to be a pension fund, then, immediately after it so ceases, an amount of realised development value equal to that in respect of which the exemption in subsection (1) above applied on the disposal shall be treated for the purposes of this Act as accruing to that body, as on the disposal of an interest in land.

(8) Notwithstanding anything in section 44(2)(a) below, an interest in land acquired by a pension fund under a conditional contract entered into on or before 12th September 1974 shall be treated for the purposes of this section as held by the pension fund on that date.

(9) References in this Act to a pension fund are references to such a fund as is established by a retirement pension scheme approved under section 22 of the Income and Corporation Taxes Act 1970 or Part II of Chapter II of the Finance Act 1970 or a superannuation scheme approved under section 208 of the Income and Corporation Taxes Act 1970.—[Mr. Ian Stewart.]

Brought up, and read the First time.

3.46 p.m.

Mr. Ian Stewart (Hitchin)

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

Mr. Speaker

With this clause we may also take New Clause 9 (Reduced rate of tax for pension funds).

Mr. Stewart

We had a long debate yesterday on the situation of charities affected by the Bill. Not surprisingly, we have come across similar problems in dealing with pension funds. New Clauses 6 and 9 relate to the position of pension funds and their treatment in respect of development land tax.

New Clause 6 seeks to bring the position of the pension funds more closely into line with that of charities purely as regard to the holding of land prior to 12th September 1974, the date of the White Paper dealing with land. New Clause 9 seeks to introduce a preferential rate of 10 per cent. for realised development value in relation to pension funds.

In Committee we moved amendments seeking to exempt pension funds entirely from development land tax. Had we been successful, we would not have brought forward a new clause in this form. But if we cannot exempt pension funds from this tax we wish to draw attention to the damage which will be done if they have to suffer tax at the rate of 66⅔ per cent. or 80 per cent. or an even higher rate. We suggest that a very much lower rate should be applicable to pension funds because of their special circumstances.

Superficially, in some ways pension funds are similar to charities and many of the same arguments apply, but I must point out that there are some fundamental differences. The Minister of State, when replying to the debate on charities last night, said that not all charities were likely to invest in property or to possess property which for various reasons might in due course become subject to development land tax. That is true. Many do not invest funds in that way at all. They collect income from donations or subscriptions and distribute it, and they do not necessarily have any investments of their own. Therefore, they need to invest in property does not arise.

In the case of pension funds we are dealing with an entirely different type of body whose function is to gather together the savings of a large part of the community and channel them into investment in various forms. One of the main areas in which these bodies have sought to invest their funds over recent years has been property and land. Therefore, they will be very much affected by the provisions of the Development Land Tax Bill.

Before we go any further, it would be right to draw attention to some of the statistics of the pension fund movement. It is impossible to obtain up-to-date figures because the preparation of the totals is usually several years out of date. During our proceedings in Committee, the Minister drew attention to figures produced by the Government Actuary which reflected the situation in 1971. Even then 49 per cent. of employed people in this country were beneficiaries of pension funds, and it was suggested that since that time the proporion was likely to have risen. With that I would certainly agree.

In 1974, when it was a question of whether pension funds were to be taxed for the purposes of the development gains tax legislation then under consideration in the 1974 Finance Bill, some figures of an informal hut, no doubt, accurate kind were prepared by the National Association of Pension Funds. They have been quoted at earlier stages of this Bill. However, they bear repeating again because they are dramatic. At that time—nearly two years ago—the National Association of Pension Funds had over 60,000 separate pension schemes in operation. They embraced more than 12 million members, of whom, I am glad to say, I am one. Those 12 million members do not include dependants such as I have in the Gallery this afternoon. I suspect that many working peopde, both in this House and outside, also expect to benefit from their pensions in the fullness of time. The 12 million members of the pension funds represent a substantially greater figure of potential beneficiaries, and this figure is a high proportion of our total population.

Of those 12 million members, some 2 million were estimated two years ago to be already in receipt of their pensions. Thus the pension fund movement, which did not get off to a very rapid start but built up quickly in the 1950s and 1960s, and particularly latterly, has already reached the position where it is supporting a considerable number of our fellow citizens in their retirement.

Mr. Peter Morrison (City of Chester)

could my hon. Friend clarify one thing? I was not quite clear about the 12 million people who are part of the pension fund movement. Is he saying that over and above that number there are perhaps another 12 million people, including wives or children, who may benefit from the pension funds?

Mr. Stewart

I am grateful for my hon. Friend's intervention, because if there is any doubt on this matter it should certainly be cleared up. The 12 million I quoted are the actual members of the funds. As I was saying, if all those who belong to pension funds have wives, families or other dependants, we are indeed talking about a much larger figure. We might even double it if we assume that each retirement pensioner who benefits from a pension fund has at least one dependant who relies upon that same source of income. It is a considerable proportion of the working and retired population whose pensions have been invested in pension funds and are still being invested, week by week, month by month and year by year. The number of participants in the pension funds is growing.

It is impossible to quote up-to-date figures. My attempt to do so for the purposes of this debate has met the recurring problem of the difficulty of gathering statistics, except those which are considerably in arrear. This is one of the problems which the Government face as they are not able to quote figures later than those produced by the Government Actuary in 1971.

When we turn from the number of beneficiaries to the amount of money being invested, it will be seen that the sums are also dramatically large. Again, quoting figures from 1974, my information is that at that time there was approximately £24,000 million in the pension funds. Half of this money was in respect of self-administered funds relating to particular companies, and a similar figure was in insured funds operated by insurance companies and on a contracted basis for the benefit of companies which did not wish to run a specific project for themselves. At that date it was estimated that the amount which had been invested in property was of the order of £4,000 million. Those sums represent not only a substantial proportion of the wealth of the community at large but a very significant amount of the funds available for investment in industry, property and so on.

I have alluded briefly to the growth of the pension funds, and I should like to say a further word about this. It has been one of the interesting developments of recent years that more and more companies have decided that they wished to improve the retirement prospects of their employees. That is a desirable change for both social and financial reasons. It is true to say that the energy of the private sector in developing pension funds for its employees has been a notable factor in prompting successive Governments to introduce improved earnings-related schemes for those who are not beneficiaries of private sector pension schemes.

It is fair to say that the initiative was taken by the private sector and that this has had an advantage not only for all those who work and who save for their retirement in the industries or companies concerned but for the community at large as a result of the effect which this movement has had on the attitude of Governments towards their responsibility for retirement pensioners.

To levy development land tax on the assets held by pension funds in their property portfolio would breach a traditional exemption in very much the same way as we were discussing last night in the case of charities. In this respect, the tax position of pension funds is similar. Of course there are technical exceptions, as has been pointed out. If charities or pension funds were to engage in trading, they would be subject to taxation on their trading activities. However, in no other sense have pension funds been subject to taxation. We are dealing again with a major breach of principle as, I am afraid, we were faced with in the case of charities.

Pension funds do not date back to the days of Henry VIII as charities do, simply because in those days they did not exist. I rather think that King Henry VIII had other ways of dealing with those of his dependants whose work was done. Sometimes his methods were rather sharp.

4.0 p.m.

Mr. Tim Sainsbury (Hove)

I appreciate that his ways were sometimes rather sharp, but usually not with pensioners. There were many almshouses in existence then and that was an effective way of dealing with pensioners. Those who run them, of course, are now prejudiced in their activities by the Government's action on charities.

Mr. Stewart

My hon. Friend's interventions are always helpful to me. He has assisted me in making the point that there is little difference between pension funds and charities in this context. I have no doubt that almshouses provided by private charities would have been suitable homes not only for the pensioners of Henry VIII but for any of his other courtiers who wished to shed their dependants. However, in terms of history, charities are not such a good precedent for pension funds, because they did not come into existence until modern times.

Ever since the early 1920s, when pension funds became a material factor in our lives, they have been exempt from these taxes. It is an unfortunate break with tradition if we now enact legislation to impose this new tax, and at such high rates, on the assets of pension funds. I suppose that they have been exempt in the past partly because they are praiseworthy bodies helping large sections of the community, just like charities, but partly because the income generated from their resources is taxed in the hands of the recipients. With the increased rate of tax now biting on so many pensioners with even the most modest of other incomes, this is a matter which the Government will no doubt recognise.

It is only two years since a Labour Government decided not to impose development gains tax on pension funds. The original proposals in the Finance Bill 1974 suggested that development gains tax should apply to the assets of pension funds, but strong representations were made and the Government, with good sense and perhaps reasonable generosity, eventually decided that pension funds should not suffer the tax.

