Commons Sitting of 14 July 1977

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS
MERSEYSIDE PASSENGER TRANSPORT BILL (By Order)
Order read for resuming adjourned debate on Question [11th July], That the Bill be now considered.
Debate to be resumed upon Thursday next.
UNIVERSITY OF LONDON BILL [Lords]
(By Order)
Order for Second Reading read.
To be read a Second time upon Thursday next.

ORAL ANSWERS TO QUESTIONS
ORAL ANSWERS TO QUESTIONS
  HOME DEPARTMENT

    Broadcasting (Northumberland)
    1. Mr. Beithasked the Secretary of State for the Home Department what representations he has had from individuals and bodies in the county of Northumberland on the proposals of the Annan Report affecting regional and local radio.
    The Minister of State, Home Office (Mr. Brynmor John): We have received five letters from individuals and one from the Community Council of Northumberland, all supporting BBC local radio. In addition, Northumberland County Council in its provisional comments on the Annan Report has expressed support for the maintenance and development of the existing services of the BBC, including BBC local radio and the BBC's regional operations.
    Mr. Beith: Is the Minister fully aware from those representations that much of rural Northumberland has at present no service of local or regional radio and that the people there will never get it unless the BBC can continue in local radio and extend the service by a station at Alnwick? Is he also aware that there would be a major public outcry if the BBC had to abandon its present regional television service and programmes such as "Look North"?
    Mr. John: I am fully aware of that and of the support which has been expressed by the Northumberland County Council for the BBC's policy of extending coverage to all populations of more than 500.
    Mr. Whitehead: Is my hon. Friend aware that many people believe that the Annan Committee was right to recommend that there should be community control of local radio and that he will be receiving representations on that score from the Community Communications Association, which represents those who,

    757
    unlike the BBC, do not have a vested interest in maintaining the existing situation?
    Mr. John: I look forward to receiving those observations, but I hope that if they are coming they will come soon, because the consultation period ended on 1st July.
    Mr. Adley: Is the Minister aware that in my part of the world many people are very satisfied with BBC Radio Solent and would be very upset if anything was done to disturb its operation? Does he accept that many people will react to the destruction of anything that is good, whether it be grammar schools or local radio? Will he give an assurance that local Radio Solent will not be destroyed?
    Mr. John: Perhaps I should add to that catalogue by saying that I am perfectly satisfied with BBC Wales.

    Street Collections
    2. Mr. Liptonasked the Secretary of State for the Home Department if, in the light of the refusal of the Commissioner of Police of the Metropolis to permit a street collection in Lambeth by the Stockwell Group of Amnesty International, he will set up an inquiry into the working of the law relating to street collections.
    The Under-Secretary of State for the Home Department (Dr. Shirley Summer-skill): I do not consider that such an inquiry is needed.
    Mr. Lipton: Will my hon. Friend say why it is only in London that this worthy body, Amnesty International, is denied the opportunity of having a street collection? Why is it that even my right hon. Friend the Home Secretary has no jurisdiction over the Commissioner of Police in this regard? Who are the members of this mysterious advisory body which advises the Commissioner of Police on whether Amnesty International and similar reputable bodies should be allowed to hold collections in the London area?
    Dr. Summerskill: The committee is chaired by the Deputy Commissioner and its members comprise representatives of the London Mayors Association, the Labour Mayors Association of London, the Family Welfare Association, the County Councils Association, the Associa-
    758
    tion of District Councils, the London Council of Social Service and the London Boroughs Association. If my hon. Friend is not satisfied with the decision in this case, I recommend him to make further representations to the Commissioner, who, I am sure, will look at the matter again.

    Prisoners (Transfers)
    3. Mr. Arnoldasked the Secretary of State for the Home Department whether he is satisfied with the arrangements regulating the movement of prisoners from one prison to another.
    Mr. John: These arrangements are kept under continuous review, but if the hon. Member has a particular point of concern perhaps he would write to me about it.
    Mr. Arnold: I am grateful for that reply. Is it not the case that prison governors sometimes find themselves in the position of having to take in significant numbers of prisoners from other prisons at short notice? Does the Minister agree that this contributes to overcrowding and makes the running of prisons much more difficult in circumstances in which the governor literally may not know from one day to the next how many prisoners he will have?
    Mr. John: Clearly, if there is a sudden influx of population it makes any institution difficult to run. The reasons why prisoners are switched from prison to prison vary in many cases, but we try to give notice wherever possible.
    Mr. Hooson: In view of the deteriorating position in Walton Gaol, about which I have been in touch with the Home Secretary—we all know that there are great difficulties there—is it intended to move prisoners from that gaol as they are now threatened with being in their cells for 24 hours a day?
    Mr. John: I cannot give an answer to that question. Perhaps I may write to the hon. and learned Gentleman.
    Mr. R. C. MitchellWill my hon. Friend ensure that when prisoners are moved from one prison to another the near relatives are informed at the earliest possible moment, to avoid unnecessary visits to the wrong prison?
    Mr. John: Yes. I recognise the importance of what my hon. Friend has said, and we shall certainly do that.
    Mr. Alan Clark: Does the hon. Gentleman agree that recent cases have shown that the movement of prisoners carries grave risks both to public security and to the safety of prison officers? What new procedures has he authorised to be followed in such cases, and what steps is he taking to ensure that they are carried out?
    Mr. John: My right hon. Friend, in announcing his acceptance of the Hughes Report, indicated what steps he was taking. Clearly the carriage of prisoners can cause difficulty, but a proper assessment of the degree of danger and obedience to the steps laid down in the Hughes Report will minimise the danger.

    Grunwick Processing Laboratories Ltd.
    4. Mr. Aitkenasked the Secretary of State for the Home Department how many officers of the Metropolitan Police have been injured in the course of their duties at the Grunwick factory at the latest available date; how many arrests have been made there; and if he will make a statement.
    7. Mr. Adleyasked the Secretary of State for the Home Department if he is satisfied with police control in cases of mass picketing; and if he has any proposals for amending the laws on picketing
    12. Mr. Skinnerasked the Secretary of State for the Home Department how many police officers have been deployed outside the Grunwick Film Processing Laboratories on each day since 27th June.
    18. Mr. Goodhartasked the Secretary of State for the Home Department how many policemen have been on duty in the vicinity of the Grunwick factory during the industrial dispute there; and what is the estimated extra cost to public funds.
    The Secretary of State for the Home Department (Mr. Merlyn Rees): Between 13th June and 13th July, 377 people have been arrested in connection with picketing at the Grunwick factory and 243 police officers have been injured. Details of the maximum number of police officers avail-
    760
    able for duty on each day between 13th June and 27th June were provided in the reply which I gave to a Question by the right hon. Member for Devon, North (Mr. Thorpe), on 28th June. I will, with permission, circulate details for 28th June to 13th July in the Official Report; but information about costs could not be obtained without disproportionate effort.
    Mr. Aitken: In view of those horrific figures, would the right hon. Gentleman like to take this opportunity to pay tribute to the courage, restraint, and exemplary dedication to duty of the police? Will he also unequivocally condemn those who actively participated in these terrible, violent demonstrations?
    Mr. Rees: I am asked at every Question Time to pay tribute to and to support the police, and I gladly do it. But I prefer to have it taken as read that, as the Minister responsible for the police, I support them on all occasions, otherwise there will come a time when I have missed out and people will think that I have not done so. On the second part of the supplementary question, I condemn anybody who engages in violence at Grunwick or anywhere else.
    Mr. Adley: Is the right hon. Gentleman aware that the violence shown on television has been profoundly disturbing to many people and that people are alarmed that Parliament seems to regard this sort of behaviour as acceptable? Will he take this opportunity to tell the House and the people that he is aware of the disquiet and will do everything in his power to change the law to allay people's fears about this matter?
    Mr. Rees: My right hon. Friend the Secretary of State for Employment is considering the law on picketing. I learnt one thing when I was at Grunwick: do not call everybody who is around the gate a picket, because it is a misnomer. There are people there who are not picketing, who are given a name and who are there just to cause trouble. On the whole, they are the ones seen on television.
    Mr. Molloy: Does my right hon. Friend agree that for 44 weeks before the fracas commenced the behaviour of the pickets at Grunwick was exemplary and that, if they had had their way and could have sat down and talked about

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    their grievances, the strains imposed on police would never have taken place and neither would the violence spoken of this afternoon? Does he agree that much of the blame for the difficulties caused to the police must be put at the door of the management of Grunwick?
    Mr. Rees: What is for sure in all industrial disputes is that at the end of the day people must sit down and talk, because that is how a solution is found. My hon. Friend is absolutely right: there was no trouble at all for a very long time.
    Mr. Whitelaw: Does the Secretary of State agree that the police deserve the thanks of the House for the way in which they have carried out their duty of upholding the law passed by this Parliament? If he agrees, will he express to the Commissioner the thanks of the House for the way in which the police work has been carried out and extend our sympathy to the police officers who have been injured in the course of it?
    Mr. Rees: I agree. I have already done that. I presumed that I should be speaking on behalf of the House.
    Following are the details:—

    No. of Police Officers on duty at Grunwick since 28th June

    28th June

    …

    …

    1,338

    29th June

    …

    …

    615

    30th June

    …

    …

    746

    1st July

    …

    …

    745

    4th July

    …

    …

    858

    5th July

    …

    …

    643

    6th July

    …

    …

    437

    7th July

    …

    …

    431

    8th July

    …

    …

    335

    11th Jul

    …

    …

    3,706

    12th July

    …

    …

    429

    13th July

    …

    …

    215

    Stoke Mandeville Paraplegic Games (Rhodesian Team)
    6. Dr. Glynasked the Secretary of State for the Home Department what action he will take to ensure the admission to the country of four black members of the team from Rhodesia for the International Stoke Mandeville Games for paraplegics, in the light of the fact that four white members holding British passports may be allowed in.
    Dr. Summerskill: As my right hon. Friend the Foreign and Commonwealth Secretary indicated in his reply to a Question by the hon. Member yesterday, we
    762
    cannot agree to the entry of any members of this team unless the statement that individual members of the team would be representing Rhodesia is withdrawn.
    Dr. Glyn: I am grateful for that reply. I realise that the situation has changed since the reply on 4th July. Will the hon. Lady deal with two specific matters? First, I understand that travel documents would be denied to black Rhodesians if they applied for them at Pretoria, but what is the position of a paraplegic who holds a British passport? Would he be denied travel documents? Secondly, I understand from the hon. Lady's reply that, if the Chairman of the Rhodesian Paraplegic Association was prepared to allow individuals to come as individuals and not as representatives of their country, they would be admitted and given the necessary travel documents.
    Dr. Summerskill: On the first part of the supplementary question, even if a person has a British passport, if he wishes to come as a representative of Rhodesia or as a member of a team representing Rhodesia, what my right hon. Friend said in his statement would apply. Secondly, we have said that, if the chairman of the association is willing to withdraw his statement, we shall be glad to agree to the admission of these people as individuals.

    Metropolitan Police (Commissioner's Report)
    Mr. John Huntasked the Secretary of State for the Home Department what specific action he is proposing to take in the light of the report of the Commissioner of Police of the Metropolis for 1976.
    Mr. Merlyn Rees: I have given, and will continue to give, the fullest consideration to the many different aspects of the report in so far as they touch on my responsibilities.
    Mr. Hunt: What is the right hon. Gentleman's reaction to the comments of the former Commissioner on bail abuse? Does he accept Sir Robert Mark's rather alarming estimate that 3,000 crimes a year are being committed in London by people on bail? If that is so, does it not represent a real danger and a matter of great concern to the

    763
    people of Greater London, and does it not undermine the excellent detection work being done by the Metropolitan Police?
    Mr. Rees: I have noted with interest what the former Commissioner has said. When these figures are set against the total number of people released on bail, one sees that they are not inconsistent with those revealed by earlier research in London and Scotland indicating that about 5 per cent. of people released on bail abscond and about 3 per cent. are known to have committed offences while on bail.
    Mr. Christopher Price: Is my right hon. Friend aware that some of us who have criticised the police from time to time are glad on occasions such as this to pay tribute to the vast majority of the Metropolitan Police who do a very difficult job? Can he say something about what is happening concerning overtime payments in the Metropolitan Police? It seems that the sudden cutting of overtime payments which has been proposed by the new Commissioner will cause hardship to individual officers. Will my right hon. Friend discuss this matter with the Commissioner?
    Mr. Rees: I should have to be very careful in doing that. I have not issued any directive on the matter. The Commissioner recently decided, as a matter of good management, to introduce a new and more effective system for the control of overtime in the force. This year the financial provision for overtime in the force as a whole is the same as that made last year. There is certainly no intention that the new controls should interfere with the operational needs of the force. But this is a matter for the Commissioner. I am not in business to do the Commissioner's job of controlling the way in which he uses his men.
    Mr. Townsend: In many parts of London the Metropolitan Police are seriously undermanned. On such occasions as Monday, when one-sixth of the police force was deployed at Grunwick, coverage on the ground in outer London was very thin and a se ions situation could easily have arisen, particularly in my borough.
    Mr. Rees: There are about 1,300 extra Metropolitan Police men compared with
    764
    three years ago. Certainly that is not enough. Undoubtedly, when there is a special occasion—be it Grunwick or other occasions of a quite different nature—men are drawn in from other areas. It is Important that the number of men we recruit for the police should increase. Until Christmas, the recruitment rate was rising all over the country. It is curious that it has dropped this year, but I must take it into account.
    Mr. Arthur Lewis: Leaving aside special occasions, my right hon. Friend will be aware that there are stress areas in which there are certain peculiar problems calling for special police activity. I notice that my right hon. Friend is pulling a face. In some areas there is quite a lot of mugging and vandalism and people cannot walk on the streets in safety. Can my right hon. Friend do something to help the police, who are already undermanned, to ensure that they can get on with the job they want to do in areas such as mine and, I think, even his?
    Mr. Rees: There are parts of the country and parts of the metropolis where there are special problems, and my hon. Friend knows what they are. If there were more policemen, we could improve on the situation. The Commissioner is well aware of this and deploys his men accordingly.
    Mr. Alison: Following the matter raised by the hon. Member for Lewisham, West (Mr. Price), can the right hon. Gentleman, as the police authority for the Metropolitan Police, say categorically whether the Metropolitan Police force or any officers in it are engaged in any industrial action, working to rule or threatening so to do?
    Mr. Rees: The advice which I am given is that there is no working to rule. That is what I am told.

    Confait Case (Fisher Report)
    Mr. Christopher Priceasked the Secretary of State for the Home Department, whether he has now received the Fisher Report into the Confait case; and when he intends to publish it.
    Mr. Merlyn Rees: All I can yet add to the answer I gave to my hon. Friend's Question on 16th June is that I understand Sir Henry Fisher will be submitting his report shortly.
    Mr. Price: This is not very satisfactory. It has gone on for a long time. Is my right hon. Friend aware that the three boys in connection with whom the inquiry is taking place were acquitted as long ago as 1975 but that the fact that the inquiry is going on is holding up their compensation? They have received only a tiny fraction of it. Will my right hon. Friend have another look at this? Two of them are now married men, and they deserve a level of compensation to cover the debt that society owes them.
    Mr. Rees: My hon. Friend knows a great deal about this, and he will know that what I have said is that I am considering what part of the report to publish. One of the reasons for the delay is that Sir Henry is talking to some of the people who gave evidence to see whether they would object to their evidence being made public. I think that it would be a good idea to publish as much of the report as possible, but it is right that the people concerned should be asked, given the terms under which they gave their evidence.
    Mr. Freud: When the right lion. Gentleman decides to publish the Fisher Report, will he review his decision not to publish the report into the case of George Ince? It was, after all, made two years ago, and Mr. Ince's common law wife is desperately waiting for publication.
    Mr. Rees: The hon. Member for Isle of Ely (Mr. Freud) is talking about a different type of report. The terms on which the Confait inquiry was made are far different from the report made in the case to which the hon. Gentleman referred, assuming that he means the inquiry which I found under way when I first got to the Department. It is not normal for a report of that kind to be published. We are discussing different types of reports.

    Human Tissue Donations
    10. Mr. Dalyellasked the Secretary of State for the Home Department what proposals he has to ensure that coroners are as co-operative as possible in problems related to the donation of organs from victims of accidents or sudden death.
    Dr. Summzrskill: I would refer my hon. Friend to the reply given to a Question by my hon. Friend the Member for
    766
    Islington, South and Finsbury (Mr. Cunningham) on 29th April.
    Mr. Dalyell: What can be done to persuade the coroners who are perhaps least conscious of the need for donated kidneys to adopt the attitude of those who are most conscious of it?
    Dr. Summerskill: A circular letter was issued by the Home Office to coroners on 29th April of this year which sought to achieve some consistency of procedures amongst coroners. It seems to have helped to clarify the position of a coroner in the circumstances. It is felt generally that the circular was a helpful one.

    Immigration
    Mr. Dudley Smithasked the Secretary of State for the Home Department what evidence he has that immigration from the Indian sub-continent is now diminishing, as was forecast by successive Governments; and if he will make a statement.
    Dr. Summerskill: The main source of present immigration from the Indian subcontinent is the close dependants of men already settled here—in accordance with statutory entitlements in the Immigration Act 1971 and rules made under the Act by a Government of the Conservative Party. It is reasonable to suppose that these commitments, which the present Government have accepted, will in time decline.
    Mr. Smith: Nevertheless, do the Government consider that the present rate of immigration is acceptable?
    Dr. Summerskill: As my right hon. Friend the Leader of the House put it last week—I think very well—this is a matter of honour and humanity. The two must go together: accepting our commitments to the dependants and seeing that families are united.
    Mr. Powell: Will the hon. Lady answer the Question, which inquired whether immigration from this source was diminishing?
    Dr. Summerskill: Accepting what I said, yes. As I said in my original reply, once these commitments to the men already settled here are fulfilled, obviously there will in time be a decline.
    Mr. Stan Crowther: Does not my hon. Friend agree that it is becoming increasingly difficult for people who at least claim to be the dependants of men legally settled in Britain to persuade entry clearance officers in Karachi, Islamabad and Rawalpindi that they are the people they claim to be, and that the tendency now on the part of these officers is to err on the side of keeping out genuine cases rather than letting in false cases?
    Dr. Summerskill: If my hon. Friend is aware of genuine cases who have been kept out, perhaps he will let me know about them. But I have myself visited the posts, and I believe that they are striking the right balance between admitting the genuine people and keeping out the fraudulent ones.
    Mr. Alison: According to official figures, immigration in 1975 was higher than in 1974 and in 1976 it was higher than in 1975. Since the hon. Lady said that immigration was diminishing, are we to understand that the immigration figures for 1977 will be lower than those for 1976?
    Dr. Summerskill: Figures for individual years cannot be taken to be the trend of immigration decline. I thought about this carefully and I looked into it carefully because I anticipated this question. It is clear that we cannot pick one year and then say that there is a general trend towards a decline.
    Mr. Ovenden: Has my hon. Friend seen a leaflet published by an organisation calling itself the Anglo-Asian Conservative Association, which commits the Conservative Party to a recognition of the right of dependants to enter this country? Does she not find the attitude of Opposition Members in this House and in recent by-elections somewhat at variance with the commitment that they are giving the Asian population?
    Dr. Summerskill: I am still waiting for a categorical statement from the Leader of the Opposition about the attitude of the Conservative Party to the admission of wives and children of men already settled here. It is ambiguous at the moment.
    Mr. Budgen: Doe; the hon. Lady agree that there would be fewer cases of illegal entry and illegal overstaying if there were
    768
    further and better checks upon illegal working in this country? In that connection, will she confirm the report in The Times of 8th July that at least the Department of Employment is considering the institution of some form of identity card to prevent this illegal working?
    Dr. Summerskill: I do not accept the last part of the hon. Gentleman's supplementary question. I can, however, assure the House that my right hon. Friend has already announced that he is taking steps to tackle the abuse of illegal employment. The TUC is very concerned about it, and so are the EEC countries. Together with the EEC countries, we are having discussions on how this can be best brought about.

    Parole Board
    13. Mr. Freudasked the Secretary of State for the Home Department when he next proposes to meet the Chairman of the Parole Board.
    Mr. John: When either of them sees the need for a meeting.
    Mr. Freud: When the Minister meets the Chairman of the Parole Board, will he ensure that the chairman has fully digested and taken account of what I shall have said in tonight's Adjournment debate?
    Mr. John: I welcome the trailer for that debate in which the lion. Member and I shall take part either tonight or tomorrow morning. I wish that the hon. Member had been more explicit about what he will tell me in that debate.
    Mr. Edwin Wainwright: In his discussion with the chairman, will the Minister urge him to take note of what may be happening to people who are being released on parole after they have committed murder and rape? Will he make sure that he has consultations with the chairman before such persons are allowed out of prison?
    Mr. John: My hon. Friend has lumped together two categories that are not analogous. Parole is not available to those who have committed murder. My right hon. Friend the Home Secretary examines any proposal to release a murderer, or any life-sentence prisoner on licence.
    Mr. Eldon Griffiths: Will the Minister make clear that in his discussions with the chairman he will take account of the fact that an early release of Myra Hindley or the Shepherds Bush police murderers would be utterly repugnant to public opinion, and particularly to the police service?
    Mr. John: The hon. Member does not seem to understand that these matters are submitted to and considered by the Home Secretary. The case for the release of Myra Hindley has not been submitted to him, and on a number of occasions I have made it clear that there is no early prospect of her release. That should be clear beyond peradventure. The Shepherds Bush murderers are in the same position. We have received no proposals from the Parole Board for their early release.

    Wildlife (Sale)
    Mr. Hodgsonasked the Secretary of State for the Home Department if he will amend the Pet Animals Act 1951 to control the sale of exotic wildlife.
    Dr. Summerskill: No. I have no evidence that the Pet Animals Act 1951, together with the other legislation I mentioned in the reply I gave to the hon. Member's Question on 3rd May, is inadequate to control such sales; but my right hon. Friend the Secretary of State for the Environment is seeking the views of the Nature Conservancy Council on the adequacy of the legislation relating to the introduction of non-native species.
    Mr. Hodgson: is the Minister aware that wildlife parks are selling as pets a considerable number of animals that are not native to this country? If these animals should escape and breed in large numbers, they could present a considerable danger both to agriculture and to the balance of nature. Will the Minister bear in mind that the rabbit is not native either to this country or to Australia?
    Dr. Summerskill: The conduct of the business of selling animals as pets, whether they are wild or tame, is subject to control under the Pet Animals Act 1951. In relation to the hon. Member's question about threats to individuals, these are effectively dealt with by the Dangerous Wild Animals Act 1976.
    Mr. Hooley: Is my hon. Friend aware that the market for kestrels and other rare birds appears to be mainly in West Germany and Arab countries? Will she make representations to them about the danger to the species if this traffic continues?
    Dr. Summerskill: Certainly, I shall refer that question to my right hon. Friend the Foreign Secretary.

    Magazines and Films (Confiscation)
    16. Mr. Michael McNair-Wilsonasked the Secretary of State for the Home Department what quantity of magazines and films were confiscated by the Obscene Publications Squad in the 12 months ended 31st May 1977.
    Mr. John: In the 12 months ended 31st May 1977 the Obscene Publications Squad of the Metropolitan Police seized, while executing warrants issued under Section 3 of the Obscene Publications Act 1959, 209,052 copies of magazines and 1,492 copies of films for consideration by a court of their obscenity.
    Mr. McNair-Wilson: Is the Minister of State satisfied that the elements of permissibility which may have crept in as a result of corruption in the Obscene Publications Squad have now been drawn back to an acceptable limit? Is he concerned at all about displays of magazines which are openly described as hard porn "in shops in London?
    Mr. John: Because of the concern about this subject, the Home Secretary set up the departmental committee under the chairmanship of Professor Williams. I am satisfied that the Obscene Publications Squad will discharge its duty.
    Mr. R. C. Mitchell: What happens to those magazines and films after they are confiscated? [Interruption.] That is a serious question.
    Mr. John: This is not an occasion on which I can tell the House that the publications are about to be placed in the Library.
    Mr. Speaker: Mr. Michael Alison.
    Mr. Marten: He has not stood up.
    Mr. Speaker: I saw the hon. Gentleman twitch.
    Mr. Alison: My hon. Friend will get his turn. Can the Minister of State reassure the House about the very serious points made by my hon. Friend the Member for Newbury (Mr. McNair-Wilson) that an earlier regime of the Porn Squad at Scotland Yard may have resulted in the proliferation of porn being more widespread in London? Will he take steps to tighten up the situation so that it is at least comparable with the way in which this matter is handled in the provinces?
    Mr. John: The hon. Member asks the question as if my right hon. Friend and I actually operate the Metropolitan Police. This is a matter for the Commissioner, and I shall draw his attention to the question.
    Mr. Raphael Tuck: As porn is apparently here to stay, will the Minister of State try to persuade the Chancellor to do something that have been advocating for years—namely, to impose a heavy tax on pornography?
    Hon. Members: That would be a "sin tax".
    Mr. Marten: Did the figures that the Minister gave include pornographic material confiscated by Customs and Excise officials before it had landed? What success are these officials having in confiscating stuff before it actually arrives in this country?
    Mr. John: I cannot give an answer to that problem. I am discussing the seizure of goods in this country.

    Custodial Sentences (Prisoners from Wales)
    Mr. Wigleyasked the Secretary of State for the Home Department whether it is his policy to ensure, wherever possible, that persons from Wales convicted to sentences in gaol, borstal or other detention centres serve their time in institutions within Wales and, to the extent compatible with security considerations, as near as possible to their homes.
    Mr. John: The maintenance of home ties is an important factor in allocation, but one of the limiting factors is the number of places available in particular areas.
    Mr. Wigley: Does the Minister of State agree that, where security allows, it is highly desirable that prisoners should be held as near as possible to their homes? This would avoid alienation from their communities and ensure that their relatives were not penalised for their being imprisoned. Is he aware that there is no women's prison in Wales and that many prisoners who would naturally speak Welsh in their homes are not able to use the Welsh language in prison because there are no facilities for them to do so especially at prisons in England?
    Mr. John: There are only two men's prisons in Wales, one in Cardiff and one in Swansea, and both are a good way away from the Welsh-speaking area. I agree that the maintenance of home ties is an important factor, but resettlement considerations may militate against the proximity to home, because another prison may afford a better chance of rehabilitation and preparation for outside life.
    Mr. Heffer: Is my hon. Friend aware that many prisoners from Wales are lodged in Walton Prison, Liverpool? There is a dispute going on between the local branch of the Prison Officers Association and the management, and at the moment visitors are not being allowed to visit prisoners. This could cause a very difficult situation if it continues. Could my hon. Friend indicate what positive action is being taken on this matter in order to bring the two sides together for discussion? Is he aware that a settlement is urgently needed before there is a riot in the prison?
    Mr. John: As my hon. Friend may know, the Liverpool branch of the Prison Officers' Association has put forward to the governor a list of grievances, most of which relate to manning levels at the prison. Some of the grievances can be resolved locally, but others raise national issues. It is now being arranged for these to be negotiated with the association at national level.

    Animals (Experiments)
    Mr. Hooleyasked the Secretary of State for the Home Department how many separate establishments in Yorkshire and Humberside are licensed, or employ individuals who are licensed, to carry out experiments on animals.
    Dr. Summerskill: Thirty-two separate establishments in Yorkshire and Humberside are registered under the Cruelty to Animals Act 1876 as places where experiments on living animals may be performed by persons licensed to do so.
    Mr. HooleyHas the number been increasing or diminishing over recent years? How many inspectors are responsible for covering these 32 establishments',
    Dr. Summerskill: The number has increased over recent years. The one inspector for the North-Eastern area last paid a visit of inspection to the departments at Sheffield University—I know that my hon. Friend is particularly interested in that establishment—on 25th May. That gives an example of the frequency of visits.

    Metropolitan Police (Strength)
    Mr. Townsendasked the Secretary of State for the Home Department how much the Metropolitan Police is below strength; and what new measures he is putting forward to bring it up to strength.
    Dr. Summerskill: On 31st May 1977 the strength was 22,275 and there were 4,453 vacancies. We shall continue our support for the Commission's efforts to maintain a high level of recruitment to the force.
    Mr. Townsend: Is the Under-Secretary aware of the great concern in the London borough of Bexley due to the reduction of police strength, which has coincided with a considerable number of robberies in the main centre? When will the Government take firm and vigorous action to improve recruiting and the pay and conditions of London's policemen?
    Dr. Summerskill: There is no doubt that police recruitment has improved. We now have more policemen in the force than ever before in its history.
    Mr. Spriggs: What is the present strength of the St. Helens police force, and what is the cause of men leaving the police forces in all parts of the country?
    Mr. Speaker: Order. We could go round the country finding out the sizes of police forces. The Question, however, relates to the Metropolitan Police.
    Mr. Eldon Griffiths: Will the Under-Secretary check her facts and not mislead the House? In fact, recruitment to the Metropolitan force is now falling, and she knows it. In view of the shortfall in numbers in the Metropolitan force, why cut cadets, civilians and overtime and why not pay the police an adequate sum so that men and women willingly join this great service?
    Dr. Summerskiil: I adhere to my original statement that the total number is higher than ever before. The very high rate of intake during the second half of 1976 has not been maintained, but the levels so far this year are in line with 1975 and earlier years.
    Mr. Loyden: Will my hon. Friend look at the deployment of the police rather than the overall recruitment problem? Is she aware that in Liverpool arrests have been made of absolutely innocent people and that a 13-year-old boy was sent back to Belfast on his own without any escort? Does she believe that the question of where the police are deployed in that area, particularly—
    Mr. Speaker: Order. I must tell the hon. Gentleman the same as I told his hon. Friend the Member for St. Helens (Mr. Spriggs). This Question deals with the Metropolitan Police.

    Police (Pay Review)
    Mr. Eldon Griffithsasked the Secretary of State for the Home Department if he will announce the terms of reference, composition and chairman of the body he is setting up to review the negotiating machinery for police pay; and when he expects it to start work.
    Mr. Merlyn Rees: The terms of reference were announced by my right hon. Friend the Secretary of State for Scotland on 12th July.
    I hope that I shall be able to announce the names of the members very shortly and that the review will be able to start work by the end of this month.
    Mr. Griffiths: I am obliged to the Secretary of State and to his right hon. Friend the Secretary of State for Scotland for his announcement the other day. Will the right hon. Gentleman move as rapidly as possible to announce the name of the chairman and members of the review

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    body? Will he also make certain that this important inquiry gets to work rapidly and reports as soon as possible?
    Mr. Rees: Yes, Sir.
    Mr. Raphael Tuck: Does my right hon. Friend feel that police pay is not in the least commensurate with the hazardous job that they carry out? Does he agree that they are very badly paid— even worse than Members of Parliament?
    Mr. Rees: I have no doubt that some Members of Parliament are worth more than others. I shall take account of what my hon. Friend said.
    Rear-Admiral Morgan-Giles: Will the Home Secretary confirm that the terms of reference of this review body on police pay will be to announce the amounts due to the police as a fair case and that it will not be circumscribed by limitations of Government pay policy?
    Mr. Rees: The terms of reference are on the negotiating machinery, which has broken down. They are not to investigate pay rates.

    URBAN DEPRIVATION UNIT
    Q1. Mr. David Huntasked the Prime Minister which parts of the Urban Deprivation Unit arc based in the Home Office; and which have been transferred to the Department of the Environment, specifying how many staff are in each part and the annual cost of each part.
    The Prime Minister (Mr. James Callaghan): I refer the hon. Member to the reply which I gave to the hon. Member for Birmingham, Stechford (Mr. MacKay) on 7th July.
    Mr. Hunt: Is the Prime Minister aware that this unit is one of many financed by the Government appointed to study urban problems and that nothing is ever published of what they report? At a time when there is a need for a wider and more fundamental appraisal of the problems in areas such as Merseyside, what has happened to the comprehensive community programme and other imaginative ideas?
    The Prime Minister: This unit was specifically set up by Lord Carr, when
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    he was Home Secretary, for the purpose of study and research into a problem that has baffled a great many people since the end of the war. I do not think that we should underrate the need for it.
    The urban programme, together with the much larger resources that the Government are now devoting to it—£125 million a year—is the result of some of those studies. However, as one who was partially responsible for setting one of them up, I must say that not all the experiments have been uniformly successful.
    Mr. Loyden: Will my right hon. Friend look at the question of urban aid virtually being used on purely capital projects? The point made by the hon. Member for Wirral (Mr. Hunt) is valid to the whole concept of urban aid.
    The Prime Minister: I think that my hon. Friend underrates its value. I understand that 178 local authorities are now taking part in the programme. The projects include such matters as day nurseries, nursery schools and classes, lunch clubs and day centres for the elderly, adventure playgrounds, playgroups, housing aid centres, community centres, legal advice centres and so on. There are others. That is an indication of the value of the enterprises that are being conducted. Some of them are capital projects and others involve a great deal of use of staff.
    Mr. Steen: Can the Prime Minister explain why the findings of the community development project that he launched nine years ago, which cost more than£5 million and was aimed at discovering the real problems of urban deprivation, are still being kept secret?
    The Prime Minister: No, I could not explain that. Perhaps the hon. Gentleman will put down a Question on that matter to the Home Secretary. I was trying to deal with the reason for the transfer of the unit. I have not gone into the matter in detail. The community development project was the brainchild of a remarkable civil servant, Derek Morrell, who is now dead. I think that it deserved a better fate than it got. Its fate lay more in the hands of those who were carrying it out than in the mind of the originator.

    PAY POLICY (CHIEF SECRETARY'S SPEECH)
    Mr. Blakerasked the Prime Minister if the public speech by the Chief Secretary of the Treasury concerning pay policy delivered to the Industrial Society on 27th June represents Government policy.
    The Prime Minister: Yes.
    Mr. Blaker: Is it not surprising that the Chief Secretary did not mention one of the factors that contribute heavily to high pay claims—namely, the burden of direct taxation? Is the Prime Minister aware that four years ago the average payment of income tax by wage and salary earners was£350 a year, whereas this year it is estimated at£810? Is that not an intolerable situation?
    The Prime Minister: I suppose that, as the hon. Gentleman is trying to blind me with figures, the answer is that it depends naturally on the extent to which the salaries of those concerned have gone up. Perhaps the hon. Gentleman would care to tell us, in the form of a Question, what the increase in salaries has been.
    Mr. Kinnock: On the basis of his discussions this week, will my right hon. Friend assure us that in the pay policy for the forthcoming year workers in the public sector will be at no disadvantage compared with those in the private sector?
    The Prime Minister: I do not wish to anticipate the statement that my right hon. Friend the Chancellor of the Exchequer will make tomorrow. I ask my hon. Friend and the House to await that statement.
    Mrs. Thatcher: What is the position about the White Paper? There is a note on the tape that there will be no White Paper tomorrow but that there will be a statement by the Chancellor of the Exchequer. Does it mean no White Paper tomorrow or no White Paper at all?
    The Prime Minister: It means no White Paper at this moment. That is to say— [Interruption.] I do not know what is so funny about that. It means that, haying gone through the statement that the Chancellor of the Exchequer will make tomorrow, we think that it will be
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    perfectly adequate if that is reproduced in Hansard the next day. That is why.
    Mrs. Thatcher: With respect, this is a major change and not what we had been led to expect, which was that there would be a White Paper on pay policy. It looks as if we shall now be having a minor Budget Statement. Is the answer to my first question that the Prime Minister has abandoned the idea of having the White Paper before any economic debate?
    The Prime Minister: That is not so. The statement tomorrow will contain a statement on pay and the proposals that the Chancellor will put before the House in the Finance Bill next week. It is being done in this way for convenience. Whether there should be a White Paper in due course is something that the Cabinet can consider later, perhaps in the autumn. Why not? [Interruption.] I must say that this is an awful lot of fuss about very little. If I had not known the Opposition's capacity for nit-picking, I should have expected congratulations on having saved money tomorrow on printing.
    Mr. Bidwell: However understandably reticent the Prime Minister might be about commenting on pay policy now, is he aware that many of us recall that he was once the odd man out on this matter in a previous Administration?
    Mr. Tebbit: He might be now.
    Mr. Bidwell: Has not my right hon. Friend previously said that if the State intervenes too vigorously in pay matters it is the public sector workers who inevitably get clobbered?
    The Prime Minister: That is why I am in favour of obtaining agreement on pay policy whenever we can get it. That is the fairest way of trying to share the rewards in any modern industrial and complex society, otherwise the public sector workers tend to get left out. However, this happens to be a democracy, and the Government must operate within the confines of the argreement that they can secure.
    Mr. Arthur Lewis: What about the price of beer going up every three months?
    The Prime Minister: My right hon. Friend looks well on it anyway.
    Mr. Tebbitasked the Prime Minister if the public speech of the Chief Secretary to the Treasury concerning wages policy made on 27th June to the Industrial Society represents Government policy.
    The Prime Minister: I refer the hon. Member to the reply which I gave earlier today to the hon. Member for Blackpool, South (Mr. Blaker).
    Mr. Tebbit: Since the social contract is involved in wages policy, could the Prime Minister clear up the mystery about what has happened to it? Last Thursday he told me that it was not intact, and in a Written Answer yesterday he said that it was not broken. What has happened? Has it died or did somebody just quietly cut its throat?
    The Prime Minister: Knowing the care with which the hon. Gentleman frames his questions, I was extremely cautious in replying to the exact words that he used. Hence the difference in the definitions that he has just quoted. I try never to give the hon. Gentleman an opening if I can possibly avoid it.
    I have been refreshing my mind this lunch-time with the contents of the social contract. I am glad to say that it is still healthy and going strong, especially that part of the document which says that Government policies will continue to be worked out and priorities established in collaboration and after discussion with the trade unions.
    Mr. Powell: Will the Prime Minister refuse to be dismayed by the course of the Government's discussions with the TUC and hold fast to the principle that, as long as the Government maintain their policies over the control and supply of money, free collective bargaining can be restored without any danger to the objective of reduced inflation?
    The Prime Minister: I partially agree with the right hon. Gentleman. I agree with the part that says that free collective bargaining can be restored without undue damage. My objection to free collective bargaining in its raw state is that it makes for no sense of justice between the various groups of workers. That is why I should prefer—on every occasion that I could get it—an agreement with the trade unions in order to
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    get a general approach. When the Chancellor makes his statement tomorrow, that will not be the end of the matter. Further discussions will have to take place with the trade unions—with their consent —in the autumn. In the present circumstances, the country will need all the help that it can get from the trade union movement in the months ahead.
    Mr. William Hamilton: Knowing my right hon. Friend's high regard for the House, may we assume that the Chancellor's statement will be made to the House? Will the Prime Minister make that quite clear, because tomorrow would be a particularly appropriate day for the statement?
    The Prime Minister: Yes. It is the Chancellor's intention to come here at 11 o'clock to try to catch your eye, Mr. Speaker. I am sorry that the statement could not be made today, but the House must accept that there are considerable problems that must be overcome. I note the jubilation of the Opposition at the thought that the country is now moving into a new phase. I am glad to say that the patriotism of the trade unions is much greaer than that of right hon. and hon. Members opposite.