It is sometimes said that the development gains tax is a Tory tax. Of course, it is based in many respects on the statements of Lord Barber in September 1973, but it was brought forward by a Labour Government and any changes made between the original proposal and enactment reflect the thinking of the Labour Government of the time. They felt, I am sure rightly, that pension funds should not bear that tax. Yet development land tax is now being introduced to replace development gains tax, and it seems only right that it should inherit that exemption a pension funds.

No doubt another reason for this exemption of pension funds is the recognition by Governments of the need for pension funds to be able to protect their incomes against the ravages of inflation. Whether it is 30 per cent., as last year, 15 per cent., as this year, or whatever it may be next year, such figures are very hard to attain. Under Governments of all complexions there have been periods of dividend control that have limited the amount of income from investment in equities and ordinary shares.

There has always been a difficulty in achieving a yield from Government securities and gilt-edged stocks anywhere comparable with the rate of inflation. There has been a negative yield for a considerable period now when rates of inflation have been very high. Therefore, among other things, the pension funds have looked to their investment in property for one of the sources of income to support the retirement pensioners.

Mr. Tony Durant (Reading, North)

Would not my hon. Friend agree that part of the purpose is to guard against inflation, which is another factor to be taken into account?

Mr. Stewart

Certainly it is to guard against inflation. Although the pension funds have a very good record in the rate of benefits which they have been able to pay, this has been made much more difficult in the last year or two and many funds have had to be topped up by contributions from the companies for which they are operating in order to maintain the flow of income.

Mr. Nick Budgen (Wolverhampton, South-West)

That is particularly so, is it not, with the large clearing banks? I think that in one instance a pension fund has had to be topped up by as much as £18 million or £19 million.

Mr. Stewart

My hon. Friend is absoslutely right. This illustrates the difficulties of pension funds in keeping pace with their income expectations at a time of inflation. The reason that pension funds have invested a considerable proportion of their investable funds in property is that over the years, despite periods of rent control and recession, taking one year with another over a considerable period, the rents of industrial and commercial property have more or less kept pace with inflation and have sometimes even gone ahead of it. It is the expectation of rising income from rentals that has led pension funds wisely to put much of their money into the property market.

In doing so, they have also brought great benefit to British industry and commerce. Those who build factories, offices and shops are often reviled because of the windfall profits that may be made—that is what the Bill is supposed to be all about—but those who provide long-term investment funds to create that sort of property are not making windfall gains. If they are taxed on the basis of long-term investments, their investments will produce a lower yield or they will have a lower total volume of funds available to produce an income in future.

Many of the larger companies believe not only that their pension funds are of value to their own employees but that they are important for the provision of capital for the infrastructure of Brtish industry and commerce by their investment in property of this kind. After all, they have a primary duty to look after the interests of their pension fund beneficiaries. I have here a letter, addressed to my right hon. Friend the Member for Crosby (Mr. Page) from the manager of the pension fund of one of the largest companies in the country. He shows this concern very well: The effect of this new tax will be that the substantial investment in property by pension funds will not make as large a contribution as expected to the provision of retirement benefits to employees, and, inevitably, this short-fall will need to be made good not only by the companies providing these retirement benefits but, in the long run, by the employees who enjoy them. The employees who enjoy them are of all kinds—male and female, manual and non-manual. In Committee, the Minister of State quoted figures based on the Government Actuary's totals for 1971 suggesting that there were imbalances between manual and non-manual, between male and female and so on.

But that is in the nature of employment. The continuity of job over a long period, such as is suitable for contributors to pension funds, is greater in non-manual trades. Because of the facts of life, in spite of recent legislation, men hold jobs of this kind for longer periods than women. So these discrepancies are not surprising. They merely reflect the present pattern of employment.

But it is important that we should not in this way reduce the available investment funds for industry. The Chairman of the Investment Protection Committee of the National Association of Pension Funds, writing to the Minister last December following the passing of the Community Land Act when proposals for the development land tax were made, put it in these words: The imposition of this tax on pension fund trustees will result in a progressive depreciation of the property assets they hold. The trustees will have their long term commitments to pay retirement benefits to the 12 million or so work-people; but as a result of this legislation, a significant proportion of their assets will have been depreciated in value. The money needed to make up for this depreciation can only come from the revenue of British industry. The consequence will be, at least, reduced resources available for reinvestment in the employing industry, with all that entails for the trustees and everyone else, and, at worst, increases in the costs of goods and services (more per ton of steel, more per unit of electricity, more per therm of gas, etc.) thus further fuelling inflation. Those are serious worries about the effects of imposing development land tax on pension funds.

The Government have adduced reasons for imposing such a tax on pension funds. One seems to be that somehow investment in property or a factory is bad, but investment in the company that conducts the industry inside the factory is good. There is a remarkable statement on record about that matter made by the then Under-Secretary of State for the Environment. He said: It is far better that investment takes place in manufacturing industry and not in speculative ventures as it has done in the past. If the Bill goes some way towards redirecting pension funds into manufacturing industry, it will have a spin-off which will benefit the country".—[Official Report, 12th November 1975; Vol. 899, c. 1468.] That, perhaps, is the key to Socialist thinking on this matter. The Opposition believe that if it becomes impossible to build factories and offices, it will be impossible for companies to operate within them.

The Government's second reason is that pension funds do not benefit everyone. But neither—although I say so with some trepidation—does the Letchworth Garden City Corporation, although that does a great deal of good for many of my constituents. I am delighted that it is included among the exempt bodies in the Bill.

All kinds of local authorities, charities and pension funds bestow benefits on the community in a collective sense, although those benefits may not be available in equal amounts or in an equal way to the community as a whole. However, they all contribute—this is their common virtue—to large numbers of people. Whether those people are classified by the locality in which they live or in the industry in which they work does not seem to me to be a material difference.

It was pointed out that a charity for the benefit of railwaymen would gain exemption for the purposes of White Paper day land but that a pension fund for the benefit of railwaymen would not gain such an exemption. Yet a pension fund is much more likely to distribute benefits broadly across all railwaymen and the charity is more likely to be selective. The logic of the Government's thinking is upside down.

Early in our consideration the Minister of State said that charities were somewhere between local authorities and pension funds. He tried to imply that there was some kind of descending order of virtue in the various bodies that served the community. Local authorities have complete exemption. Charities benefit from some minor concessions in the Bill. But pension funds are very much the "tail-end Charlies" in the race. Unless we are able to do something for them in this sense, they will suffer grievous injury in the years ahead from the application of the development land tax.

4.15 p.m.

Separate problems are represented in the two new clauses. The first relates to land held by pension funds in 1974. In spite of a recent well-publicised case in Sussex, it is not normal for pension funds to enter into highly speculative situations. Pension funds on the whole have become a major source of finance for development on a continuing basis, including residential and other kinds of development. The expected improvement in value to which they looked through eventual development was part of the arithmetic of their original investment. They could not have anticipated the details of this legislation. Nor could they have anticipated that the Government would have been so insensitive as to impose development land tax on them. Therefore, many of the acquisitions that they made before that date could not have occurred in anticipation of the imposition of this tax.

I stress that it is more important in the longer run that pension funds—as we have argued for charities—should either be subject to no tax on their development or to a low rate, such as the 10 per cent. that we suggested. They look towards the maintenance and improvement of their income in the longer term by means of redevelopment in due course.

I should like to quote some remarks in this context which were made by the Chairman of the Land Sub-Committee of the National Association. He writes: In the market as it was prior to the White Paper Day the prices paid by the Pension Funds generally reflected the prospect of such enhancement in income flow, and this was part of the background which induced the Pension Funds to invest. Except for the 10 per cent. tolerances, the present provisions of the Bill will mean that in order to obtain this enhanced flow of income on redevelopment the Funds will have to provide (as well as the building costs) an additional payment to meet the DLT which will arise on the commencement of the development. Yesterday the Minister said that if the charities were to suffer the tax, that was just one of those unfortunate facts about the future that they must take into account. I suspect that he might say the same about pension funds. But that is rather like saying to a condemned man, "You may have to change your thinking about the future, as you will not have time for lunch."

The Minister said that this was a longer-term problem because the tax would not take effect until the pension funds redeveloped their properties. But this is also an immediate problem in a real sense. At the end of the day, such properties will have a lower value on the market and a lower value as investments. That means that there will be a need to amortise their value over the life of the investment out of the income that they generate in the meantime. Therefore, from now on their income will be reduced by the need to write off at least a part of the cost in the coming years. Therefore, this is not only a long-term problem. It is a problem the effects of which will begin to be felt fairly soon.

The pension funds have become a much more important part of the scene in recent years as a result of the growing need to provide retirement pensions. But their importance has been accelerated by company tax legislation and the demise or the weakening of the position of the property companies. I cite the well-publicised case of Artagen Properties Limited, for which one of the insurance companies made a bid. It is predicted that many of the property companies might end up in the hands of insurance companies. However, insurance companies, like pension funds, are now becoming the main means of channelling private savings into investment in the private sector. That is taking place on a growing scale.

I am delighted that the hon. Member for Liverpool, Walton (Mr. Heffer) has come into the Chamber. The hon. Gentleman missed most of these words of wisdom, but I promise that if he listens attentively he will be convinced of the importance of exempting pension funds from development land tax.

Why are pension funds to be burdened in this way? They were exempted, after due consideration and careful thought by a Labour Government, from development gains tax.

Yesterday, I felt a little sorry for the Minister of State in the debate on charities, because I thought that he was defending the indefensible. It seemed to me that sometimes he was doing so against his own personal judgment.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

If my hon. Friend reads the Minister's speech, he will see that the hon. Gentleman did not even bother to defend the indefensible.

Mr. Stewart

I was trying to be a little more courteous than my hon. and learned Friend, but the point is not lost.

I suspect that today, like most reasonable people, the Minister will again be with us in spirit. These proposals can only have come about because the whole of the Bill lies under the evil shadow of the community land scheme.

Development land tax is not a genuine tax in the way that we understood taxes in the past on capital and gains. It is a transitional levy. I believe that the Government intend to make as few exceptions and exemptions as possible in case they impede the progress of the community land scheme. But the Government should think again, because by failing to respect the claims of pension funds they are again showing that they are influenced more by doctrine than by reason. To bring pension funds within the scope of this tax is not only socially retrograde but will be financially harmful to millions of beneficiaries of pension funds. Economically over the coming years it will be a far-reaching constraint on the supply of funds available for new factories, offices and shops and all the other properties in which future generations will need to work and go about the business of their daily lives.

I hope that these new clauses will commend themselves to the House.

Mr. Walter Clegg (North Fylde)

Looking at the Government Benches is rather like looking at a desert with two palm trees. I confess that the hon. Member for Liverpool, Walton (Mr. Heffer) is a very bulky palm tree and gives plenty of shade, but I wish that more of his hon. Friends would come in to listen to the debate, because this matter affects many of their constituents just as much as it affects many of mine.

North Fylde is a retirement area. We have not only retired civil servants—because we have a big civil service establishment there—but many people who rely on pension funds for their pensions. There is a growing difference between these two categories of pensioners. The civil servants now have inflation-proofed pension funds, as we have in the House. That is very different from the situation of others who rely on industrial pension funds.

I must declare an interest. As well as having a pension from the House—I hope—I shall also have a self-employed pension. Therefore, I may be directly involved.

I dare say that the Minister will say, as he said yesterday, that the objective of this legislation, as of the Community Land Act, is to return to the community the betterment value when land is sold. That was his main reason for opposing the exceptions or the deferment for charities, about which we were arguing yesterday.

The hon. Gentleman will no doubt say that if we give this concession to pension funds, we shall be denying to the community the benefit of the betterment that the community has created. The community does not work very hard to create this particular benefit. It merely draws lines on maps. It does no more to develop the land in that way than anybody else does.

The Minister for Planning and Local Government told us that the Bill and the Community Land Act were based on the community making great profits from the sale of land. I think that at one time the right hon. Gentleman said that for every £1 million for which the State bought land, if could expect to get £4 million when the land was sold. Those poor souls who voted for the Labour Government in the hope of getting cheaper land will be very disappointed, because the land will be the same price as if this scheme had not been introduced. The Government have based their plans for what they are to get out of development land tax and the profits that will flow from the sale of land on the days when land and property prices were leaping ahead.

If the Minister argues, as he did yesterday, that it is unfair to exempt pension funds because the community will not get the benefit, we are entitled to argue, on the same lines as we did regarding charities, that many millions of people will benefit if the new clause is accepted. It would be of some comfort to them to know in these days of great inflation that there was a provision in the Bill to enable them to get better pensions.

It is fair to say that millions of people will benefit. Those employed by the State have no need to worry about these matters, but those employed by industry have a great deal to worry about.

In addition, the more effective the pensions given by pension funds, the less pressure there will be on the State and on public spending to make up the difference. Any move in these inflationary days that will make it more difficult for the pension funds to pay these pensions is to be deplored.

It is common knowledge that many firms are having great difficulty in topping up their pension funds to keep pace with inflation. In some instances they expect that in a few years, if inflation continues at its present rate, they will be paying as much for pensions as for the salaries and wages of their employees. That cannot go on.

I suggest that a good argument has been made for these new clauses. We are talking not about a tiny group but about a very wide range of people, including many trade unionists, who are looking to the House to do something that will not reduce but increase the value of their pensions.

I congratulate my hon. Friend the Member for Hitchin (Mr. Stewart) on moving the new clause so clearly and with such modesty. I fully support him.

Mr. Sainsbury

I congratulate my hon. Friend the Member for Hitchin (Mr. Stewart) on introducing these new clauses. I apologise for not having been present when he began his remarks. I was still in the Library and was caught unexpectedly by the speed with which we started today.

I am reminded by my hon. Friend the Member for North Fylde (Mr. Clegg) that this is yet another matter in which one should declare an interest. I am the possessor of a self-employed deferred annuity and a potential beneficiary from a pension fund. The number of occasions on which we have to declare an interest under the different headings in this legislation is an indication of the large numbers of people who, much to their surprise, may find themselves adversely affected by this measure.

I have been reflecting on what the Minister of State is likely to say in his usual charming way in reply to the debate. I suspect that he will say, as he did yesterday when we discussed charities, that there is a gulf between us. My belief in the likelihood of the hon. Gentleman saying that was reinformed when I looked at what he said in Committee. He said probably exactly what he will say today: We had a long and interesting debate on these amendments. I do not want to pursue the arguments again. There is a gulf between us. Like the Minister, I do not wish to repeat the arguments, even if I am still left a little puzzled about the nature of the gulf between us. But, looking further forward, I find that the hon. Gentleman made the following mysterious statement, presumably about the gulf: We have the local authorities at one end, pension funds possibly at the other, and Churches falling in the middle."—[Official Report, Standing Committee J, 29th April 1976; c. 730–3.] I do not know whether they were collapsing for want of funds in the middle of the gulf but I am interested in the words "possibly at the other". I do not know whether the Minister was still a little undecided, at least at that time, whether on reflection he could relocate pension funds at a more favourable end of this gulf, spectrum or whatever it was to which he was referring.

The Minister and some of my hon. and right hon. Friends may be aware that I am not entirely in sympathy with the suggestion that we should have entire relief for pension funds from the provisions of this tax. There is always a risk in creating specially privileged classes of developer, and I expect that I might carry my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) with me on this aspect of the matter.

4.30 p.m.

We have to recognise, however, that with charities we have a situation that is not as satisfactory as we would have liked as a result of last night's proceedings—and charities have exemption in respect of land that they held as at 12th September 1974. As my hon. Friend the Member for Hitchin has pointed out, there is very little difference between the activities of pension funds and those of charities in the sense that pension funds are devoting their funds to a particular aspect of the much more widely-ranging activities that are carried out by charities. One could well have sheltered accommodation—as such provision would be called nowadays, rather than "almshouses"—provided by a charitable fund, and there is such provision by charities. This is almost directly equivalent to the provision for the pensioner which is made by pension funds.

There must, therefore, be a very strong case for arguing that pension funds should have at least the same exemptions from the provisions of this tax as charities have, because, if not, we have created a privileged class the other way round. It is my impression—and I am sure that my hon. Friends will correct me if I am wrong—that whereas against that background I might find that New Clause 9 goes perhaps too far, New Clause 6 seems to be entirely logical in its wording in giving pension funds this exemption in respect of land which they held on 12th September 1974. The Minister argued, as far as he was able to do so—and I shall try to be as charitable as I can about his arguments in the debate on New Clause 1—that we must be particularly concerned with anything which could have an adverse effect on industry. May I quote his words during yesterday's proceedings? He said, We do not want anyone to suggest that we might have impeded industrial development by our proposals."—[Official Report, 22nd June 1976; Vol. 913, c. 1456.] It was interesting phraseology. He was saying that it does not matter if we actually impede industrial development by these proposals but that if one suggests that that might have been done it becomes very unfortunate. But, being charitable, let us assume that in the excitement of the moment it was merely the words that were wrong and that the Minister wanted to ensure that industry was in no way impeded by his proposals. I take it by his nod that I am correct in that interpretation. Has he, therefore, reflected that to the extent that the assets of pension funds are reduced by the the imposition of DLT on their property holdings, they will have less income with which to meet their responsibilities and liabilities to pay pensions to their beneficiaries, and that as a direct result of this, many companies will have to make further transfers from their cash resources to their own pension funds to enable those pension funds to continue to meet their liabilities?