    PRIME MINISTER (ENGAGEMENTS)
    Mr. Dykesasked the Prime Minister if he will list his engagements for Thursday 14th July.
    The Prime Minister: This morning I presided at a meeting of the Cabinet. In addition to my duties in the House, I shall be holding further meetings with ministerial colleagues and others, including one with the staff side of the National Whitley Council.
    Mr. Dykes: In view of the continued delay and the refusal of the Government to give a statement today instead of tomorrow—which is extremely inconvenient to the House—will the Prime Minister say which of the Ministers with whom he will discuss these matters this afternoon will be in favour of wage increases above 10 per cent. next year and which of them will be in favour of a maximum of 10 per cent?
    The Prime Minister: I suggest that the hon. Gentleman waits until tomorrow. I

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    do not see why it should be inconvenient to travel on the Tube from Harrow tomorrow morning to hear an important statement.
    Mr. John Ellis: Will the Prime Minister find time during his onerous duties today to drop a note of congratulation to the British Steel Corporation, which has been selected to provide technical know-how for a new plant in Venezuela? If the Prime Minister does that, will he add a postscript to say that, while the British Steel Corporation is doing that, it should also invest to increase iron-making capacity at Scunthorpe, because there is no doubt that ever-increasing quantities can be made there?
    The Prime Minister: Writing such a letter would be a relief from some of my other duties. I am sure that the House will also be pleased to learn that the British Steel Corporation has landed a valuable management contract in Venezuela to build a new steel plant that will ultimately have a capacity of about 5 million tons. This is an example of a matter raised at our recent conference on industrial strategy, namely, that nationalised industries are moving into overseas work in conjunction with other firms in order that turnkey projects and other projects can be put together on a scale that would be beyond the competence of any individual firm. I hope that everybody will encourage this.
    Mr. Brocklebank-Fowler: What further discussions will the Prime Minister have today with his colleagues concerning a settlement in Rhodesia? Will he confirm or deny the report in The Guardian today that the Government could not conceive of British Forces taking part in any peacekeeping force during an interim period of government prior to a settlement in Rhodesia?
    The Prime Minister: I do not propose to comment on any newspaper report on these matters. We shall not have a Cabinet discussion on Rhodesia today, but the Foreign Secretary follows this matter continuously day by day and is in close touch with the American Secretary of State and the front-line Presidents.
    Mr. Arthur Lewis: When the Prime Minister has discussions later today, will he consider further explaining his opinion about wages control and why the Govern-
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    ment insist upon a 12-month period between wage increases? It was announced today that Whitbread was increasing the price of beer by one penny and that when the company was accused of doing this before price control was introduced it emphasised that it did this every three months. Will my right hon. Friend try to do something about controlling prices, if not every three months, at least once a year?
    The Prime Minister: I should be glad if my hon. Friend would put that question to my right hon. Friend the Secretary of State for Prices and Consumer Protection. There are regulations and I hope that the brewers are adhering to them. If not, I am sure that the Secretary of State will follow up the matter.
    Mr. Amery: Will the Prime Minister take this opportunity of welcoming the return to Rhodesia of Mr. Sithole, and will he make clear that if agreement can be reached between the Rhodesian regime and representatives of the African majority in Rhodesia the Government will not allow objections of the so-called Patriotic Front to stand in the way of our endorsing it?
    The Prime Minister: It would be a little dangerous to do that because it would involve a deliberate choosing of sides by the Government. The Africans will have to choose their own leaders. I hope that everyone appreciates that. I am happy to see the return of the Rev. Ndabaningi Sithole, and I should also be happy to see the return of Mr. Nkomo and Mr. Mugabe. It is not for the House to try to decide on one group in this matter.

BUSINESS OF THE HOUSE
Mr. Speaker: Business Question, Mrs. Thatcher.
Mrs. Thatcher: May I ask the Leader of the House to state the business for next week?
The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): The business for next week will be as follows:
MONDAY 18TH JULY—Supply [28th Allotted Day]: the second sessional Supply Day allocated to EEC affairs.
There will be motions on energy, the Community budget and the European Regional Development Fund. The relevant documents are listed in the Vote Office.
Following are the documents:
Energy
R/1284/77 Rational Use of Energy
R / 1292 /77 Energy Conservation, Building Conservation, Insulation etc,
R/1294/77 Energy Research Financial Support
R/1325/77 Energy Investment
R/1417/77 Energy Situation
Community Budget
R/1541/77 Preliminary Draft Budget of the EEC for 1978
R/1013/77 Maximum Rate of Increase of "Non-obligatory" expenditure relative to the 1978 Budget
R/480/77 Report by the Audit Board on the accounts for the Financial Year 1975
R/848/77 Council decision giving a discharge to the Commission in respect of the implementation of the Budget and of the rectifying and supplementary Budgets of the EEC for the financial year 1975
R/851 /77 Preliminary draft supplementary and amending Budget No. 1 for 1977
R/1226/77 Amendment of the first supplementary amending Budget for 1977
European Regional Development Fund
R/I611/76 European Regional Development Fund
R/1334/77 ERDF New Proposals
R/1613/77 Second Annual Report on ERDF
Motion relating to the Police (Amendment) (No. 2) Regulations.
TUESDAY 19TH JULY—Supply [29th
Allotted Day]: the Question will be put on all outstanding Votes.
There will be a debate on the problems of large towns and cities.
Motions on the Northern Ireland Orders on Preferential Payments in Insolvency, on Legal Aid, Advice and Assistance, and on Criminal Damage (Compensation).
Motion on the amendments to the Hops Marketing Scheme 1932.
WEDNESDAY 20TH JULY—Debate on counter-inflation.
Consideration of Lords amendments to the Price Commission Bill and to the Water Charges Equalisation Bill,
THURSDAY 21ST JULY—Progress on the remaining stages of the Finance Bill.
FRIDAY 22ND JULY—Report and Third Reading of the Patents Bill [Lords] and of the Administration of Justice Bill [Lords].
Second Reading of the Northern Ireland (Emergency Provisions) Bill [Lords] and of the Employment Protection Bill [Lords], which are consolidation measures.
Remaining stages of the Protection from Eviction Bill [Lords] and of the Rent Bill [Lords], which are consolidation measures.
Motion on the Iron and Steel (Borrowing Powers) Order.
MONDAY 25TH JULY—Completion of the remaining stages of the Finance Bill.
The House will wish to know that, subject to progress of business, it is hoped that the House will rise for the Summer Adjournment on Friday 29th July.
Mrs. Thatcher: May I put two points to the Leader of the House? What will be the motion for Wednesday's debate on counter-inflation? Will it be a motion to approve the Chancellor's statement? As the statement will be made on the last Friday for private Members' business and as the cross-examination of the Chancellor may take some time, would the Leader of the House consider allowing "injury time" for private Members?
Mr. Foot: I agree that it would be only fair, as a statement is being made, to provide "injury time" equal to the amount of time taken by the statement and questions. On the right hon. Lady's other question, it would be as well to hear the statement and its reception before making a decision about Wednesday.
Mr. Ford: When might my right hon. Friend be able to provide time for a debate on the report of the Joint Committee on the sound broadcasting of the House?
Mr. Foot: If my hon. Friend is referring to our motions, I hope that we shall be able to take them during the week after next before the House rises. If he is referring to a more general debate, that will have to wait until a later date.
Mr. Powell: In regard to the Northern Ireland orders on Tuesday and the importance of the Criminal Damage Compensation Order, will the right hon. Gentleman ensure that a business motion is tabled to extend the time available and that, if possible, this order is taken before the other two?
Mr. Foot: I think that it is proposed that the order to which the right hon. Gentleman refers should be taken before the others, but I shall consider what he said and also see whether we can provide some extra time.
Mr. English: My right hon. Friend has not quite answered the question of my hon. Friend the Member for Bradford, North (Mr. Ford) who asked when the report of the Joint Committee would be debated and not when some motion thought up by the Government would be debated. Can my right hon. Friend assure us that he is an honourable Gentleman and that he will not try to creep through the House on the last day of the Session with a change in what successive Select Committees have recommended?
Mr. Foot: I am not trying to creep through the House with anything or to use methods other than those that make it quite clear to all hon. Members what is proposed. We have indicated to the House on a number of occasions that we wish to proceed with the broadcasting of our procedures, but we have to put down motions that have to be carried in order to make that possible. There will be a full opportunity for my hon. Friend and anyone else to put his case before the decision is made.
Mr. Maudling: Will the Leader of the House arrange for a debate as soon as possible, and certainly before the House rises, on today's report from the Select Committee on the conduct of hon. Members?
Mr. Foot: I have noted, as other hon. Members may have done, the report that has been issued today and I fully accept that one of the major considerations to be taken into account is how soon we can debate it. If there is a desire in the House, particularly among the hon. Members concerned, to have a debate before the recess, I think that we should try to arrange one.
Mr. Andrew F. Bennett: Has my right hon. Friend seen Early-Day Motion No. 383 on the need to freeze the price of school meals? Could he arrange time either for the motion to be debated—since it has been signed by 150 hon. Members—or for the Secretary of State for Education and Science to make a statement?
[That this House urges Her Majesty's Government to withdraw its proposals to increase the price of school meals by 10p per meal per day planned to take effect in September 1977, believing that the increases proposed will undermine the value of the child benefi scheme, will cause hardship for the families of work-the value of the child benefit scheme, will undermine the school meals service and cause further job losses, and will damage the nutritional intake of children.]
Mr. Foot: The Government and I certainly appreciate the importance that many of my hon. Friends attach to this subject. The matter may figure, in a different form, in the discussions that take place next week.
Mr. Wigley: May I draw the attention of the Leader of the House to Early-Day Motion No. 301 concerning the reintroduction of Sunday postal collections? This motion has the support of 132 hon. Members of all parties. Can the right hon. Gentleman give an assurance that time will be made available to discuss this important subject?
[That this House calls upon the Government to draw the attention of the Post Office to the grave dissatisfaction, inconvenience and annoyance caused by the withdrawal of Sunday postal collections; and, in view of the proposed increases in postal charges, to press the Post Office to reintroduce the Sunday collection forthwith.]
Mr. Foot: I cannot say that there will be a debate before the recess, but this matter could be raised on the Adjournment motion.
Mr. Faulds: In view of the increasing public clamour to read my Adjournment debate on the trade practices of fine art auctioneers, when can we expect the long overdue copy of Hansard for 18th May?
Mr. Foot: The universal demand for this form of reading has been brought in

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upon me, chiefly by my hon. Friend. I shall certainly see whether we can send him away happy for the recess, even if we cannot do the same for all other hon. Members.
Mr. Cordle: May I warmly support my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) in his request for the earliest possible debate on the Select Committee's Report on the conduct of hon. Members, especially as there appear to be findings—on events that occurred in 1965—based on rules of conduct that were not enunciated until 1974?
Mr. Foot: I make no comment on anything that was said in the report. I have not had the opportunity to discuss the possibility of a debate through the usual channels, but I hope that the House will be able to debate the matter before the recess and I think that such a debate could take place the week after next.
Mrs. Wise: Will my right hon. Friend keep in mind the need to provide time at the earliest possible moment to debate the Court Report on child health and the Select Committee's Report on battered babies? They involve important matters relating to the welfare of mothers and children which need the attention of this House and of the Department of Health and Social Security.
Mr. Foot: I fully acknowledge the importance of both the subjects raised by my hon. Friend. She and others have urged upon me that we should have had debates on them before now. As the House can recognise, without my having to mention it, there is little time left before we come to the recess and I cannot promise a full debate. None the less, there are other opportunities, as the House knows, before we depart for the recess to raise individual questions, but I acknowledge that in these matters that would not be a substitute for a debate in the new Session.
Mr. Moate: The right hon. Gentleman will know of the considerable log-jam of Private Members' legislation, including the Abortion (Amendment) Bill. Can he say whether he has any intention of providing extra time, or Government time, for any of the Private Members' Bills in the queue?
Mr. Foot: There is a considerable logjam, but this is not an abnormal situation, and the Government have no proposals for providing extra time for Private Members' Bills.
Mr. Swain: Will my right hon. Friend have urgent discussions with our right hon. Friends the Secretary of State for Energy and the Prime Minister so that a decision can be announced to the House on the commencement date of Drax B power station? That will ensure that we do not get a repetition of what happened a few years ago when, to the disappointment of every hon. Member, a major decision was made and announced during the recess without due consideration of the matter by Parliament.
Mr. Foot: I appreciate the point raised by my hon. Friend, and this matter has been raised frequently in the House over recent weeks. I hope that a statement can be made to the House before we go into recess.
Mrs. Knight: Will the right hon. Gentleman make time for the Abortion (Amendment) Bill, as the Government did in 1966 for the original Bill, bearing in mind that this Bill is the result of two years' work by the Select Committee, that the Standing Committee has completed its work, and that an overwhelming number of Back Bench Members have signed an Early-Day Motion asking for time to be given to debate it?
[That this House, recalling that Her Majesty's Government of 1966 to 1970 provided ample time for the discussing and passing of the Abortion Bill, deprecates the attitude of Her Majesty's Government in refusing time for the discussing of the modest amendments contained in the Abortion (Amendment) Bill of 1977; and urges Her Majesty's Government to accept the expressed will of the House of Commons and provide the necessary time for the discussion of the Abortion (Amendment) Bill.]
Mr. Foot: There are strong feelings on both sides of the House on this matter, but I think that we had better proceed with the normal arrangements for Private Members' time before any further consideration is given to the matter.
Mr. William Hamilton: On the matter raised by the hon. Member for Birmingham, Edgbaston (Mrs. Knight), will my

789
right hon. Friend instigate an investigation into the way in which Chairmen of Committees dealing with controversial matters such as this are selected, especially as the two Chairmen selected for this Committee were known supporters of the sponsors of the Bill?
Hon. Members: Disgraceful.
Mr. Speaker: Any criticism of a Chairman must be by way of a substantive motion, and not otherwise.
Mr. William Hamilton: On a point of order, Mr. Speaker. The relevant motion is already on the Order Paper.
[That this House has no confidence in the Chairman of Standing Committee C, the honourable Member for Southend, East dealing with the Abortion (Amendment) Bill.]
Mr. Speaker: There it shall remain until it is debated.
Mr. Marten: The right hon. Gentleman will have noticed the great demand for a number of matters to be debated before we rise for the recess. Can we take it, and have his assurance, that we shall not waste time on any day on the Committee stage of the Bill dealing with direct elections to the European Assembly?
Mr. Foot: The hon. Gentleman will see that I have not set that matter down for debate next week. That is not due entirely to his representations, and perhaps not at all to his representations, but at any rate the matter does not appear in next week's business, and it is highly improbable that it will appear in the last week.
Mr. Hugh Jenkins: Will my right hon. Friend look at Early-Day Motion No. 414 dealing with Wimbledon and Putney Commons?
[That this House believes that the Wimbledon and Putney Commons are no longer used exclusively by those travelling there by foot and by horse-drawn transport; that the cost of maintaining the commons should no longer fall on those living within' three miles of their boundaries; and that the Wimbledon and Putney Commons Conservators set up under the 1875 Act should be abolished,
790
together with the special rate, and responsibility for the maintenance of the commons assumed by the Department of the Environment.]
Is my right hon. Friend aware that, almost alone of all people in this country, those living within three miles of Wimbledon and Putney Commons are forced to pay a special rate? Will he provide time for a debate on this matter? It used to be a small thing, but, with the full effects of inflation, it is becoming a severe burden on many of my constituents.
Mr. Foot: I am sorry to hear of the additional disadvantages suffered by my hon. Friend's constituents, but I cannot say that we can have a debate on the subject before the recess.
Mr. Shersby: Has the right hon. Gentleman's attention been drawn to Early-Day Motion No. 387 dealing with the remuneration of chemists which has been signed by nearly 200 hon. Members?
[That this House is deeply concerned about the prospect of a sharp acceleration in the rate of closure of chemists' shops, if proper regard is not paid to the chemists' claim for adequate remuneration.]
Will the right hon. Gentleman arrange for an early debate on this topic?
Mr. Foot: I cannot arrange for an early debate on this or some other topics that might be raised by other hon. Members in this period, because there is not time before the recess. I thought that the announcement about the possibility of adjourning for the Summer Recess on 29th July was the most helpful statement that I have been able to make in the House for quite a long time.
Mr. Greville Janner: In view of the continual and disgraceful refusal by the Crown Agents to give any information about the continued shipment of equipment to the armed forces and police in Uganda, and the universal disgust at the continuation of this unsavoury practice by a public body, will my right hon. Friend arrange for a statement to be made by the Minister of State for Overseas developmet or for a debate before we rise for the recess?
Mr. Foot: I shall consult my right hon. Friend to see whether she thinks that a

791
statement should be made, but this is a matter that can be raised by my hon. and learned Friend on some of the other occasions that will arise before we depart for the recess.
Mr. Monro: Is the right hon. Gentleman aware that the Government were defeated yet again, this time in the Scottish Grand Committee this morning? Can he tell hon. Members which subjects the Scottish Grand Committee will discuss next week, and on which motion? Further, will he ask his right hon. Friend the Secretary of State for Scotland to cease being irresponsible and to give Scottish Members the chance to discuss matters of great importance to Scotland?
Mr. Foot: I think that if it were the general wish a way could be found to provide further opportunities for debates in the Scottish Grand Committee, but I do not think that the blame for all the misadventures, if I might describe them as such, in the Scottish Grand Committee this morning can be laid at one door. It was most regrettable all round.
Mr. Canavan: Will my right hon. Friend arrange for an early statement to be made about the consequences of the Government's defeat on the Scottish Estimates Debate in the Scottish Grand Committee this morning, because any delay in providing for essential public expenditure to be paid to Scotland could mean a reduction in essential social services and more unemployment? Should not the people of Scotland be told about this latest Tory-SNP conspiracy hatched up by the Shadow Secretary of State for Scotland, who is living up to his reputation as a political gangster?
Mr. Foot: Until I heard my hon. Friend speak I was not sure what was the cause of the events that had taken place in the Scottish Grand Committee. I shall have to look into all his allegations before I can accept them, eager and ready as I am, as usual, to take everything that he says, on trust. I believe that the difficulties can be overcome and, if necessary, a special statement made to deal with the situation. We shall have to look at that.
Mr. Teddy Taylor: Will the right hon. Gentleman accept that the Government's
792
defeat this morning was solely on the basis of their quite discreditable attempt to prevent Scottish Members from debating next Tuesday the serious unemployment situation in Scotland? Does the right hon. Gentleman accept that unless he tables a motion before then it will be impossible for Scottish Members next Thursday and the following Tuesday to debate the serious problems of agriculture and transport? Will he assure us that the Secretary of State for Scotland, and Ministers in that Department, will stop these disgraceful attempts to prevent Scottish Members from discussing important Scottish issues?
Mr. Foot: There is no attempt by my right hon. Friend or by anybody else to stop discussion of these important matters. I dealt with this in reply to my hon. Friend the Member for West Stirlingshire (Mr. Canavan). I shall look at the matter in the light of the representations made by the hon. Gentleman to see whether it is necessary for a statement to be made at the beginning of next week.
Mr. Spearing: My right hon. Friend has announced an EEC debate on Monday on the three topics—energy, the Community Budget and regional affairs. Will there be three separate debates? May I ask why, instead of announcing EEC proposals in the normal way, he has put the document in the Vote Office? Can he say how many proposals are to be debated, and can he assure the House that all the reports of the Scrutiny Committee have been printed?
Mr. Foot: Perhaps I might take my hon. Friend's second question first. There are a number of matters, and to have read the list would have taken a long time. The documents are in the Vote Office, and I hope that my hon. Friend and everybody else will be able to consult them. We thought that it would be more helpful for the House if there were three separate debates. I believe that the view is shared by all those who have looked at the matter. I hope that my hon. Friend agrees that that is the best way to do it. That is what we are proposing.
Mr. Hal Miller: Can the right hon. Gentleman give us an assurance that should British Leyland need more money, either on an interim basis or as a next instalment of its investment policy, there

793
will be an opportunity to debate the matter when the Secretary of State makes a statement?
Mr. Foot: I have already said that I do not believe that there would be any sense in my promising debates on all the different subjects raised by hon. Members. That is not possible. The House knows which opportunities exist for debates before the Recess and hon. Members must look for such opportunities. When statements are made to the House next week or the following week, we cannot promise debates on all of them. Even so, other hon. Members are still pressing for statements. I therefore cannot give the answer for which the hon. Gentleman is asking. Indeed, he, among others, might be dismayed if I agreed.
Miss Richardson: Will my right lion. Friend recognise that a large body of distinguished medical opinion, as well as huge numbers of the public and the overwhelming proportion of Labour and trade union opinion, would be enraged if the Government gave special time—and privileged time—for discussion of the Abortion (Amendment) Bill? Will he underline once more the fact that the Government have no intention of doing so?
Mr. Foot: I have nothing to add to what I said before. I fully recognise that there arc strong views on this subject in all parts of the House That is why the Government have proposed to deal with the matter under the normal procedures of the House.
Mr. Michael Latham: Can the right hon. Gentleman give some guidance on the administrative—or perhaps they were political—difficulties which have led to the present situation by which the White Paper on the economic situation, which last week had not been written, is now apparently not to appear at all?
Mr. Foot: The hon. Member, unlike the rest of the House, has not caught up with the matter. There is no mystery and no difficulty. A statement is to be made to the House by the Chancellor tomorrow and I believe that the House will see that that statement makes the provision of a White Paper unnecessary. There is no mystery about it. Representations were made last week. We considered what would be the most convenient way of
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giving the information to the House and the country and we believe that a statement tomorrow will be the way to do it. When the House has heard the statement, it will probably concur.
Mr. Lipton: Will my right hon. Friend find time—perhaps after midnight one day next week or the week after—to discuss the three motions which I have tabled for the removal of three High Court judges, so that the House may at least have an opportunity to discuss the disgraceful judgment of the honourable Sir Philip Wien in converting a three-year sentence for a savage sexual assault into a six-months' suspended sentence?
[That an humble Address be presented to Her Majesty, praying that she will be pleased to remove the Right Honourable Sir Wentworth Roskill from the office which he holds as Justice of the High Court.]
[That an humble Address be presented to Her Majesty, praying that she will be pleased to remove the honourable Sir Gordon Slynn front the office which he holds as Justice of the High Court.]
[That an humble Address be presented to Her Majesty, praying that she will be pleased to remove the honourable Sir Philip Wien from the office which he held as Justice of the High Court.]
This cannot be done in any other way except by means of such motions as I have tabled. It is no good trying to work the subject into an Adjournment debate or anything else. It must be done as an entirely separate issue. It is rare that an occasion such as this presents itself, so I urge my right hon. Friend to try to find some time—it does not matter how late in the evening it is—one night before the recess for a discussion of those motions.
Mr. Foot: My hon. Friend is perfectly correct when he says that the only way in which the House can properly debate criticisms of judicial decisions is by the kind of motion that he has put down, but I cannot offer him any time to debate the matter before the recess. However, he seems to have managed to indicate his views on the question even though we cannot do so except on a motion.
Mr. Buchanan-Smith: Will the right hon. Gentleman take the trouble to find

795
out precisely what happened in the Scottish Grand Committee this morning? Is he aware that the Government Whip moved the closure while his own Minister was speaking and that he was subsequently—not surprisingly—defeated in the vote? What is the consequence of this, particularly since next Tuesday all outstanding Votes will be taken? Does it mean that there is no Supply for Scotland? Does it mean that we should look for a Governor-General and send for him?
Mr. Foot: It does not mean anything of the kind. It certainly does not mean the recall of my right hon. Friend the Member for Kilmarnock (Mr. Ross), if that is what was being suggested. These matters can be overcome, but the difficulties in the Grand Committee did not occur for the reasons that the hon. Gentleman has suggested. There were some difficulties all around and they must be sorted out for the convenience of all.
Mr. Mellish: Questions have already been asked of my right hon. Friend about the time being allowed for the Abortion (Amendment) Bill. Is he aware that it is an extraordinary concept of democracy that everything possible should be done to ensure that this House is not allowed to finalise the matter and that there are many in the House who, recognising that this matter must always be on a free vote, are pretty contemptuous of those who would do everything to ensure that the matter is not finalised?
Mr. Foot: I repeat to my right hon. Friend, as well as to others, that there are strong views on all sides and in different parties about this matter. It is sometimes said that because a Bill of this kind has been given a Second Reading, time must automatically be found for all the later stages of discussion. That has not been the case before and I do not believe that it could be made a rule of the House now without infringing the rights of other hon. Members. My right hon. Friend knows that as well as I do.
Mr. Mellish: Capital punishment, Michael.
Mr. John Page: In view of the portmanteau style of the right hon. Gentleman's answer to my hon. Friend the Member for Faversham (Mr. Moate) about Private Members' Bills, would the
796
right hon. Gentleman, with his usual courtesy, which he showed me recently in an answer on these matters, differentiate between Lords amendments to Bills and other proceedings on Bills? I believe that not since 1900 has time not been found to deal with Lords amendments to Private Members' Bills.
Mr. Foot: I agree that there is a difference. Lords amendments should be taken into account in the particular circumstances, but there is a difference, of course. That is one answer to some of my hon. Friends who have not applied their minds to that aspect of the matter.
Mrs. Hayman: Has my right hon. Friend noted the concern of the signatories of Early-Day Motion No. 420 on child benefit, and will there be an announcement about the level of child benefit next year before the recess?
[That this House regrets the announcement that there will be no increase in child benefit in November, notes the increasing burden of inflation on families with children, and calls on Her Majesty's Government to ensure a substantial increase in the level of child benefits next April over and above that which will be achieved through the next stage of the phasing out of child tax allowances.]
Mr. Foot: The Government have certainly taken note of the motion in the name of my hon. Friend and others, which may figure also in the discussions that the House has next week.
Mr. Tebbit: Has the right hon. Gentleman seen the answer given by the Secretary of State for Trade, saying that he hoped to sign the new Bermuda Agreement and place a copy in the Library on 23rd July? Since that agreement replaces one which has stood for 30 years, would he not think it appropriate to have a debate on the matter at least before the Summer Recess? Since the right hon. Gentleman has been kind enough to say when he expects the House to rise, can he also say, since he must have some idea, when he expects the House to return?
Mr. Foot: I cannot promise a debate on the Bermuda Agreement, important though it is, for the same kind of reason as I have had to give in so many other cases — although it is possible for the hon.

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Gentleman to raise the matter on the Adjournment and in some other ways. I do not say that that is a satisfactory way of dealing with the matter, but there is not time for the House to discuss all these matters before the recess. As for the date of our return, I hope very much that we shall make sufficient progress next week for me to be able to give the date next week.
Mr. Molloy: In the light of the Prime Minister's statement and the comments this afternoon on the achievement of the British Steel Corporation in capturing a remarkably valuable Venezuelan order, will my right hon. Friend the Leader of the House consider the possibility of the House having a debate on the achievements of Great Britain, of its industries and its inventiveness, to give us an opportunity to rebut the "knockers" of Great Britain and to follow the example of Mr. Peter Boon, the Chairman of Hoover Limited?
Mr. Foot: I quite agree with what my hon. Friend says, and I shall be glad to hear him make that speech at rather greater length during one of the debates on economic affairs next week.
Several hon. Members rose—
Mr. Speaker: Order. I propose to call those hon. Members who have been standing at every opportunity up to now, and any members of the Opposition Front Bench if they think it necessary.
Mr. Skinner: Is my right hon. Friend aware that it is one thing for him to announce a debate on the report of the Select Committee on the Conduct of Members through the usual channels, but it is important for him also to indicate at an early stage what will be the terms of the motion in the Government's name, whether or not the usual channels agree with that? Does my right hon. Friend realise that this matter will not be spirited away and that if the House is to retain any credibility whatever in the eyes of the public outside—it has not got very much—it had better get on with the job and clean the matter up?
Mr. Foot: I repudiate any suggestion from my hon. Friend or anyone else that the credit of the House is low throughout
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the country. I do not in any sense whatever accept what my hon. Friend says. Indeed, I believe that the House has always shown great intelligence, determination and skill in dealing with many of these matters, and I am sure that we shall deal with this subject in the same way. It is not at all a question of agreement between the usual channels. It is for the House of Commons as a whole to decide the matter, and every individual Member of Parliament will be able to give his decision upon it.
Mr. Forman: Since it is now nearly a year since publication of the Flowers Report on Nuclear Power and the Environment, and as it is several weeks since the Government tabled their official response to that report, will the Lord President reconsider his replies to me on the matter and arrange for a debate before the House rises for the decess?
Mr. Foot: I acknowledge again to the hon. Gentleman—I have a suspicion that I have done so before—that that subject has a strong claim for a debate. The difficulty is that time is getting much shorter. I cannot give him a promise, but I acknowledge that this matter is obviously a strong candidate for a full day's debate in the House.
Mr. Ian Lloyd: Although it would be unfortunate if the House were to go into recess without having an opportunity to debate any of the reports of the Select Committee on Science and Technology, which are of close relevance to the nation's industrial affairs, does the Lord President agree that it would be a dereliction of duty it we went into recess without taking an opportunity to debate events in Southern Africa?
Mr. Foot: These are questions which may be raised in different forms and which have been discussed in different forms. Again, I have to ask that the House recognise that there is limited time available.
Dr. Hampson: Is the Lord President aware of the great concern in the education world which has been caused by leaks that the Cabinet has rejected key parts of the Green Paper submitted by the Secretary of State for Education and Science, especially those parts relating to the role for parents? Will the Green Paper be published before the House

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rises tot the recess, and shah we have a chance to debate it fully before 29th July?
Mr. Foot: I cannot promise a full debate, and I ask those in the education world and everyone else not to stay awake at night worrying about such leaks, because most of the leaks I have seen are even wider of the mark than usual.
Mr. Budgen: Will the Leader of the House recall that it was as long ago as 9th February when the Franks Report on a register for immigrants was published and that on that occasion both Front Benches said that the matter should be debated? Since it now looks as though this matter cannot be debated before November, does the right hon. Gentleman agree fiat this long delay is tantamount to a stifling of urgent debate on a matter of great public concern?
Mr. Foot: Differing views in different parts of the House are held about the urgency of various questions for debate. The hon. Gentleman considers that this matter should have been debated, but his view has not been shared by everyone else. As I have said, it could have been raised on a Supply Day, but it was not chosen. The House must recogise, as anyone who listens to these questions on Thursdays will agree, that there is pressure for a huge range of subjects to be debated which, unfortunately, cannot be debated in view of the time available.
Mr. Maxwell-Hyslop: When do the Government intend that the House of Commons should take a decision about the method of election to the European Parliament? Do the Government's Liberal allies—[HON. MEMBERS: "Where are they?"]—wherever they may be, and the rest of their allies, approve of the proposition that the House should go into recess without this question having been decided and with the Boundary Commission having no basis on which it can do any work during the whole of the summer?
Mr. Foot: If the hon. Gentleman was present during the debates a week or so ago, he would, I think, have noted that it was recognised in many quarters that it would not be possible to proceed with the Bill this Session and therefore it would not be possible to decide the ques-
800
tion to which he has referred. It will have to be dealt with later.
Mr. Fairbairn: As the Public Bill Office has advised me, among others, that the Scottish Grand Committee will meet to discuss Scottish Estimates, and, in particular, agriculture, next Thursday, will the Lord President make sure that the Government do not, out of pique because they lost the direct labour Bill, frustrate that debate, since even he on Bastille Day, which this is, should appreciate that only some of us may picket but all of us have to eat?
Mr. Foot: I assure the hon. and learned Gentleman that the Government will not act out of pique in this matter or in any other. I hope that on 14th July, on Bastille Day, all hon. Members will recognise that what happened in the Scottish Grand Committee was not of great revolutionary consequence.
Mr. Spearing: On a point of order, Mr. Speaker. A few minutes ago my right hon. Friend the Lord President announced that there would be three separate debates on Monday, and, if my memory serves me aright, he said that the list of documents which the House should consider on those motions was too long to be read out. As I understand it, the House has established the Scrutiny Committee to refer to the House only those EEC proposals and documents which raise matters of importance which the House should debate.
I submit to you, Mr. Speaker, that the fact that the list is too long to be read out suggests that there is a large number of such documents of which both the general public and right hon. and hon. Members may not be aware at least until tomorrow night, and that the way in which the House is being advised of such business is not such as to meet the best practice of the House, the best interests of the United Kingdom or, indeed, the interests of those many hon. Members who in the past week or so have expressed concern in one way or another about democracy in the EEC. I hope, Mr. Speaker—and I so submit to you—that this practice will not be adopted in the future.
Mr. Foot: Further to that point of order, Mr. Speaker. All that I can say is that there are problems both ways. In

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announcing business, the Government wish to give as much indication as possible to the House of documents which are to be discussed, but when there is a considerable number of such documents it would be very tedious for the House if they were all read out. I believe that the arrangements which we have made will enable every hon. Member interested to ensure that he can get hold of the documents required in the debate.

QUESTIONS TO MINISTERS
Mr. Raphael Tuck: On a point of order, Mr. Speaker. In the past, if Ministers have wished to bracket Questions together for answer, it has always been the custom to inform hon. Members of their intention so to do. That practice seems to have been discontinued, with unfortunate consequences on some occasions. For example, I know that this afternoon one hon. Member came in late without knowledge that his Question was bracketed with another and so lost a chance to ask a supplementary question. I wonder, Mr. Speaker, whether you would see that the practice is now resumed.
Mr. Speaker: I think that the courtesy should be followed. I have no doubt that what has been said will be read in Hansard by those concerned, and that the Lord President has heard the request which the hon. Gentleman has put to me.