The proposals for taxing pension funds will directly affect the cash flow of British industry adversely. One of my hon. Friends has referred to the number of occasions on which substantial industrial concerns have had to make very substantial transfers to their pension funds to enable them to meet their obligations and to continue to pay pensions. I know that the Minister has very little sympathy for retailing, but his hon. Friend beside him, the hon. Member for Edmonton (Mr. Graham), might be expected to have more sympathy with retailing even though he has not yet been able to show it in the Lobby. There was a recent example of the best known retailer in this country making a very substantial transfer to its pension fund to enable it to meet its obligations.

I would ask the Minister, therefore, to consider that aspect of the proposals. Not only have we the aspect of the equity of the matter as between charities and pension funds on land holdings at 12th September 1974, but we have also to reflect on the adverse effect of the Minister's proposals on the cash resources of British industry and commerce because of the obligation which companies might have to meet for their pension funds as a result of this legislation.

My final point is one on which I need not enlarge because it has been so ably covered by my hon. Friend the Member for Hitchin. In my own constituency, and I am sure in the constituency of everyone in the House at this time, there are many people who, although they are unaware of it, are deriving their pension from the skilled property management shown by pension funds of which they are beneficiaries. I wonder whether the Minister could say why it was that in all the frequent references by his party to their proposals in respect of the Community Land Act on this proposed form of taxation, which were always laudatory, they did not draw the attention of beneficiaries of pension funds to the adverse effects of their taxation proposals. Could it be that we ought to look again at the Trade Descriptions Act to see whether the disadvantages and reduced benefits from some of these proposals should be referred to, even if in only small print?

I should be very interested to hear from the Minister of any statement or reference in any publication emanating from his party which drew the attention of pensioners to the adverse effect on their pensions that could result from DLT. I wait with interest to see whether the Minister will receive advice from above or below the Gangway, or from the Box, on this point. I should be very happy to give way to any hon. Member who could give me some information on this point, but I am afraid there is none forthcoming. Again we have an example of legislation presented as being in the interests of the community but which, when we look at how it affects individuals in our constituencies, is seen to have an adverse effect. To me, that alone is sufficient reason to support my hon Friend in this clause.

Mr. Peter Morrison

I, too, must declare an interest as being a future beneficiary—I hope some way ahead—of a pension fund.

I am rather amazed that throughout the whole debate we have had on the Government side of the House only the Minister and the Whip present—although recently we have been honoured—and still are, admittedly—by the presence of the hon. Member for Liverpool, Walton (Mr. Heller), the hon. Member for Luton, East (Mr. Clemitson) and the hon. Member for Liverpool, Garston (Mr. Loyden). When we talk about pension funds, which affect the old more than anyone else, and as the Labour Party always, quite rightly and understandably, makes a great play for the old and wishes to give them every possible support, it is amazing that throughout a debate such as this we should have only three Labour Back Benchers and two Labour Members on the Government Front Bench. It is quite extraordinary.

Mr. Fairbairn

Is it not even more surprising that the Scottish National Party, which bases its advertising on the terrible plight of the old in Scotland at the hands of the English being deprived of the oil revenues, should not worry whether they get good pensions?

Mr. Morrison

I am grateful to my hon. and learned Friend. One notices also that Liberal Members are apparently totally uninterested, for they have not been present during the whole debate. I am most surprised about the numbers on the Government Benches, because Labour Members of all people will talk about pensioners, and there are so few Labour Members present. Admittedly, those who are present make up in quality for the quantity that we are lacking.

The point has been well put by my hon. Friend the Member for Hitchin (Mr. Stewart) that there are a substantial number of people who stand to benefit from pension funds. When I intervened in my hon. Friend's admirable speech, he pointed out that there were 12 million people who would directly benefit. But, of course, they will have at least one and possibly two dependants who will, therefore, indirectly benefit. Therefore, however one looks at it, the future of pension funds in Britain is very important, indeed. Many people will be affected.

I would contend that the Government do not really like pension funds—exactly as I contended last night concerning charities. The Government prefer the State to do what a charity does, or what a pension fund might do for an individual or a family. That is why the arguments which have been so cogently and so well put, in Committee and certainly in the House today, fall on stony ground. At the bottom of their hearts, Labour Members do not really mind whether pension funds continue to exist.

Mr. Durant

My hon. Friend has said that the Government do not appear to be interested in pension funds. Perhaps they are not aware that the coal miners have very large pension funds, most of which are in property.

Mr. Morrison

I am certainly aware of that. Many trade unions have large pension funds invested in a multitude of different things, including property. I gather that some are buying old master paintings nowadays.

I return to the main point. If the pension funds industry is in a healthy condition, that will inevitably save the Government money. The argument that will come from the Minister—we have heard it previously and no doubt we shall hear it again—is that Whitehall is better at taking out the money and distributing it. But that costs money and will, therefore, increase the public sector borrowing requirement. It is much better that the private sector should be coping with those who stand to benefit from pension funds rather than the public sector.

4.45 p.m.

Having listened to the Minister quite carefully last night, and yesterday afternoon, I have a suspicion that he is not really proud of this Bill but is a little ashamed of it. I have that suspicion because I am sure that there will be no doubt towards the end of this debate that those of us who have argued in favour of pension funds being either partially or totally exempt have won the argument, as we did with charities. To a certain extent I think that the Minister would agree.

The reason why I say that the Minister is ashamed of the Bill is that he knows in his heart of hearts that if he made one small breach in the dam, or two or three small breaches, certain exceptions which should be made for genuine and good reasons, the principles on which he bases the Bill would come flying down and there would be no need for the Bill at all. Perhaps on this new clause the Minister will see that there is a point in making an exception. He is not very proud of the Bill. Although we shall not expect him to demolish all the arguments that he has been deploying in Committee, or to abolish the Bill, we expect him—because we think that we are winning the argument—to make an exception in this case for pension funds.

As I have said, not least the Labour Party, in terms of getting votes, plays for the older vote. So let us have a decision that will substantiate that policy and not just total unwillingness to accept the new clause.

Mr. Budgen

I must start by declaring an interest as a potential beneficiary under a self-employed person's pension scheme. The House may well reflect that for all of us there is a deep desire to combine the right personal balance between risk and security in life. In some parts of our life we want the excitement and the uncertainty of risk and endeavour. We want the excitement of knowing that perhaps at the next General Election we shall be thrown out, or that perhaps after the end of a particular building contract we may find that we have to look for another job.

Mr. Ivor Clemitson (Luton, East)

There is no excitement in that.

Mr. Budgen

There may be some excitement if it is compensated for by high wages in the short term. I suspect that there are many people who are high wage earners—for instance, bricklayers in a period of boom—who would say to themselves "I do not want a steady job. I would rather be an entrepreneur and make a lot of money sometimes and on other occasions run the risk of being unemployed."

Mr. Fairbairn

Perhaps I may advise my hon. Friend. I get absolutely no pleasure from any concept of thinking that my seat is at risk, and I prefer to make high wages all the time.

Mr. Budgen

By his very presence in the House my hon. and learned Friend demonstrates that he does not live by the precepts that he puts forward. He left a steady job to take the risks of coming here. All of us take risks here.

The other side of the coin is that we wish to have security. We are not alone in wishing to have security in our old age. It is a deep feeling that every human being has. The fact is that when the Government try to attack the security that all of us want in our old age, they will find that, as a compensation, each individual will be less prepared to take risks during his working life. He will be less and less prepared to be an entrepreneur, a high-wage earner—perhaps a high-wage earner at the tax Bar—or a high-wage earner in any other of the various activities in which those of us who take risks have to work.

Mr. John Cope (Gloucestershire, South)

Are not those two facets, risk on the one hand and security on the other, exemplified by the two contenders for the leadership of the Liberal Party?

Mr. Budgen

I do not wish to comment on the characters of those two contenders. However, there is this extraordinary paradox of wanting both risks and security. If we attack the security of 12 million of our fellow citizens and say to them "We are going to take away the hope that you had of a modest competence in your old age", they will be more and more disinclined to take risks in their work. They will come more and more to the State and say "Prop up our unprofitable job", or "Prop up our particular factory or industry", and they will be less and less prepared to come out and fight vigorously for a high-wage, high-profit, high-risk economy.