STATUTORY INSTRUMENTS, &C.
Mr. Speaker: With the leave of the House, I shall put the Question on all four motions relating to Statutory Instruments.
Ordered,
That the Anti-Dumping Duty (No. 3) Order 1977 (S.I., 1977, No. 1134) be referred to a Standing Committee on Statutory Instruments, &c.
That the Fishing Boats (Specified Countries) Designation (No. 3) Order 1977 (S.I., 1977, No. 1084) be referred to a Standing Committee on Statutory Instruments, &c.
That the Sea Fishing (Specified Foreign Boats) Licensing (No. 3) (Variation) Order 1977 (S.I., 1977, No. 1083) be referred to a Standing Committee on Statutory Instruments, &c.
That the West Coast Herring (Prohibition of Fishing) {No. 2) Order 1977 (S.I., 1977, No.
802
1101) be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Foot.]

BUSINESS OF THE HOUSE (FINANCE BILL)
Motion made, and Question proposed,
That the Third Reading of the Finance Bill may be taken immediately after the consideration of the Bill notwithstanding the practice of the House as to the intervals between the stages of Bills brought in upon Ways and Means Resolutions.—[Mr. Joel Barnett.]
4.9 p.m.
Mr. David Price: On a point of order, Mr. Speaker. Before we come to the Report stage of the Finance Bill, may I have your guidance and explanation on the grouping of new clauses? You have grouped together, as I understand it, New Clauses 15 and 16. It would assist us enormously if you would indicate the link between the two. I understand that in such circumstances there is usually some connection, but New Clause 15, in which I declare an interest, is headed "Tax treatment of mobility allowance paid to wife", and New Clause 16 is headed "Tax relief for travel to work expenses".
Mr. Speaker: It is Amendment No. 16. The list mentions New Clause 15 plus 16. If there is no "NC" in front of the number, that means it is an amendment rather than a new clause.
Mr. Durant: On a point of order, Mr. Speaker. I do not wish to challenge your selection of amendments, but three new clauses were tabled dealing with tax relief for commuters. That subject was not discussed in Committee. The matter was raised on a point of order during Report on last year's Finance Bill. Once again we are apparently not to be allowed to discuss it. A number of hon. Members feel that we should. I am surprised that we have not been given that opportunity.
Mr. Speaker: I spend a long time, as the House wouuld expect, considering amendments to the Finance Bill. I have done my utmost to do justice by the House. When I leave the Chair I shall look again at what the hon. Member has said, but I cannot offer him much hope that I am likely to change my mind.
Mr. Spriggs: On a point of order, Mr. Speaker. I wish to raise with you

803
New Clause 45 and the two amendments marked (a) and (b) at the bottom of page 2797 of the Amendment Paper. I understand that you have not selected those two amendments. If that is correct, will it be in order for those hon. Members who are interested in those two amendments, selected or not, to raise in debate matters relevant to them?
Mr. Speaker: Hon. Members will be able to refer only to the amendments called for discussion and grouped together. I am afraid that amendments that are not called cannot be discussed.
Mr. Ovenden: Further to that point of order, Mr. Speaker. I do not seek to challenge your selection of amendments and I appreciate your difficulties. It would be helpful if we could have some guidance as to what criteria are used in the selection of amendments. It is difficult for those of us who are trying to draw the attention of the House to the problems of disadvantaged groups and to persuade the House to do something about them if we do not know how to get these matters raised.
I draw your attention to New Clause 32, which deals with the taxation of widows. I realise that the subject was raised in Committee, but the present amendment varies considerably from that proposed in Committee. It takes a different line of approach to the problem.
I understand your problems, Mr. Speaker, in selecting the amendments for debate from such a long list. However, I am sure that you will realise the consternation that will be felt by the hundreds of thousands of widows when they find that their problems are not to be debated on the Floor of the House. They will be particularly concerned to know that considerable tine is to be given to discussions on capital transfer tax and capital gains tax, which affect people who are already over-privileged.
Mr. Biffen: I apologise Mr. Speaker. My point of order breaks the continuity. It arises out of yesterday's exchanges.
Mr. Speaker: Order. When I called him I thought that the hon. Member for Oswestry (Mr. Biffen) was about to make a point of order on the same subject.
I shall consider whether one day I should give guidance to the House on how I select amendments. But I should
804
be asking for major trouble. I think that there would be even more points of order that would last a long time because any statement that I made would be subjective. There would be 635 different views in the Chamber.
Mr. Biffen: On a point of order, Mr. Speaker. I do not wish to impede the progress of business, but I should like to raise a matter arising out of yesterday's exchanges when the hon. Member for Bolsover (Mr. Skinner) alleged mendacity against the President of the European Commission. You, Mr. Speaker, said that you would consider that incident. Do you intend to report back to the House about your judgment?
Mr. Speaker: When I left the Chair I felt that we had settled the matter. However strongly hon. Members feel that they must use the privilege of this House to make charges against people outside, they should remember that they have the same obligation to use parliamentary language. I had the feeling that the House accepted that when I made my statement yesterday.
Mr. Biffen: Further to that point of order, Mr. Speaker. May we then assume that members of the European Commission are in no privileged status set aside from any other bodies or persons outside the House? May we therefore assume that hon. Members may speak in respect of the judgments and opinions of members of the European Commission as they can in respect of other people outside the House?
Mr. Speaker: The hon. Member is absolutely correct. As the House knows, we divide the world into two—Members and strangers. The same rule applies to all strangers who are not Members of the House.
Sir G. Howe rose—
Mr. Speaker: Does the right hon. and learned Gentleman wish to speak to the Chancellor of the Exchequer's motion?
Sir G. Howe: Yes. But before doing that I should like to comment on the points of order raised by the hon. Member for Gravesend (Mr. Ovenden), who pressed you, Mr. Speaker, to explain the selection of amendments. Government Members may wish to remind you that

805
Lenin once said "Explain, explain, always explain". Hon. Members on this side of the House would like to remind you that Disraeli once said "Never complain, never explain". But that is entirely a matter for you, Mr. Speaker.
On the motion that we are discussing I should like to draw your attention to one matter and find the answer to another. The House will see that, as I understand it, the business motion provides for the new clauses relating to sub-contractors in the construction industry to be taken after Clause 17.
Mr. Speaker: Order. I am sorry to interrupt the right hon. and learned Gentleman, but I gather that he is probably on the wrong motion. The House is considering whether the Third Reading of the Finance Bill may be taken immediately after consideration of the Bill. With the leave of the House, I shall put that Question.
Question put and agreed to.
Ordered,
That the Third Reading of the Finance Bill may be taken immediately after the consideration of the Bill notwithstanding the practice of the House as to the intervals between the stages of Bills brought in upon Ways and Means Resolutions.

ORDERS OF THE DAY

  FINANCE BILL
  As amended (in the Committee and in the Standing Committee), considered.
  Motion made, and Question proposed,
  That the Finance Bill, as amended, be considered in the following order—

  (a) new Clauses other than those mentioned in paragraph (c) below;

  (b) amendments relating to Clause 1. Schedules 1 and 2, Clauses 2 and 3, Schedule 3, Clauses 4 and 5, Schedule 4, Clause 6. Schedule 5, Clauses 7 to 14, Schedule 6 and Clauses 15 to 17;

  (c) new Clause relating to subcontractors in the construction industry or relating to the percentages specified in section 112(3) or 113 of the Finance Act 1972;

  (d) amendments relating to Clauses 18 to 30, Schedule 7, Clause 31 to 34, Schedule 8 and Clauses 35 to 51;

  (e) new Schedules;

  (f) amendments relating to Schedule 9 —[Mr. Joel Barnett.]

  4.18 p.m.
  Sir Geoffrey Howe: I invite the Chief Secretary to tell the House more about what lies behind this motion. Its main provision is to provide that all the new clauses relating to subcontractors and those caught up in the 714 certificate snare should be taken after Clause 17, which deals with the standard rate of income tax. From that it looks as if the Government face the problem that, if we look at New Clause 38—tabled by my right hon. and hon. Friends and myself and designed to secure a reduction in the amount withheld from contractors in the construction industry from 35 per cent. to 33 per cent.—in the light of the Chancellor of the Exchequer's declared intention, made many moons ago, to reduce the standard rate of income tax from 35 per cent. to 33 per cent., the simple consequential proposal to put into effect the Chancellor's original declared intention cannot be taken until after we have dealt with Clause 17. That will finally fix for the nation the standard rate of income tax as declared in the Budget for the year which is already one quarter gone.
  Surely it is fantastic that, four months after the Chancellor declared in his Budget that he intended to introduced a change in the standard rate of income

  807
  tax from 35 per cent. to 33 per cent., by the beginning of Report we have still not had the terms of that reduction. The right hon. Gentleman said as long ago as last Christmas in his letter to the IMF that he would be introducing the reduction subject to a satisfactory agreement on pay policy. However, by the time that the Budget came no satisfactory agreement was forthcoming. Even on Report we still have no idea what the standard rate of income tax payable in this fiscal year will be, although the year is already one-third on its way.
  I must protest at this increasingly curious and unsatisfactory way of inviting the House to deal with the taxation of the British people. It means that we are left in doubt at this dying stage of this dying Bill from this dying Government. The Chief Secretary is sinking finally beneath the waves.
  Even now we are being asked to rearrange the order of the Bill because the Government still do not know whether they will reduce the standard rate of income tax. If they know, they have not told us. Sub-contractors who are affected by the clause do not know what will happen. It is probable that they will not know for some months. I ask the right hon. Gentleman to let us into the best kept Budget secret of the year—namely, whether the Chancellor will fulfil his Budget intentions. He should let the House know exactly what he has in mind, if anything.
  The Chief Secretary to the Treasury (Mr. Joel Barnett): I think that at some stage the right hon. and learned Member for Surrey, East (Sir G. Howe) suggested that it was sensible to debate what the rate should be for sub-contractors' deductions after the House decided the basic standard rate of tax. I agree with him. I am sure the House will agree that that is the sensible course to take. It is the purpose of the motion that we should do exactly that.
  As for its being fantastic that the House does not yet know the basic rate of tax, the rate in the Bill is 35 per cent. That would be the position whatever had happened or whatever my right hon. Friend the Chancellor of the Exchequer had said in his Budget speech. On Report the House of Commons can always change the basic rate of tax, or anything else, including personal tax allowances.
  808
  In fairly recent times it has been my experience that hon. Members do not always agree with the Government and from time to time seek to make changes in the wording of a Bill or the figures that appear in it. Surely there is nothing fantastic about that. Surely that is perfectly understandable. I think from time to time that those who disagree with me are wrong, but that is the democratic right of hon. Members.
  Question put and agreed to.
  Ordered,
  That the Finance Bill, as amended, be considered in the following order—

  (a) new Clauses other than those mentioned in paragraph (c) below;

  (b) amendments relating to Clause 1, Schedules 1 and 2, Clauses 2 and 3, Schedule 3, Clauses 4 and 5, Schedule 4, Clause 6, Schedule 5, Clauses 7 to 14, Schedule 6 and Clauses 15 to 17;

  (c) new Clauses relating to sub-contractors in the construction industry or relating to the percentages specified in section 112(3) or 113 of the Finance Act 1972;

  (d) amendments relating to Clauses 18 to 30, Schedule 7. Clauses 31 to 34, Schedule 8 and Clauses 35 to 51;

  (e) new Schedules;

  (f) amendments relating to Schedule 9.

New Clause 40

  INTERESTS IN SETTLED PROPERTY
  '(1) After paragraph 11(10) of Schedule 5 to the Finance Act 1975 (under which an interest in possession acquired by a company is not treated as such an interest unless the company's business consists wholly or mainly in the acquisition of interests in settled property) there shall be inserted—
  "(10A) Where the acquisition mentioned in paragraph (b) of sub-paragraph (10) above was before 14th March 1975—

  (a) the condition mentioned in paragraph (a) of that sub-paragraph shall be treated as satisfied if the business of the company was at the time of the acquisition such as is described in that paragraph; and

  (b) that condition need not be satisfied if the company is authorised to carry on long term business under Part I of the Insurance Companies Act 1974 or Part II of the Insurance Companies (Northern Ireland) Order 1976.".

  (2) This section shall be deemed to have come into force on 29th March 1977.'.—[Mr. Denzil Davies.]
  Brought up, and read the First time.
  The Minister of State, Treasury (Mr. Denzil Davies): I beg to move, That the clause be read a Second time.
  The clause deals with the capital transfer tax treatment of interest in settled property acquired by insurance companies and other companies. It meets the substance of a point that was raised in Committee on New Clause 131, which was tabled by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) and the hon. and learned Member for Dover and Deal (Mr. Rees). The new clause was not actually moved, but New Clause 40 meets the substance of the point that was raised in Committee in respect of settled property and insurance companies. It is a limited clause. It deals with a specific matter raised by the right hon. and learned Member for Surrey, East (Sir G. Howe) in a letter of 3rd June to my right hon. Friend the Chief Secretary.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 42

  MAINTENANCE FUNDS FOR HISTORIC BUILDINGS: INCOME TAX RELIEF
  (1) This section applies to any settlement in relation to which the Treasury have given a direction under section 84 of the Finance Act 1976 (maintenance funds for historic buildings).
  (2) The trustees of the settlement may elect that this subsection shall have effect in relation to any year of assessment, and if they do so—

  (a) any income arising in that year from the property comprised in the settlement which, apart from this subsection, would be treated by virtue of Part XVI of the Taxes Act (settlements) as income of the settlor shall not be so treated; and

  (b) no sum applied in that year out of the property for the purposes mentioned in subsection (3)(a)(i) of the said section 84 (maintenance etc. of a building or land) shall be treated for any purposes of the Income Tax Acts as the income of any person—

  (i) by virtue of any interest of that person in. or his occupation of, the building or land in question; or

  (ii) by virtue of section 451 of the Taxes Act (sums paid to settlor otherwise than as income).

  (3) Where income arising from the property comprised in the settlement in a year of assessment for which no election is made under
  810
  subsection (2) above is treated by virtue of the said Part XVI as income of the settlor, paragraph (b) of that subsection shall have effect in relation to any sums in excess of that income which are applied in that year as mentioned in that paragraph.
  (4) Any election under subsection (2) above shall be by notice in writing to the Board in such form as the Board may require and shall be made within two years of the end of the year of assessment to which it relates.
  (5) Where—

  (a) circumstances obtain for part of a year of assessment by virtue of which income arising from property comprised in the settlement is treated as income of a settlor under the said Part XVI; and

  (b) no such circumstances obtain for the remainder of that year,

  the foregoing provisions of this section shall apply as if each of those parts were a separate year of assessment and separate elections may be made accordingly.' — [Mr. Joel Barnett.]
  Brought up, and read the First time.
  Mr. Joel Barnett: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker (Sir Myer Galpern): With this it may be convenient to discuss New Clause 77—Extension of the scope of maintenance funds for historic buildings, &c.
  Mr. Barnett: The clause gives effect to an undertaking that was given in Committee in respect of historic buildings. The point has been made frequently that there should be some relief for the income of maintenance funds. It has been argued that they should not be liable to tax at the highest rate of the person concerned.
  This argument was put to me by the hon. Member for Cornwall, North (Mr. Pardoe) some of my hon. Friends and some Opposition Members who, I know, are interested in the heritage and historic houses. I share their concern that we should do everything possible to help to maintain historic houses in the best possible condition and make them available for the maximum number of people so that they may obtain benefit from them.
  I am pleased to be able to move the clause, which I hope the House will find acceptable. Its purpose is to give the trustees of a maintenance fund approved by the Treasury the power to elect that income shall be assessed at the basic rate —that is 35 per cent.—and the additional rate of 15 per cent. only instead of, as

  811
  at present, the owner's highest rate of tax. This is not an insignificant relief. I hope that it will be found helpful in meeting the purposes that we all have in seeking to help historic houses and their maintenance.
  Mr. Nicholas Ridley: Will the right hon. Gentleman give the House an estimate of what might be the cost to the Revenue of the new clause?
  Mr. Barnett: That is not possible as it depends on how many people use the idea of a maintenance fund given this additional relief. I hope that many people will use it so that more historic houses can be maintained for the benefit of the country generally. I am sure that the hon. Gentleman understands that it is not possible for me to state the cost. I do not expect that it will be all that much in terms of the amounts of money that we usually discuss. The size of the funds will depend on how much money is available from the owners of historic houses. I do not expect the cost to he a great deal.
  Mr. David Howell: I ask the right host. Gentleman a preliminary question, namely, how many maintenance funds have been set up since the concession was introduced a year ago?
  Mr. Barnett: I shall be happy to deal with that question when I reply to the debate.
  Mr. Peter Rees: The right hon. Gentleman has come back to the debates that we had on this issue last summer. He will recall that at that time I outlined the difficulty about the perpetuity provisions, namely, that on the whole it is not possible, except in the case of a charitable settlement, to prolong them beyond 80 years. As we hope that our historic houses will survive for much longer than that, there may be only limited benefit. I am not trying to make the right hon. Gentleman sound ungenerous, but has he applied his mind to that problem? Is he prepared to deal with it in respect of this clause, or anywhere in the Bill?
  Mr. Barnett: As the hon. and learned Gentleman will know, that does not relate directly to the clause but to the whole concept of setting up a maintenance fund. The clause seeks to give additional relief
  812
  to those setting up such funds. I am aware of the argument that the hon. and learned Gentleman has raised previously about the problem of perpetuity legislation and the 80-year provision. I do not think that it relates directly to the additional relief that is now being given. I think that the clause is reasonably self-explanatory but I shall be happy to answer any questions that arise.
  Mr. Robert Cooke: I think that it will come as a relief to the Government to know that I shall not repeat my Second Reading speech, which was directed especially to this issue. However, nothing has changed for the better since then. I am prepared to wager that the clause will do nothing to prevent the rapidly accelerating loss of the national heritage, including building, landscape and works of art.
  Capital transfer tax, as it affects the heritage, is still a killer. It is true that after long and weary debates the Government agreed to exempt in exchange for public access to outstanding buildings, their settings—that is, gardens and unproductive scenery and historically related contents.
  Dr. Jeremy Bray: On a point of order, Mr. Deputy Speaker. Is this anything to do with capital transfer tax?
  M. Deputy Speaker: Indirectly it is. It relates to New Clause 42. I hope that we shall not go into that matter in any great depth.
  4.30 p.m.
  Mr. Cooke: I hope that I shall be allowed to conclude my brief remarks and I am sorry that the hon. Member for Motherwell and Wishaw (Dr. Bray), who has never agreed with me about anything, takes exception to them. Nothing effective has been done to provide the resources required to maintain and give access to these homes. It is no use tinkering with the problem, as has been the case in recent years. The pages of new clauses and amendments, selected or unselected, in past debates have all sought to tinker with the existing impossible taxation system.
  The heart of the matter is that we must leave the owners of our heritage with the resources—capital and income—to maintain it and to make it accessible to a wider and wider public. Until this is done we

  813
  shall be faced with what before long will become a veritable avalanche of disasters. Nobody could doubt that truth of this assertion in view of the events of the past three months.
  One good thing has emerged from all this. Yet more people have a real understanding both of the nature of the problem and the means for its solution. There is immense enthusiasm and it runs right across party lines. We all know what needs to be done—and some of us have shown the Government the way to do it.
  Mr. John Pardoe: I welcome the Government's New Clause 42. It honours a commitment made in Committee by the Government to accept the principles enshrined in a new clause which I moved in Committee and which obtained support there.
  The questions that were asked a little earlier by the hon. Member for Guildford (Mr. Howell) and the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) show what a miserable lot the Conservatives are, because in their fascination by adversary politics they disagree with everything.
  For once we have reached all-party agreement, as the hon. Member for Bristol, West (Mr. Cooke) will agree—although I doubt whether a small group of Labour Members who are nearer to Moscow than to London will endorse that agreement. We ail agree that the heritage matters and that it is far better administered in the hands of private owner-occupiers than by curators on behalf of the State. This agreement was reached in the Select Committee on the Wealth Tax, and that agreement has now spread across the House, with a few exceptions.
  I do not suppose the Chief Secretary can put his hand on his heart and give figures showing that there is an enormous number of maintenance funds of this kind. The reason is that so far the position of such funds has not been all that attractive. I do not know whether this clause will make such funds more attractive.
  The advice I have received from the heritage lobby, if I may so call it, is that this clause will make it more attractive to set up maintenance funds. In the case of the smaller and less important houses, which are still a vital part of our heritage,
  814
  this provision will certainly make the situation more attractive. I hope that as a result of these new provisions we shall see an increase in the number of maintenance funds. In a year's time we shall probably be able to assess progress and, if necessary, make further changes.
  Mr. Ridley: The hon. Member for Cornwall, North (Mr. Pardoe) has made his usual condemnation of adversary politics. It extended to his taking a nasty swipe at my hon. Friend the Member for Guildford (Mr. Howell) and myself for daring even to ask questions on this clause—questions that were not meant to be hostile. He also took a nasty swipe at hon. Gentlemen now absent who are a little further Left of the spectrum than is the hon. Member for Cornwall, North.
  I find his idea of adversary politics somewhat extraordinary. He brings that phrase to mind when people are rude about him, but he never thinks of it when he is rude about other people. That is one of the odd things about the Liberal Party: sin is only evident when it is inflicted by others on the Liberals. One well remembers Lord Rosebery's comment about the "fly-blown phylacteries" in the Liberal Party. We have had all kinds of philosophies trotted out on those lines. It shows the instability of Liberal thought in matters great or small.
  Even in small matters such as this the Liberals show no consistency. The hon. Gentleman tabled an excellent new clause in Committee—I think that it was New Clause 121—which sought to extend the principle in regard to designated lands to support part of the case for historic buildings. However, when it came to a vote the hon. Gentleman was silent. I wonder why? Perhaps the Chief Secretary can enlighten us about why the hon. Gentleman did not pursue his voice with his vote in Committee. Is the answer that his famous pact was working upstairs? No doubt we see the fruits of that pact in the form of New Clause 42.
  I repeat that my hon. Friends and I were merely trying to see how ripe and sweet the fruit was. The Chief Secretary said that this provision would probably cost very little—in which case it will probably do very little good. That surely must follow.
  Mr. Pardoe: The hon. Gentleman is not mathematically correct. The money

  815
  in terms of total intake of taxation may be little, but in terms of the number of people likely to own country houses it might be a good deal. He knows that the total yield from tax in this category is small, but for a limited number of people who pay it it can amount to a considerable sum.
  Mr. Ridley: It is expensive to maintain historic buildings, and this country is blessed with a large number of them. If anything can be done to maintain our historic homes, it should be done. However, I must conclude that this minute concession—and I have in mind that I am wearing my public expenditure hat—will not do much to put the matter right, and I emphasise that I speak with a great love of historic buildings.
  There are difficulties in this line of country in the context of the Government's overall capital taxation and income tax policies. The difficulty is that we shall create a special category of people who own or who have owned beautiful houses. I feel sorry for those who happen to own ugly houses. Not only is that a disadvantage in itself, hut this clause will not apply to them. We must also bear in mind the millions who do not own any large houses, beautiful or otherwise. We must be careful not to create anomalies ard difficulties for the future.
  I wonder whether the real evil is the level of taxation itself and whether it should be possible for people to e in splendid houses without being given the caretaker status that we wish upon them. Should we not think again why it is that practically only foreigners can afford to buy one of our historic houses, but that those who now live in them cannot afford to stay there. That must be wrong. The taxation system is getting so much out of line that the only advantages that exist are gained by those who live in Arabia or in the United States.
  We are pleased that we have been generous to the owners of historic buildings through this new clause and at the same time we are busily assuring ourselves that it will cost practically nothing. There is something strange about this non-partisan attitude which the hon. Member for Cornwall, North is so pleased to find in the House. Nevertheless, I give this new clause a grudging welcome,
  816
  both because it costs too much and because it costs too little.
  Mr. Pardoe: The hon. Gentleman is moving in both ways at once.
  Mr. Ridley: The hon. Member for Cornwall, North has never done anything but head in both ways. I seek to emulate his skill in these matters. In supporting the new clause may I ask the House to think about whether we would not be better off if we amended capital transfer tax so that the citizens of this country could afford to live in their own houses?
  Dr. Bray: I have followed with growing incredulity the retreat by the Government into these immense housing subsidies for the super-rich. I must ask my right hon. Friend whether any wealth or high-income family can now afford to be without their stately home. Will my right hon. Friend tell us how much it would cost those paying the top rate of income tax to set up a trust, with the benefit of this clause, to maintain a home attracting the full tax relief to which they would be entitled, which, as far as I can sec, must run into many millions of pounds since there is no ceiling on the relief given? It can surely amount to the total cost of relief on the most expensive of stately homes—Knowle, Blenheim, and the rest. Is it the intention that there shall be no limitation as to scale?
  This puts the stately home market Into the most extraordinary state. If no one can afford to be without a stately home what will my right hon. Friend do to increase the supply in response to the market? What controls is he placing on the scheduling process? I understand that there are 3,000 stately homes that qualify for relief under this clause. Is he taking any control over the listing of further stately homes?
  Why should he discriminate between dead and living architecture? Why is he prepared to subsidise the architecture of the past yet not prepared to give anything to subsidise some of today's domestic architecture? If he follows this line of argument—
  Mr. Ridley: Would the hon. Gentleman agree that Centre Point should qualify under the provisions of this new clause? There is no reason why it should not do so. It does not have to be an ancient building. Centre Point seems to be an apt subject for the subsidy.
  Dr. Bray: I agree with the hon. Member. I am totally perplexed by the criteria in the Government's argument. The only explanation is that the whole subject of tax relief is so infinitely boring and tediously complex that none of my hon. Friends has bothered to investigate the matter.
  My right hon. Friend must address his mind, remembering his financial responsibility, to the wisdom of presenting tax proposals to the House without being able to give any estimate of the costs. In proposing this new clause he ought to be able to say, in relation to the limited number of these houses—I pressed him on this point in Committee so he has had plenty of time to discover the answer—what is the income and wealth distribution of the owners of these 3,000 houses and the value of these tax reliefs.
  4.45 p.m.
  I know that Tory Members are right to be concerned, as I am, with the preservation of these houses, but it is a curious procedure to make all the public resources that are available for the preservation of these houses in no way related to the architectural, historic or social interest of a house but merely to relate them to the wealth and income of the owner of the house. It is a crazy system.
  My right hon. Friend must also say, if he is giving these massive reliefs for the owners of very inferior property, what he will do about the extreme cases where houses of great interest are being maintained by families who are totally incapable of maintaining them but who, nevertheless, wish to remain in possession for perfectly understandable, sentimental, family reasons. I do not see that my right hon. Friend's policy is adding up to a coherent protection of our heritage any more than it is a socially just policy. I beg my right hon. Friend to think again.
  Mr. Esmond Bulmer: When I inquired of the Financial Secretary last week whether he felt that our artistic heritage was threatened as never before by inflation and taxation he referred me to this clause. I share the reservations expressed by the hon. Member for Motherwell and Wishaw (Dr. Bray) about whether the Government have a coherent policy for the defence of our heritage. Certainly this clause is like offering a fire extinguisher to a man
  818
  whose house has been burning for hours. The effect of inflation is there for all to see.
  I speak as a member of the Executive Committee of the National Trust, although I do not speak for the Trust. One has only to look at the cost of quite ordinary chattels to see how expensive maintenance can be. The cost of upholstering a chair has risen to about£25. Restoring a mirror costs£1,000. Restoring a chandelier costs£2,000. To repaint a house like Blenheim costs about£25,000. To re-roof a major house may take£250,000, while a major renovation, such as that at Erddig, costs nearly£1 million. The Treasury has only to look at its own figures for Hevingham and Audley End to understand how inflation is threatening what we wish to preserve.
  The National Trust cannot accept any property unless it can see that the endowment is sufficient to ensure that the house will not be a drain on the Trust's resources. This exercise is a chilling experience for those who have to undertake it. If one were to graph the costs as they have increased over the past four or five years and to graph any foreseeable increase in income it can be seen that it will not he many years before the largest trust fund becomes inadequate.
  We have to be grateful for any crumbs that drop from the Treasury table, and this clause, to the extent that it makes endowments more attractive, so that people will be more ready to take them out, is welcome. I very much accept the point made by my hon. Friend the Member for Bristol, West (Mr. Cooke) and the sense of his amendment, seeking to widen the scope of the clause to include objects, gardens and other features which are intrinsic parts of a house.
  Certainly it is the experience of the National Trust that what the public desires above all to see is the house in its entirety the contents as they have been acquired over many years. If there is an eccentric owner mounted on a penny-farthing, so much the better. Sir Alexander Glen in his evidence to the Select Committee on a Wealth Tax made it clear that the English country house had a unique appeal to the tourist. He contrasted the situation with that in France where the chateaux of the Loire have been denuded, their appeal much

  819
  diminished and the number of tourists much reduced.
  Indeed, if the contents are sold it may be that the Treasury is called on to provide even more money. Ministers will know what the Drouais and Parmigiano have cost. By forcing owners to sell major chattels to maintain their property, the Government can be increasing public expenditure in the short term.
  There are, perhaps, some 1,400 houses at risk at present. It seems to me to be the crudest common self-interest for the State to try to keep house, contents and owner together. Tourism currently earns this country over£1 billion a year. Again, Sir Alexander Glen gave the country house as one of the three most attractive features for the tourist, and estimated that if it were to cease to be available for tourists when they come to this country, the loss of revenue—this was in 1975—would be about£200 million a year.
  Certainly the effects on the regions would be even more severe, because the contribution that the country house makes in the regions is proportionately that much greater, and for many people living in the regions it is their only chance to see works of art of a standard otherwise available only at a considerable distance.
  Therefore, when my hon. Friend the Member for Ludlow (Mr. More) introduced his excellent National Heritage Bill on a land fund the other day, he made a plea for a more comprehensive approach. He also numbered the Treasury among the philistines. I am prepared to give the Treasury the benefit of the doubt.
  Mr. Patrick Cormack: That is a very rash thing to do.
  Mr. Bulmer: My hon. Friends believe that the matter is in some doubt, but certainly I hope that within the Treasury, even if it is not apparent to us, significant work is being done to see how our heritage can be preserved in its entirety. To the extent that the new clause goes even an inch towards doing that, I welcome it.
  Mr. Cormack: I, too, welcome the new clause. I think that it goes a very little way towards achieving what we want to achieve.
  820
  I endorse what has been said by my hon. Friend the Member for Kidderminster (Mr. Bulmer). If one forgets the aesthetics, I think that it is a case of what is probably the biggest growth industry in the country, tourism, bringing not£1 billion but£2 billion a year into the national coffers, and contributing about£620 million to the balance of payments every year. The tourists do not come here for our weather or our cuisine. They come for our tradition and history, which are intimately bound up in and expressed by our historic buildings. Among the most important of our historic buildings are our country houses. I deplore the term "stately home" because it conjures up an era that is no longer here.
  Most of those who live in so-called stately homes live in circumstances of acute discomfort, and they probably live in conditions that most hon. Members would not willingly tolerate or accept. However, the fact is that they are doing an extremely important job, and doing it much more economically than could any paid custodian or national body, even such as the National Trust. That body has to have a bureaucratic superstructure which accounts for a very large percentage of its income. I am in no way decrying the National Trust, which I much admire and we all applaud. However, the fact is that the noble Baroness, Lady Birk, who was so intimately involved with the Mentmore fiasco, has repeatedly in recent months stressed the fact that the Government believe, and they are right to believe, that the most economical way of keeping our stately homes intact is to encourage their owners to live in them. A recent conference held at Woburn, organised by the British Tourist Authority, was addressed by both the Minister responsible for the arts and the noble Baroness. Both made and underlined again and again the point that the best way of keeping our stately homes, our country houses, was to encourage the owners to live in them.
  When one considers that most of them do not live in the state apartments the tourists flock to see but in rather small and often cramped quarters, keeping the rest open for people to enjoy, one must consider that the least that the State can do is to allow them to offset a substantial proportion of their maintenance costs

  821
  against tax. In so far as the new clause recognises and, indeed, extends the precedent established last year, we welcome it. However, I hope that the Chief Secretary does not think that he has gone far enough. I hope that he will readily acknowledge that there is very much more to do.
  The one thing with which I would agree in the rather extraordinarily bizarre speech of the hon. Member for Motherwell and Wishaw (Dr. Bray)—it reminded me of his engagingly eccentric resignation letter of some years ago—was his saying that the Government have no coherent strategy or policy for the defence of the heritage. The point I make to the Chief Secretary is that this is very much an all-party matter in this House. Many Labour Members are just as concerned and just as worried about it as Conservative Members. I refer the Chief Secretary to such lion. Gentlemen as the hon. Member for Harlow (Mr. Newens), who has repeatedly badgered the Treasury in recent months to do something rather more coherent than it has done in the past.
  I very much hope that the Chief Secretary will acknowledge that this is but a faltering and a halting step, and that the Achilles heel of the whole current maintenance structure is the 80-year perpetuities rule, which militates against people taking advantage of such small concessions as the Government have already afforded. A great deal needs to be done if the shutters are not to go up in many hundreds of houses and if the tourism, earning potential of this country is not to be significantly reduced.
  The Chief Secretary ought to take a little time off, if he can, during the next two or three months and go to the Victoria and Albert Museum to see the current exhibition there, "Change and Decay: the Future of our Churches". He should consider that in the light of the exhibition three years ago of the destruction of the country house, which so graphically illustrated the plight of the country house. If he adds the two things together he will realise that the magnets that attract tourists to Britain are rapidly disappearing and in increasing danger and that at very little national cost—miniscule cost as compared with what we pour into Leyland and other such yen-
  822
  tures—this greatest of all our national assets can be safeguarded for the future.
  Like my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), I welcome the new clause, but I can give it only a grudging welcome because it does not go far enough. If only the right hon. Gentleman would substitute the new clause submitted by my hon. Friend the Member for Bristol, West (Mr. Cooke) he would be doing far more for the heritage than he is at present. However, with those comments, I at least thank the right hon. Gentleman for what he has done, hoping that he will do more in the future.
  Mr. Nick Budgen: I had no intention of taking part in this short debate until I heard my hon. Friend and neighbour the Member for Staffordshire, South-West (Mr. Cormack) saying that this was an all-party matter. It is no all-party matter. Indeed, I respectfully suggest that there is much that is intellectually discreditable about the way in which the aristocracy and the owners of these beautiful houses are seeking increasingly to make for themselves some form of all-party lobby by which they can lull all Members of Parliament into giving them special concessions.
  There is in reality no difference between the desire of a great duke and the desire of a scrap merchant in Wolverhampton to leave their assets to their children. It ought not to be an all-party matter. It ought to be one of the great issues to be fought across the Floor of the House, and it should be pointed out that the Tory Party is the party that believes in low taxation and low capital taxation. We believe in it for everybody, not just for the aristocracy.
  5.0 p.m.
  There is, I suggest, something discreditable in attempting to justify special concessions for those who happen to have beautiful houses. I want beautiful houses to be preserved, but we shall achieve the worst of all situations if we are not careful. We shall see these beautiful houses bought for their tax concessions in the same way as in the past, for instance, agricultural land was bought for its tax concessions. We on this side of the House should be saying not that we want to make it an all-party matter, but, that