The Government's proposal cuts into the security of 12 million of our fellow citizens. As I look at the almost vacant Benches on the Government side of the Chamber, I reflect that the 12 million potential beneficiaries of those who join the 60,000 pension schemes under the National Association of Pension Funds, together with their dependants, are a greater number than all those who join the Trades Union Congress. Only 10 million people are associated directly or indirectly with the TUC. The National Association of Pension Funds did not join in the corporate State meetings that occurred at various Government places. They did not talk about the unacceptable face of capitalism. They did not talk about being unprepared to accept any cuts in Government expenditure. All they asked was to be allowed to go on providing for the security of their fellow citizens.

Our plea is not a plea for the nabobs of the City, or for the CBI, or the gaffers. It is a plea for the ordinary working people who are prepared to work to provide for their families for perhaps 40 years. They want only the dignity and security of providing for their own old age. Such potential beneficiaries will be attacked by the development land tax.

Let us examine the way in which the average pension fund is invested. In broad terms it is invested in three ways: one-third in equities, one-third in gilts, and one-third in property. Equities have become less and less valuable because of price control, dividend restraint and the vigorous attack on private enterprise and the concept of private wealth that has been the centrepiece of the present Government's extraordinary relationship with the TUC. That part of pension funds has taken a bit of a knock.

The one-third invested in property has already taken a knock from the attitude not just of this but of the last Government. The one-third in gilts is probably the only part likely to enjoy an increased revenue in the next few years as the Government try in a non-inflationary way to fund their horrifying £12 billion borrowing requirement.

There is a reduction both in the asset value of pension funds and in their incomes. Their liabilities are becoming infinitely greater because they are related to the going rate of inflation and they are under an obligation to pay pensions related to the going rate of inflation or to the going wages at the time of payment. They are trying to fund increased liabilities with reduced income.

Last year the rate of inflation was about 26 per cent. This year we must anticipate that it will be between 9 per cent. and 12 per cent. It might be more, but I am trying to argue in the most charitable way and to put the case most favourable to the Government. Let us say that the rate of inflation will be 10 per cent. this year. On the average equity, a pension fund has a return of about 4 per cent. on its shares. How on earth with a return of 4 per cent. can it hope to fund liabilities that went up by 26 per cent. last year and will go up by 10 or 12 per cent. this year?

Pension funds will either have to turn to the employers—who are caught in the vicious spiral of inflation, the Price Code and other forms of Government interference and might not be able to assist—or they will have to bite into their capital reserves. Unless pension funds are treated in a special manner, many of those who wish to retire with the security and dignity of having provided for their own old age will become no more than pensioners of the State, which so many hon. Members appear to want.

They will be dependent not upon their own activity but on political action. By the 1980s they will be visiting the surgeries of Government Members. They will not be saying that they are relying on their own pensions but that their future security is in the hands of politicians. They will have to depend on the pressure that they can put on politicians for a modicum of comfort in their old age.

We are talking about the independence of private wealth and when one-third of the pension funds of 12 million of our citizens is being attacked, the Tory Party, which is preoccupied with independence and freedom, should be in the forefront of the battle.

Mr. Fairbairn

I have to declare an interest, if it is an interest. I pay £3.16p a year in order to obtain a pension for my widow under an Act passed in the days of George III when the Scots were interested in their families' welfare. I note again that Members of the Scottish National Party are absent from the debate.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) put forward the real and human arguments in favour of the new clause. But there is a more realistic argument based on the ordinary practical facts of the matter which the Government constantly overlook. If one removes from pension funds part of their money, they will either not be able to discharge their obligations or they will have to obtain the money from some other source, such as Government subsidies.

The Government's unrealism is particularly irritating. The Government attempted, through the mouth of a delightful but completely unbelieving Minister, to argue on the basis of some principle. I have re-read the speech to which I listened in Committee. It is rare in our profession to be able to re-read one's own speeches and discover how ineffective and bad they were. In this case I am sure that if the Minister re-reads the argument with which he attempted to convince his jury, he will see that it is fallacious in almost every sentence.

5.0 p.m.

The hon. Gentleman's principal argument—that what the community gives it should get back—is a nebulous concept. If it has any validity, the obverse of the coin is that what the individual creates he should be allowed to keep. But the Government's philosophy is the reverse. If the individual improves his property, he is rated higher and he must pay more tax for his effrontery; but if the community gives him planning permission to do it, it should have a benefit from that as well. The philosophy is one of "Heads I win, tails you lose."

The Minister said in Committee: The argument is that pension funds are good … I do not seek to dissent at all from that assertion. That is a major triumph of condescension. He went on to say: However, one should get this matter into perspective. Pension funds are not the only bodies that serve the community. However, they happen to be one of the exempt bodies which serve the community, and the fundamental argument is that they should remain exempt and not have part of their present income removed for a spurious theory.

The Minister added: 62 per cent. of male workers and only 28 per cent. of female workers were members of pension schemes. … It is in the nature of things no doubt."—[Official Report, Standing Committee J, 28th April 1976; c. 696–97.] I do not know in the nature of what it is that more than twice as many men do what women do, but I think that that was just said as a pause for breath. The hon. Gentleman seemed to think that it was unfair that more men were members of pension schemes, without relating the matter to the number employed or the fact that women were covered by their husbands' pension schemes.

The Minister went on to say that the purpose was to restore to the community most of the benefits arising from betterment following planning permission. That is the supreme fallacy. We have a sort of biblical concept that the Lord gives and the Lord shall take away, that when an official in the planning office gives someone permission to put up a public lavatory, a sweet shop, or a bungalow at the bottom of his garden, that affects everybody else and is all to be taken away.

I read the Minister's speech right through again and underlined it all. He was compelled to advance the wettest, most non-committal argument possible, and he clearly did not believe in it.

Mr. Russell Kerr (Feltham and Heston)

The hon. and learned Gentleman should read his own speech in Hansard tomorrow.

Mr. Fairbairn

I am glad that the hon. Gentleman is listening so carefully.

Mr. Kerr

I always listen carefully to the hon. and learned Gentleman.

Mr. Fairbairn

I am obliged to the hon. Gentleman.

The Minister advanced the spurious principle that what the community gives it must take away. The practical fact is that it means removing a large part of the funds from which pensions are now paid. The Government have no answer to those who ask what will take their place or what will happen on the retirement of the 12 million people who depend on them. What is so appalling—I except the Minister from this criticism—is that they do not care either.

The Minister of State, Treasury (Mr. Denzil Davies)

I am grateful to the hon. and learned Member for Kinross and West Perthshire (Mr. Fairbairn) for reading my speeches and underlining the words. I try not to read my own speeches, and I shall try not to read what I said in Committee, but there will inevitably be a certain amount of repetition in this debate, as there was last night when we debated charities.

I begin by returning to the figures that I gave to the Committee, not to prove any point but to make clear that many people were not members of occupational pension schemes. Some hon. Members have implied that we are here concerned with the vast majority of people, all of whom are in such schemes, and that the Government were depriving all of them of benefits by charging pension funds to development land tax.

I said in Committee that in 1971, 49 per cent. of people were members of occupational pension schemes. The figure may now have gone over the 50 per cent. mark. We are concerned with half the employed population, which is a substantial number of people.

Mr. Fairbairn

Does the Minister appreciate that in the local authority, which is his criterion for the community, more than half the people use less than half the services, so the same criterion applies?

Mr. Davies

I do not dispute that, but let us look at the breakdown of employed people. Sixty-one per cent. are non-manual workers and 35 per cent. are manual workers. We are concerned with a smaller number of manual workers who are members of occupational pension schemes. I am making the point that not everyone is a member of such a scheme. We are not seeking to impose an enormous burden on the vast majority of the people by introducing this taxing provision.

The hon. Member for Hitchin (Mr. Stewart) suggested that considerable damage would be done to pension funds. We are concerned only with taxing the betterment profit made by a pension fund. The fund will be exempt from capital gains tax on any investment that it makes. Hon. Members talk about investment. Betterment profit is not an investment, according to the normal meaning of the word. When one invests money, one receives a return from the investment. We are concerned with a betterment profit arising from the grant of planning permission. Normal investment in property and shares will still be completely exempt from capital gains tax, and pension funds can switch from one asset to the other, free of that tax. The funds have great advantages in respect of income tax, and they will continue even when the Bill becomes law.

The hon. Gentleman rightly said that if a pension fund engages in trade it is taxable at present. If the managers of a pension fund believe that they can profit on a piece of land by buying and selling it almost immediately, my understanding of fiscal legislation is that the profit is taxable. We are not breaching a substantial principle. The principle is that where the fund makes a trading profit, possibly a fortuitous trading profit, the tax is already levied.