  823
  most of all, we want to make it possible for people—
  Mr. Cormack: En the regettable and deplorable speech which my hon. Friend is making does he not agree that it is a good thing on occasions to have unanimity of view and a common desire to preserve things which are of real worth?
  Mr. Budgen: All things are of real worth. I do not attack those who want to retain for themselves and for the nation things of beauty. I regret the making of special categories. If we go too far along this particular road, we shall create anomalies and even more resentment.
  Mr. Eric S. Heifer: Will the hon. Gentleman not accept the logic in the argument that if there is a danger of these old houses and all the lovely pieces of art being destroyed, they should be taken over by the nation? I am assuming that the hon. Gentleman does not like that idea, either. But it has to be understood that these works of art were produced in the main by ordinary working people. In the old days an apprentice to a painter was a working man. The aristocracy and the workers have a common interest in preserving these works of art.
  Mr. Budgen: I accept the logic of the hon. Gentleman's statement. He states clearly and honestly the attitude of those who sit on the Labour Benches. But that is not an attitude which can be papered over by an all-party Committee. Still less am I prepared to say that the desire, for instance, of a scrap dealer in Wolverhampton to leave his business to his son is different from the desire of the Duke of Marlborough to leave Blenheim to his son and the desire of everybody to acquire some capital asset and leave it to his children is a noble discipline in the lives of many people.
  We on this side of the House should be wary of creating any more different categories. The idea that everybody has to leave something to his children is a noble thing. It is not something in which the scrap dealer or the grocer or the candlestick maker is any different from the aristocrat. We are all the same. We all have the same desire. Whether we leave the most ugly possessions or the most beautiful, we all want to leave
  824
  something more than a corpse rotting in the grave.
  Mr. Jasper More: The only scrap dealer that I know in Wolverhampton bought a very large late Victorian house, which is now the Mount Hotel. I strongly recommend all parliamentary colleagues if they happen to be in Wolverhampton to pay a visit to it. It is an object of great architectural and historical interest, having been built in about 1893. I am sure that it will be in the Blenheim category in a short time.
  I apologise to the Minister for having been away at a meeting which prevented me hearing him introduce the new clause, which I want very much to support. At the same time, I believe that it should be extended by the introduction of New Clause 77 in the name of my hon. Friend the Member for Bristol, West (Mr. Cooke).
  I must declare an interest, as the owner of a small house of some architectural character. I should also like to declare an interest as a member of the aristocracy, but I think that I am only upper middle class. My wife and I live in the state apartments in our house because it is so small that it would not otherwise be really habitable.
  Those of us who listened to the hon. Member for Motherwell and Wishaw (Dr. Bray) must have felt that there was still the need to sort out ideas about the whole of this topic. The hon. Member for Liverpool, Walton (Mr. Heller) suggested that these houses might be taken over by the nation. This is a pertinent question and it becomes very much more pertinent if one has been, as I have, to countries such as Russia and Czechoslovakia where this is precisely what has happened. It is a wonderful experience to see what has been done, for example, in Russia in restoring the great palaces, which were ruined by the Germans in the war, and also the care taken in Czechoslovakia to look after many modest country houses.
  But it is an experience that everybody has to witness, that when one visits these buildings, one is going round buildings empty of inhabitants and sometimes empty of furniture. They are, nevertheless, visited, but they have not the same attraction as houses which are lived in.
  If we are to encourage our tourist industry, which is a sensible thing to do,

  825
  I suggest that we should bear in mind three factors. As was said by my hon. Friend the Member for Staffordshire, South-West (Mr. Cormack), it is more economical, if those buildings are to be preserved, that they should be lived in by private owners.
  Secondly, as my hon. Friend the Member for Kidderminster (Mr. Bulmer) pointed out, it is important, if we are to encourage the tourist industry, to try to spread out our tourists. It is already a problem getting into the Palace of Westminster, with so many tourists crowding around it. We need to disperse our tourists over the countryside. My hon. Friend used the term "regions". I personally prefer the term "shires" The dispersal of tourists would be of advantage both to the tourists and to the areas outside London.
  I very much hope that we may take a wider look at this problem, because in our legislation we arc not keeping up with the dimensions of the problem, as has been forcefully said by a number of my hon. Friends. Inflation is beating us all the time, and unless we can take a wider and more generous view, the whole of this enterprise will crumble. That is the reason I made a short speech the other day about the National Land Fund.
  I repeat my support for this clause, and express the hope that it will be extended by the introduction of the new clause put forward by my hon. Friend the Member for Bristol, West.
  Mr. Percy Grieve (Solihull): I agree entirely with everything that has been said by my hon. Friend the Member for Ludlow (Mr. More). I would not have participated in this debate at all had it not been for the speech of my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). Some of my right hon. and hon. Friends may have difficulty in approaching a concession of this kind because of our reaction to over-taxation as a total problem. I welcome completedly this new clause as a concession which will allow to some extent the preservation of our national heritage, but I deplore the circumstances which make it necessary.
  The point made by my hon. Friend the Member for Wolverhampton, South-West about over-taxation in terms of
  826
  inflation is that anomaly after anomaly is created which calls for concession after concession, which in turn creates anomaly after anomaly. Every increase in taxation, every turn of the screw, every increase in the inflation rate, creates more injustice.
  Those injustices have to be remedied. It appears even to the flint-hearted occupants of the Treasury Bench that sometimes a remedy is needed. Concessions of this kind are therefore made and rightly so. If they are made, we should welcome them for what they are, but we should not forget that the whole basic problem of reducing penal taxation must be tackled—and I hope that it will be tackled soon by a Conservative Government.
  Penal taxation makes it impossible for people to live in their own homes, whether those homes are beautiful and old or are homes that the owners have built up in their lifetimes. Penal taxation makes it difficult for people to fulfil the elementary human duty and desire of providing for their widows and children.
  Mr. David Howell: This has been a short but revealing debate on a subject of great importance. My hon. Friends are right not to make too much of the concession. There is very little in it to make anything of. In Committee I was taken to task by the hon. Member for Cornwall, North (Mr. Pardoe) for calling it a very limited concession, indeed. I shall be most interested to learn from the Chief Secretary how many people have set up funds which would benefit from the concession.
  It is arguable that as a result of the concession a long queue of people wanting to set up these funds will now form. However, 1 have heard it suggested—perhaps the Chief Secretary will correct me if the suggestion is wrong—that nobody has so far set up such a fund. A concession that applies to nobody is probably the most limited concession one could have. However, perhaps in the future better things will come of it.
  We took the view in Committee that we should like to see a lower regime of capital taxation. We have always regretted the way in which capital transfer tax was brought in and the damage that it would do in a variety of areas, whether to family businesses such as the scrap

  827
  merchant referred to by my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), or to beautiful homes. We have always argued that we need a lower rate of capital transfer tax, and we shall be advancing arguments in support of that belief An due course.
  In Committee we argued that in the meantime if the Government are to continue with a rate of CTT so high that it accelerates the growth of dangers that are crowding around our historic homes and threatening that within a generation some of these houses could become derelict, we should support the concession. That is why we tried to achieve a more extensive concession in Committee, but our arguments failed to carry the day.
  We believe in a cut in the rate of CIT. We believe that at lower rates of capital taxation these problems would not arise in their present acute form. In the meantime, I suppose that any concession, however small, should be recognised and accepted. In this case the concession is very small indeed.
  5.15 p.m.
  Mr. Joel Barnett: With the leave of the House, I shall reply. I think that the new clause has been welcomed. However, two hon. Members spoke against it—my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) and the hon. Member for Wolverhampton, South-West (Mr. Budgen). They make a very interesting pair. One hon. Member warned me not to be too surprised, since the concession was acceptable as a minor help, if there was a demand for me to go further. When one has been Chief Secretary to the Treasury one is never surprised to hear that one's concessions do not go far enough.
  I do not seek to argue that what we have done is of major moment. The hon. Member for Guildford (Mr. Howell) asked how many funds had been set up, and he was correct in his suggestion that the answer is "None". That is precisely why I am introducing the new clause. People have not set up maintenance funds in the past because they would have had to pay tax on them at the top rate applicable. Under the concession they will pay the basic rate plus investment income surcharge. To that extent the concession will encourage people to set up funds.
  828
  My hon. Friend the Member for Motherwell and Wishaw does not appreciate that someone who sets up such a fund must put the money into the fund and cannot then take it out again. That is quite right, because we all want that money to be used to maintain historic houses for the benefit of the nation. We do not want people to set up funds in order to pay the lower rate of tax only to be able to draw the money out again later.
  Mr. Cormack: Does the Chief Secretary not accept my point that the 80-year rule is a deterrent? I appreciate that he cannot deal with the matter in this Bill, but does he not agree that the Government's attention should be bent in that direction?
  Mr. Barnett: I explained to the hon. and learned Member for Dover and Deal (Mr. Rees) that the Government accept that there is a problem about the perpetuity rule. We are looking at it. One of the difficulties concerns the relationship of general law to a specific fund such as we are now discussing. We are examining the matter to see whether there is some way in which we can help. I do not pretend that what we are doing here is a major matter.
  My hon. Friend the Member for Motherwell and Wishaw talked about the super-rich with their great stately homes. On the other hand, Conservative Members referred to the average fish and chip shop saying that at both ends of the scale people should be able to maintain their stately homes or mixed hereditaments. There is a problem of balance here about how much help one can give whilst maintaining equity as between taxpayers.
  What we have done for the heritage and for historic houses generally under CTT has gone a long way to help in the problems they face. Those who are involved in these matters recognise that we have tried hard to ensure that historic houses are maintained by those who live in them. That benefits those who want to visit the houses rather more than if the houses were left empty.
  I agree with much of what has been said in that respect, including by the aristocratic and upper middle-class hon. Member for Ludlow (Mr. More). I acknowledge all that he has done in that way. I want to see these homes maintained

  829
  and therefore I hope that the clause will give a little help.
  I should be astonished if I were not pressed in the future to go further. I acknowledge the pressure that is put upon me, but I do so without giving any commitment that I shall yield to that pressure.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 45

  LEAVE TRAVEL FACILITIES FOR THE SERVICES
  (1) No charge to Schedule E tax shall arise in respect of travel facilities provided for members of the naval, military or air forces of the Crown going on, or returning from, leave.
  (2) This applies whether the charge would otherwise have arisen under—

  (a) section 36 of the Finance (No. 2) Act 1975 (certain vouchers treated as benefits in kind);

  (b) section 61 of the Finance Act 1976 (benefits in kind for the higher-paid); or

  (c) Chapter I of Part VIII of the Taxes Act (charge to Schedule E tax);

  and applies not only to travel vouchers and warrants for particular journeys but also to allowances and other payments for and in respect of leave travel, whether or not a warrant was available.
  (3) This section has effect for the year 1976-77 and subsequent years of assessment.'.—[Mr. Robert Sheldon.]
  Brought up, and read the First time.
  The Financial Secretary to the Treasury (Mr. Robert Sheldon): I beg to move, That the clause be read a Second time.
  It exempts from income tax the cost of travel warrants for members of the Armed Forces, enabling them to go on leave. It also exempts the cash mileage allowance which is the equivalent of the value of the leave warrant, exempting that payment for journeys for which a warrant would otherwise be available.
  The reason for the exemption is that Service men's leave journeys are unique. Service men are subject to military discipline in a way that prevents them from undertaking the kind of selection of areas to which they wish to travel, a restriction which does not apply to anybody else. Service men are subject to instant recall, and they would be committing an offence
  830
  if they did not return immediately. They are subject to compulsory transfer without warning from one part of the country to another and they are regarded as being on duty at all times with this added disadvantage of instant recall.
  Because of that we believe that this is a wholly special case which deserves relief. I hope that the clause will meet with the approval of the House.
  Mr. John MacGregor: I should like to ask the Minister one question. Subsection (3) indicates that this will have effect in the year 1976-77 and in subsequent years. It is therefore retrospective. Will the hon. Gentleman explain why this is and how common it is to have retrospective clauses of this sort in Finance Bills?
  Mr. James Lamond: I in now way wish to oppose the new clause. However, it was interesting that when my hon. Friend moved it he did not mention that it arose because of an error which was made in an earlier Finance Bill. The word "error" is perhaps a little harsh—I would say an oversight. It is interesting that, when some of these oversights come to light, exceptions can be made in special cases. I had imagined that my right hon. and hon. Friends in the Treasury were inclined to argue that no special cases should be made in taxation matters and that all of us should be bound by the same taxation law.
  It was therefore rather surprising when I found that this new clause was being added at this very late date to the Finance Bill. Those of us who follow finance matters will be aware that in a recent debate this question was pressed strongly by Opposition Members. In fact, it was raised no fewer than three times during the recent debate on defence. On each occasion the Government spokesmen gave an assurance that no Service man would be liable to pay tax on warrants issued to allow him to travel home on leave.
  My hon. Friend made a very good case as to why this exception should be made. There were points in his short speech which marked out Service men from the rest of us. But there are, of course, many other groups in the community which could make fairly strong special cases, too. These groups are not always as well paid as some of the recipients of this tax concession. For

  831
  example, salaries are now paid to some members of the Forces running as high as£23,000 a year.
  These are the people to whom this tax concession is being made. Of course, there arc many others—the vast majority —whom I concede immediately are earning considerably less than that. But it is quite surprising how many members of the three branches of the Services arc on salaries perhaps a little more than our own as Back Bench Members of Parliament, and some of them considerably more. As I mentioned,£12,000,£15,000,£20,000 and£23,000 are some of the salary scales of the people that we are talking about.
  The point I should like to make is that if this is a special case, there are many other special cases which could also be argued quite strongly—we shall not have the benefit of doing so—one of which is our own. The general public might notice the reticence of Members of Parliament to speak on their own behalf. When people arc looking through the list of new clauses and amendments and reading the proceedings of the Finance Bill Committee, I hope it will be realised how eagerly we take up the cause of nearly every other section of the community and argue its case, and yet we are a little reticent to argue our own, even when we feel that we have a pretty good case to argue.
  Mr. A. P. Costain: I welcome the new clause, but I wonder whether the Minister would give me an explanation. I ask him because, although these facts are well known in this House, there are a number of civil servants to whom the new clause does not apply. Will the Minister make clear what in fact is meant by:
  "travel facilities provided for members…on, or returning from, leave "7
  Where does the travel allowance permit the person to go? Is there any limitation as to what part of the country he can visit? The case has been put forward that a person's family might be away on holiday. Would the travel allowance allow him to go to any part of the country or only to his home residence?
  Mr. George Cunningham: I agree that the effect of the new clause is one which we should support. It is not right that a
  832
  member of the Armed Forces, receiving a payment in the form of a voucher or whatever for travel home, should receive a benefit which is less than the cost of the travel home so that some part of the cost of travel has to be borne by himself.
  But I think that the Treasury has found the wrong way of doing this. We ought always to be highly reticent about taking a particular group of people and exempting them from the normal operation of the law. If this were the only way of achieving the objective, I would agree, for the kind of reasons which my hon. Friend the Financial Secretary stated in his presentation of the new clause, that we should he prepared to overcome that principle. But this is not the only way of achieving the objective and nor is it the way that the Government in another part of the forest have adopted.
  As I said in Committee, there is a practice with regard to at least one Government Department that I know of—I should have thought that there would be others—whereby the Government Department wishing to meet the full expenses of travel for some of its employees, or quasi-employees, pays a gross amount at such a level as will, after tax, leave the recipient with enough money to cover the total cost of the travel. This is an approach which is available within the law to any employer. It amounts to this. The employer is simply increasing the pay of his employee by an amount which varies according to the cost of travel, plus a computed element for taxation, to ensure that he is not out of pocket on the whole deal.
  Had this been done, there would have been no need to breach the normal principle by picking out a group of people and exempting them from the normal operation of the law. Can my hon. Friend say why the Department of the Environment uses the device which I prefer for achieving this objective while the Department of Defence, if I can describe it as such, is given the same treatment but by a different means?
  If one were to do the job in the way that I prefer there is an additional advantage which would go some way towards meeting the objection of my hon. Friend the Member for Oldham, East (Mr. Lamond), because I think that one would have to gross up the payment by assuming that

  833
  tax is payable by all persons at the basic rate. I would have thought that that would cover 90 per cent. and more of the people who will benefit from the new clause.
  But, of course, if the recipient paid tax at a higher marginal rate than the basic rate, he would find himself to some extent out of pocket. There would, therefore, be an element of progressivity in the arrangement, which is highly desirable. The high paid Army officer on£20,000 a year or so would not then be getting the benefit to the same value as the private soldier, for example.
  I hope that my hon. Friend call say why the alternative device has not been used here. If it is later discovered that the alternative device is preferable I hope that in later years we shall scrub this provision from the statute book, because it is offensive in principle to exempt from the normal operation of the law any group, however deserving we may find it.
  5.30 p.m.
  Mr. Clement Freud: Will the Minister, when replying, clarify a point relating to what the Department of Defence persists in calling "married famiies'? In the case where a Service man is posted abroad and has his wife and family in Service accommodation, will the Minister declare whether the travel facility for the wife and family to go on leave is similarly exempted?
  The hon. Member for Oldham, East (Mr. Lamond) rightly said that this House is very reticent about discussing its own problems—specifically its financial problems. I speak as one who is asked more often than most Members whether something could be done about giving tax relief for journeys to work. I think it would be invidious if Members of Parliament were allowed to have their journeys from their place of residence to their place of work made tax-exempt while their constituents did not have the same sort of privilege
  Mr. Robert Sheldon: The hon. Member for Norfolk, South (Mr. MacGregor) asked why the new clause covers the liability arising from 1976-77 onwards. The reason is that liability arises not from the Act passed last year but from the Finance (No. 2) Act 1975. Therefore, liability would be incurred
  834
  for 1976-77 onwards, and it is only right that relief should be effective from that date.
  Mr. MacGregor: There are other cases where we have to put right the wrongs in previous Finance Acts, and we very rarely make them retrospective. I asked the Minister also what precendents there are for doing this kind of thing.
  Mr. Sheldon: The precedents for relief being retrospective are very many. If the hon. Gentleman will consider the matter further he will find that this is so, and I shall be pleased to discuss them with him. The fact remains that when relief is given there are nothing like the same objections to retrospection as there are when the burden of taxation is increased. I should have thought that that would commend itself generally to the House as a principle.
  My hon. Friend the Member for Oldham, East (Mr. Lamond) expressed his pleasure at the new clause and welcomed the special case. He showed some concern about the limitation of special cases. We know that the particular matter to which he referred does not happen to have been selected for debate during the Report stage. He was referring to the other special cases, including the position of Members of Parliament. He said how eager we all are as Members of Parliament to take up for others cases in which certain remedies may be required, whereas we are less eager to take up those matters which concern us as Members of Parliament. Certainly the matters to which he referred will fall to be discussed in other areas of debate, and I am sure that we look forward to hearing them discussed on other occasions. Meanwhile, I take note of his point.
  My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham), in asking why we deal with the matter in this way, fully accepts that the Service men have a case, but he argues whether this ought not to be done in such a way as to make inequality of treatment more obvious as between different sections of the community. What he has in mind, as I think he might put it, is the maintenance of a greater degree of purity in the tax system by grossing up payment for these warrants so as to include the levels of tax that would have to be paid. I fully accept his point. The

  835
  main arguments against this suggestion, as my hon. Friend may know, relate to the administrative burdens which arise every time there is an income tax change. As we have seen, income tax can go down as well as up, and there are certain problems in administration in this respect. I shall be happy to discuss this with my hon. Friend, who has always expressed his interest in administrative arrangements, so that I may show him that these problems exist and present some limitations to the way in which we can proceed.
  The hon. Member for Folkestone and Hythe (Mr. Costain) asked about the limitation of the kind of leave that is allowed under the new clause. The hon. Member for Isle of Ely (Mr. Freud) followed this by asking about the position of a Service man's wife and family overseas. I confirm that the warrants covered by the new clause include all types of leave warrants; therefore, the new clause includes the ones mentioned by both hon. Members.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 59

  INTEREST RELIEF FOR THOSE IN JOB RELATED LIVING ACCOMMODATION
  '(1) In Part II of Schedule 1 to the Finance Act 1974 (conditions of allowance of interest relief on loans for purchase or improvement of land), after paragraph 4 there shall be inserted—
  "4A.—(I) Part of Schedule 9 to the Finance Act 1972 shall nevertheless apply where the property concerned (that is, the land, caravan or house boat referred to in that Part)—

  (a) is, at the time the interest is paid, used by the borrower as a residence or, if it is paid less than twelve months after the date on which the loan is made, is so used by him within twelve months after that date; or

  (b) is intended at that time to be used in due course as his only or main residence;

  and at that time he resides in living accommodation which is for him job-related.
  (2) In the case of a borrower for whom there are two or more properties falling within sub-paragraph (1) above, he may not by virtue of this paragraph claim relief for any period under section 75 of the Finance Act 1972 in respect of more than one of them.
  (3) Subject to sub-paragraph (4) below, living accommodation is job-related for a person if it is provided for him by reason of his employment, or for his spouse by reason of hers, in any of the following cases—

  (a) where it is necessary for the proper performance of the duties of the employment that the employee should reside in that accommodation;

  (b) where the accommodation is provided for the better performance of the duties of the employment, and it is one of the kinds of employment in the case of which it is customary for employers to provide living accommodation for employees;

  (c) where, there being a special threat to the employee's security, special security arrangements are in force and the employee resides in the accommodation as part of those arrangements.

  (4) The living accommodation is not job-related, except in a case where sub-paragraph (3)(c) above applies, if it is provided by a company and the employee is a director of the company or an associated company, unless the conditions of sub-paragraph (5) below are satisfied.
  (5) Those conditions are that—

  (a) the company of which the employee is a director is one in which he or she has no material interest; and

  (b) either the employment is as a full-time working director or the company is nonprofit making (meaning that neither does it carry on a trade, nor do its functions consist wholly or mainly in the holding of investments or other property) or is established for charitable purposes only.

  (6) For the purposes of this paragraph—

  (a) a company is an associated company of another if one of them has control of the other or both are under the control of the same person; and

  (b) the following interpretative provisions of section 72 of the Finance Act 1976, that is to say, subsection (2) ('employment'), subsections (8) to (10) ('director', 'full-time working director' and 'material interest') and subsection (11) ('control', in relation to body corporate) apply as if this paragraph were included in sections 60 to 71 of that Act.

  (7) Only interest paid on or after 6th April 1977 is eligible for relief by virtue of this paragraph.".
  (2) In consequence of subsection (1) above, other provisions of Part II of Schedule 1 to the Finance Act 1974 shall be amended as shown in Part II of Schedule 8 to this Act.'.—[Mr. Robert Sheldon.]
  Brought up, and read the First time.
  Mr. Robert Sheldon: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker: With this we may take New Clause 20—Relief for interest

  837
  —and Amendment No. 14, in Clause 21, page 14, line 5, at end insert—
  '(2) In paragraph 4(1) of that Schedule, after paragraph (b) there shall be inserted the following additional paragraph—
  "or
  (c) is at the time the interest is paid the only residence of the person by whom it is paid (in this Part of the Schedule referred to as 'the borrower') other than accommodation provided by his employer, and the value of such accommodation is excepted from section 30 of the Finance Act 1977 by virtue of subsection (4) of that section."'.
  Mr. Sheldon: New Clause 59 gives relief for mortgage interest to those in accommodation provided by the employer, and it applies to those who wish to purchase their own home either for their present use or for their future use.
  My hon. Friend the Minister of State gave an undertaking in Standing Committee that he would try to meet some of the points that were raised at that time. What we are now able to do, as a result of the introduction of the tests for representative occupation, is to determine on the basis of those tests the people who are able to claim relief for the mortgage interest payments.
  The people with whom we are concerned are those who have residences made available to them by the nature of their employment and who are able to meet these three tests. The first is that the residence is necessary for the proper performance of their duties. The second is that the residence is made available for the performance of their duties in accordance with the general custom in that occupation. The third test is where special security arrangements are made due to the threat upon that person and his security.
  These occupiers will qualify to have relief in buying the home they use as a residence at present, or as an only or main residence at some time in the future. The mortgage relief is given for those in representative accommodation, and it has been difficult in the past to find a satisfactory division between the concept of representative accommodation and beneficial accommodation.
  What we have done as a result of the inclusion of this new clause in the Bill is to create that division between the two. This not only settles the position as between representative and beneficial
  838
  occupations but enables us to go further and tackle the problem that we have been unable to arrive at a solution that would allow mortgage relief for such people purchasing their own homes. I think that the new clause has tackled both these problems at the same time in an effective manner which I hope will commend itself to the House.
  Mr. MacGregor: I very much welcome the new clause and hope that it will commend itself to every hon. Member. It is worth recalling that the problem of people living in job-related accommodation arose because of the changes that the present Government made to the whole question of tax relief and mortgage interest in the Finance Act 1974. Almost immediately after those changes were introduced my attention was drawn by constituents such as vicars and schoolmasters to the fact that suddenly their mortgage tax relief on the homes that they were acquiring as their main residence had been withdrawn.
  Since then my right hon. and hon. Friends and I have taken almost every possible opportunity in every Finance Bill debate—I have proposed amendments at every Committee stage—to put this injustice right. A large number of groups were affected, not just those in the Churches. As the Financial Secretary knows, the Churches Main Committee has been lobbying the Chancellor for three years. Among those affected have been service men and very often policemen, schoolteachers, headmasters and so on, and people working in prisons. I am sure that there were many others. All these groups were drawn to my attention. As the Financial Secretary has said, we had a long debate on this subject again in Committee this year and I am glad that we gradually narrowed down the differences between us, and that at last the opportunity has been taken to put this matter right.
  I wish to put on record my welcome for this change and to extend my thanks to the Minister of State, who did so much work on the change prior to our debate in Committee this year, and who showed how sympathetic he was to the point that we were making during the debate itself. What has happened also shows the advantages of Committee stages. I have a feeling that unless we had been able to put forward this proposal year after year, it

  839
  is very unlikely that we should have seen this new clause coming forward this year. Unless this matter had been widely debated, I suspect that the opportunity of adding another new clause to the Bill would not have been taken.
  I wish to put three further points to the Financial Secretary. The first is that the new clause is rather longer than we had expected. It is very much longer than any of the amendments that we had previously put forward to try to rectify this problem. Will the Financial Secretary confirm that the new clause covers all the points and all the groups we have discussed in previous debates? In particular, will he confirm the inclusion of schoolmasters living in school accommodation, sometimes, for example, in independent schools, where there may be some dispute about how essential it is to meet all the points in subsection (3)? Will schoolmasters be covered? I believe that the spirit of the new clause is that they should be so covered.
  Secondly, I rather regret that the opportunity was not taken to make the new clause retrospective, because these groups have now suffered three years' lack of tax relief. As the Financial Secretary said when discussing the previous new clause, the opportunity is often taken to make these arrangements retrospective. I am fairly certain that there is nothing we can do about that now, but it was a pity that it was not done.
  Finally, will the Financial Secretary confirm that all existing mortgages taken out prior to 6th April 1977 will qualify—as I believe they will—and not just new loans, and that it is only interest paid after 6th April 1977 which becomes eligible—in other words that the 6th April limit applies to interest, not mortgage, so that new mortgages and existing mortgages will be covered by the new clause?
  I extend my thanks to the 'Treasury Ministers for responding to our fairly persistent pleas and for at last finding a solution to a problem that was causing injustice and unfairness to many worthy groups.
  5.45 p.m.
  Mr. John Farr: I add my thanks to the Treasury Ministers for the fact that New Clause 59 seems almost entirely to have incorporated the provisions that I was seeking to introduce in
  840
  New Clause 20, which was much shorter and more concise but was not, I believe, so effective.
  A good deal of hardship and anguish was caused, not only to clergymen. [Interruption.] As I was saying, there was a good deal of support from many quarters for this proposal, and no doubt we now have support from the Strangers Gallery as well, which is always welcome.
  I have a letter here from a vicar in my constituency, who points out that a great deal of difficulty is caused for clergymen who are perhaps nearing retirement age and have no home of their own. He said that it was universally felt among clergymen that it was essential to have a home of their own as some security for their families when the clergyman died or for when they reach retirement age.
  I recently visited one of the newest borstals in Britain at Glen Parva in Leicestershire— [Interruption.]
  Mr. Deputy Speaker: Order. There is far too much conversation going on in the Chamber.
  Mr. Farr: I was approached by the governor of the borstal who expressed concern on behalf of borstal governors at the situation in which prison officers find themselves, especially senior prison officers. As we know, the Home Office has recently had a policy—which I think is right—of allowing the more junior prison officers and borstal officers to live off the premises so to speak. But no such liberty is permitted to those senior ranks, particularly governors and deputy governors, who have to be there all the time. This was most unfair to them.
  When I approached the Treasury, I was told in February that an interdepartmental committee was reviewing this matter. I take it from what the Minister said that New Clause 59 is the outcome of that interdepartmental review. I am sure that the outcome is wholly satisfactory to all those who were greatly concerned about this matter throughout the country.
  Mr. Stephen Ross: I wish to add my thanks to the Financial Secretary for introducing this new clause. In a letter dated 12th April he gave an undertaking—as the hon. Member for Harborough (Mr. Farr) pointed out—that he was expecting the report of a working party on this subject. I am very

  841
  glad that he has been able to bring forward this new clause. No doubt he was under pressure in Committee.
  It will be a great relief to many people, particularly to police and prison officers, and especially to policemen in constabularies such as Hampshire Constabulary which have had housing schemes that have encouraged policemen in recent years to buy their own homes, and have then arranged to let those homes when the policeman moved elsewhere in the country. Policemen in such constabularies have been suffering severely by losing the mortgage relief on the property that has been let for them by the constabulary. That was another gripe that they had, quite justifiably, and I hope that the new clause will help to restore the Government's stock among the police force. It is at a very low ebb at the moment.
  I also welcome the new clause on behalf of prison officers, since I probably have more prison officers in my constituency than any other hon. Member. They, too, have been encouraged to purchase their own homes, and it was a sad blow when the Inland Revenue refused them tax relief on the mortgages of properties which they had so sensibly purchased for their own retirement. I hope that the House will accept the new clause.
  Mr. Costain: Subsection (4) of the new clause reads:
  (4) The living accommodation is not job-related, except i a case where sub-paragraph (3)(c) above applies, if it is provided by a company and the employee is a director of the company or an associated company, unless the conditions of sub-paragraph (5) below are satisfied.
  Subsection (5) goes on:
  "Those conditions are that—

  (a) the company of which the employee is a director is one in which he or she has no material interest."

  Does this represent the usual Socialist crack at directors? If a director of a company must have a nominal shareholding to enable him to be a director, will that prevent him from receiving the benefit of the clause?
  Dr. Alan Glyn: I thank the Government for introducing the new clause. I have written to the Minister about a senior Church man who has referred to the tremendous
  842
  difficulties associated with the work of clergymen who, when they retire, have nowhere to go. The ability to buy a house on mortgage and to get relief on the mortgage during their working lives will be very acceptable to them.
  I understand that the clause deals with Service people, the police and schoolteachers and almost anybody else compelled to live in certain accommodation as part of their job. But many other people may fall into the same category. In other words, where they live is part of their contract. Clergymen are compelled to live in vicarages or rectories, or even in the bishop's palace.
  I wonder whether people who have existing mortgages will be allowed the relief of the clause or whether it applies only to new mortgages. I understand from the wording that it will apply to existing mortgages. Many people will be extremely grateful for the clause, and particularly clergymen, whose salaries have never been high and who find at the end of their working lives that they have nowhere to go in retirement.
  Mr. Ian Gow: In Standing Committee considerable alarm was expressed by my hon. Friends about the way in which we were creating special privileges for the new and growing elite of people who worked for the State. Therefore, it is particularly gratifying to us that subsection (3)(c) of the new clause, which refers to
  "a special threat to the employee's security",
  is not confined to people who hold offices under the Crown.
  I contrast subsection (3)(c) with the wording of Clause 32(4). I should like the Financial Secretary to justify the sensible wording of the new clause and to explain why it contrasts with the concession in Clause 32, which applies only to holders of offices or employment under the Crown, with a certificate being given by the Secretary of State.
  Mr. David Howell: This is a welcome clause and the hon. Members who for some time have pressed for this concession to be made, particularly to people in the Church or in prison service—indeed, many other categories are affected—are to be congratulated on what they have done in bringing about the introduction of the new clause.

  843
  However, before we go overboard in congratulating the Government it should be recorded that the problem arose from the Government's legislation. As with so many concessions for which we have had to press, the difficulty and alarm caused to many people who were never meant to be affected by the legislation was generated because of the clumsiness of that legislation. People who have been worried about their position will now feel secure as a result of the introduction of this relieving clause.
  In making good the error the Government have had to resort to some pretty athletic legislative contortions. I have not previously been aware of the concept of "job-related" living accommodation. I do not know whether the Financial Secretary can assure us that it is an established legal concept. We have talked before about representative accommodation. We discussed these issues at great length in Committee on Clause 32, and we shall be discussing them again.
  My hon. Friend the Member for Eastbourne (Mr. Gow) has called attention to the similarity, with one or two highly significant differences, between the conditions which an employee in a job-related house must fulfil to qualify for mortgage relief on his or her other home or intended home and the conditions in Clause 32, which allow employees to enjoy residence in accommodation not described as job-related accommodation without being liable to income tax on the value of that accommodation. In due course we shall debate why this extraordinary difference has arisen, although it would be interesting to hear now from the Financial Secretary the reason for this apparent discrepancy.
  My hon. Friend the Member for Folkestone and Hythe (Mr. Costain) referred to the question of directors and people with or without a material interest. His suspicions are all to well founded. The new clause, as with Clause 32, appears to be designed to exclude directors.
  Mr. Costain: As the Government want worker directors to he included on the boards of companies, is it not farcical to put such wording in the clause?
  Mr. Howell: That is one of the many aspects of the Labour Party's approach which my hon. Friend is right to
  844
  criticise. There is the feeling among hon. Members opposite, which the Financial Secretary must justify, that directors are rather wicked people and that if there is any danger of their benefiting from a concession, the position must be adjusted to ensure that they do not benefit. That is in line with the Labour Party's attitude, and I share my hon. Friend's contempt for that attitude.
  We must welcome the clause. It puts right a wrong. The wrong was created initially by the Government's clumsy legislation. They have had to act to correct it. That means that there will be more complication on the statute book and in our financial legislation and many more difficulties will be created for members of the Inland Revenue who must work out what the legislation means and for people who must consider whether they qualify under the concession. Nevertheless, we must be grateful for small mercies, and in that spirit I welcome the clause.
  6.0 p.m.
  Mr. Robert Sheldon: The hon. Member for Norfolk, South (Mr. MacGregor) welcomed this new clause, as did every succeeding speaker, and he pointed out the advantage of having the Committee stage of the Finance Bill arranged as we now have it and the possibility which it gave those involved in these matters to deal with them in great depth. But that is not the only advantage of the Committee stage. It also has the advantage that some members of the Committee have open minds. Although I do not claim credit for this new clause, because that belongs to my hon. Friend the Minister of State, it shows that these matters are looked at in great depth by Ministers in an attempt to meet arguments which are made in Committee. The tact that we have so many matters to which we return on Report illustrates the difference between the arrangements now and the way that these matters were dealt with under the previous Administration. We now have Ministers who are prepared to change legislation to meet the reasonable pleas of hon. Members on both sides of the Committee and of the House.
  Mr. MacGregor: The Financial Secretary will realise, of course, that we would not have had many of the problems which have had to be dealt with in

  845
  the past two or three years if the original measures introduced by this Government during their first year in office had not been introduced at all.
  Mr. Sheldon: I am sorry that the hon. Member is now limiting his approval of the new clause. For that reason, perhaps I had better not go any further than to thank him for the limited approbation which he is now expressing.
  I deal first with the point that the hon. Member for Norfolk, South made concerning schoolmasters. He will understand that schoolmasters are covered by the new clause. However, he also asked whether it covered all the matters raised in previous debates. I am sure he will not expect me to give such a blanket kind of assurance as that. But it meets the main points which have been put forward. It meets the objectives put forward by the hon. Member for Harborough (Mr. Farr) and by the hon. Member for Norfolk, South in his new clause. It meets the same objectives, but there are certain technical consequences which follow from the proposition put forward by those hon. Gentlemen, and this accounts for the length of the clause. All existing mortgages qualify. We arc giving relief on interest payments, and the relief for interest payments is given, irrespective of the date of the mortgage, from the introduction of the new clause.
  The hon. Member for Folkestone and Hythe (Mr. Costain) asked about the position of directors with no material interest. This is a matter that we went into at length in Committee, and I am sure that we shall be returning to it on Report. This is the way in which these decisions have been made in the past. To say any more would perhaps be only to regurgitate the many debates that there have been in the past and to anticipate those which will come in the future.
  I was glad to hear the argument made by the hon. Member for Windsor and Maidenhead (Dr. Glyn). A number of hon. Members referred to the position of clergymen, and I have no doubt that this category of people are those who most deserve our interest and concern. They have had an especially difficult problem, and I am delighted that we have been able to meet it by this legislation.
  846
  The hon. Member for Eastbourne (Mr. Gow) asked about the difference between this new clause and what appears in the Bill affecting those with a special threat to their security. He may not have noticed the amendment tabled by my right hon. Friend the Chancellor of the Exchequer, Amendment No. 33. That meets the hon. Gentleman's point and covers the threat to security in the same way in the main body of the Bill as it does in this new clause, and we shall deal with that in due course.
  I was sorry to hear that the welcome of the hon. Member for Guildford (Mr. Howell) for the new clause was rather more grudging. The complications are necessary, for the reason that I indicated. The hon. Member asked whether the introduction of the new definition of "job related" had any significance. It is an attempt to meet some of the conditions set down in Clause 32(4)(a), (b) and (c). Any one of these conditions is required to be met. Incidentally, I can assure the hon. Member for Windsor and Maidenhead that this covers the category of person whose contract compels him to reside in designated accommodation. There are other categories, of course, but certainly it meets the narrower point made by the hon. Gentleman.
  I note the interest of the hon. Member for the Isle of Wight (Mr. Ross) in prison governors and prison officers. This provision will be welcomed by them, as it will be welcomed more generally.
  We have made use of the definition which separates the beneficial occupiers from the representative occupiers. This makes use of the definition for those who are able and who are encouraged to take out mortgages on their homes for their retirements in the way that I indicated.
  I welcome the attitude of the House to the new clause, and I look forward to its being accepted.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 1

  CAPITAL GAINS TAX: TAPERING RELIEF
  'Subsections (4), (5) and (7) of section 20 to the Finance Act 1965 and subsections (3),

  847
  (4) and (5) of section 21 of that Act shall be amended to include the word "tapered" before the phrases "chargeable gain" and "chargeable gains" wherever they occur and section 22(9) of the Finance Act 1965 shall be amended to include at the end the following:—
  "Provided that, for the purposes of subsections (4), (5) and (7) of section 20 of this Act and of subsections (3), (4) and (5) of section 21 of this Act, any chargeable gain computed in accordance with the said Schedules shall be reduced by tapering to the extent of one-tenth of that chargeable gain for every completed year from the date of acquisition to the date of disposal, both dates inclusive, and any chargeable gain so reduced shall be referred to as a tapered chargeable gain.".'.—[Sir G Howe.]
  Brought up, and read the First time.
  Sir G. Howe: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker: With this, it will be convenient to discuss the following:
  New Clause 6—Capital gains tax on small disposals(£2,000).
  New Clause 34—Exemption of business assets from the charge to capital gains tax.
  New Clause 36—Capital gains tax and settled property.
  New Clause 37—Relief from tax on chargeable gains in respect of business property.
  If the House desires, I shall allow a Division on New Clause 6 as well.
  Sir G. Howe: At the outset of my remarks, I ought perhaps to indicate that the Opposition intend to press New Clause 1 as well as New Clause 6 to a Division. However, although there are a number of new clauses grouped together, I do not anticipate that we shall have a very prolonged debate.
  I shall deal with the other clauses grouped with New Clause 1 and New Clause 6 in order. New Clause 34 is designed to simplify the system of capital gains tax for business assets. New Clause 36 is designed to treat life tenants in the same way for the purposes of capital gains tax as for capital transfer tax. New Clause 37 is to align the treatment of business property for capital gains tax with that for capital transfer tax. They are all matters that others of my right hon. and hon. Friends may wish to discuss later.
  848
  New Clause 6, which is the second one which the Opposition intend to press to a vote, is directed to the very modest exemption limit in respect of capital gains tax for small disposals. It suggests that it should be raised from£1,000 to£2,000 a year.
  However, it is not so much with those details that I am concerned. I want to come back and press the Financial Secretary on the central issue of capital gains tax being imposed on gains which are caused by or consequent upon inflation. It is that central question which my hon. Friend the Member for Blaby (Mr. Lawson) has been pressing upon Treasury Ministers in debate after debate. Rather sadly, my hon. Friend emerged from a long period of silence on the night of 12th-13th May to reappear in a Finance Bill debate because he could not resist the temptation to join in the discussion on the question of indexation in this area. It is a most important question which becomes more urgent and strident with every month of inflation that passes.
  For how much longer will capital gains tax remain completely blind to the impact of inflation on the assets and wealth of the people upon whom that tax bears? When it was last debated on 12th May, the proposal was for indexation of the basis of capital gains tax. This clause, which appealed to some hon. Members more than others, is for tapering the burden of the tax. But, either way, our proposals are directed to remedying the situation.
  I appreciate that the right hon. Member for Down, South (Mr. Powell) said in the last debate in Committee that there should not be a tax on capital at all. While one has some sympathy for that point of view, I think that it would be a difficult proposition to defend. The right hon. Member for Down, South also said that there should not be a tax on capital gains at all. One could argue about that, but my arguments tonight are very much more modest. They lie at the heart of justice, and they are based on the belief that, if the Government are to tax capital and gains on capital values, they must tax real gains and not paper ones.
  The more one contemplates the utterings of Treasury Ministers in these debates, the more one is astonished by the propositions that pass from ministerial lips for one reason or another. How can one

  849
  justify the prospect to infinity of a situation in which the asset values of citizens are being destroyed, eroded and crumbled as a result of inflation? Notwithstanding this, the State still comes along, and taxes the wasted assets on the basis that/ they have grown, when exactly the opposite has happened. It is exceedingly difficult to understand how such a situation can be justified intellectually or morally in a way that commends itself to the Minister.
  I have had the privilege for a number of years of listening to the Minister advancing propositions, almost all of which have commanded respect. He does not normally advance arguments that he would not be prepared to utter from the pulpit, or another place of total solemnity and sanctity. I cannot believe that the arguments that he put forward on 12th and 13th May can withstand his own rigorous examination.
  The Minister said that there would be enormous technical problems involved in trying to deal with capital gains tax on inflationary gains. So be it. But the Treasury is stocked full of talented creatures who delight in solving technical problems. I cannot believe that the talented team that the Minister has at his elbow could not, under his intellectually brilliant conductorship, solve these problems if they had the will to do so.
  Then the Minister said that he could not accept the idea of relieving taxation on capital gains because it would be unfair to those who could not receive comparable beneficences. He admitted, however, that we were not living in a perfect world. He can say that again. But in the modest span of political life that still lies before the Minister, I urge him to accept my invitation to make the world just a little less imperfect.
  What possible reason could he have for not trying to find some method to diminish this injustice? This is all the more remarkable when one looks back at the earlier records of the Chancellor. At the time of the introduction of his 1975 Budget, one sees promises to carry out a great review of the possibility of improving capital gains tax. On the same issue the Chief Secretary was uttering his own convictions that he, too, was persuaded of the injustice of the situation.
  850
  What has happened to that review? Will it be possible to know the decision on it before the end of the Report stage?
  If one looks at the injustice of the situation, one finds that there is index-linking of a kind. There is valorisation of the personal tax threshold. There is index-linking in index-linked bonds. There is stock depreciation relief and there is that supreme pinnacle of intellectual achievement—the inflation-proof pension. If this could be designed and cherished with all the energy, enthusiasm and fortitude that has been shown, perhaps the Government could divert a little of that energy into protecting the capital owner from the taxation of capital gains that do not really exist. I do not believe that the Minister can advance arguments with any moral or intellectual integrity to repel the principle of our new clause. I hope that he will finally surrender from the threadbare defences that he is seeking to man.
  I gather that the Government are not going to table the White Paper with which to fortify their counter-inflation policy next. Maybe they will put a shabby, drab little document before the House. If the Government are so short of material for a debate next week, perhaps the Minister could tell the House in that document how he proposes to end the injustice of taxation imposed by stealth and for which there is no moral or intellectual justification whatsoever.
  6.15 p.m.
  Mr. Jerry Wiggin: I intend to speak mostly about the other clauses that are being taken with New Clause 1. I am one of those people who believe that, because of the function of capital in the society that we on these Benches support, we should show great caution about taxing it. I would even go as far as to say that in certain circumstances and on certain occasions capital should be free of taxation.
  That is not the case in circumstances where capital profits could be, for technical reasons, virtually treated as income. Because of the difficulties that the Inland Revenue had in differentiating between a transaction carried out by a business and an exactly similar transaction carried out by an individual, we had the introduction of short-term capital gains tax.
  Provided that the capital taxation system allows such a person equal footing

  851
  for incomes with those who speculate in capital, those who do not speculate but invest money in their businesses, build them up and accumulate wealth for further investment should be allowed to keep that benefit over a period of time. I do not care to comment on whether this is indexation, or tot, but it seems a very satisfactory solution to the problems of extremely heavy capital taxation at a time of wild inflation which is so totally damaging to our system in every part of business life.
  I am glad that we shall seek to divide the House on New Clause 6. This is an apparently small anomally, but it is an unjust one and it seems right to rectify it in the Bill. The new clause aligns capital gains tax with capital transfer tax in the treatment of small disposals. For capital transfer tax, a husband and wife can at present each make exempt gifts of up to£2,000 a year and can carry this exemption forward, if it is unused, for up to one year. Thus, a married couple between them may be able to make capital transfer tax-exempt gifts up to a maximum of£2,000. However, capital gains tax will be chargeable if total disposals—gifts and sales—by both husband and wife amount to more than£1,000 in any one tax year. That is clearly anomalous. The new clause is designed to introduce consistency between the two taxes.
  There are many important applications. For example, a farmer who passes on land as an exemption gift naturally seeks to take advantage of that provision by transferring the land. Obviously, the larger the amount, the smaller the total cost in conveyancing fees and so on.
  The new clause would apply in the same way to disposals by way of sale as well as by way of gift. Another justification is that complete exemption from capital gains tax for disposals totalling£2,000 a year will save a great deal of adiministrative time and effort now consumed in the complex calculations required for very small transactions, which produce very little revenue for the Exchequer. We are talking only about a small sum. No doubt the Minister will have a sum to quote to us.
  New Clause 34 relates to a different subject. The House will recall that we were to have a debate on this matter in Committee. Therefore, if I take a few
  852
  minutes to discuss it, I hope that the House will forgive me, since these matters must be aired at least once a year so that the Government can consider them. Earlier the Financial Secretary said that the Government were flexible. We hope that, by our constantly bashing away at this matter, they will be even more flexible.
  The new clause appears to make sweeping changes to the capital gains tax legislation. It would certainly result in a dramatic simplification without causing a significant loss of revenue.
  There are already rules enabling business owners to dispose of chargeable assets without paying capital gains tax at the time. These rules are widely used. Section 33 of the Finance Act 1965 permits capital gains tax to be deferred if the proceeds of sale are invested in new assets of the appropriate class. Section 34 of the Finance Act 1965 gives retirement relief for gains up to a certain amount realised by taxpayers aged over 60 and so on.
  All these provisions are subject to complicated rules and frustrating limitations as to the application of the proceeds of sale and various time limits within which a transaction must occur. The new clause will abolish these restrictions. Land farmed by the tenant for life of a settlement does not qualify for any of the reliefs that I have mentioned. The new clause would remove that distortion.
  There is the question of an incorporated business that can be formed without a charge to capital gains tax. But effectively, on dissolution of the business, there is a double charge, because tax is levied on the disposal of the underlying assets by the company and again on the disposal of the shares by the shareholders.
  I recall the Financial Secretary commenting in Committee how good it would be to form companies to deal with certain of the particular problems that we are discussing. The new clause would help to achieve that objective.
  The greatest advantage offered by the new clause would be in the simplification of the law. The time that civil servants, professional advisers, solicitors and others have to spend giving nonproductive advice, counter-advice, opinions and so on, not to gain wealth or production that would help the nation

  853
  but to avoid complex legislation, is becoming a national scandal. The new clause strikes a small blow by making capital gains tax somewhat simpler. I further believe that it would probably cost very little in revenue.
  I turn now to New Clause 36, which relates to capital gains tax and settled property. The principle adopted for capital transfer tax is that the charge to tax falls upon the tenant for life as the product of events that happen to him. Under the capital transfer tax rules, the tenant for life is treated as the owner of the underlying assets in the trust fund. All transactions involving trust assets are treated as being carried out by him and liability is related to his circumstances rather than to those of the trustees.
  The new clause seeks to apply the same principle to capital gains tax by treating the trustees as nominees of the tenant for life and charging tax accordingly. As a result of this clause, no capital gains tax will be chargeable when trustees transfer capital to a tenant for life or when a person settles property with a life interest for himself in circumstances in which no capital transfer tax is charged. Furthermore, certain important reliefs for businesses—such as roll-over relief under Section 33 and retirement relief under Section 34 of the Finance Act 1965—which are now refused solely on the ground that the trustees, who are technically the owners of the particular assets, are not actually carrying on the relevant business will be available where land in trust is being farmed by the tenant for life. This treatment will have the additional merit of consistency, simplicity and logic.
  Finally, I turn to New Clause 37 concerning relief from tax on chargeable gains in respect of business property. The clause ensures that, where the business property relief is claimed for capital transfer tax purposes and the value of the property is reduced by 30 per cent., the reduced value can also be adopted for capital gains tax purposes. No reason has ever been given for the relief operating against one tax, but not against both. On the assumption that failure to apply the relief to both taxes was due to inadvertance, the new clause back-dates the
  854
  relief to 6th April 1976, the date when the 30 per cent. CTT relief first took effect.
  Although the new clauses appear to be substantially different, there is a consistent theme running through them—the alignment of capital transfer tax with capital gains tax. We have been asking for this since the introduction of capital transfer tax. We want simplicity above all else. It is not good business for the Government to make life so complex that many people are spending their time trying to get round the legislation.
  I hope that New Clause 6 particularly will appeal to the House. New Clause I. seems a substantial step forward in thinking on capital gains tax. That is a principle to which I hope we shall stick.
  Mr. John Wakeham: I accept that capital gains tax is now and will continue to be an accepted part of our taxation system. That being so, we must try to achieve two objects. The first is not to tax inflation and the second is to recognise that a capital gain is made over the period that the asset is owned, not just in the year in which it is realised.
  We have had capital gains tax long enough now for us to look at the situation which appertained and which brought it in to see whether it has worked out as well as we could reasonably have expected.
  Based on the evidence that I have been able to ascertain, I think that there is justification for saying that when the 30 per cent. rate was brought in in 1965 it might not have been too unreasonable. Taking the 10 years before 1965, on the basis of the Financial Times ordinary share index,£1,000 invested in shares would have increased to£1,900. At the same time—the Minister of State provided me with this information in a parliamentary answer—£1,000 would have had to increase to£1,325 to maintain its purchasing power. Therefore, the£1,000, increased to£1,900, would have created a gain on which a 30 per cent. tax would not be an unreasonable burden, because it would have left a real benefit to the person who had invested his money, maintained the purchasing power of his capital and left a net surplus available for reinvestment. That was in the 10 years before 1965.

  855
  If one compares the 10 years before 1965, when the legislation was introduced, with the period since, one finds a remarkably different picture. A person who had£1,000 to invest in 1965 would have had to increase that sum by now to the massive figure of £3,982 to have maintained his original£1,000 of purchasing power and to have paid the capital gains tax on the increase on the figure. That should be compared with the same person investing his£1,000 on a Financial Times ordinary share index basis where the money would have increased from£1,000 to£1,200.
  It is quite clear, therefore, that the basis upon which capital gains tax was introduced in 1965 and the rate at which inflation had been running for a reasonable period before its introduction have been massively changed, because the period since capital gains tax was introduced has been totally unlike the preceding period. That is a clear justification for looking at the matter again. It is clearly impossible to justify a situation in which a person must increase his capital sum of£1.000 to almost£4,000 just to maintain the same purchasing power and in which he must pay tax of£900, which is nearly 25 per cent. of the capital gain.
  The new clauses, particularly New Clause 1, go some way to recognising that in practice capital gains tax has worked extremely unfairly on the capital assets of the country. That is so even though —and I basically support a tax on real gains—when capital gains tax was introduced it might have had some justification. It is unfair that those who invest their money must look for massive capital gains to produce anything worth while. This has helped to produce some unhealthy features in our society in the past few years. People have been looking for massive capital gains instead of reasonable ones because the figures have proved that unless they did this they would lose some of their capital.
  It is in the interests of everybody, not only those who are investing their capital, that we should look at this from a national point of view. If we are to have a level of investment that is productive and useful and gives a reasonable gain to maintain capital values, we must look not only for the opportunity of curing inflation
  856
  but at the rate of capital gain, which has worked out extremely unfairly in the past. That is why I support the new clause.
  Mr. Gow: In moving New Clause 1 my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) made an unanswerable case from the point of view of fiscal policy, intellectual honesty and justice. Those are the reasons why we have introduced the new clause.
  It is astonishing that in the 12 years since the 1965 Finance Act was passed there has been no positive response of any kind from the Treasury Bench to our proposals for doing something about the injustice of capital gains tax. The reasons is that the present Administration are quite satisfied with the present injustices of capital gains tax. For the Government this impost—which is not on gains at all but frequently is on actual capital loss—represents a further weapon in the fiscal armoury of those who are out to destroy capitalism. That is why we have not had a positive response from the Government.
  To that extent the Treasury has a vested interest in inflation. The greater the rate of inflation, the more the Treasury is able to reduce the capital held by the people, and the more it is able to reap additional taxation without parliamentary consent. Inflation itself is a tax that is unauthorised by Parliament. That is why Ministers on the Treasury Bench are happy to see inflation continuing, because it destroys capital.
  So-called capital gains tax is, in fact, a tax imposed upon someone who frequently has suffered a real loss on realising his asset and who, having made a loss, is then made to pay a tax upon that loss. Can the Minister justify to the House in any intellectually honest way how taxation of that kind can be part of the fiscal policy of this Administration?
  On previous occasions, Ministers have justified their failure to do anything about removing these injustices on the ground that it would be too difficult to find a practical way of putting these wrongs right. We have been given the impression by the Minister that he at least sees that there is a case for the new clause. However, the argument that this is too difficult to do has been destroyed by the comparatively simple, easy-to-understand, workable and practicable new clause that

  857
  we propose. The argument which says that the star-studded cast of civil servants in the Treasury cannot produce a suitable clause or amendment to the 1965 Finance Act has been completely destroyed by the 12 lines of the new clause.
  For all these reasons, we shall require a much better answer, intellectual and fiscal, from the Financial Secretary than we have had in the past. All the criteria by which taxation should be imposed, justice and fairness demand that the new clause should be accepted. I hope that the Minister will repent of his past misdeeds and accept the new clause.
  Mr. David Mitchell: The new clause is of far greater importance than some hon. Members have appreciated, especially those hon. Members who are now absent from the Labour Benches below the Gangway and who have an interest in the problems of unemployment, as indeed, have many of my colleagues. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said in moving the new clause, capital gains tax as it operates today is a tax on paper gains. It is grossly unfair and unjust, and I do not suppose that the Minister will seek to defend it on those grounds — although I should be interested to hear him try to do so.
  My hon. Friend the Member for Eastbourne (Mr. Gow) made the interesting point that the Government have an interest in inflation because the greater the rate of inflation the greater the amount of money that they receive in taxation through capital gains tax when there is no tapering device incorporated in that tax.
  I hope that the Minister will consider the points that I have to make. The operation of capital gains tax in its current form is a transfer of wealth from the private sector into the maw of Government waste. The more money the Government take in that way the less money there is available for investment. I am sure that the Minister accepts that one of our overriding national needs is to increase investment. If he gathered together all the economists in the Treasury and quite a few outside and asked them for an analysis of the prob-
  858
  lems facing our economy he would get as many answers as there were economists, but they would all agree on the need for more investment and a better quality of investment. The new clause gives the Government the opportunity to do something to help that investment.
  When we look at what is called in various parts of the world "the English sickness"—or a variety of other pejoratives—we can see that the British worker does not work less hard than workers abroad, but he does have less investment behind him than have the workers in our competitor countries. I see that the Minister is shaking his head. I shall be fascinated to hear his reply. A recent analysis in The Times of the level of investment behind workers in the car industry in various countries showed that the level in Japan and Germany was many times greater than that in Britain. The productivity of each worker in the German and Japanese industries was much greater than the productivity of British car workers.
  If the Minister does not accept that there is this lack of investment, what is his explanation for our comparatively low productivity? Is he suggesting that it is lower because British workers are lazy'? Is he blaming restrictive trade practices? What reason can he give for this low productivity, other than that the investment behind the British worker is so much lower than that behind the workers in many other countries? Anything that takes money from the investment sector is damaging to our economic interests.
  A 30 per cent. capital gains tax has two effects. Some people will say that they are not going to pay the tax and will lock themselves into an investment long after they should have changed to something giving a better return or moved their investment into a growth industry, instead of leaving it in a dying industry. No doubt investment analysts and members of the Stock Exchange could give the figures. I am sure that many people lock themselves in and are not making money available for growth industries.
  A larger proportion of people will sell one investment and buy another, and when they do so they will lose 30 per cent. of the gain against the sort of accumulative fall in the value of money and paper rise in the value of investments

  859
  that we have seen in recent years. The consequence is that money is not as available as it should be, or at the price at which it should be available for investment in the private sector.
  If anyone doubts what I say, the Minister is living proof. The Government have taken capital gains tax off gilt-edged securities because they do not want to suffer the disadvantage of having to pay more for their fund raising than is necessary. The recognise that capital gains tax plays a major part in reducing the attractiveness of investment in gilt-edged securities. I find that, through a Freudian slip, I have written in my notes "guilt-edged". That is not so inappropriate, when one considers that the guilty Government are using for themselves special terms they deny to those in the private sector.
  6.45 p.m.
  The spectre of unemployment should be at the shoulder of every hon. Member. Unemployment will reach 1½million by August, and no hon. Member would deny that if it were not for various phoney job creation schemes, such as work experience projects providing a temporary cover for the figures, the real level of unemployment —those not gainfully employed in producing goods—would be more than 2 million.
  We have to consider how we can get away from these levels of unemployment. Every analysis shows that large industry has so much under utilised capacity that the increase in demand that we need before it takes on new people is outside the scope of reality. We therefore have to look to the birth of new firms and industries and the growth of existing small ones.
  Capital gains tax is one of the largest single disincentives to people to start and to expand a business. They know that they will have to plough money back into their business because they will be cash hungry against a background of inflation. It is not possible to take out large sums while a business is growing. Money has to be ploughed back and, as business men do this, instead of putting it aside for a fat pension on retirement, they know that 30 pence will be taken out of every pound when they sell the business or transfer it to the next generation. That is why the Government are seeing so many firms and jobs dying, and no
  860
  new firms and industries and products coming along to take their place.
  We need a dynamic economy. We shall not get it till the Government accept amendments such as the new clause and set out to re-create conditions in which it is worth while for people to seek to build up a business and to create jobs.
  The current situation is part of a pattern that is acceptable to the Government and that is changing society. Power, wealth and decision making are being transferred from the individual to the State. It is a pattern that my hon. Friends and I reject, and a pattern that the people of this country will reject as soon as they are given the opportunity to do so.
  Mr. MacGregor: We have a large number of new clauses ahead of us, so I shall confine my remarks to New Clauses 1 and 6, though I very much support what my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) said about the other three new clauses.
  The last new clause that we discussed was an example of a successful result of constant pressure on the Government on a very good case, and I believe that eventually the same thing will happen on New Clause 1. This is an equally good case which has been pressed persistently for a long time, at least by hon. Members on this side of the House. I believe that if some hon. Members on the Government side bothered to look at the problem, they would share our view.
  I object to the system of capital gains taxation on grounds that have been developed by other hon. Members. It is fraudulent because it is not a tax on capital gains but in many cases a tax on capital. It is another example of the unfair bias against the saver compared with the spender and those who do not save money.
  My hon. Friend the Member for Maldon (Mr. Wakeham) gave some telling illustrations of the effect of a combination of inflation and capital gains tax since 1965. I have another. If in April 1975 someone purchased an asset worth£2,000 to which capital gains tax would apply, it would have to be worth£6,200 today in order simply to maintain its real value. Yet if he sold that asset today he would pay tax of£1,260 on a gain which had not in practice occurred, so his real

  861
  purchasing power would have been diminished by this fraudulent tax of£1,260. The position has become worse in the past four or five years compared with the earlier years after capital gains tax was introduced, and the problem is becoming worse still with the current high rate of inflation.
  If that person had been unfortunate enough to apply what so many of us have believed to be the right course of action—namely, to save for his future, to be thrifty, and to put the money into productive uses in 1965—and if he tried to sell that asset today, he would find that he would be left with less than he would have had in 1965 to buy the same goods. He would have been wiser to have bought furniture and not saved, or to have bought wine, on the assumption that he might over the years drink wine, rather than put his money into savings. That applies today to anyone who is looking to the immediate future, with the assumption that inflation rates over the period ahead must be at least at the 10 per cent. level, and next year it will be higher than that.
  The only sensible advice that one can give today to somebody who has potential savings of about£1,000 is not to save but to spend, spend, spend. I admit that inflation has a part in this, but the other important part is capital gains tax. I grant that if someone puts his savings into a building society capital gains tax will not apply, but if lie puts his money into shares or any other form of investment capital gains tax will be applied to it. Therefore, capital gains tax is another important element in why it is right to advise anyone today to spend, spend, spend. The best thing that anyone with potential savings could have done in the past three years was to buy whatever he wished to consume over the next few years rather than put it into savings. That cannot be sensible, and it does not meet the Government's declared objective of encouraging investment in British industry. Capital gains tax is working in the wrong direction for the Government's strategy.
  As my hon. Friend the Member for Basingstoke (Mr. Mitchell) said, the Government are in one sense cheating in that they are making it much more favourable for individuals to put savings into forms
  862
  of Government saving rather than into other forms. I think that the distortion now emerging in the savings market will, as a result of taxation, need looking at. There are distortions not only on the investment income side, because they apply there, because of the tax-free benefits which are available for example in national savings certificates and some other forms of Government savings, and are therefore particularly attractive for the higher-rate taxpayers. There are distortions in the capital gains tax clement as well because, as my hon. Friend said, if gilts are held for over one year there is no capital gains tax to be paid. There is an incentive for the higher-rate taxpayer—or any taxpayer—to put his money into gilts rather than into ordinary shares in British industry. I do not think that that position can be defended. The Government are, in effect, trying to have it all ways.
  The arguments for dealing with this inflationary element of capital gains are overwhelming. I prefer the kind of solution in the clause, the tapering solution, to an indexation solution. I make that choice on administrative grounds. It is very much easier for the taxpayer to understand it. I know that a number of accountants think that if the indexation type of capital gains is applied there will be no problem. For the ordinary taxpayer, however, it is easier to understand the tapering solution rather than the indexation one.
  Whether the clause is in the right form, whether it is right to have a reduction of one-tenth every year, is a matter of argument. I should prefer a different type of tapering, which is rough justice but would be even easier to understand, whereby tax was reduced to 20 per cent. of the gain if the assets were held for two or, say, three years and to 10 per cent. if they were held for another two or three years, and there would be no capital gains tax at the end of another two or three years. That would be easier to understand. But whatever scheme one adopts, one must seek a solution along those lines. I hope that before long—because I am sure that the Minister will again resist this proposal, not, I suspect, because he believes in his argument but because he has been told to resist it—we shall see on the statute book a new clause of the sort that is proposed.

  863
  I now come to New Clause 6. There are three strong arguments for trying to achieve changes along the lines of this clause. The first follows from the inflation point. If£1,000 for a small capital gains tax exemption was correct two or three years ago, it cannot be correct now. It would be wiser to go to the£2,000 limit. That limit is attractive because it brings the small exemption for capital gains tax into line with the small exemption for capital transfer tax, but it does not do it wholly. My hon. Friend the Member for Weston-super-Mare got it slightly wrong when, by a slip, he said that the combination for a married couple would be£2,000. The combination for capital transfer tax exemption for a married couple would be£4,000. It is not on all fours, and perhaps there is an argument for a small capital gains tax exemption up to£4,000. In effect, this is a modest amendment but one that brings the position into line with capital transfer tax.
  There are two advantages in this proposal. One was mentioned by my hon. Friend the Member for Weston-super-Mare, who referred to the problems of transfer of land and other business assets where a person might wish to take advantage of the capital transfer tax exemptions but for whom capital gains tax might then become a disincentive. The other advantage follows from what was said by my hon. Friend the Member for Basingstoke when he referred to the risk of people being frozen into their savings because of capital gains tax. It then becomes an obstacle to what many of us wish to achieve—the wider spread of ownership. There is a disincentive particularly for elderly retired people in using capital transfer tax annual exemptions because they are worried about the capital gains tax that they could have to pay on the assets that they have held for some time. There is merit in introducing a new limit of£2,000 for small exemptions on capital gains tax.
  The final argument is that of administrative saving. It would remove a great deal of the detailed work that the Inland Revenue has to undertake and which the taxpayer and his advisers have to do by keeping the limit at£1,000.
  For all those reasons, I feel that there is a strong case for New Clause 6. I do not see New Clause 1 and New Clause
  864
  6 as alternatives. I see them as complementing each other for worthy reasons, and I am glad that both arc to be pressed.
  Mr. Pardoe: I apologise for not having been present for the whole of the debate.
  In Committee on the Floor of the House I moved an amendment for the indexation of capital gains tax. We were told that it would cost about£250 million out of a total yield from capital gains tax of£330 million, which indicates how far capital gains tax has become a tax on inflation rather than on real gains. It seems to me that we ought to be considering whether the House was ever wise to go for long-term capital gains tax and whether we could not have a purely short-term capital gains tax.
  I have not been persuaded by the arguments that I have heard. I have had discussions outside the House with those who claim to be experts. Some say "Yes" and some say "No". If one removes the whole question of inflation, and if one supposes that this is a real capital gains tax on real capital gains, why would there be a reason for tapering? I do not think that there is. If one is saying that the only reason for tapering is to deal with the problem of inflation, surely the best answer is indexation.
  If, on the other hand, one is saying that there is a reason for the tapering of capital gains tax, there should have been tapering relief when capital gains tax was first introduced. That should have been done a long time ago. I am not, therefore, enamoured of the tapering solution. I should prefer to go for full indexation, and I very much hope that within the foreseeable future the Government will be able to introduce a measure to that effect.
  Therefore, I do not support New Clause 1—depending on whether the Government say whether they can do something in that direction. New Clause 6, however, has much to commend it. I have yet to hear any arguments against it, and I shall be surprised if the Minister of State can produce any. Therefore, at this moment I am inclined to vote for New Clause 6 but not for New Clause 1.
  7.0 p.m.
  Mr. Denzil Davies: Since most hon. Members who have spoken have declared

  865
  how they intend to vote, even without hearing my brilliant Welsh pulpit arguments, I wonder whether there is any point in my saying anything at all. At least the Welsh preachers can reflect that sinners might come to repentance as a result of their sermons, but in this case the sinners will go on sinning whatever I say.
  I shall try to point out some of the difficulties involved in accepting New Clause 1. We had a debate on straight indexation of capital gains tax in Committee in this Chamber, when the right hon. and learned Member for Surrey, East (Sir G. Howe) was very scathing about my arguments. But at least he should have quoted—or perhaps it is better that he did not—my preference for tapering over straight indexation. There are great difficulties about both, but on balance my personal view—I claim no great knowledge is that a tapering relief is better.
  The United States introduced capital gains tax a long time ago and it has tapering — exactly why, I am not sure. Perhaps it had nothing to do with inflation at the time, which was probably very low—as it still is in the United States compared with other countries.
  I point out the difficulties not in an attempt to belittle the importance of the arguments behind the new clause but to show that difficulties exist, despite the brilliant people in the Treasury who can draft these provisions at a moment's notice.
  For instance, New Clause 1 makes no provision for losses. If a man bought shares 10 years ago for£1,000 and sold them for£800, he would make a paper loss—that is the right term, if the gains are described as paper gains—of£200. But if one applied the tapering provision the loss would be all the greater to set off against any other gains. The new clause does not deal with that problem and does not create the kind of fairness which should be created in such a case.
  Then there is the difficulty of quoted shares and the pooling of quoted shares. Where quoted shares are acquired over a period, the cost is pooled and fairly complicated computations are involved. The new clause does nothing about that and would throw the pooling arrangements into confusion. What I have said
  866
  shows that any practical scheme must be somewhat complicated.
  Some hon. Members have made general speeches about lack of investment. They said that capital gains tax was inhibiting investment. Those are larger issues than we can discuss now, but I would point out to the hon. Member for Basingstoke (Mr. Mitchell) that the United States, which has had a tapering relief for a long time, has an investment record over the last 25 years which is about the same as ours. Whether ours has been too low in relation to Continental countries is a matter of debate.
  The hon. Member for Cornwall, North (Mr. Pardoe) prefers indexation. I prefer tapering. There are grave difficulties—[Interruption.] I appreciate that the original new clause was tabled in the name of the hon. Member for Blaby (Mr. Lawson), but there are technical problems about it. I am sure that he would not want to create difficulties for quoted securities.
  However, as I recognised in Committee on the Floor of the House, inflation has a substantial effect in cases of this kind. We shall look at this problem sympathetically in the hope that by next year we may bring a proposition before the House. We shall try to keep it as uncomplicated as possible and so that it will produce as few administrative problems and as little extra work as possible for both the Civil Service and the ordinary citizen. We recognise that there is a problem here, and I hope that in next year's Finance Bill we can bring in something along the lines of this kind of relief. I do not want to go further, because I have reservations about the new clause, but at least we shall do our utmost to put something into next year's Finance Bill on these lines.
  New Clause 6 seeks to increase the small disposals exemption from proceeds of£1,000 to proceeds of£2,000. The hon. Member for Norfolk, South (Mr. MacGregor) saw no reason why the increase should not be to£2,000. The£500 exemption was introduced in 1971 and last year we increased it to£1,000. On the basis of the increase in the retail price index from 1971 to the present, the original£500 should be£1,125. Therefore, the present figure of£1,000 is not wildly out of line with inflation. An increase to£2,000 is far greater than any

  867
  indexation which would be required. [Interruption.] Perhaps the hon. Member was interested in something other than indexation, but I understood that to be the reason for the new clause.
  Opposition Members are not impressed with arguments about tax avoidance, but I would also point out that, if one increased the exemption on the disposal of assets of£2,000, one would increase the danger of what used to be called bond-washing or bed-andbreakfasting; in other words, assets would be sold for£2,000 and the proceeds would be reinvested in equivalent assets to get the benefit of the exemption. That can be done now, but when the exemption is increased it becomes more profitable. We have stopped companies doing this, but without devising very complicated provisions it would be practically impossible to stop individuals from doing this. There would be a greater incentive and we should have to introduce complicated amendments to seek, although imperfectly, to prevent that form of tax avoidance.
  Mr. Nigel Lawson: The hon. Gentleman has revalorised from£1,500 to£500. However, he has not yet told the House what would be the cost of accepting New Clause 6.
  Mr. Davies: The cost of accepting New Clause 6 as it stands would be£1½million. That is our best estimate. I was not relying on cost. I was saying that the hon. Gentleman had no argument on indexation because the£500 figure introduced in 1971 is now equivalent to£1,125. The hon. Gentleman is a great advocate of indexation and wants to go much further along that road. The other point is that there are possibilities of considerable tax avoidance and bond-washing in respect of a£2,000 exemption.
  Mr. MacGregor: The new clause is designed to help the small saver. The kind of person who is likely to engage in tax avoidance measures is not likely to be the small saver but would be somebody with a large number of assets. Therefore, will the Minister consider the matter in terms of advantage to the small saver and the fact that it brings the tax into line with the capital transfer tax exemption?
  Mr. Davies: The hon. Gentleman now seeks to introduce another argument
  868
  related to capital gains tax, and that argument is quite different. We are told that the clause seeks to assist a worthy group of people, but at the end of the day there will be a few other people muscling in on the act. My fear is that if we increase the limit to£2,000 it will give the opportunity to people to introduce schemes to enable individuals to switch from one asset to another similar asset so as to get the benefit of complete exemption. That is the advice I have been given by the Inland Revenue, which has long experience of dealing with this matter and which takes a jaundiced view of human nature.
  Mr. Peter Rees: The Minister has shown a concern to keep down administrative expense and complication in respect of the taxpayer and of the Government. I am sure he will accept that, of all the taxes for which his Department is responsible, capital gains tax imposes the greatest compliance cost on the taxpayer, and possibly on the Government too. Does he not feel that the£1½million he will save if he persuades the House to reject the clause should be balanced against the saving in administrative costs to the taxpayer and the Department if he adopts the proposal?
  Mr. Davies: There may be a saving of cost, but on the other hand there is the disadvantage of having to introduce complicated anti-avoidance legislation to stop the kind of scheme which has been adopted in the past and which would become profitable if we were to agree to the increased figure. That would lessen any administrative saving. Those are the main reasons for resisting New Clause 6—first, that it goes much further than indexation and, secondly, that it will open avenues of tax avoidance.
  7.15 p.m.
  Let me turn to the other new clauses. I shall briefly mention New Clause 34 which seeks to change the basis from roll-over relief on assets to complete exemption. The House will not be surprised to learn that that clause is not acceptable, for a number of reasons. Its drafting is defective, and in many cases it would create a situation in regard to some assets in which there would be neither roll-over relief nor exemption. The position would therefore be worse. I take it that the Opposition do not intend

  869
  to press that clause, but I thought that I should mention it in passing. The cost is difficult to assess but I understand that it would be quite substantial.
  New Clause 36, which is somewhat technical, seeks to change the rules of capital gains tax in relation to interest in possession—basically, life interest. It seems to me that the Opposition are seeking to turn the matter the wrong way round—in other words, in relation to the capital gains tax rule, which conforms with the normal legal position. The trustees own the assets and the tenant for life has a beneficial life interest in the assets. The capital gains tax rule reflects that position correctly. When trustees dispose of assets in which a tenant for life has a life interest, it is the trustees who pay the capital gains tax and who pass the interest to the life tenant.
  However, the position in regard to capital transfer tax is different, and this is where the anomaly arises. In terms of capital transfer tax, the ownership of the assets is in the hands of the life tenant. A similar anomaly existed for estate duty purposes. We wish to prevent avoidance in respect of settlements which could otherwise occur. I do not think it makes sense to change the situation in
  respect of capital gains tax. The scope for avoiding payment on the settlement of capital gains tax is limited. Scope for avoidance in respect of capital transfer tax in terms of settlements, however, is considerable, as was the case with estate duty.
  I turn finally to New Clause 37, which I do not think was mentioned in detail—
  Mr. Lawson: Do not bother about it.
  Mr. Davies: Since the hon. Member for Blaby, who appears to be in charge of these things, tells me not to bother about it, I shall take his advice and not bother.
  Sir G. Howe: I should like to say, with the leave of the House, that we note with interest the movement implied by the Minister in terms of his willingness to take a more critical view of the impact of inflation in respect of capital gains tax. However, only a couple of years ago we heard almost identical observations. Therefore, to underline our view we shall press New Clause 1 to a Division.
  Question put, That the clause be read a Second time:—
  The House divided: Ayes 221, Noes 268.