We are concerned simply with the other kind of case manifested in the hon. Gentleman's example of the land in Sussex, where a fund buys land at current use value, possibly in the hope and expectation that planning permission will be granted, and then disposes of it at a considerably increased price. We are not concerned with the normal investment of a pension fund, because often that investment will be in property with high base values, where there is little likelihood of a betterment profit. Most cases caught by this legislation will be invested in green-field sites.

Mr. Cope

Not only green-field sites but development in towns will be affected by the Bill. The hon. Gentleman said last night, and has again suggested, that the gains in question will be speculative, windfall gains. That is a capricious view of the way in which local authorities make their decisions, suggesting some form of a lottery.

Mr. Davies

They are windfall gains, because they arise as a result of somebody else's action in granting planning permission. A pension fund would pay tax on the betterment profit in most cases where it had invested in land with a low value and then planning permission had been granted.

That is the sort of situation with which we are concerned. I suggest to Opposition Members that there is a good case for saying that such windfall profit, whether it is made by a pension fund, a property company or an individual, arises not from anything done by the investor but from a purely extraneous act by the local authority.

Mr. Fairbairn

In his concept of fairness, does the Minister agree that it would be a good idea if the Treasury were to make up the loss that a pension fund makes on an investment on the basis that it has been made a windfall loss?

Mr. Davies

No doubt the hon. and learned Gentleman will be present at a later stage when we discuss losses in relation to development gains tax. No doubt he will be able to deploy his arguments in those discussions.

The hon. Member for Hove (Mr. Sainsbury) felt that there would be some discrimination if we gave this relief to pension funds. He felt that there might be some discrimination between the pension fund that owns land and sells land and pays no tax, and other bodies—for example, property development companies which seek to develop and which would have to pay tax.

I did not use the two-tier market argument in relation to charities, as I did not think it was the best one to deploy, but here we can use it. If we give this exemption to pension funds that are in the property business—some of them are in it in a big way—we are discriminating between the pension fund that will pay no tax and the normal property company that will have to pay tax at 80 per cent. That is the discrimination. Surely that is a distortion of the property market that Opposition Members would not wish to see.

Mr. Sainsbury

Does the Minister recall that it was because of that effect that I said that New Clause 9 was not entirely supportable, and that New Clause 6 seemed to meet the point that I was making, and that the Minister has outlined to the House—namely, that charities and pension funds often carry out much the same operation?

Mr. Davies

I am glad that the hon. Gentleman goes some way towards agreeing with me and crossing the gulf that at an earlier stage he did not think existed. At least he has admitted that it is a fair point. By accepting New Clause 9 we should be creating a two-tier property market that would discriminate against property companies in favour of pension funds. Surely Conservative Members would not favour that situation. It does not seem to be favoured by the hon. Member for Hove.

Mr. Cope

Does the Minister appreciate that his argument can be used against an exemption for pension funds from income tax and capital gains tax, when earlier he gave an undertaking that those taxes would remain exempt as regards pension funds?

Mr. Davies

That argument may well be used, but, as I have said, pension funds will not be charged income tax or capital gains tax. If we were considering these matters from scratch and considering them academically, that argument could be used in relation to those two taxes. As regards development land tax, I believe that I have put forward a strong argument, although it does not seem to have been recognised as such by Opposition Members, apart from the hon. Member for Hove.

New Clause 6 seeks to give the same kind of relief to pension funds as is given to charities—namely, exemption for land owned on 12th September 1974. As I tried to argue in Committee, there is a difference between a charity and a pension fund. I accept that there is little difference between the Church of England, as a charity, when it purchases shares as an investment, and the ICI pension fund, which purchases shares or land as investments.

However, charities, especially the Churches, hold what might be called operational land and not investment land. That is why we gave the exemption to charities. Charities have to dispose of operational land and find other land on which to work. That does not apply to pension funds, whose investments in land are purely investments and are not for operational purposes. That is why the exemption was given to charities in relation to land held on 12th September 1974. The Churches would have been especially affected if we had not brought forward that exemption. Otherwise, in terms of investment in land, there is not much difference between one and the other.

5.15 p.m.

To argue that the charity exemption should now be given to pension funds is to misunderstand the purpose of the exemption, which was mainly intended to benefit the Churches and religious organisations, which may have to move from one part of the community to another as the population moves.

Mr. Budgen

Is it not right that the pension fund of the clergy will benefit because of the exemption that has been given to charities and to Churches? If that is so, what is the distinction between, for instance, the clergies' pensions and the miners' pensions?

Mr. Davies

I make it clear that in principle there is no distinction, in terms of the investment of funds in investment property. However, charities, especially Churches, have other land, which is not investment land but operational land, on which they have to operate. I do not want to labour this point as I have tried to explain it before, but the exemption is to benefit those organisations which otherwise would have been adversely affected.

We are concerned with the intention of benefiting the whole community. The hon. Member for Hove poured some scathing words on the contrast that I made between local authorities, charities and pension funds. I said that local authorities were at one end of the scale, that charities were possibly in the middle, and that pension funds were at the other end. In referring to pension funds, I had in mind occupational pension funds.

There is a private contract between the private pension funds and the private individual. It is not a public matter, although many members of the public benefit from pension funds. The occupational pension funds arrangement is an entirely private matter. Local authorities do not benefit in the same way, as their main concern is the benefit of the public and the community. I tried to argue that in between there are charities, which can benefit private persons but have to meet the test of public interest and public purposes. That is why I drew the distinction between authorities, charities and pension funds.

We are concerned with giving the primary benefit of gains arising from planning to the community and not to the private interest, namely, the pension fund. I can give one example that applies to my constituency, or to any other constituency, where the local authority wishes to purchase land for building a school. Under present law, if that land has betterment value the local authority has to pay 100 per cent. If this legislation is passed, the local authority will pay much less than that, because of net of tax provisions. I hasten to inform hon. Members that we have had more representations from the NUM than from any other pension fund on this matter, it being very local and voluble in its representations because it holds so much land in its pension fund. We have resisted those representations. I hope that hon. Members will give us some credit for doing that, as yesterday they were scathing about our domination, so they allege, by the unions.

If the NUM pension fund owns a piece of land and is able to dispose of it without paying any development land tax the local authority suffers by having to pay much more for the land. Therefore, one has a conflict between the interests of the local authority and the interests of the pension fund. Very often the investments that are made by a pension fund have no bearing upon the interests of the local community. A pension fund may invest in land merely in the hope of making a betterment profit. We think that that is unfair. We think that primary benefit should go to the local authority. We are concerned with only a small number of pension fund investments that produce windfall gains. Normally the capital gains that they make from their investments are completely free from tax.

The first new clause tries to equate the position of charities and pension funds, but they are not comparable in terms of the exemption. The other new clause seeks to create a two-tier market and to introduce discrimination against people whose business it is to develop property. For those reasons I ask the House to reject the new clause.

Mr. Graham Page (Crosby)

By virtue of 60,000 pension schemes, there is the provision of a very extensive welfare service to 12 million people, plus their dependants, and some 2 million are already receiving pensions under those schemes. As the Minister said, 49 per cent. of the employed people come under such schemes.

It is recognised in the Bill that many authorities which provide this kind of welfare service or social service are exempt entirely from this tax. Such bodies as district councils, county councils, parish councils, community councils, even police authorities, fire service committees, some housing associations, development boards, and the New Town Commission, are all providing public services and are allowed to be let off this tax entirely. But are they providing such a very different welfare and social service from the 60,000 pension schemes which provide these benefits of pensions to their 12 million members?

Under the Bill some sort of relief is recognised for the BBC and the IBA, the Atomic Energy Authority and the regional water authorities. Are they more deserving than these pension schemes? Yet not a tittle of relief is given in the Bill for the provision of pension schemes. Pension funds benefit the public, as my hon. Friends have said already in their arguments, not only by providing pensions but by providing for a source of very valuable and useful investment to industry and commerce.

Do the Government wish to deter these funds, and to move that money, as was suggested in earlier debates, from pension schemes and pension funds into industrial investment? Surely the trustees of a pension fund know what is the best form of investment in the interests of their beneficiaries. Indeed, investment in property has been shown by the trustees of the many pension funds to be particu-

larly appropriate for the funds they have to administer. But still we have no concession at all in the Bill for the pension funds, and no recognition of the harm which this tax will do to the beneficiaries of pension funds and the undertakings which employ them.

We shall show in the Lobby our disgust for the imposition of this tax upon the provision of pensions.

Question put, That the clause be read a Second time:—

The House divided: Ayes 267, Noes 283.