  Division No. 195.]

  AYES

  [7.17 p.m.

  Adley, Robert

  Cooke, Robert (Bristol W)

  Godber, Rt Hon Joseph

  Aitken, Jonathan

  Cordle, John H.

  Goodhew, Victor

  Alison, Michael

  Cormack, Patrick

  Gow, Ian (Eastbourne)

  Amery, Rt Hon Julian

  Corrie, John

  Gower, Sir Raymond (Barry)

  Arnold, Tom

  Costain, A. P.

  Grant, Anthony (Harrow C)

  Atkins, Rt Hon H. (Spelthorne)

  Critchley, Julian

  Gray, Hamlsh

  Awdry, Daniel

  Crouch, David

  Grieve, Percy

  Banks, Robert

  Crowder, F. P.

  Grist, Ian

  Bell, Roneid

  Dean, Paul (N Somerset)

  Grylls, Michael

  Berry, Hon Anthony

  Dodsworth, Geoffrey

  Hamilton, Michael (Salisbury)

  Biffen, John

  du Cann, Rt Hon Edward

  Hampson, Dr Keith

  Biggs-Davison, John

  Durant, Tony

  Hannam,John

  Blaker, Peter

  Dykes, Hugh

  Haselhurst, Alan

  Body, Richard

  Edwards, Nicholas (Pembroke)

  Havers, Rt Hon Sir Michael

  Boscawen, Hon Robert

  Elliott, Sir William

  Hawkins, Paul

  Bottomley, Peter

  Emery, Peter

  Hayhoe, Barney

  Bowden, A. (Brighton, Kemptown)

  Ennals. David

  Hicks, Robert

  Boyson, Cr Rhodes (Brent)

  Eyre, Reginald

  Higgins, Terence L.

  Braine, Sir Bernard

  Falrbalrn, Nicholas

  Hodgson, Robin

  Brooke, Peter

  Falrgrleve, Russell

  Holland, Philip

  Brolherton, Michael

  Farr, John

  Howe, Rt Hon Sir Geoffrey

  Brown, Sir Edward (Bath)

  Fell, Anthony

  Howell, David (Gulldford)

  Buchanan-Smith, Aiick

  Fisher, Sir Nigel

  Howell, Ralph (North Norfolk)

  Buck, Antony

  Fletcher, Alex (Edinburgh, N)

  Hunt, David (Wirral)

  Budgen, Nick

  Fletcher-Cooke, Charles

  Hunt, John (Bromley)

  Bulmer, Esmond

  Fookes, Miss Janet

  Hurd, Douglas

  Burden, F. A.

  Forman, Nigel

  Hutchison, Michael Clark

  Butler, Adam (Bosworth)

  Fowler, Norman (Sutton C'f'd)

  Irving, Charles (Cheltenham)

  Carson, John

  Fox, Marcus

  James, David

  Chalker, Mrs Lynda

  Fraser, Rt Hon H. (Stafford & St)

  Jessel, Toby

  Channon, Paul

  Fry, Peter

  Johnson Smith, G. (E Grlnstead}

  Churchill, W. S.

  Gardiner, George (Relgate)

  Jones, Arthur (Daventry)

  Clark, Alan (Plymouth, Sutton)

  Gardner, Edward (S. Fylde)

  Kellett-Bowman, Mrs Elaine

  Clark, William (Croydon S)

  Gilmour, Rt Hon sir Ian (Chesham)

  Kimball, Marcus

  Clegg, Walter

  Gilmour, Sir John (East Fife)

  King, Evelyn (South Dorset)

  Cockcroft. John

  Glyn, Dr Alan

  King. Tom (Bridgwater)

  Knight, Mrs Jill

  Neubert, Michael

  Shersby, Michael

  Knox, David

  Newton, Tony

  Sinclair, Sir George

  Lamont, Norman

  Normanton, Tom

  Skeet, T. H. H.

  Lawson, Nigel

  Nott, John

  Smith, Dudley (Warwick)

  Lester, Jim (Beeston)

  Onslow, Cranley

  Smith, Timothy John (Ashfield)

  Lewis, Kenneth (Rutland)

  Oppenheim, Mrs Sally

  Spence, John

  Lloyd, Ian

  Osborn, John

  Spicer, Jim (W Dorset)

  Loveridge, John

  Page, John (Harrow West)

  Spicer, Michael (S Worcester)

  Luce, Richard

  Page, Rt Hon R. Graham (Crosby)

  Sproat, lain

  McAdden, Sir Stephen

  Page, Richard (Workington)

  Stainton, Keith

  McCrindle, Robert

  Parkinson, Cecil

  Stanley, John

  McCusker, H.

  Pattie, Geoffrey

  Steen, Anthony (Wavertree)

  Macfarlane, Neil

  Powell, Rt Hon J. Enoch

  Stewart, Ian (Hitchin)

  MacGregor, John

  Price, David (Eastleigh)

  Stokes, John

  Macmillan. Rt Hon M. (Farnham)

  Raison, Timothy

  Stradling Thomas, J.

  McNair-Wilson, M. (Newbury)

  Rathbone, Tim

  Tapsell, Peter

  McNair-Wilson, P. (New Forest)

  Rees, Peter (Dover & Deal)

  Taylor, R. (Croydon NW)

  Madel, David

  Renton, Rt Hon Sir D. (Hunts)

  Taylor, Teddy (Cathcarl)

  Marshall, Michael (Arundel)

  Renton, Tim (Mid-Sussex)

  Tebbit, Norman

  Marten, Neil

  Rhodes James, R.

  Temple-Morris, Peter

  Mather, Carol

  Rhys Williams, Sir Brandon

  Thalcher, Rt Hon Margaret

  Maude, Angus

  Ridley, Hon Nicholas

  Thomas, Rt Hon P. (Hendon S)

  Maxwell-Hysiop, Robin

  Ridsdale, Julian

  Townsend, Cyril D.

  Meyer, Sir Anthony

  Rifkind, Malcolm

  Trotter, Neville

  Miller, Hal (Bromsgrove)

  Roberts, Michael (Cardiff NW)

  van Straubenzee, W. R.

  Mills, Peter

  Roberts, Wyn (Conway)

  Viggers, Peter

  Miscampbell, Norman

  Rodgers, Sir John (Sevenoaks)

  Wakeham, John

  Mitchell, David (Basingstoke)

  Ross, William (Londonderry)

  Walker, David (Clitheroe)

  Moate, Roger

  Rossi, Hugh (Hornsey)

  Walker, Rt Hon P. (Worcester)

  Molyneaux, James

  Rost, Peter (SE Derbyshire)

  Walker-Smith, Rt Hon Sir Derek

  Monro, Hector

  Royle, Sir Anthony

  Wall, Patrick

  Moore, John (Croydon C)

  Sainsbury, Tim

  Walters, Dennis

  More, Jasper (Ludlow)

  St. John-Slevas, Norman

  Warren, Kenneth

  Morgan-Giles, Rear-Admiral

  Scott, Nicholas

  Weatherill, Bernard

  Morris, Michael (Northampton S)

  Scott-Hopkins, James

  Wiggin, Jerry

  Morrison, Charles (Devizen)

  Shaw, Giles (Pudsey)

  Morrison, Hon Peter (Chester)

  Shaw, Michael (Scarborough)

  TELLERS FOR THE AYES:

  Mudd, David

  Shelton, William (Streatham)

  Mr. Spencer le Marchant and

  Neave, Airey

  Shepherd, Colin

  Lord James Douglas Hamilton.

  NOES

  Anderson, Donald

  Cryer, Bob

  Golding, John

  Archer, Rt Hon Peter

  Cunningham, G. (Islington S)

  Gould, Bryan

  Ashley, Jack

  Dalyell, Tam

  Gourlay, Harry

  Ashton, Joe

  Davies, Bryan (Enfleld N)

  Grant, George (Morpeth)

  Atkins, Ronald (Preston N|

  Davies, Denzll (Llanelli)

  Grant, John (Islington C)

  Bagier, Gordon A. T.

  Davies, Ifor (Gower)

  Grocott, Bruce

  Bain, Mrs Margaret

  Davis, Clinton (Hackney C)

  Hamilton, James (Bothwell)

  Barnett, Guy (Greenwich)

  Deakins, Eric

  Hardy, Peter

  Barnett, Rt Hon Joel (Heywood)

  Dean, Joseph (Leeds West)

  Harper, Joseph

  Bates, Alf

  de Freitas, Rt Hon Sir Geoffrey

  Harrison, Rt Hon Walter

  Benn, Rt Hon Anthony (Wedgwood)

  Dell, Rt Hon Edmund

  Haltersley, Rt Hon Roy

  Benne:t, Andrew (Stockport N)

  Doig, Peter

  Hatton, Frank

  Bidwell, Sydney

  Dormand, J. D.

  Hayman, Mrs Helene

  Bishop, Rt Hon Edward

  Douglas-Mann, Bruce

  Healey, Rt Hon Denis

  Blenkinsop, Arthur

  Duffy, A. E. P.

  Heller, Eric S.

  Boardman, H.

  Dunn, James A.

  Henderson, Douglas

  Booth, Rt Hon Albert

  Dunnett, Jack

  Hooley, Frank

  Boolhroyd, Miss Betty

  Dunwoody, Mrs Gwyneth

  Hooson, Emlyn

  Bradley, Tom

  Eadie, Alex

  Horam, John

  Bray, Dr Jeremy

  Edge, Geoff

  Howell, Rt Hon Denis (B'ham, Sm fl)

  Brown, Hugh D. (Provan)

  Edwards. Robert (Wolv SE)

  Howells, Geraint (Cardigan)

  Brown, Ronald (Hackney S)

  Ellis, John (Brigg & Scun)

  Hoyle, Doug (Nelson)

  Buchan, Norman

  Ellis, Tom (Wrexham)

  Huckfield, Les

  Callaghan, Rt Hon J. (Cardiff SE)

  English, Michael

  Hughes, Robert (Aberdeen N)

  Callaghan, Jim (Middlelon & P)

  Ennals, David

  Hughes, Roy (Newport)

  Campbell, Ian

  Evans, Fred (Caerphilly)

  Hunter, Adam

  Canavan, Dennis

  Evans, loan (Aberdare)

  Irving, Rt Hon S. (Dartford)

  Cant, R. B.

  Evans, John (Newton)

  Jackson, Colin (Brighouse)

  Carmichael, Neil

  Ewlng, Harry (Stirling)

  Jackson, Miss Margaret (Lincoln)

  Carter-Jones, Lewis

  Fernyhough, Rt Hon E.

  Janner, Grevllle

  Carlwright, John

  Fitt, Gerard (Belfast W)

  Jeger, Mrs Lena

  Castle, Rt Hon. Barbara

  Flannery, Martin

  Jenkins, Hugh (Putney)

  Clemitson, Ivor

  Fletcher, Ted (Darlington)

  John, Brynmor

  Cocks, Rt Hon Michael

  Foot, Rt Hon Michael

  Johnson, James (Hull West)

  Cohen, Stanley

  Ford, Ben

  Johnson, Walter (Derby S)

  Coleman, Donald

  Forrester, John

  Johnston, Russell (Inverness)

  Look, Robin F. (Edin C)

  Fraser, John (Lambeth, N'w'd)

  Jones, Alec (Rhondda)

  Corbett, Robin

  Freeson, Reginald

  Jones, Barry (East Flint)

  Cowans, Harry

  Freud, Clement

  Jones, Dan (Burnley)

  Cox, Thomas (Tooting)

  Garrett, John (Norwich S)

  Judd, Frank

  Crawshaw, Richard

  Garrett, W. E. (Wallsend)

  Kaufman, Gerald

  Cronin, John

  George, Bruce

  Kelley, Richard

  Crowther, Stan (Rotherham)

  Ginsburg, David

  Ken, Russell

  872

  873

  Kinnock, Neil

  O'Halloran, Michael

  Stott, Roger

  Lambie, David

  Orbach, Maurice

  Strang, Gavin

  Lamborn, Harry

  Orme, Rt Hon Stanley

  Strauss, Rt Hon G. R.

  Laraond, James

  Ovenden, John

  Summerskill, Hon Dr Shirley

  Lee, John

  Owen, Rt Hon Dr David

  Swain, Thomas

  Lestor, Miss Joan (Eton & Slough)

  Padley, Walter

  Taylor, Mrs Ann (Bolton W)

  Lever, Rt Hon Harold

  Palmer, Arthur

  Thomas, Jeffrey (Abertillery)

  Lewis, Ron (Carlisle)

  Pardoe, John

  Thomas, Mike (Newcastle E)

  Lipton, Marcus

  Park, George

  Thomas, Ron (Bristol NW)

  Lomas, Kenneth

  Parker, John

  Thompson, George

  Luard, Evan

  Parry, Robert

  Thorne, Stan (Preston South)

  Lyon, Alexander (York)

  Pavitt, Laurie

  Tlerney, Sydney

  Lyons, Edward (Bradford W)

  Pendry, Tom

  Tomlinson, John

  Mabon, Rt Hon Dr J. Dickson

  Penhaligon, David

  Tomney, Frank

  McCartney, Hugh

  Perry, Ernest

  Torney, Tom

  McDonald, Dr Oonagh

  Phipps, Dr Colin

  Tuck, Raphael

  McElhone, Frank

  Prescott, John

  Urwln, T. W.

  MacFarquhar, Roderick

  Price, C. (Lewisham W)

  Variey, Rt Hon Eric G.

  McGuire, Michael (Ince)

  Price, William (Rugby)

  Wainwrlght, Edwin (Dearne V)

  MacKenzie, Rt Hon Gregor

  Reid, George

  Wainwright, Richard (Colne V)

  Mactennan, Robert

  Richardson, Miss Jo

  Walker, Terry (Kingswood)

  McNamara, Kevin

  Roberts, Alberl (Normanton)

  Ward, Michael

  Madden, Max

  Roberts, Gwilym (Cannock)

  Watkinson, John

  Magee, Bryan

  Robinson, Geoffrey

  Watt, Hamish

  Mahon, Simon

  Roderick, Caerwyn

  Weetch, Ken

  Mallalieu, J. P. W.

  Rodgers, George (Chorley)

  Weitzman, David

  Marks, Kenneth

  Rooker, J. W.

  Wellbeloved, James

  Marshall, Dr Edmund (Goole)

  Rose, Paul B.

  Welsh, Andrew

  Marshall, Jim (Leicester S)

  Ross, Stephen (Isle of Wight)

  White, Frank R. (Bury)

  Maynard, Miss Joan

  Rowlands, Ted

  White, James (Pollok)

  Meacher, Michael

  Ryman, John

  Whitehead, Phillip

  Mellish, Rt Hon Robert

  Sedgemore, Brian

  Whitlock, William

  Mendelson, John

  Selby, Harry

  Willey. Rt Hon Frederick

  Mikardo, Ian

  Shaw, Arnold (llford South)

  Williams, Alan Lee (Hornch'ch)

  Millan, Rt Hon Bruce

  Sheldon, Rt Hon Robert

  Williams, Sir Thomas (Warrlngton)

  Miller, Mrs Millie (llford N)

  Shore, Rt Hon Peter

  Wilson, Alexander (Hamilton)

  Mitchell, Austin Vernon (Grimsby)

  Silkin, Rt Hon John (Deptford)

  Wilson, Gordon (Dundee E)

  Mitchell. R. C. (Soton, ltchen)

  Silkin, Rt Hon S. C. (Dulwich)

  Wilson, Rt Hon Sir Harold (Huyton)

  Molloy, William

  Sillars, James

  Wilson, William (Coventry SE)

  Moonman, Eric

  Silverman, Julius

  Wise, Mrs Audrey

  Morris, Charles R. (Openshaw)

  Skinner, Dennis

  Woodall, Alec

  Morris, Rt Hon J. (Aberavon)

  Small, William

  Woof, Robert

  Moyle, Roland

  Smith, John (N Lanarkshire)

  Young, David (Bolton E)

  Mulley, Rt Hon Frederick

  Snape, Peter

  Newens, Stanley

  Spearing, Nigel

  TELLERS FOR THE NOES:

  Noble, Mike

  Spriggs, Leslie

  Mr. David Stoddart and

  Oakes, Gordon

  Slallard, A. W.

  Mr. Ted Graham.

  Ogden, Eric

  Stewart, Rt Hon M. (Fulham)

  Question accordingly negatived.

New Clause 2

  AVOIDANCE OF DOUBLE TAXATION
  'Where, on a capital transfer, a liability to capital gains tax also arises in respect of the same assets, the total tax payable shall be either the liability to capital transfer tax or the liability to capital gains tax, whichever is the greater.'—[Mr. David Howell.]
  Brought up, and read the First time.
  7.30 p.m.
  Mr. David Howell: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker (Mr. Oscar Murton): With this we may discuss the following:
  New Clause 3—Capital transfer tax.
  New Clause 4—Capital transfer tax—alteration of values.
  New Clause 5—Capital transfer tax—rate of tax.
  New Clause 19—Capital transfer tax: transfers not less than one year before death.
  New Clause 35—Abolition of capital gains tax on gifts inter vivos.
  Mr. HowellNew Clause 2 is addressed to an issue upon which, both in Committee and on the Floor of the House, there has been debate over the years. It is the interaction of capital gains tax and capital transfer tax, which together can involve a capital taxation burden out of all proportion even to the high rates of existing capital taxation.
  My hon. Friends will be developing the point in the context of New Clause 2. I do not want to go into very much detail on that point. I shall concentrate on the issues raised in the other new clauses on capital transfer tax. The interaction of the various capital taxes—in this case capital transfer tax and capital gains tax—reminds us that in this country we have some of the highest rates of capital taxation, as, of course, we have some of

  875
  the highest rates of personal taxation in the Western world.
  When we are accused of being concerned with capital taxation to the exclusion of other things it is because of the extreme height of the rates and the extreme size of the burden and the damage that it does. I shall come in a moment to deal in some detail with its effect, particularly on jobs and family businesses.
  With this very high capital tax combined with other taxes on wealth it is all the more bizarre that apparently the wealth tax is again a runner in the Government's mind and that it is to be one of the features of the Lib-Lab pact. We have heard now that it is the earnest intention of the Liberal Party, combined with the Labour Party, if they have half a chance, which I do not think they will have, to introduce a wealth tax. Why they should wish to do this is beyond my comprehension. It is utterly bizarre that they should wish to add a wealth tax to our existing gallery of capital wealth taxation. But they do.
  It has also been suggested by one of the Liberal spokesmen that the Conservative Party supports a wealth tax. This is not so. We utterly reject the idea of a wealth tax and the proposition that we gave it support because some of our spokesmen devised a form of wealth tax within the terms of reference in the Select Committee report on a wealth tax is entirely false.
  The terms of reference required those on that Committee to look into the different forms of wealth tax. Within those terms of reference some of my hon. and right hon. Friends made their suggestions, but we do not support the idea of a wealth tax. We note, however, in passing that the Lib-Lab pact supports such an idea and we are now threatened with it.
  Mr. Pardoe: The hon. Member has put a most extraordinary interpretation on what took place in Ate Select Committee dealing with a wealth tax. There were nine Conservative Members on that Committee and eight out of those nine voted for my alternative report, which recommended a wealth tax at a threshold of£30,000. This would have supplanted the whole of investment income surcharge and all the top rates of income by 30 per
  876
  cent. This is probably one of the main reasons why eight of the nine Conservatives supported it.
  Is the hon. Member now saying that the eight of the nine Conservatives—I see that one of them, the hon. Member for Blaby (Mr. Lawson), is whispering in the hon. Member's ear—who supported it voted for nonsense, or were they good Conservatives voting for good Conservative sense?
  Mr. Lawson: It might be useful to get the record straight. The report of the hon. Member for Cornwall, North (Mr. Pardoe) was never put to the Committee. What was put to the Committee was the amendment which proposed that, instead of accepting the report by the right hon. Member for Battersea, North (Mr. Jay), there should be put in its place the report of the hon. Member for Cornwall, North. Therefore, we supported that proposal on that particular Division as the lesser of two evils.
  Mr. Howell: My hon. Friend has made the position perfectly clear. He has put it with more clarity and precision than I did. Obviously, the hon. and right hon. Members of the Conservative Party on that Committee were dealing all the time with the lesser of two evils. They argued that if a wealth tax was to come, if the terms of reference demanded it, they would rather have the one than the other. They also laid particular emphasis in the report on the need to
  "recognise the special dangers inherent in introducing such a tax at a time of high inflation and economic crisis."
  That is certainly the case at the present time. This makes it all the more bizarre that the Liberal Party should believe that we ought to introduce a wealth tax.
  I turn to the capital transfer tax and the amendments proposed. I would be the first to concede that up to now, since the birth of the capital transfer tax, a good deal of arguing across the Floor has taken place by way of assertion and counter-assertion. We on this side have said from the start that the capital transfer tax was a misleading device, that those who believed that it would lead to a greater spread of wealth would be disappointed, because it would lead to a narrow concentration of wealth in the hands of the State, a concentration of a kind that we reject totally.

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  We argued that it would be devastating to small businesses and that it would create more unemployment, more joblessness and would do great damage to farms and many other concerns. The Chief Secretary and maybe the Minister of State were there at the time, and the Financial Secretary argued in the report that that was not the Government's view and said that, anyway, there was no factual evidence to support that view. Obviously, at the inception of the tax that was correct and we had no evidence to support our views. Furthermore, in the light of the great political uncertainty and the belief of many that there could he changes in tax legislation, as I hope there will be, many people who have the chance to do so are minimising the changes in their affairs that would give rise to chargeable transfers.
  So one would not expect this to have been a period during which the full impact of the capital transfer tax on the lines we predicted would be developed to the maximum. Nevertheless, we are now in a better position to assess the position reasonably objectively. I want to call in aid a number of non-political sources in discussing the impact of the capital transfer tax when people have been unable to avoid it, as when there have been deaths, or when people have found that they have had to make dispositions giving rise to capital transfer tax.
  From some of the evidence that we have examined we can now see the dangerous effect of capital transfer tax, despite the fact that last year the Government moved over 40 new clauses in the Finance Bill in an attempt to put right or reduce the impact of some of the effects of the original proposals.
  Where do we look for warning signs that what was predicted is actually happening? The first document that I should like to look at is an assessment by the senior research official of the London Graduate School of Business Studies, Mr. Raymond Ashton, which appeared in April of this year in the Banker entitled "CTT—Death knell of the small firm?" In it he set out in great detail to analyse a number of cases and to see whether his question mark was justified or whether it should be removed so that the question would become a
  878
  supported fact. A great many cases were analysed in considerable financial detail and I do not intend to detain the House with all the figuring involved.
  However, a large range of cases was investigated covering circumstances where the father had died and on death there had been a transfer of business to the son, where the father transferred the business to the son before death, where he transferred within the three-year period and died outside the three years, and so on. Mr. Ashton came to these conclusions about CTT two and a half years after the inception of the tax.
  He said that the cases he had analysed showed
  "that there is a very real danger that by the next generation there will be no sizeable private businesses left, as a result of the ravages of CTT and in some cases CGT".
  That was his main conclusion from a detailed expert analysis. He went on to conclude:
  "The evidence presented in this paper supports the first hypothesis"—
  here going back to the beginning of his paper—
  "that a father will be unable to transfer his business to future generations because of the onerous tax liabilities that will arise on transfer".
  He went on:
  "Unless something is done to alleviate this tax burden many small businesses will have to be sold to bigger businesses or to the State."
  This is not a party document. It is not the hon. Member for Guildford making yet another of his speeches about CTT. This is an objective study by a research official whose credentials are respected in this sphere.
  Mr. John Cronin: I do not wish to be discourteous, but it seems that the hon. Gentleman is simply quoting an assertion by someone who has done research work. The hon. Gentleman, however, has not given us the argument which prompted this person to make these assertions.
  Mr. Howell: I should be happy to provide the arguments, but it would delay the House somewhat if I went through the case studies that led to the conclusions. There are five detailed case studies here in which Mr. Ashton analyses what has happened in certain businesses and what would happen in businesses of a typical kind.

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  It would certainly be possible for the House to analyse the difficulties surrounding these companies, but I suppose the key difficulty which we should examine is the problem of paying tax out of income even when the instalments are spread out over eight years. This has always been a problem, and we are here faced apparently with a tax which falls unavoidably upon a business. Even with the 30 per cent. relief on business assets, however, it is not possible in certain circumstances and with a certain size of firm to pay it out of income.
  Therefore, the problem arises of trying to sell a minority holding in a family business, and we know the difficulty that that leads to. These arguments are endless. It is correct to say that they apply only at certain levels and to firms of certain sizes, and it is possible to produce figures where this doomsday effect does not happen.
  7.45 p.m.
  I do not rest only on the conclusions reached by Mr. Ashton, however, whose article could be given any value that hon. Members wish to give it. I should like to turn from firms to farms and particularly to the little NEDC for agriculture, which recently carried out a study of the impact of taxation on the industry. Again, it reached conclusions which I suppose could be regarded as assertions, although considerable study of evidence was carried out.
  The NEDC commands a fair amount of authority and those who sit on the agriculture little NEDC cannot be dismissed as insignificant or inexpert figures in agricultural matters. They came to a great many conclusions about the taxation of agriculture, but I wish to stick to the CTT conclusions which are on pages 21 to 23 of the report.
  The report looks some way ahead, and while it foresees difficulties over the next five to 10 years it points out that certain steps can be taken. These should be such as to ensure that CTT and any residual estate duty do not represent a heavy burden on the industry in cash terms. That is good news, but then the report begins to look forward from five to 10 years. First, it says that even over the five to 10-year period there could be severe constraints on the expansion and development of the more substantial farming
  880
  businesses and that this could jeopardise the targets projected in the Government's White Paper "Food from Our Own Resources".
  For the longer term the little NEDC came to more devastating conclusions. For let estates it came to the conclusion that the principal effects of CTT are likely to be that

  "(a) It will make it harder, if not impossible, for the landlord to fulfil the special function expected of him of providing cheap capital for his tenants;

  (b) It will reduce his ability to introduce structural improvements;

  (c) It will cause a falling off in standards of maintenance."

  As for owner-occupied farms, the report talks in paragraph 341 of some loss of employment. It says that in aggregate some agricultural production is bound to suffer from a tax-induced reduction in farm size, and it concludes
  "In this important sector, therefore, there is a demonstrable conflict between the Government's fiscal and agricultural objectives."
  I concede that we are still in the realm of stating opinions, but surely the Minister accepts that these opinions are beginning to harden and that evidence of very serious difficulty for small firms and an undermining of the Government's agricultural objectives is beginning to mount.
  Perhaps my hon. Friends will be able to produce information of small firms which have had to be sold with workers being put on the dole queue. Our original propositions—that the tax would cause devastation to small businesses—seem to acquire more justification with experience. I do not think that the House needs to hear of detailed cases of firms that have been smashed up to realise what is happening.
  The effect of CTT on business expansion and business planning is now very prominent. There can be few family-owned businesses that do not find the question of how to cope with CTT at the centre of their affairs. There can be very few who are not deterred from expanding just at a time when Government policy should be encouraging them to expand because larger manufacturing concerns are least able to offer the new jobs that our younger generation needs. It is often in the smaller firms and family businesses that new jobs are to be found. It is in this area, therefore, that the Government should be straining every sinew

  881
  to assist business expansion. Capital transfer tax goes in the opposite direction. That is why we have had to put down new clauses suggesting that there should be further very substantial alleviation.
  New Clause 3, which is a fairly straightforward new clause for the lay reader, indicates our proposals for lower thresholds for the various rates. But I must tell hon. Members that so complicated is the mechanism of the capital transfer tax that, although this is an intelligible clause to the layman, it would, if it were to apply, create insuperable problems.
  I must draw the attention of the House to New Clause 4. It is a most formidable piece of algebra which achieves the aims that we are trying to achieve—to reduce substantially the burden of capital transfer tax.
  I should like to say a word about international comparisons, which can always be quite tricky. I began by saying that we had some of the highest capital taxes in the Western world. I have some figures which the Minister can perhaps confirm, because he has provided a number of useful international comparisons on rates of capital taxation in parliamentary Answers. From the document "Taxation in Western Europe", which is a CBI document, figures emerge to show that, with the exception of Sweden, the United Kingdom rate of taxation on transfers for close relatives—those within the family—are in all cases over twice as high as any other OECD country. We are way up in the stratosphere in these matters.
  I do not know whether it is the Government's policy to think more in line with the rest of the Community or the OECD countries. I fear not, otherwise they would have made changes to the high marginal rates of personal income tax. But the fact remains that we cannot accept the argument of Labour Members who say that we are not an excessively highly taxed nation in this respect. Clearly and visibly we are and clearly and visibly this is damaging to our productive power and capacity. So long as we continue to damage the power and productive capacity of this nation by over-taxation, so long shall we keep our own people out of jobs, weaken our capacity to compete, and so long shall we limp along, ever postponing economic recovery.
  Mr. Cronin: The hon. Member for Guildford (Mr. Howell) made a pleasant speech which could have been persuasive. But he seemed to rely on the House accepting authorities rather than arguments. I got the impression that his argument in favour of helping small busineses with regard to capital transfer tax was based on the assertions of a gentleman called Mr. Ashton of the London Graduate School of Business Studies.
  I am sure that Mr. Ashton is an able and well-informed person. However, to say simply to the House that Mr. Ashton says that capital transfer tax is unsatisfactory, therefore it must be unsatisfactory, is not persuasive in my opinion. The hon. Gentleman attempted no kind of argument.
  He also referred to the agricultural little NEDC which itself said that over the next five to 10 years there was no serious problem. In these days, when the economic situation changes so rapidly, it is looking very far ahead to make changes with regard to something that will happen in five or 10 years' time.
  Perhaps Conservative Members will enlighten me as to what the argument is about small businesses. I appreciate that if a man builds up a small business and then leaves it to the son or heir, who has to pay a large capital transfer tax, that is of some personal hardship. But I do not understand the arugment that it impairs the industrial capacity or the employment of this country. I do not follow that at all. Surely the heir in question can simply sell off part of the business, or part of the shares, and the business carries on as before.
  Mr. Peter Rees: That is, in fact, the kind of argument that was deployed during the Select Committee on a Wealth Tax, of which the hon. Gentleman was a member. Will the hon. Gentleman explain how one sells off a tranche of a small unquoted company or of a business that has not been incorporated? The hon. Gentleman is being a little bit cavalier about this problem. Since we know that he has great practical experience of business, perhaps he will explain how he would personally tackle a problem of this kind.
  Mr. Cronin: That question is of a very general nature. Small businesses are sold every week. There is no great

  883
  problem about this. I appreciate that there is hardship to the individual concerned, but the hardship is comparatively limited if the business is small. It is only when it is a large business that capital transfer tax really bites seriously.
  It is all a question of what is a small and what is a large business. I would have thought that if one transferred the shares of a small business or sold part of them—this is a self-evident truth—the business could still continue if it was a profit-making, efficient business. Otherwise, I do not see what the argument is, apart from the question of the hardship for the heir who has, expectedly or unexpectedly, made some very large capital gains through the death of the father or testator.
  The hon. Member for Guildford made a point about the effect of capital transfer tax on agriculture. Perhaps in the case of farms of a relatively small size there is a disincentive for the landlord making a capital improvement which may well be desirable. There may be some case for that. But I do not think that there is a case for any substantial remission of capital transfer tax for large farms. I am talking of farms with a capital value of several million pounds and with one owner. They are relatively common in this country.
  I do not intend to speak for long because I do not want to delay progress and there is a spring tide of eloquence being dammed up on the Conservative Benches.
  Mr. MacGregor: Does not the hon. Gentleman agree that the capital transfer tax liability will be such that quite a large part of those large farms will have to be sold off and there may often be difficulties in finding buyers? Is that desirable from an agricultural efficiency point of view?
  Mr. Cronin: One frequently sees large estates being sold off, generally in small lots, and they are taken up greedily by the market. I do not think that there is any problem here.
  Basically, Conservative Members are trying to protect the interests of very wealthy people. That is the main basis of their objections. I do not think that there is much point in pursuing these arguments, because there is a total differ-
  884
  ence of philosophy between both sides of the House. Labour Members think in Socialist terms. We think it undesirable that certain people should have large concentrations of wealth in their hands. For that reason we do not see why capital transfer tax should be ameliorated so that it will affect only really wealthy people to a substantial extent.
  Mr. Julian Ridsdale: Why does the hon. Gentleman want to hurt rich English people and to encourage rich Arab, Japanese and Germans to buy land instead?
  8.0 p.m.
  Mr. Cronin: I do not decry rich people at all. I have no objection to rich people. All I am saying is that we on the Government side want to arrange the taxation of capital in such a way that there will be fewer and fewer rich people and in such a way that we shall have a much more equal and a less divisive society.
  The hon. Member for Harwich (Mr. Ridsdale) asked why one objected to rich people. I think that subconsciously he was supporting the very argument that I was trying to make in the sense that Conservative Members think in terms of helping rich people. It was that strong subconscious impulse, I believe, that brought the hon. Member to his feet.
  Mr. Ridsdale: The policies of the Government are encouraging the Arabs, the Germans, and the Japanese to come in and compete where we cannot compete.
  Mr. Cronin: There are no Germans or Arabs competing in this country in business. That is only in the hon. Gentleman's imagination. However, there is a total difference of philosophy between us, and I do not think that there is any point in pursuing it further. Nevertheless, I shall listen to the loquacity of Conservative Members with the greatest attention.
  Mr. Peter Rees: I am sure that I do not represent the spring tide of eloquence. If anything, a certain autumnal melancholy has overtaken me, shot through with a momentary pleasure at the spectacle of the hon. Member for Loughborough (Mr. Cronin) representing himself as the sea-green incorruptible of the revolution. I hope that, if not inside this Chamber, at least outside it, we shall be able, to find

  885
  a certain basis of philosophic agreement. But I do not want to tempt the hon. Gentleman to intervene again.
  The hon. Gentleman reproved my hon. Friend the Member for Guildford (Mr. Howell) for presenting his case on authorities rather than arguments. If I may express a personal opinion, I thought that my hon. Friend presented the case for New Clause 2 with extreme eloquence backed by a wealth of rather impressive evidence. I should like to take up the challenge of the hon. Member for Loughborough and to present a case for New Clause 2 on argument rather than authority.
  I am tempted to survey the whole field of taxation, particularly because the hon. Member for Cornwall, North (Mr. Pardoe) is sitting beside me, and I recall our happy days together in the Select Committee on a Wealth Tax. Since he was moved to intervene—at an ill-judged moment, I suspect—in the speech of my hon. Friend the Member for Guildford, I remind the hon. Gentleman that the Select Committee on a Wealth Tax had to start from the premise that there was to be a wealth tax. That was not a premise which I viewed with any pleasure then, or view with any pleasure now.
  It was only starting from that premise that we were moved to consider the situation in which a wealth tax might just be bearable and the form in which it could be tolerated. I would certainly not encourage my hon. Friend the Member for Guildford, and I am sure that he will not succumb to that temptation when he reverses roles and is sitting on the opposite Front Bench, to introduce a wealth tax on top of the battery of capital taxes that we endure at this moment.
  I remind the House and the hon. Member for Cornwall, North that, with capital gains tax, capital transfer tax, investment income surcharge, stamp duty and development land tax, as a country we are better equipped with capital taxes than any other save Sri Lanka. Even the Indian Government under their new regime are now moving away from these pressures on capital.
  I turn now to the consequences to this country of our over-reliance on capital taxes. My hon. Friend the Member for Guildford cited one particularly telling
  886
  statistic. I remind the House of another. Of all the countries in the European Community, we derive the highest proportion of our tax-take from capital taxes.
  Mr. Hugh Jenkins (Putney): No.
  Mr. Rees: The hon. Member for Putney (Mr. Jenkins) says "No." Would he care to look at the statistics? If he finds that I am wrong, I shall stand corrected. The precise figure escapes me but it is about 3·5 per cent., and I do not think that any other European Community country gets within shouting distance of that figure.
  Mr. Hugh Jenkins: As a member of the Select Committee on a Wealth Tax the hon. and learned Gentleman will recall that the Committee discovered that there were 14 countries that had wealth taxes of various forms of severity whereas this country as yet had none.
  Mr. Rees: The hon. Gentleman cannot have been paying attention to my speech. It may be that my speech did not deserve his attention, but let me try again. What I was saying—if he will now grasp this rather simple point—is that the proportion of our tax-take in comparison with the other countries of the EEC which derives from capital taxation is higher than any other. In other words, by that simple test the burden of capital taxation here is higher than that in any other country in the European Community. The hon. Gentleman may care to digest that. If he would then like to put another point to me, I should be very happy, with your permission, Mr. Deputy Speaker, to give way to him.
  I leave the whole field of capital taxation for a moment in order to come back to the new clause dealing with the interaction of capital gains tax and capital transfer tax. My mind is irresistibly taken back to those dark nights in February last year—perhaps it is now two years ago—when we were debating the capital transfer tax in Standing Committee. At quite a late stage in our proceedings a fundamental new concept was introduced by the Chief Secretary to the Treasury. After we had been two-thirds of the way through the Committee stage he announced that there was to be a lower rate for life-time transfers as compared with transfers at death.

  887
  I think that this could be defended on many grounds. First, it takes us back to estate duty, with which we are familiar and which has been much pilloried of late as an avoidable tax. It was not introduced on that basis, but I do not speculate on the motives of Sir William Harcourt. I think that the rationale, the principle, underlying this fundamental amendment introduced by the Chief Secretary was that he wished to stimulate the flow of lifetime transfers—to make it easier for owners of capital to transfer during their lifetime. He did not wish people to sit on capital until the moment of death and he thought that it was good that the young should be given a chance and that there should be a loosening of the position.
  If that was not the reason, perhaps the Minister will suggest some other. But that is the way in which I saw it, and that is the way in which I still see it today. I believe that the intention was to encourage people to a limited degree to pay a due—we would call it an undue —proportion to the Chancellor of the Exchequer by transferring their wealth during their lifetime.
  If that be the underlying principle, one has to consider what has happened. I shall not produce a wealth of case histories, but that principle has been countered by another factor. That is the incidence of inflation, over which the Chancellor of the Exchequer has presided with his usual ineffable complacency. The swingeing charge of capital gains tax in almost every case has discouraged people from taking advantage of the lower rates of capital transfer tax on lifetime transfers.
  I am sorry that the hon. Member for Loughborough should have left the Chamber, because he will appreciate that the lower levels of capital transfer tax were put up to only a rather niggardly level, so we are probably talking of people who by present-day standards are not possessed of vas'. wealth. This new factor—the imposition of capital gains tax on what are largely inflationary gains—has certainly in my experience discouraged people from taking advantage of the lower rates imposed on lifetime transfers.
  888
  Basing my approach on argument rather than on authority and assertion, I hope that the Minister of State will be able to look kindly on New Clause 2, which seeks to remedy the position. I remind the Minister of State that it is true that over the past few days we have watched the dethronement of the Emperor Jones by his own Praetorian guard in the Isle of Man. It might not be fashionable to quote the sayings of the emperor and his court, but I seem to recall that from certain trade union luminaries have fallen the words "a strike of capital".
  I should like the Minister of State and his right hon. and hon. Friends to reflect for a moment why there has been a strike of capital. I believe that one of the principal reasons has been the battery of taxes on capital in this country to which I have referred. If the Minister of State and his right hon. and hon. Friends are serious in wishing to stimulate investment in this country, investment by private capital with all the consequences for jobs that that must entail, he must consider New Clause 2 with perhaps rather more sympathy than he is disposed to at present.
  Perhaps in the last despairing round of negotiations in which he may well be engaged with his friends, the leaders of the trade union movement, he might just be able to evoke a sympathetic response from them if he tells them "I am aware of the difficulties of your members. They are caused, at least in part, by the strike of capital to which you have referred. We shall ameliorate the situation with a farsighted move that has been proposed by the hon. Member for Guildford, namely, New Clause 2." Perhaps on that basis the Minister will be able to look with kindness on this very modest provision.
  Mr. Grieve: The hon. Member for Loughborough (Mr. Cronin) has had a distinguished career both in medicine and in business and I found it astonishing to hear from him—and I am sorry that he is not in his place at the moment—observations which were either naive or disingenuous about the effects of the appalling penal levels of capital taxation which are imposed upon people who would at one time have been considered

  889
  of modest means, who are running their own businesses or farming their own farms.
  The fact is that inflation has put up the values of these farms and businesses so much that values which at one time would have seemed beyond the dreams of avarice are now quite modest in terms of purchasing power. The average farmer farming his own farm may well be sitting on an asset that has a substantial market value but gives him a very small return. He for his part is playing a vital role in British agriculture.
  The danger that I apprehend, and that we are seeing before our eyes, arising from the penal levels of capital taxation and taxation on income, is that such moderate farmers—I am not speaking particularly of the small farmer but about men who are building up businesses to substantial proportions without going public and who are seeking to keep it in the family—will be prevented from doing so. The loss to this country of people such as this can hardly be measured. It is the generation that comes after us that will suffer from seeing people of initiative, endeavour, thrift—qualities which went to make the nation great—driven out of business.
  8.15 p.m.
  The hon. Member for Loughborough chided my hon. Friend the Member for Guildford (Mr. Howell) on his reliance on the statement of a very distinguished author in the economics field in an issue of The Banker. I wish briefly to support my hon. Friend and this new clause. I should support any new clause that sought to reduce the appalling burden of taxation on capital in this country. I shall seek to support my hon. Friend's arguments with a few statistics, but I shall try not to trouble the House for too long. I shall refer to statistics that are given in Hansard and that I hope will therefore not be challenged by any Labour Members, although that is unlikely because at present there are only three hon. Members on the Government Front Bench.
  These figures emanate from the Treasury, from a reply to a Question that I tabled last February and that was answered in March. My Question was designed to find out precisely where capi
  890
  tal taxation stood in this country on a death in comparison with such taxation in all the other countries of the EEC. I trust that I shall not be charged with making too wide a statement if I say that in the appalling crisis that has afflicted the Western world since the oil and petrol price rises we in Britain have done least to overcome the crisis. Some of our Continental neighbours have far outstripped us. In asking why this should be so, one cannot refrain from saying that one of the reasons, must be that we are a grossly overtaxed country, both in capital taxation and income taxation.
  I asked the Chancellor of the Exchequer
  "what taxes are payable, whether by way of inheritance or succession or comparable duties on the death of a deceased person, where the whole estate devolves upon his descendants in the direct line, in Belgium, Denmark, France, Ireland, Italy, Luxembourg, the Netherlands and West Germany, respectively, on estates, respectively, of£20,000£40,000,£50,000£100,00£200.000,£300,000,£500,000 and£1,000,000; and how the sums payable there compare with the duty payable on comparable estates in the same circumstances in the United Kingdom."—[Official Report, 16th March 1977; Vol. 928, c. 228]
  It is interesting that the Chancellor chose to answer that Question by taking as the basis for comparison the circumstances in which the whole estate devolved to one son aged 30 with no children. The reason for this is not far to seek, because any other country in the Community—I cannot speak for Ireland, but I speak certainly of the countries of the Roman law—gives a substantial slice of the estate of the deceased person free of all duty to every child as well as to the widow.
  Had the Chancellor taken as the basis for his comparison, for example, the circumstances in which an estate passed to four children, the comparison would have been even more unfavourable to this country. In France, for example, although I forget the precise figure, it is well over£10,000 that passes free to each child and to the widow. Where there is a widow and four children and an estate of£50,000, the estate is passed free of all duty.
  I shall not recite all the figures, which can be found in Hansard for 16th March 1977, in columns 229 and 230. I shall quote only the cases of estates of£50,000,£100,000 and£1,000,000. Where the value of a deceased's estate is£50,000, that

  891
  figure is now accounted for in many instances by the value of the dwelling house and the moderate savings put aside by the deceased. In the United Kingdom, in the circumstances that I have outlined, where only one son take; the whole estate, the executor has to pay£7,750. In other countries the heirs would pay the following sums: in Belgium,£2,404; in Denmark,£4,989; in France,£4,599; in Ireland, the Emerald Isle, nothing at all; in Italy,£1,447; in Luxembourg,£2,733; in the Netherlands,£5,498—the highest apart from the United Kingdom—and in West Germany, the most prosperous country of all,£1,275.
  Where the value of the estate is£100,000, in the United Kingdom£28,250, more than a quarter, goes in duty. In Belgium it is£6,950; in Denmark,£13,022; in France,£14,599, although if there was a large family in France very little would be paid; in Ireland, nil; in Italy,£4,973; in Luxembourg,£6,230; in the Netherlands,£12,998, and in West Germany,£5,467. All those countries are far kinder when the deceased is much richer.
  In the United Kingdom, if he left£1 million, more than one-half would go in duty—£589,750. In Belgium, the figure would be£158,106; in Denmark,£193,022; in France,£194,599; in Ireland,£387,500—there is an immense leap in Irish taxes on death—in Italy,£229,809; in Luxembourg, only£79,975; in the Netherlands, £65,636; and in Germany,£128,954.
  I apologise for wearying the House with those figures, but they illustrate my point. They are there for all to see. We have absolutely penal rates of duty on death in this country, and they mean that families must look wildly round to realise assets to meet death duty demands. That inevitably militates against the ability of such families to build up their businesses, to maintain their farms, to invest their money, and to provide the life-blood of industry. That is why I support the clauses.
  Mr. Wiggin: New Clause 2 is headed "Avoidance of double taxation". New Clause 35 has the same effect. The fact that there are two taxes on gifts between living people is undoubtedly creating serious difficulties in the administration of personal property. The anomalies may exasperate the taxpayer, but the serious
  892
  aspect is that they place obstacles in the way of business men who are trying to achieve maximum efficiency for the benefit of the community as well as for themselves and their estates.
  The Government seemed to accept that it was right to encourage people to hand over property, particularly businesses that would benefit from new and younger management. That appears to have been encouraged by the lower rate of capital transfer tax charged on lifetime gifts. But the benefit of that lower rate is often wiped out by the impact of capital gains tax, particularly on businesses, because the 30 per cent. business property relief applies not to capital gains tax but only the capital transfer tax.
  Unhappily, the Minister was carried away by the expression on the face of my hon. Friend the Member for Blaby (Mr. Lawson) when answering the debate on the last amendment. Had he been able to deal with New Clause 37 he might have been able to explain why the Government could not make the proposed concession. I hope that he will take it on board that he did not deal with that point and will write to me about it, because I need a serious and sensible answer on New Clause 37.
  The capital gains tax problem is particularly acute in respect of farms which have been owned for many years by the farmer. Perhaps he is getting old and decides that on the ground of agricultural efficiency he should hand over to his successor. He should not need to assess the potential capital gains tax burden, work out possible CGT reliefs, and weigh the CGT burden against the potential capital transfer tax saving on the lower rate for lifetime gifts before deciding whether he can afford to hand over now or to preserve a viable unit and hold on to it until a later stage. The Minister of Agriculture is keen to see young men coming into agriculture, but there is no doubt that elderly farmers are reluctant to hand over their farms, for the reasons I have given.
  New Clause 2 deals with the problem in a slightly different way but it has the same effect as New Clause 35, because it gives the option. New Clause 35 proposes that there should be no capital gains tax. Common sense tells us and our experience demonstrates that the present dual taxation policy is discouraging

  893
  lifetime gifts, particularly for a man who can afford only to give£15,000 in his lifetime thus saving no CTT but perhaps will bear a heavy CGT burden. New Clause 35 would enable that situation to be tackled and New Clause 2 would enable the farmer to make a choice.
  The new clause is unlikely to be expensive to the Revenue. It would simplify the situation and must be beneficial to the operation of our highly complex capital taxes.
  Mr. Tony Newton: I support what my right hon. and hon. Friends have said on New Clause 2 and urge the House to accept the proposal to remove duplication between capital gains and capital transfer taxes.
  I have always thought that the capital transfer tax, viewed purely as a structure or framework, had considerable merit compared with the old estate duty system. That view is not shared by all my hon. Friends, but it is mine. What is wrong with CTT is that the rates are far too high and that the tax was spatchcocked into the tax system on top of an already mountainous heap of capital taxes without any attempt being made to reform the system as a whole. It is those two factors—excessive CTT rates, interacting with other taxes and particularly with CGT, itself made excessive by inflation—which constitute the intolerable feature, and not the notion of CTT in itself.
  Whether Ministers are willing to acknowledge it or not there is no doubt that the burden of the two taxes taken together has been and is doing a great deal of damage to a large number of farms and small businesses. For that reason alone, I was practically terrified, certainly alarmed, to hear what the hon. Member for Loughborough (Mr. Cronin) said. I was not in the least surprised when the hon. Gentleman retreated from the House as rapidly as he could after his speech. It was almost unbelievable that he could be so unaware of the problems which might face small businesses and farms which could sell off part of themselves, as he put it, only at the cost of wrecking the business or making it non-viable or inefficient and gravely undermining employment, the improvement of which is supposed to be one of the main aims of the Government's policy. New Clause 2
  894
  would help to deal with the problem in a neat and simple way, and I hope that it will be accepted.
  There are, however, other ways in which the burden of these taxes could be reduced quite modestly, and I want briefly to refer to New Clause 19. Its purpose is simple and straightforward and will be clear to anyone looking at it. It would reduce from three years before death to one year the disqualifying period for the application of the lifetime, as opposed to the death, rates of capital transfer tax.
  I do not dispute the principle that a period of years must be involved. Clearly, if there are to be different rates for gifts made during life and on death, anyone who makes a gift knowing that he will die in the near future has to be regarded as being engaged in a form of tax evasion, and there must be rules to prevent that. But is three years the right period?
  A balance has to be struck. No one wants to be unduly favourable to those avoiding a tax liability—and I use the word "avoiding" in the rather ghoulish sense in which I touched upon it just now. However, we all want to avoid placing excessive burdens on people who may give away their possessions without any thought that they will die fairly soon and without any thought of deliberately evading the burden of the death-time rates of capital transfer tax but whose action may cause their relatives to be faced with a substantial burden because of a purely accidental death occurring.
  8.30 p.m.
  A man may give away his business or part of it and then, perhaps at the age of 40 or 50, with no reason to expect that he will not live for another 20 years, get killed in a motor accident in the ensuing three years with a resulting substantial additional tax liability on his successors. The number of people who have any certainty of death more than a year before they die is very small in practice. But quite a considerable number are killed unexpectedly or die unexpectedly, either accidentally or otherwise. Therefore, much the greater risk in the law as it is at present is that of unfairness to those who get caught by the three-year rule, as it were, quite innocently.
  I hope that Treasury Ministers will reconsider the period. It is not the same problem as it was with death duties. It

  895
  is already a shorter period than it was with death duties. With the old estate duty, anyone dying outside the relevant time of seven years caused his successors to pay no tax. But here we are talking merely about a lower rate of tax by comparison with the death rate. There is a risk of unnecessary unfairness and unnecessary burdens in the three-year period.
  From my researches, it appears that it was not very much discussed when the original Bill went through. I believe that there is a strong case for considering whether the period could not be reduced from three years to one year. By analogy, the case is strengthened in that the existing legislation already provides for the one-year survival period only in relation to the exemption of gifts to charities. If it is thought reasonable and acceptable in that case, that in itself suggests that Ministers may be being unnecessarily cautious in continuing to insist on a three-year period in the wider case. I hope that Ministers will look at this again.
  Mr. Graham Page: We are debating five new clauses, each of which calls attention to the damage being done in one way or another by capital gains tax and capital transfer tax. It is quite clear that in each case to which attention is drawn in the new clauses the penal rates of capital taxation are damaging smaller businesses.
  It has been asked more than once in this debate what is meant by "small business". It is shorthand not necessarily for the size of the business but for the unincorporated business or, if corporate, the private company. Those are the businesses which are hit severely by the capital gains tax and the capital transfer tax together. New Clause 2 and New Clause 35 endeavour to remedy this. One sees this especially in the devolution through the family and even more in the devolution from father to son which it seems in future may well become quite impossible.
  The period five years to 10 years hence was mentioned by the hon. Member for Loughborough (Mr. Cronin). I believe that we ought to look five years to 10 years hence. In that period of time, if there are more than one or two transfers during lifetime or more than one or two
  896
  deaths and the business devolves from one to another, what will be left of the business? The hon. Gentleman said he could not see that capital transfer tax had done any damage to businesses of this kind. It is not damage to that part of a going concern has to be sold off, because it is either that or the burdensome payment of capital taxes out of income over a period of years? That must be damaging to initiative in that sort of business.
  The general impact of CTT must be a reduction of initiative and enterprise in that sort of business, a reduction in business efficiency and a reduction of the will to invest.
  By adopting one or more of the five new clauses, we could reduce the impact of the tax on the small business. If we adopted New Clause 2 or New Clause 35 and abolished capital gains tax, or took our pick between CTT and CGT as in New Clause 2, that would reduce the burden to some extent.
  To adopt the proposals in New Clause 19 that were so eloquently put by my hon. Friend the Member for Braintree (Mr. Newton)—particularly in relation to the example of accidental death within the three-year period—would relieve cases in which real hardship arises. During the period before an unexpected death there might be a transfer, and the transferee might have just settled down to working out how he will pay the lower rate of taxes. Then, suddenly, the whole rate is changed by the accident of death. Perhaps we could give better relief there by adopting the principle of New Clause 19.
  Personally I would go for a straight reduction of the rates. Although it is very complicated, I would plump for New Clause 4. One can do this without disturbing the principle of these capital taxes to which the Government are so wedded. The reduction of rates would bring a certain amonut of relief. If I had to make a straight choice, I would opt for New Clause 4 and seek a fairly modest but effective reduction in the rates.
  Mr. MacGregor: I do not wish to say much this evening because we have put all these arguments before during Committee and I thought that my hon. Friend the Member for Guildford (Mr. Howell)

  897
  put the case impeccably. It was well argued and well documented.
  One of the problems that we have at present—and no doubt the Minister of State will repeat what he has already said in Committee—is that we have no direct practical evidence of the effects of CTT two or three years from now. It is still a fairly early stage after the introduction of the tax and, although a lot of people are worrying and talking about it, the direct effects on farms and businesses have not yet come through. We have not yet seen the expected effects of farms and businesses being sold or of farming efficiency being hindered, because most people have not yet had to take an actual decision to sell. I hope that the Minister of State will not be deluded by this into thinking that there is not a real problem.
  In talking to farmers and small business men it has struck me that in both cases they are worrying about future liability to CTT and about the combination of that and other capital taxes.
  There is a particular problem with smaller growth businesses. After building up their businesses, many people feel that once they have reached a certain point there is really no incentive to go on making the business grow or employing any more people. Here it is not just a tax problem. It is the fact that they are moving into a different area of problems with industrial relations and labour legislation, as well as tax. When they look at these other difficulties and see that at the end of the day they will have this major tax problem and nothing to pass on to whomever they want to pass it on to from the additional growth that they will generate, they will ask "What is the point of generating the additional growth?" At a certain age and stage in business, they will start to coast and to drift. That cannot be sensible from the economic or employment point of view.
  It is significant that a number of people who have built up businesses over the past 40 years say that it could not be done today because the capital aspect is one of the major disincentives. Indeed Lord Sieff, in a lecture about a year ago, made the point that because of taxation it would not now be possible to build up
  898
  Marks and Spencer in the way that it was built up.
  Farmers worry about the green pound and so on. In conversations with farmers who have family farms, I find that they come back to the point that, despite the reliefs that are given, capital taxation is their biggest concern. It is vital that the Minister takes this point on board before it is too late and the damage is done.
  I have not yet finished reading the agriculture EDC report, to which reference was made earlier, but it is clear that it is an important and fairly devastating document on capital taxation. The Minister of State should tell us tonight—this is one of the few opportunities that we have to discuss this matter during the parliamentary year—what action the Treasury proposes to take, because the agriculture EDC report backs up what the farming community is beginning to say.
  I agree with the general remarks made by my hon. Friend the Member for Braintree (Mr. Newton) about the concept of capital transfer tax and what is wrong with it. For the sake of getting stability into our taxation system, I should be happy to see the concept of capital transfer tax retained by a future Conservative Government, not least because if we changed it the next Labour Government would bring it back again.
  There are three things very much wrong with CTT. My hon. Friend referred to two of them—that the rates of tax, particularly at the higher levels, and the double effect of capital taxation create business worries.
  There is a third element, which the hon. Member for Loughborough (Mr. Cronin) completely ignored when he made his attack on so-called rich people. Capital transfer tax is particularly damaging to our productive working assets. A man who wants his business to carry on will want to transfer the productive working assets to his successor without having to sell off too much. The hon. Member for Loughborough, referring to large farms, said that there was still a market for them. What he failed to understand was that the farmer owning a large farm does not get a high income from it. He may have a large asset, but it is put to good productive use. We do not want

  899
  such units split up so that their agricultural efficiency is lost. All the new clauses go some way towards removing the worst effects of the tax.
  I should like to conclude by referring again to one or two advantages that I see in New Clause 35 over New Clause 2. I support New Clause 2 because it removes the double taxation element, but New Clause 35 bears upon situations with which New Clause 2 would not deal.
  My hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) referred to certain aspects but did not bring out the point that New Clause 35 has certain merits over New Clause 2 which are worth considering. New Clause 35 brings the combination of capital gains tax and capital transfer tax on lifetime gifts into line with the posit ion on death. I realise that, up to a certain point, there is a much lower rate of capital transfer tax on gifts made during life. That does not affect the basic argument.
  8.45 p.m.
  There are advantages in New Clause 35. It is obviously desirable for a farmer to start passing his farm over to his son earlier, not only to keep the farm intact but to ensure that his son becomes involved at the right time so that the elderly farmer does not have to hang on. The problem is not merely one of capital transfer tax but the fact that having to pay capital gains tax on an asset which has multiplied considerably in terms of capital gain may be a disincentive to the farmer to make the sensible move from the point of view of capital transfer tax and agricultural efficiency. New Clause 2 would not wholly overcome the problem, but New Clause would.
  The other advantage of New Clause 35 would be for people owning smaller assets, such as elderly people who may wish to take advantage of the capital transfer tax exemptions up to£2,000 to pass over some of their assets to their children. Such people might be dissuaded from doing so because of the capital gains tax that they might have to pay. There might be a slightly irrational attitude involved because they do not want to pay capital gains tax and see assets go to the Government, or there might genuinely be a big capital gains tax bill. In either case, we should like to see a wider spread of ownership and
  900
  see assets and savings passed on so that they can be used. If there are children, those assets might help to buy them houses.
  However, if there is a capital gains tax liability as well as a capital transfer tax liability, some people might not take advantage of all the capital transfer tax exemptions. There might be no capital transfer tax to pay because of the£2,000a-year exemptions or because they do not reach the£15,000 limit. New Clause 2 indicates that capital gains tax would still be paid, but under New Clause 35 capital gains tax would not be paid and ultimately capital transfer tax liability would have to be paid, because once people had made use of the exemptions they would start piling up capital transfer tax liability.
  If we want to see the passing on of modest assets and a wider spread of ownership at an earlier date, New Clause 35 has advantages that New Clause 2 does not have. However, all these new clauses are beneficial and I shall be happy to support any that it is felt we ought to press.
  Mr. Wakeham: Capital transfer tax can be regarded as only one capital tax in a whole series of other taxes. My hon. Friends have concentrated on this point and on the effect that capital transfer tax has on the taxpayer. There are other people involved such as the employees of small businesses and their customers who are likely to be seriously affected by capital transfer tax as it bites deeper into the capital assets of our small businesses.
  We are reaching not only the point where it will not only be impossible to build up a small business any more but it will be impossible to dispose of small businesses which have been built up. That point can be illustrated quite simply. A business that is making between£10,000 and£20,000 a year—which is a relatively small business but not one of the smallest—is bound to have assets of about£100,000. We are now reaching the position in which individuals will be incapable of finding£100,000 of capital to put into a business, and the few who will be capable of that will probably not be the most suitable or likely persons to want to put their money into running a small busness.
  Not only will it he impossible to build up new businesses, but many people who

  901
  have already built up their businesses will not be able to find individuals prepared to buy them and will be unable to dispose of them. Nobody will be able to raise enough capital, and such businesses would be too small to interest public companies in acquiring them and bringing them into major groups.
  I see real problems arising for businesses in this category. Unless something is done about this taxation, I envisage that large numbers of these businesses, with capital of between£100,000 and£200,000, will have no alternative but to go into liquidation, not because they are failures but because they have been reasonable successes in doing a job. Surely no one wants this to happen to businesses and employers. Many of the employees of these firms—which in aggregate employ a substantial number of people—would be unhappy if they had to work for a major group. Many customers prefer dealing with small businesses because of their approach and the personal service that they offer.
  Capital transfer tax has serious social consequences. We should consider the new clauses carefully, because they would go some way towards lessening the impact of the tax.
  Mr. Lawson: I shall direct my brief remarks to New Clause 2 and the narrow point of the interaction between capital transfer tax and capital gains tax. My hon. Friends have eloquently and persuasively argued the case for the new clauses and my hon. Friend the Member for Guildford (Mr. Howell) was particularly persuasive in outlining the damage that capital transfer tax is doing to British farms and small businesses, but it seemed that the Minister was not wholly convinced. I think that the point at which the two taxes interact is likely to be common ground between us and that we shall be able to convince the Minister that great damage is being caused.
  Capital transfer tax was introduced in 1975. Even as the smoke and dust cleared from the arena, we found the Chief Secretary recognising that there were transactions that, because they were lifetime disposals, attracted capital transfer tax and capital gains tax at the full value of the disposal. This produced a penal level of tax that was causing great damage.
  902
  The Chief Secretary gave the impression that a solution would be brought forward in last year's Budget. We looked for it, but it was not there. When we raised the matter in Committee—also on New Clause 2—we were defeated by only seven votes. The Liberal Party voted for the new clause, and it will be interesting to see what Liberal Members do tonight. They are not here at present, but we hope that they will pop up from wherever they are hiding. We hope that they will be consistent and will vote in the same Lobby as last year.
  Although the Government did' not accept our new clause, the Chief Secretary said last year:
  "I accept that there is a serious problem as regards the combined burden in some instances when capital gains tax and capital transfer tax operate together…I recognise that because of the combined effect, in certain circumstances there can be a harsh effect…I come to the question of the combined effect…I accept that there is a danger of a break-up of assets occurring. That is to be avoided, if at all possible."—[Official Report, 17th May 1976; Vol. 911, cc. 1135–37.]
  He said that he would listen to what was said in Committee and would try to bring something forward on Report. We expected him to produce an amendment on Report. But, again, he came forward on Report with nothing at all.
  We raised the matter again on Report last year, and on 15th July we had with us the Minister of State, who is with us now. He said:
  "My right hon. Friend"—
  he was referring to the Chief Secretary—
  "said that he would like to consider, without commitment, the difficulties that can arise in certain circumstances because of the interaction of capital transfer tax and capital gains tax. The Government are doing this."
  We should like to hear the results of that consideration. We expected something in this year's Finance Bill as a result of that consideration, but we have seen nothing.
  The Minister of State went on to say:
  "I cannot say more than that, but we recognise that in some cases there could be a problem and injustice."—[Official Report, 15th July 1976; Vol. 915, c. 1092.]
  I should have thought that the Minister of State was not a man to see an injustice, recognise it and pass it by but would want to do something about it. We want to know, at this late stage in this year's Finance Bill, what he proposes to do

  903
  about it. I can tell him that the best thing to do is to accept New Clause 2, and I hope he will do this.
  There is a final reason—this was touched on by my hon. Friend the Member for Norfolk, South (Mr. MacGregor)—why the Minister should take this to heart. When capital transfer tax was originally introduced, it was brought in with the same rate of tax for lifetime transfers as for transfers on death. Later there was an amendment, which has become the law of the land, whereby there was a lower rate for lifetime transfers than for disposals on death. The Government explained that by saying that it was in the national interest that there should be disposals during the lifetime of the business man or whoever owned the assets, that it was not a good idea that he should hang on to the business long after he had lost the capacity to run it efficiently. It was their view that although the assets might not be broken up they might become worth less, and it was not in the national interest that should be so, and therefore they wanted to encourage lifetime disposals.
  Because no capital gains tax is payable on disposals on death, whereas capital gains tax is payable on lifetime transfers, in many cases the effective rate of tax when the two are combined is higher for a lifetime transfer than for a disposal on death. The Government's own objective is being frustrated by the interaction of these two taxes. The only way in which the Government can achieve their own objective is to accept New Clause 2.
  Mr. Denzil Davies: We have had a debate on a number of new clauses. The debate has not focused particularly on the details of each new clause but has been more general, relating to what is alleged to be the burden of capital transfer tax, especially on businesses and on farms and agricultural land.
  Listening to the debate one might have forgotten that until a few years ago there was such a thing as estate duty and that there was and still is capital gains tax. Estate duty was charged on gifts within a period of seven years and capital gains tax was charged on the same gifts, but on listening to the debate one would have thought that that
  904
  was not the situation. The problem in relation to small businesses existed with estate duty as it does with capital transfer tax.
  Mr. Lawson Mr. Lawson indicated dissent.
  Mr. Davies: It is no good the hon. Gentleman shaking his head. Estate duty was payable—
  Mr. MacGregor: Does the Minister agree that the seven-year rule made a big difference to estate duty?
  Mr. Davies: It made a big difference in many cases. It made estate duty an avoidable tax in many cases where the person who wanted to give away his assets had free assets in the sense that he was not the proprietor of the business. With a little experience in these matters—and perhaps the hon. and learned Member for Dover and Deal (Mr. Rees) will agree with me—I never thought that it was particularly easy for the owner of a small business who wanted to retain control of his business—quite rightly and naturally, because it was a business that he had built up—to avoid estate duty, in the sense that he had to give it away seven years before he died. In fact, that was difficult to deal with because the owner of the business naturally did not want to lose all control—and that was the only way of avoiding estate duty.
  9.0 p.m.
  I accept entirely therefore that in most cases where the owner had free assets there was no problem, except for the unlucky ones, in avoiding estate duty, but that did not apply to the small business man or the owner of shares or a controlling interest in a private company. The rates of CTT are much lower than those of estate duty.
  Then there is the question of the yield. I accept that the yield cannot be based on the same asset values, but the yield from estate duty in 1973–74, which was the final full year, was £412 million. That was the amount taken out of the private sector, to put it in the language of the hon. Member for Guildford (Mr. Howell). The yield of CTT in 1977–78 will be£320 million.
  Mr. Lawson: That is a phoney comparison.
  Mr. Davies: It is not a phoney comparison. I qualified what I said by saying that we cannot make a complete comparison because of different asset values, but to say that the comparison is phoney is not correct. The yield from CTT in 1977–78—the amount taken out of the private sector by this nasty Government—is less than was taken out of the private sector by estate duty in 1973–74.
  If capital transfer tax is such a crushing burden on the private sector, I wonder why the yield will be lower in the coming year than the yield from estate duty.
  Mr. Peter Rees: A very simple explanation is that there is now immediate relief on transfer from husband to wife or husband to widow. Of course the Minister will take credit for that, but then he will appreciate that the yield will be increased when the widow dies.
  Mr. Davies: I have learned in these debates that Conservative Members are very fond of simple explanations for all sorts of things. For instance, they have a simple explanation why investment is low: it is the high rate of taxation. Of course the exemption from tax on transfer between spouses is one reason, but that is part of the framework of the tax. I am saying that the rates of CTT on lifetime gifts—
  Mr. Lawson Mr. Lawson indicated dissent.
  Mr. Davies: It is no good the hon. Gentleman shaking his head. The rates of CTT are lower than the rates of estate duty.
  If one considers the special problem of the small company and takes the 30 per cent. business relief, the rates compare even more favourably still. That is one reason—not the only one—why the yield for this year will be less than that in 1973. I am sorry if this shatters the illusions of Conservative Members, who spent hours in Committee late into the night trying to frighten British industry and small farmers and business men into believing that this was a crushing burden. It now surprises them perhaps to learn that the yield is lower, but that is a fact.
  As for agriculture and small businesses, the rates on lifetime gifts and transfers are lower. The 30 per cent. business relief recognises the problem of the small
  906
  private company which may find it difficult, or may be unwilling, to dispose of shares. The 50 per cent. reduction in the value of agricultural land recognises the special problems of agriculture and 30 per cent. business relief is given to agriculture on top of that in respect of other assets and that also recognises the problem. It has been extended to capital gains tax because of the special difficulties of agriculture and because of the fact that land has a high market value but a low productive yield.
  We have gone a considerable way in those reliefs to recognise the difficulties of the small business sector, the small private company sectors and the agriculture sector. I refute what has been said by the Opposition about the burden of capital transfer tax.
  Mr. Peter Rees: Is the Minister telling his hon. Friends below the Government Gangway, particularly the hon. Member for Liverpool, Walton (Mr. Heifer), that the burden of capital transfer tax over the years will be lower than the burden of estate duty—in other words, that it will be a milder rather than a heavier tax?
  Mr. Davies: My hon. Friend knows very well what the figures are, and I am sure that he has studied these matters with as much concern as the hon. and learned Member for Dover and Deal. The point about capital transfer tax is that the burden is spread over more people. More people now pay capital transfer tax than paid the old estate duty, and certainly capital transfer tax is less easy to avoid. I am saying that the burden on small businesses and farms is less in the case of capital transfer tax than it was in the case of estate duty. [Interruption.] The hon. Member for Blaby (Mr. Lawson) should not mutter all the time. He has had a chance to make his speech.
  I turn to New Clause 2, which is somewhat complicated. It is defective in many ways because it does not provide for losses in cases where gains are not taxed. Furthermore, it does not deal with the problem of capital transfer when a transfer is not subject to capital gains tax —it would have to be isolated or put to one side—and it does not seek to deal with parts of assets that might be charged to capital gains.