Division No. 192.]	AYES	[5.23 p.m.
Adley, Robert	Emery, Peter	Johnston, Russell (Inverness)
Aitken, Jonathan	Ewing, Mrs Winifred (Moray)	Jones, Arthur (Daventry)
Alison, Michael	Eyre, Reginald	Jopling, Michael
Amery, Rt Hon Julian	Fairbairn, Nicholas	Joseph, Rt Hon Sir Keith
Arnold, Tom	Fairgrieve, Russell	Kaberry, Sir Donald
Atkins, Rt Hon H. (Spelthorne)	Farr, John	Kershaw, Anthony
Awdry, Daniel	Fell, Anthony	Kimball, Marcus
Bain, Mrs Margaret	Fisher, Sir Nigel	King, Evelyn (South Dorset)
Baker, Kenneth	Fletcher-Cooke. Charles	King, Tom (Bridgwater)
Banks, Robert	Fookes, Miss Janet	Kitson, Sir Timothy
Beith, A. J.	Forman, Nigel	Knight, Mrs Jill
Bell, Ronald	Fox, Marcus	Knox, David
Bennett, Dr Reginald (Fareham)	Fraser, Rt Hon H. (Stafford & St)	Lamont, Norman
Berry, Hon Anthony	Fry, Peter	Lane, David
Biffen, John	Galbraith, Hon. T. G. D.	Langford-Holt, Sir John
Biggs-Davison, John	Gardiner, George (Reigate)	Latham, Michael (Melton)
Blaker, Peter	Gardner, Edward (S Fylde)	Lawrence, Ivan
Boscawen, Hon Robert	Gilmour, Rt Hon Ian (Chesham)	Lawson, Nigel
Bottomley, Peter	Gilmour, Sir John (East Fife)	Le Marchant, Spencer
Bowden, A. (Brighton, Kemptown)	Glyn, Dr Alan	Lester, Jim (Beeston)
Boyson, Dr Rhodes (Brent)	Goodhart, Philip	Lewis, Kenneth (Rutland)
Bradford, Rev Robert	Goodhew, Victor	Lloyd, Ian
Braine, Sir Bernard	Goodlad, Alastair	Loveridge, John
Brittan, Leon	Gorst, John	Luce, Richard
Brocklebank-Fowler, c.	Gow, Ian (Eastbourne)	MacCormick, Iain
Brotherton, Michael	Gower, Sir Raymond (Barry)	McCrindle, Robert
Brown, Sir Edward (Bath)	Grant, Anthony (Harrow C)	McCusker, H.
Bryan, Sir Paul	Gray, Hamish	Macfarlane, Neil
Buchanan-Smith, Alick	Griffiths, Eldon	MacGregor, John
Buck, Antony	Grimond, Rt Hon J.	Macmillan, Rt Hon M. (Farnham)
Budgen, Nick	Grist, Ian	McNair-Wilson, M. (Newbury)
Bulmer, Esmond	Grylls, Michael	McNair-Wilson, P. (New Forest)
Burden, F. A.	Hall, Sir John	Madel, David
Butler, Adam (Bosworth)	Hamilton, Michael (Salisbury)	Marshall, Michael (Arundel)
Carlisle, Mark	Hampson, Dr Keith	Marten, Nell
Chalker, Mrs Lynda	Hannam, John	Mates, Michael
Channon, Paul	Harvie Anderson, Rt Hon Miss	Mather, Carol
Clark, Alan (Plymouth, Sutton)	Hastings, Stephen	Maude, Angus
Clegg, Walter	Havers, Sir Michael	Maudling, Rt Hon Reginald
Cockcroft, John	Hawkins, Paul	Mawby, Ray
Cooke, Robert (Bristol W)	Hayhoe, Barney
Cope, John	Heseltine, Michael	Maxwell-Hyslop, Robin
Cordle, John H.	Hicks, Robert	Mayhew, Patrick
Cormack, Patrick	Higgins, Terence L.	Meyer, Sir Anthony
Corrie, John	Holland, Philip	Miller, Hal (Bromsgrove)
Crawford, Douglas	Hordern, Peter	Mills, Peter
Critchley, Julian	Howe, Rt Hon Sir Geoffrey	Mitchell, David (Basingstoke)
Crouch, David	Howell, David (Guildford)	Moate, Roger
Davies, Rt Hon J. (Knutsford)	Howell, Ralph (North Norfolk)	Molyneaux, James
Dean, Paul (N Somerset)	Howells, Geraint (Cardigan)	Monro, Hector
Dodsworth, Geoffrey	Hunt, David (Wirral)	Montgomery, Fergus
Douglas-Hamilton, Lord James	Hunt, John	Moore, John (Croydon C)
Drayson, Burnaby	Hurd, Douglas	More, Jasper (Ludlow)
du Cann, Rt Hon Edward	Hutchison, Michael Clark	Morgan, Geraint
Dunlop, John	Irving, Charles (Cheltenham)	Morris, Michael (Northampton S)
Durant, Tony	James, David	Morrison, Charles (Devizes)
Dykes, Hugh	Jenkin, Rt Hon P. (Wanst'd & W'dfd)	Morrison, Hon Peter (Chester)
Edwards, Nicholas (Pembroke)	Jessel, Toby	Mudd, David
Elliott, Sir William	Johnson Smith, G. (E Grinstead)	Neave, Airey
Nelson, Anthony	Roberts, Wyn (Conway)	Tapsell, Peter
Neubert, Michael	Rodgers, Sir John (Sevenoaks)	Taylor, R. (Croydon NW)
Newton, Tony	Ross, Stephen (Isle of Wight)	Taylor, Teddy (Cathcart)
Normanton, Tom	Ross, William (Londonderry)	Tebbit, Norman
Nott, John	Rossi, Hugh (Hornsey)	Temple-Morris, Peter
Onslow, Cranley	Rost, Peter (SE Derbyshire)	Thatcher, Rt Hon Margaret
Oppenheim, Mrs Sally	Royle, Sir Anthony	Thomas, Rt Hon P. (Hendon S)
Page, John (Harrow West)	Sainsbury, Tim	Thompson, George
Page, Rt Hon R. Graham (Crosby)	St. John-Steves, Norman	Thorpe, Rt Hon Jeremy (N Devon)
Parkinson, Cecil	Scott, Nicholas	Townsend, Cyril D.
Pattie, Geoffrey	Scott-Hopkins, James	Trotter, Neville
Penhaligon, David	Shaw, Giles (Pudsey)	Tugendhat, Christopher
Percival, Ian	Shelton, William (Streatham)	van Straubenzee, W. R.
Peyton, Rt Hon John	Shepherd, Colin	Vaughan, Dr Gerard
Pink, R. Bonner	Shersby, Michael	Viggers, Peter
Powell, Rt Hon J. Enoch	Silvester, Fred	Wakeham, John
Price, David (Eastleigh)	Sims, Roger	Walder, David (Clitheroe)
Prior, Rt Hon James	Sinclair, Sir George	Wall, Patrick
Pym, Rt Hon Francis	Skeet, T. H. H.	Walters, Dennis
Raison, Timothy	Smith, Cyril (Rochdale)	Weatherill, Bernard
Rathbone, Tim	Smith, Dudley (Warwick)	Wells, John
Rawlinson, Rt Hon Sir Peter	Spence, John	Whitelaw, Rt Hon William
Rees, Peter (Dover & Deal)	Spicer, Michael (S Worcester)	Wiggin, Jerry
Rees-Davies, W. R.	Sproat, Iain	Wilson, Gordon (Dundee E)
Reid, George	Stainton, Keith	Wood, Rt Hon Richard
Renton, Rt Hon Sir D. (Hunts)	Stanbrook, Ivor	Young, Sir G. (Ealing, Acton)
Renton, Tim (Mid-Sussex)	Stanley, John	Younger, Hon George
Rhys Williams, Sir Brandon	Steel, David (Roxburgh)
Ridley, Hon Nicholas	Steen, Anthony (Wavertree)	TELLERS FOR THE AYES:
Ridsdale, Julian	Stewart, Donald (Western Isles)	Mr. W. Benyon and
Rifkind, Malcolm	Stewart, Ian (Hitchin)	Mr. Michael Roberts.
Rippon, Rt. Hon Geoffrey	Stradling Thomas, J.
NOES
Abse, Leo	Cunningham, Dr J. (Whiteh)	Hamilton, James (Bothwell)
Allaun, Frank	Dalyell, Tam	Hardy, Peter
Archer, Peter	Davidson, Arthur	Harrison, Walter (Wakefield)
Armstrong, Ernest	Davies, Bryan (Enfield N)	Hart, Rt Hon Judith
Ashley, Jack	Davies, Denzil (Llanelli)	Hattersley, Rt Hon Roy
Ashton, Joe	Davies, Ifor (Gower)	Hatton, Frank
Atkins, Ronald (Preston N)	Davis, Clinton (Hackney C)	Hayman, Mrs Helene
Atkinson, Norman	Deakins, Eric	Heffer, Eric S.
Bagier, Gordon A. T.	Dean, Joseph (Leeds West)	Hooley, Frank
Barnett, Guy (Greenwich)	de Freitas, Rt Hon Sir Geoffrey	Horam, John
Barnett, Rt Hon Joel (Heywood)	Dell, Rt Hon Edmund	Howell, Rt Hon Denis
Bates, Alf	Dempsey, James	Hoyle, Doug (Nelson)
Bean, R. E.	Doig, Peter	Huckfield, Les
Benn, Rt Hon Anthony Wedgwood	Dormand, J. D.	Hughes, Rt Hon C. (Anglesey)
Bennett, Andrew (Stockport N)	Douglas-Mann, Bruce	Hughes, Mark (Durham)
Bidwell, Sydney	Duffy, A. E. P.	Hughes, Robert (Aberdeen N)
Bishop, E. S.	Dunn, James A.	Hughes, Roy (Newport)
Blenkinsop, Arthur	Dunnett, Jack	Hunter, Adam
Boardman, H.	Dunwoody, Mrs Gwyneth	Irvine, Rt Hon Sir A. (Edge Hill)
Booth, Rt Hon Albert	Eadie, Alex	Irving, Rt Hon S. (Dartford)
Bottomley, Rt Hon Arthur	Edge, Geoff	Jackson, Colin (Brighouse)
Boyden, James (Bish Auck)	Edwards, Robert (Wolv SE)	Jackson, Miss Margaret (Lincoln)
Bradley, Tom	Ellis, John (Brigg & Scun)	Janner, Greville
Bray, Dr Jeremy	Ellis, Tom (Wrexham)	Jay, Rt Hon Douglas
Brown, Hugh D. (Provan)	English, Michael	Jeger, Mrs Lena
Brown, Robert C. (Newcastle W)	Ennals, David	Jenkins, Hugh (Putney)
Brown, Ronald (Hackney S)	Evans, Fred (Caerphilly)	John, Brynmor
Buchan, Norman	Evans, Ioan (Aberdare)	Johnson, James (Hull West)
Buchanan, Richard	Ewing, Harry (Stirling)	Johnson, Walter (Derby S)
Butler, Mrs Joyce (Wood Green)	Fernyhough, Rt Hon E.	Jones, Dan (Burnley)
Callaghan, Jim (Middleton & P)	Flannery, Martin	Judd, Frank
Campbell, Ian	Fletcher, Raymond (Ilkeston)	Kaufman, Gerald
Canavan, Dennis	Fletcher, Ted (Darlington)	Kelley, Richard
Cant, R. B.	Foot, Rt Hon Michael	Kerr, Russell
Carmichael, Neil	Ford, Ben	Kilroy-Silk, Robert
Carter, Ray	Forrester, John	Kinnock, Neil
Carter-Jones, Lewis	Fowler, Gerald (The Wrekin)	Lambie, David
Cartwright, John	Fraser, John (Lambeth, N'w'd)	Lamborn, Harry
Clemitson, Ivor	Freeson, Reginald	Lamond, James
Cocks, Michael (Bristol S)	Garrett, John (Norwich S)	Latham, Arthur (Paddington)
Cohen, Stanley	Garrett, W. E. (Wallsend)	Leadbitter, Ted
Coleman, Donald	George, Bruce	Lee, John
Colquhoun, Ms Maureen	Gilbert, Dr John	Lever, Rt Hon Harold
Cook, Robin F. (Edin C)	Ginsburg, David	Lewis, Ron (Carlisle)
Corbett, Robin	Golding, John	Lipton, Marcus
Cox, Thomas (Tooting)	Gould, Bryan	Litterick, Tom
Craigen, J. M. (Maryhill)	Gourlay, Harry	Lomas, Kenneth
Cronin, John	Grant, George (Morpeth)	Loyden, Eddie
Cryer, Bob	Grant, John (Islington C)	Lyons. Edward (Bradford W)
Cunningham, G. (Islington S)	Grocott, Bruce	Luard, Evan

Mabon, Dr J. Dickson	Parry, Robert	Summerskill, Hon Dr Shirley
McCartney, Hugh	Pavitt, Laurie	Swain, Thomas
McElhone, Frank	Peart, Rt Hon Fred	Taylor, Mrs Ann (Bolton W)
MacFarquhar, Roderick	Pendry, Tom	Thomas, Jeffrey (Abertillery)
McGuire, Michael (Ince)	Perry, Ernest	Thomas, Mike (Newcastle E)
Mackenzie, Gregor	Phipps, Dr Colin	Thomas, Ron (Bristol NW)
Mackintosh, John P.	Prentice, Rt Hon Reg	Thorne, Stan (Preston South)
Maclennan, Robert	Prescott, John	Tierney, Sydney
McMillan, Tom (Glasgow C)	Price, C. (Lewisham W)	Tinn, James
McNamara, Kevin	Price, William (Rugby)	Tomlinson, John
Madden, Max	Radice, Giles	Tomney, Frank
Magee, Bryan	Rees, Rt Hon Merlyn (Leeds S)	Torney, Tom
Mahon, Simon	Richardson, Miss Jo	Tuck, Raphael
Mallalleu, J. P. W.	Roberts, Albert (Normanton)	Urwin, T. W.
Marks, Kenneth	Roberts, Gwilym (Cannock)	Varley, Rt Hon Eric G.
Marquand, David	Robertson, John (Paisley)	Wainwright, Edwin (Dearne V)
Marshall, Dr Edmund (Goole)	Robinson, Geoffrey	Walden, Brian (B'ham, L'dyw'd)
Marshall, Jim (Leicester S)	Roderick, Caerwyn	Walker, Harold (Doncaster)
Mason, Rt Hon Roy	Rodgers, George (Chorley)	Walker, Terry (Kingswood)
Maynard, Miss Joan	Rodgers, William (Stockton)	Ward, Michael
Meacher, Michael	Rooker, J. W.	Watkins, David
Mellish, Rt Hon Robert	Ross, Rt. Hon W. (Kilmarnock)	Watkinson, John
Mendelson, John	Rowlands, Ted	Weetch, Ken
Mikardo, Ian	Sandelson, Neville	Weitzman, David
Millan, Bruce	Sedgemore, Brian	Wellbeloved, James
Miller, Mrs Millie (Ilford N)	Selby, Harry	White, Frank R. (Bury)
Mitchell, R. C. (Soton, Itchen)	Shaw, Arnold (Ilford South)	White, James (Pollok)
Molloy, William	Sheldon, Robert (Ashton-u-Lyne)	Whitehead, Phillip
Moonman, Eric	Shore, Rt Hon Peter	Whitlock, William
Morris, Alfred (Wythenshawe)	Short, Rt Hon E. (Newcastle C)	Willey, Rt Hon Frederick
Morris, Charles R. (Openshaw)	Short, Mrs Renée (Wolv NE)	Williams, Alan (Swansea W)
Morris, Rt Hon J.(Aberavon)	Silkin, Rt Hon John (Deptford)	Williams, Alan Lee (Hornch'ch)
Moyle, Roland	Silkin, Rt Hon S. C. (Dulwich)	Williams, Rt Hon Shirley (Hertford)
Mulley, Rt Hon Frederick	Sillars, James	Williams, Sir Thomas
Murray, Rt Hon Ronald King	Silverman, Julius	Wilson, Alexander (Hamilton)
Newens, Stanley	Skinner, Dennis	Wilson, Rt Hon H. (Huyton)
Noble, Mike	Small, William	Wilson, William (Coventry SE)
Ogden, Eric	Smith, John (N Lanarkshire)	Wise, Mrs Audrey
O'Halloran, Michael	Snape, Peter	Woodall, Alec
Orbach, Maurice	Spearing, Nigel	Woof, Robert
Orme, Rt Hon Stanley	Stallard, A. W.	Wrigglesworth, Ian
Ovenden, John	Stewart, Rt Hon M. (Fulham)	Young, David (Bolton E)
Owen, Dr David	Stoddart, David	TELLERS FOR THE NOES:
Palmer, Arthur	Strang, Gavin	Mr. Joseph Harper and
Park, George	Strauss, Rt Hon G. R.	Mr. Ted Graham.

Question accordingly negatived.