  907
  New Clause 35 goes much further than New Clause 2 since it seeks to exempt gifts completely. Lifetime gifts that could bear capital gains tax would be completely exempt in the same way as gifts arising under a will in an intestate succession.
  The hon. and learned Member for Solihull (Mr. Grieve) gave a number of international comparisons drawn from various parliamentary answers. He pointed out that the rates in European countries were lower when the assets passed within a family.
  Mr. Grieve: Much lower.
  Mr. Davies: Indeed, much lower. However, the hon. and learned Gentleman did not mention an answer given to the hon. Member for Horsham and Crawley (Mr. Hordern), who elicited information about assets passing outside the family.
  Mr. Grieve: Does the Minister not think it wholly right that the rate of duty in respect of assets passing within a family should be lower? That was the point I sought to make.
  Mr. Davies: I am not sure that it is beneficial to the economy for capital to pass from father to son, from son to grandson, and thereon throughout the whole family. I am not sure whether that is conducive to the good of the whole economy. However, I know that many Opposition Members will not subscribe to that view. Certainly Continental systems are different. The figures given by the hon. and learned Gentleman were not misleading and were quite accurate, but they did not show the whole picture.
  He pointed out that the rates were lowest in Italy and West Germany. The figures for Italy must have been just about the same, yet the tenor of his speech was that if we had this lower rate of estate duty or capital transfer tax. the British economy would revive. Taking Italy and West Germany, with the same kind of rates but certainly at a lower level, perhaps there is not that much correlation between capital transfer tax and the performance of the economy. But that is perhaps a small point.
  Perhaps I may deal briefly with New Clause 4. New Clause 3 is fairly similar to New Clause 4.
  Mr. Graham Page: I had hoped that the Minister would be dealing with the point raised by my hon. Friend the Member for Blaby (Mr. Lawson) about the undertakings given to consider the double taxation of capital gains tax and capital transfer tax.
  Mr. Davies: I shall be coming to that matter shortly.
  New Clause 4 is fairly similar to, though more complicated than, New Clause 3. The cost of New Clause 4 in a full year would be about£145 million, so if we deducted that from the£320 million yield from CTT we should be down to less than £200 million. I accept entirely that that is what Opposition Members want. They want little, if any, yield to conic from taxes on inheritance or gifts.
  New Clause 4 also shows the difficulty of trying to index capital transfer taxes, because, as I understand the clause, all the donor's previous transfers are indexed by the same factor, regardless of the year in which they are made. In other words, there is no attempt to index according to the year in which a gift is made, but the same factor is used for different years and different transfers. That merely indicates the difficulty of trying to introduce a clause of this kind and trying to index capital transfer tax, as New Clause 4 seems to be trying to do.
  New Clause 19, in the name of the hon. Member for Braintree (Mr. Newton), seeks to reduce the period from three years to one year—although extending the period is perhaps a better way of putting it. It seeks to extend lifetime benefits to a gift up to one year before death. The hon. Member spoke on his new clause very reasonably. He said that he did not see why one year should not replace three years. This is always a matter of drawing a line. It is a matter of choice. Three years was the original rule, although I accept that the estate duty position is different. One year was the original estate duty charity rule, and this was carried over in the capital transfer tax.
  I make no commitment about this, but I shall look at it without commitment. Obviously, one is not wedded to the three-year period. I shall look at the matter without commitment to see whether there are any problems caused by the three years.

  909
  Finally, perhaps I may deal with the question whether the Government think that there is a problem here, because we have said in the past that there has been a problem. I think that the problem has been ameliorated to a considerable extent by the reliefs that we have given for agriculture and small businesses. On an earlier new clause, I said—[Interruption.] If the hon. Member for Blaby wishes to have an answer, he must now contain himself. He is now a Whip and must learn to contain himself.
  I said on an earlier new clause that we would look at the capital gains tax tapering provisions and that we would look sympathetically at finding a way of introducing some kind of tapering into capital gains tax because we recognised that there was a problem. If we were able to find a practical way of helping to solve that problem, that would also go some way towards meeting the very point that the hon. Gentleman was raising in relation to the interaction between capital gains tax and capital transfer tax. The hon. Gentleman was saying that there were two lots of tax, both in the same transfer.
  What I have said in relation to capital gains tax is that we shall look sympathetically at finding a scheme for some kind of tapering that would be beneficial to capital gains tax and beneficial in respect of the interaction between capital gains tax and capital transfer tax.
  I am sure that that does not satisfy the hon. Gentleman, but that is our thinking at present. What I have said in relation to capital gains tax will be beneficial in respect of the relationship between these two taxes.
  I have tried to deal with the points that have been raised. I could not recommend the new clauses to the House, partly because they would be expensive and partly because I do not believe that the burden of capital transfer tax is as great as has been made out by Opposition Members, who have sought to frighten British Industry and British farmers by making often hysterical speeches about capital transfer tax. I do not believe that what they have asserted is borne out by the facts.
  9.15 p.m.
  Mr. David Howell: The Minister has shown once again that he lives in two worlds at once. On the one hand, he believes with his hon. Friends below the Gangway that capital taxation, which destroys family businesses, is a good thing. On the other hand, he asserts that the present system is not destroying family businesses. Both these states of mind we utterly reject. I advise my hon. Friends to show our rejection now by voting for New Clause 2.
  Question put, That the clause be read a Second time:—
  The House divided: Ayes 218, Noes 253.

  Division No. 196.]

  AYES

  [9.15 p.m.

  Adley, Robert

  Burden, F. A.

  Farr, John

  Altken, Jonathan

  Butler, Adam (Bosworth)

  Fell, Anthony

  Alison, Michael

  Chalker, Mrs Lynda

  Fisher, Sir Nigel

  Amery, Rt Hon Julian

  Channon, Paul

  Fletcher, Alex (Edinburgh, N)

  Atkins, Rt Hon H. (Spelthorne)

  Churchill, W. S.

  Fletcher-Cooke, Charles

  Awdry, Daniel

  Clark, Alan (Plymouth, Sutton)

  Fookes, Miss Janet

  Bain, Mrs Margaret

  Clark, William (Croydon S)

  Forman, Nigel

  Baker, Kenneth

  Clarke, Kenneth (Rushcliffe)

  Fowler, Norman (Sutton C'f'd)

  Banks, Robert

  Clegg, Walter

  Fox, Marcus

  Bell, Ronald

  Cockcroft, John

  Fraser, Rt Hon H. (Stafford & St)

  Berry, Hon Anthony

  Cooke, Robert (Bristol W)

  Fry, Peter

  Biffen, John

  Cormack, Patrick

  Gardiner, George (Reigate)

  Biggs-Davison, John

  Corrie, John

  Gardner, Edward (S. Fylde)

  Blaker, Peter

  Costain, A. P.

  Gilmour, Rt Hon Sir Ian (Chssham)

  Body, Richard

  Critchley, Julian

  Gilmour, Sir John (East Fife)

  Boscawen, Hon Robert

  Crouch, David

  Glyn, Dr Alan

  Bottomley, Peter

  Crowder, F. P.

  Godber, Rt Hon Joseph

  Bowden, A. (Brighton, Kemptown)

  Dean, Paul (N Somerset)

  Goodhew, Victor

  Boyson, Or Rhodes (Brent)

  Dodsworth, Geoffrey

  Gow, Ian (Eastbourne)

  Braine, Sir Bernard

  Douglas-Hamilton, Lord James

  Gower, Sir Raymond (Barry)

  Brocklebank-Fowler, C.

  du Cann, Rt Hon Edward

  Grant, Anthony (Harrow C)

  Brooke, Peter

  Durant, Tony

  Gray, Hamish

  Brotherton, Michael

  Dykes, Hugh

  Grieve, Percy

  Brown, Sir Edward (Bath)

  Edwards, Nicholas (Pembroke)

  Grist, Ian

  Buchanan-Smith, A lick

  Elliott, Sir William

  Grylls, Michael

  Buck, Antony

  Emery, Peter

  Hamilton, Michael (Salisbury)

  Budgen, Nick

  Eyre, Reginald

  Hampson, Dr Keith

  Bulmar, Esmond

  Fakgrieve, Russell

  Hannam, John

  Haselhurst, Alan

  Meyer, Sir Anthony

  Sainsbury, Tim

  Havers, Rt Hon Sir Michael

  Miller, Hal (Bromsgrove)

  Scott, Nicholas

  Hawkins, Paul

  Mills, Peter

  Scott-Hopkins, James

  Hayhoe, Barney

  Miscampbell, Norman

  Shaw, Giles (Pudsey)

  Henderson, Douglas

  Moate, Roger

  Shaw, Michael (Scarborough)

  Hicks, Robert

  Monro, Hector

  Shelton, William (Streatham)

  Higglns, Terence L.

  Moore, John (Croydon C)

  Shepherd, Colin

  Hodgson, Robin

  More, Jasper (Ludlow)

  Shersby, Michael

  Holland, Philip

  Morgan, Geraint

  Silvester, Fred

  Howe, Rt Hon Sir Geoffrey

  Morgan-Giles, Rear-Admiral

  Skeet, T. H. H.

  Howell, David (Gulldford)

  Morris, Michael (Northampton S)

  Smith, Dudley (Warwick)

  Howell, Ralph (North Norfolk)

  Morrison, Charles (Devizes)

  Smith, Timothy John (Ashfield)

  Hunt, David (Wirral)

  Mudd, David

  Spence, John

  Hunt, John (Bromley)

  Neave, Airey

  Spicer, Jim (W Dorset)

  Hurd, Douglas

  Neubert, Michael

  Spicer, Michael (S Worcester)

  Hutchison, Michael Clark

  Newton, Tony

  Sproat, lain

  Irving, Charles (Cheltenham)

  Normanton, Tom

  Slainton, Keith

  James, David

  Nott, John

  Stanley, John

  Jessel, Toby

  Onslow, Cranley

  Stewarl, Ian (Hitchin)

  Johnson Smith, G. (E Grinstead)

  Oppenheim, Mrs Sally

  Stokes, John

  Jones, Arthur (Daventry)

  Osborn, John

  Stradling Thomas, J.

  Kellett-Bowman, Mrs Elaine

  Page, John (Harrow West)

  Tapsell, Peter

  Kimball, Marcus

  Page, Rt Hon R. Graham (Crosby)

  Taylor, R. (Croydon NW)

  King, Evelyn (South Dorset)

  Page, Richard (Workington)

  Taylor, Teddy (Cathcart)

  King, Tom (Bridgwater)

  Parkinson, Cecil

  Tebbit, Norman

  Knox, David

  Pattie, Geoffrey

  Thatcher, Rt Hon Margaret

  Lamont, Norman

  Price, David (Eastleigh)

  Thomas, Rt Hon P. (Hendon S)

  Lawson, Nigel

  Raison, Timothy

  Thompson, George

  Le Merchant, Spencer

  Rathbone, Tim

  Townsend, Cyril D.

  Lewis, Kenneth (Rutland)

  Rawlinson, Rt Hon Sir Peter

  Trotter. Neville

  Lloyd, Ian

  Rees, Peter (Dover & Deal)

  van Straubenzee, W. R.

  Loveridge, John

  Rees-Davies, W. R.

  Viggers, Peter

  Luce, Richard

  Reid, George

  Wakeham, John

  McAdden, Sir Stephen

  Renton, Rt Hon Sir D. (Hunts)

  Walder, David (Clilheroe)

  McCrindle, Robert

  Renton, Tim (Mid-Sussex)

  Walker-Smith, Rt Hon Sir Derek

  Macfarlane, Neil

  Rhodes James, R.

  Wall, Patrick

  MacGregor, John

  Rhys Williams, Sir Brandon

  Warren, Kenneth

  Macmillan, Rt Hon M. (Farnham)

  Ridley, Hon Nicholas

  Weatherill, Bernard

  McNair-Wilson, M. (Newbury)

  Ridsdate, Julian

  Welsh, Andrew

  McNair-Wilson, P. (New Forest)

  Rifkind, Malcolm

  Wiggin, Jerry

  Madel, David

  Roberts, Michael (Cardiff NW)

  Wigley. Dafydd

  Marshall, Michael (Arundel)

  Roberts, Wyn (Conway)

  Wilson, Gordon (Dundee E)

  Marten, Neil

  Rodgers, Sir John (Sevenoaks)

  Mather, Carol

  Rossi, Hugh (Hornsey)

  TELLERS FOR THE AYES:

  Maude, Angus

  Rost, Peter (SE Derbyshire)

  Mr. Jim Lester and

  Maxwell-Hyslop, Robin

  Royle, Sir Anthony

  Mr. Pefer Morrison.

  NOES

  Anderson, Donald

  Corbett, Robin

  Flannery, Martin

  Archer, Rt Hon Peter

  Cowans, Harry

  Fletcher, Ted (Darlington)

  Ashley, Jack

  Cox, Thomas (Tooting)

  Foot, Rt Hon Michael

  Ashton, Joe

  Crawshaw, Richard

  Ford, Ben

  Atkins, Ronald (Preston N)

  Cronin, John

  Forrester, John

  Barnett, Guy (Greenwich)

  Crowther, Stan (Rotherham)

  Fraser, John (Lambeth, N'w'd)

  Barnett, Rt Hon Joel (Heywood)

  Cryer, Bob

  Freeson, Reginald

  Bates, Alf

  Cunningham, G. (Islington S)

  Freud, Clement

  Bean, R. E.

  Cunningham, Dr J. (Whiteh)

  Garrett, John (Norwich S)

  Benn, Rt Hon Anthony (Wedgwood)

  Dalyell, Tam

  Garrett, W. E. (Wallsend)

  Bennelt, Andrew (Stockport N)

  Davles, Bryan (Enfleld N)

  George, Bruce

  Bidwell, Sydney

  Davies, Denzil (Llanelll)

  Glnsburg, David

  Bishop, Rt Hon Edward

  Davies, Ifor (Gower)

  Goldlng, John

  Blenkinsop, Arthur

  Davis, Clinton (Hackney C)

  Gourlay, Harry

  Boardman, H.

  Deakins, Eric

  Graham, Ted

  Booth, Rt Hon Albert

  Dean, Joseph (Leeds West)

  Grant, George (Morpeth)

  Boothroyd, Miss Betty

  de Freitas, Rt Hon Sir Geoffrey

  Grant, John (Islington C)

  Bradley, Tom

  Dell, Rt Hon Edmund

  Grocott, Bruce

  Bray, Dr Jeremy

  Doig, Peter

  Hardy, Peter

  Brown, Hugh D. (Provan)

  Dormand, J. D.

  Harper, Joseph

  Brown, Ronald (Hackney S)

  Douglas-Mann, Bruce

  Harrison, Rt Hon Walter

  Buchan, Norman

  Duffy, A. E. P.

  Hattersley, Rt Hon Roy

  Callaghan, Rt Hon J. (Cardiff SE)

  Dunn, James A.

  Hatton, Frank

  Callaghan, Jim (Mlddleton & P)

  Dunnett, Jack

  Hayman, Mrs Helene

  Campbell, Ian

  Dunwoody, Mrs Gwyneth

  Healey, Rt Hon Denis

  Canavan, Dennis

  Eadfe, Alex

  Heffer, Eric S.

  Cant, Ft. B.

  Edge, Geoff

  Hooley, Frank

  Carmichael, Neil

  Edwards, Robert (Wolv SE)

  Hooson, Emlyn

  Carter-Jones, Lewis

  Ellis, John (Brigg & Scun)

  Howell, Rt Hon Denis (B'ham, Sm H)

  Cartwright, John

  Ellis, Tom (Wrexham)

  Howells, Geraint (Cardigan)

  Castle, Rt Hon. Barbara

  English. Michael

  Hoyle, Doug (Nelson)

  Clemitson, Ivor

  Fvans. Fred (Caerphilly)

  Huckfield, Les

  Cocks, Rt Hon Michael

  Evans, loan (Aberdare)

  Hughes, Robert (Aberdeen N)

  Cohen, Stanley

  Evans, John (Newton)

  Hughes, Roy (Newport)

  Coleman, Donald

  Ewing, Harry (Stirling)

  Hunter, Adam

  Cook, Robin F. (Edin C)

  Fernyhough, Rt Hon E.

  Irving, Rt Hon S. (Dartford)

  912

  913

  Jackson, Miss Margaret (Lincoln)

  Molloy, William

  Small, William

  Janner, Greville

  Moonman, Eric

  Smith, John (N Lanarkshire)

  Jeger, Mrs Lena

  Morris, Alfred (Wythenshawe)

  Spearing, Nigel

  Jenkins, Hugh (Putney)

  Morris, Charles R. (Openshaw)

  Spriggs, Leslie

  John, Brynmor

  Morris, Rt Hon J. (Aberavon)

  Slallafd, A. W.

  Johnson, James (Hull West)

  Moyle, Roland

  Steel, Rt Hon David

  Johnson, Walter (Derby S)

  Mulley, Rt Hon Frederick

  Stewart, Rt Hon M. (Fulham)

  Johnston, Russell (Inverness)

  Newens, Stanley

  Stoddaft, David

  Jones, Alec (Rhondda)

  Noble, Mike

  Stott, Roger

  Jones, Barry (East Flint)

  Oakes, Gordon

  Strang, Gavin

  Jones, Dan (Burnley)

  Ogden, Eric

  Strauss, Rt Hon G. R.

  Judd, Frank

  O'Halloran, Michael

  Summerskill, Hon Dr Shirley

  Kaufman, Gerald

  Orbach, Maurice

  Swain, Thomas

  Kelley, Richard

  Orme, Rt Hon Stanley

  Taylor, Mrs Ann (Bolton W)

  Kerr, Russell

  Ovenden, John

  Thomas, Jeffrey (Abertillery)

  Kilroy-Silk, Robert

  Owen, Rt Hon Dr David

  Thomas, Mike (Newcastle E)

  Kinnock, Neil

  Padley, Walter

  Thomas, Ron (Bristol NW)

  Lambie, David

  Palmer, Arthur

  Tierney, Sydney

  Lamborn, Harry

  Pardoe, John

  Tomlinson, John

  Lamond, James

  Park, George

  Tomney, Frank

  Lee, John

  Parry, Robert

  Torney, Tom

  Lestor, Miss Joan (Eton & Slough)

  Pavitt, Laurie

  Tuck, Raphael

  Lever, Rt Hon Harold

  Pendry, Tom

  Urwin, T. W.

  Lewis, Ron (Carlisle)

  Penhaligon, David

  Varley, Rt Bon Eric G.

  Lomas, Kenneth

  Perry, Ernest

  Wainwright, Edwin (Dearne V)

  Luard, Evan

  Phipps, Dr Colin

  Wainwright, Richard (Colne VI

  Lyon, Alexander (York)

  Prescott, John

  Walker, Terry (Kingswood)

  Lyons, Edward (Bradford W)

  Price, C. (Lewisham W)

  Ward, Michael

  McCartney, Hugh

  Price, William (Rugby)

  Weetch, Ken

  McDonald, Dr Oonagh

  Richardson, Miss Jo

  Weitzman, David

  McEthone, Frank

  Roberts, Albert (Normanton)

  Wellbeloved, James

  MacFarquhar, Roderick

  Roberts, Gwilym (Cannock)

  White, Frank R. (Bury)

  McGuire, Michael (Ince)

  Robinson, Geoffrey

  White, James (Pollok)

  MacKenzie, Rt Hon Gregor

  Roderick, Caerwyn

  Whirehead, Phillip

  Maclennan, Robert

  Rodgers, George (Chorley)

  Whitlock, William

  McNamara, Kevin

  Rooker, J. W.

  Willey, Rt Hon Frederick

  Madden, Max

  Rose, Paul B.

  Williams, Rt Hon Alan (Swansea W)

  Magee, Bryan

  Ross, Stephen (Isle of Wight)

  Williams, Alan Lee (Hornch'ch)

  Mahon, Simon

  Rowlands, Ted

  Williams, Sir Thomas (Warrington)

  Mallalieu, J. P. W.

  Ryman, John

  Wilson, Rt Hon Sir Harold (Huyton)

  Marks, Kenneth

  Sedgemore, Brian

  Wilson, William (Coventry SE)

  Marshall, Dr Edmund (Goole)

  Selby, Harry

  Wise, Mrs Audrey

  Marshall, Jim (Leicester S)

  Shaw, Arnold (llford South)

  Woodall, Alec

  Maynard, Miss Joan

  Sheldon, Rt Hon Robert

  Woof, Robert

  Meacher, Michael

  Shore, Rt Hon Peter

  Young, David (Bolton E)

  Mellish, Rt Hon Robert

  Silkin, Rt Hon John (Deptford)

  Mendelson, John

  Silkin, Rt Hon S. C. (Dulwich)

  TELLERS FOR THE NOES:

  Millan, Rt Hon Bruce

  Sillars, James

  Mr. James Hamilton and

  Miller, Mrs Millie (Ilford N)

  Silverman, Julius

  Mr. Peter Snare.

  Mitchell, R. C. (Soton, Itchen)

  Skinner, Dennis

  Question accordingly negatived.

New Clause 6

  CAPITAL GAINS TAX ON SMALL DISPOSALS (£2,000)
  '(1) In section 57(1) and (2) of the Finance Act 1971 (small disposals) as amended by section 51 of the Finance Act 1976 for "£1.000" there shall be substituted "£2,000"
  (2) This section applies for the year 1976–77 and subsequent years of assessment.'—[Mr. David Howell.]
  Brought up, and read the First time.
  Motion made, Question put, That the clause be read a Second time:—
  The House divided: Ayes 221, Noes 244.

  Division No. 197.]

  AYES

  [9.30 p.m.

  Adley, Robert

  Boyson, Dr Rhodes (Brent)

  Clegg, Walter

  Aitken, Jonathan

  Braine, Sir Bernard

  Cockcrolt, John

  Alison, Michael

  Brocklebank-Fowler, C.

  Cooke, Robert (Bristol W)

  Amery, Rt Hon Julian

  Brooke, Peter

  Cormack, Patrick

  Atkins, Rt Hon H. (Spelthorne)

  Brotherton, Michael

  Corrie, John

  Awdry, Daniel

  Brown, Sir Edward (Bath)

  Costain, A. P.

  Bain, Mrs Margaret

  Buchanan-Smith, Alick

  Critchley, Julian

  Baker, Kenneth

  Buck, Antony

  Crouch, David

  Banks, Robert

  Budgen, Nick

  Crowder, F. P.

  Bell, Ronald

  Bulmer, Esmond

  Dean, Paul (N Somerset)

  Berry, Hon Anthony

  Burden, F. A.

  Dodsworth, Geoffrey

  Biffen, John

  Butler, Adam (Bosworth)

  Douglas-Hamilton, Lord James

  Biggs-Davlson, John

  Chalker, Mrs Lynda

  du Cann, Rt Hon Edward

  Blaker, Peter

  Channon, Paul

  Durant, Tony

  Body, Richard

  Churchill, W. S.

  Dykes, Hugh

  Boscawen, Hon Robeit

  Clark, Alan (Plymouth, Sutton)

  Edwards, Nicholas (Pembroke)

  Bottomley, Peter

  Clark, William (Croydon S)

  Elliott, Sir William

  Bowden, A. (Brighton, Kemptown)

  Clarke. Kenneth (Rushclitfe)

  Emery, Peter

  Eyre, Reginald

  King, Tom (Bridgwater)

  Renton, Tim (Mid-Sussex)

  Falrgrleve, Russell

  Knox, David

  Rhodes James, R.

  Farr, John

  Lamont, Norman

  Rhys Williams, Sir Brandon

  Fell, Anthony

  Lawson, Nigel

  Ridley, Hon Nicholas

  Fisher, Sir Nigel

  Lester, Jim (Beeston)

  Ridsdale, Julian

  Fletcher, Alex (Edinburgh, N)

  Lewis, Kenneth (Rutland)

  Rifkind, Malcolm

  Fletcher-Cooke, Charles

  Lloyd, Ian

  Roberts, Michael (Cardiff NW)

  Fookes, Miss Janet

  Loveridge, John

  Roberts, Wyn (Conway)

  Forman, Nigel

  Luce, Richard

  Rodgers, Sir John (Sevenoaks)

  Fowler, Norman (Sutton C'f'd)

  McAdden, Sir Stephen

  Ross, Stephen (Isle of Wight)

  Fox, Marcus

  McCrindle, Robert

  Rossi, Hugh (Hornsey)

  Fraser, Rt Hon H. [Stafford & St)

  Macfarlane, Neil

  Rost, Peter (SE Derbyshire)

  Fry, Peter

  MacGregor, John

  Royle, Sir Anthony

  Gardiner, George (Reigate)

  Macmillan, Rt Hon M. (Farnham)

  Sainsbury, Tim

  Gardner, Edward (S. Fylde)

  McNair-Wilson, M. (Newbury)

  Scott, Nicholas

  Gilmour, Rt Hon Sir Ian (Chesham)

  McNair-Wilson, P. (New Forest)

  Scott-Hopkins, James

  Gilmour, Sir John (East Fife)

  Madel, David

  Shaw, Giles (Pudsey)

  Glyn, Dr Alan

  Marshall, Michael (Arundel)

  Shaw, Michael (Scarborough)

  Godber, Rt Hon Joseph

  Marten, Neil

  Shelton, William (Streatham)

  Goodhew, Victor

  Mather, Carol

  Shepherd, Colin

  Gow, Ian (Eastbourne)

  Maude, Angus

  Shersby, Michael

  Gower, Sir Raymond (Barry)

  Maxwell-Hyslop, Robin

  Silvester, Fred

  Grant, Anthony (Harrow C)

  Meyer, Sir Anthony

  Skeet, T. H. H.

  Gray, Hamish

  Miller, Hal (Bromsgrove)

  Smith, Dudley (Warwick)

  Grieve, Percy

  Mills, Peter

  Smith, Timothy John (Ashfield)

  Grimond, Rt Hon J.

  Miscampbell, Norman

  Spence,John

  Grist, Ian

  Moate, Roger

  Splcer, Jim (W Dorset)

  Grylls, Michael

  Monro, Hector

  Spicer, Michael (S Worcester)

  Hamilton, Michael (Salisbury)

  Moore, John (Croydon C)

  Sproat, lain

  Hampson, Dr Keith

  More, Jasper (Ludlow)

  Stalnton, Keith

  Hannam, John

  Morgan, Geraint

  Stanley, John

  Hasolhurst, Alan

  Morgan-Giles, Rear-Admiral

  Stewart, Ian (Hitchin)

  Havers, Rt Hon Sir Michael

  Morris, Michael (Northampton S)

  Stokes, John

  Hawkins, Paul

  Morrison, Charles (Devizes)

  Stradling Thomas, J

  Hayhoe, Barney

  Mudd, David

  Tapsell, Peter

  Henderson, Douglas

  Neave, Airey

  Taylor, R. (Croydon NW)

  Hicks, Robert

  Neubert, Michael

  Tebbit, Norman

  Higglns, Terence L.

  Newton, Tony

  Thatcher, Rt Hon Margaret

  Hodgson, Robin

  Normanton, Tom

  Thomas, Rt Hon P. (Hendon S)

  Holland, Philip

  Nott, John

  Thompson, George

  Hooson, Emlyn

  Onslow, Cranley

  Townsend, Cyril D.

  Howe, Rt Hon Sir Geoffrey

  Oppenheim, Mrs Sally

  Trotter, Neville

  Howell, David (Guildford)

  Osborn, John

  van Straubenzee, W. R.

  Howell, Ralph (North Norfolk)

  Page, John (Harrow West)

  Viggers, Peter

  Howells, Geraint (Cardigan)

  Page, Rt Hon R. Graham (Crosby)

  Wainwright, Richard (Colne V)

  Hunt, David (Wirral)

  Page, Richard (Workington)

  Wakeham, John

  Hunt, John (Bromley)

  Pardoe, John

  Walder, David (Clitheroe)

  Hurd, Douglas

  Parkinson, Cecil

  Walker-Smith, Rt Hon Sir Derek

  Hutchison, Michael Clark

  Pattie, Geoffrey

  Wall, Patrick

  Irving, Charles (Cheltenham)

  Penhaligon, David

  Warren, Kenneth

  James, David

  Price, David (Eastleigh)

  Wealherill, Bernard

  Jessel, Toby

  Ralson, Timothy

  Welsh, Andrew

  Johnson Smith, G. (E Grinstead)

  Rathbone, Tim

  Wiggln, Jerry

  Jones, Arthur (Daventry)

  Rawlinson, Rt Hon Sir Peter

  Kelletl-Bowman, Mrs Elaine

  Rees, Peter (Dover & Deal)

  TELLERS FOR THE AYES:

  Kimball, Marcus

  Rees-Davies, W. R.

  Mr. Spencer Le Marchant and

  King, Evelyn (South Dorset)

  Renton, Rt Hon Sir D. (Hunts)

  Mr. Peter Morrison.

  NOES

  Anderson, Donald

  Canavan, Dennis

  Dean, Paul (N Somerset)

  Archer, Rt Hon Peter

  Cant, R. B.

  de Freitas, Rt Hon Sir Geoffrey

  Ashley, Jack

  Carmlchael, Neil

  Dell, Rt Hon Edmund

  Ashton, Joe

  Carter-Jones, Lewis

  Dormand, J. D.

  Atkins, Ronald (Preston N)

  Cartwrlght, John

  Douglas-Mann, Bruce

  Barnett, Guy (Greenwich)

  Castle, Rt Hon. Barbara

  Duffy, A. E. P.

  Barnett, Rt Hon Joel (Heywood)

  Clemftson, Ivor

  Dunn, James A.

  Bates, Alt

  Cocks, Rt Hon Michael

  Dunnett, Jack

  Bean, R. E.

  Cohen, Stanley

  Dunwoody, Mrs Gwyneth

  Benn, Rt Hon Anthony (Wedgwood)

  Coleman, Donald

  Eadie, Alex

  Bennett, Andrew (Stockport N)

  Cook, Robin F. (Edin C)

  Edge, Geoff

  Bidwell, Sydney

  Corbett, Robin

  Edwards, Robert (Wolv SE)

  Bishop, Rt Hon Edward

  Cowans, Harry

  Ellis, John (Brlgg & Scun)

  Blenkinsop, Arthur

  Crawshaw, Richard

  Ellis, Tom (Wrexham)

  Boardman, H.

  Cronln, John

  English. Michael

  Booth, Rt Hon Albert

  Crowther, Stan (Rotherham)

  Evans, Fred (Caerphilly)

  Boothroyd, Miss Betty

  Cryer, Bob

  Evans, loan (Aberdare)

  Bradley, Tom

  Cunningham, G. (Islington S)

  Evans, John (Newton)

  Bray, Dr Jeremy

  Cunningham, Dr J. (Whiten)

  Ewlng, Harry (Stirling)

  Brown, Hugh D. (Provan)

  Dalyell. Tam

  Fernyhough, Rt Hon E.

  Brown, Ronald (Hackney S)

  Davles, Bryan (Enfield N)

  Flannery, Martin

  Buchan, Norman

  Oavles, Denzll (Llanelli)

  Fletcher, Ted (Darlington)

  Callaghan, Rt Hon J. (Cardilf SE)

  Davles, Ifor (Gower)

  Foot, Rt Hon Michael

  Callaghan, Jim (Middleton & P)

  Davis, Clinton (Hackney C)

  Ford, Ben

  Campbell, Ian

  Deakins, Eric

  Forrester, John

  916

  917

  Fraser, John (Lambeth, N'w'd)

  McElhone, Frank

  Selby, Harry

  Freeson, Reginald

  MacFarquhar, Roderick

  Shaw, Arnold (llford South)

  Garrett, John (Norwich S)

  McGuire, Michael (Ince)

  Sheldon, Rt Hon Robert

  Garrett, W. E. (Wallsend)

  MacKenzie, Rt Hon Gregor

  Shore, Rt Hon Peter

  George, Bruce

  Maclennan, Robert

  Silkin, Rt Hon John (Deptford)

  Ginsburg, David

  McNamara, Kevin

  Silkin, Rt Hon S. C. (Dulwich)

  Goldlng, John

  Madden, Max

  Siliars, James

  Gourlay, Harry

  Magee, Bryan

  Silverman, Julius

  Graham, Ted

  Mahon, Simon

  Skinner, Dennis

  Grant, George (Morpeth)

  Mallalieu, J. P. W.

  Small, William

  Grant, John (Islington C)

  Marks, Kenneth

  Smith, John (N Lanarkshire)

  Grocott, Bruce

  Marshall, Dr Edmund (Goole)

  Snape, Peter

  Hamilton, James (Bothwell)

  Marshall, Jim (Leicester S)

  Spearing, Nigel

  Hardy, Peter

  Maynard, Miss Joan

  Spriggs, Leslie

  Harper, Joseph

  Meacher, Michael

  Stallard, A. W.

  Harrison, Rt Hon Walter

  Mellish, Rt Hon Robert

  Stewart, Rt Hon M. (Fulham)

  Hattersley, Rt Hon Roy

  Mendelson, John

  Stoddart, David

  Hatlon, Frank

  Miilan, Rt Hon Bruce

  Stott, Roger

  Hayman, Mrs Helene

  Miller, Mrs Millie (llford N)

  Strang, Gavin

  Healey, Rt Hon Denis

  Mitchell, R. C. (Soton, Itchen)

  Strauss, Rt Hon G. R.

  Heffer, Eric S.

  Molloy, William

  Summerskill, Hon Dr Shirley

  Hooley, Frank

  Moonman, Eric

  Swain, Thomas

  Howell, Rt Hon Denis (B'ham, Sm H)

  Morris, Alfred (Wythenshawe)

  Thomas, Jeffrey (Abertillery)

  Hoyle, Doug (Nelson)

  Morris, Charles R. (Openshaw)

  Thomas, Mike (Newcastle E)

  Huckfield, Les

  Morris, Rt Hon J. (Aberavon)

  Thomas, Ron (Bristol NW)

  Hughes, Robert (Aberdeen N)

  Moyle, Roland

  Tierney, Sydney

  Hughes, Roy (Newport)

  Mulley, Rt Hon Frederick

  Tomlinson, John

  Hunter, Adam

  Newens, Stanley

  Tomney, Frank

  Irving, Rt Hon S. (Darllord)

  Noble, Mike

  Torney, Tom

  Jackson, Miss Margaret (Lincoln)

  Oakes, Gordon

  Tuck, Raphael

  Janner, Greville

  Ogden, Eric

  Urwin, T. W.

  Jeger, Mrs Lena

  O'Halloran, Michael

  Varley, Rt Hon Eric G.

  Jenkins, Hugh (Putney)

  Orbach, Maurice

  Wainwright, Edwin (Dearne V)

  John, Brynmor

  Orme, Rt Hon Stanley

  Walker, Terry (Kingswood)

  Johnson, James (Hull West)

  Ovenden, John

  Ward, Michael

  Johnson, Walter (Derby S)

  Owen, Rt Hon Dr David

  Weetch, Ken

  Jones, Alec (Rhondda)

  Padley, Walter

  Weitzman, David

  Jones, Barry (East Flint)

  Palmer, Arthur

  Wellbeloved, James

  Jones, Dan (Burnley)

  Park, George

  White, Frank R. (Bury)

  Judd, Frank

  Parry, Robert

  White, James (Pollok)

  Kaufman, Gerald

  Pavitt, Laurie

  Whitehead, Phillip

  Kelley, Richard

  Pendry, Tom

  Whltlock, William

  Ken, Russel'

  Perry, Ernest

  Wlgley, Dafydd

  Kllroy-Silk, Robert

  Phipps, Dr Colin

  Wiiley, Rt Hon Frederick

  Kinnock, Neil

  Prescott, John

  Williams, Rt Hon Alan (Swansea W)

  Lambie, David

  Price, C. (Lewisham W)

  Williams, Alan Lee (Hornch'ch)

  Lamborn, Harry

  Price, William (Rugby)

  Williams, Sir Thomas (Warrlngton)

  Lamond, James

  Richardson, Miss Jo

  Wilson, Rt Hon Sir Harold (Huyton)

  Lee, John

  Roberts, Albert (Normanton)

  Wilson, William (Coventry SE)

  Lestor, Miss Joan (Eton & Slough)

  Roberts, Gwilym (Cannock)

  Wise, Mrs Audrey

  Lever, Rt Hon Harold

  Robinson, Geoffrey

  Woodall, Alec

  Lewis, Ron (Carlisle)

  Roderick, Caerwyn

  Woof, Robert

  Lomas, Kenneth

  Rodgers, George (Chorley)

  Young, David (Bolton E)

  Luard, Evan

  Rooker, J. W.

  Lyon, Alexander (York)

  Rose, Paul B.

  TELLERS FOR THE NOES:

  Lyons, Edward (Bradford W)

  Rowlands, Ted

  Mr. Thomas Cox and

  McCartney, Hugh

  Ryman, John

  Mrs. Ann Taylor.

  McDonald, Dr Oonagh

  Sedgemore, Brian

  Question accordingly negatived.

New Clause 7

  PROFITS FROM TRADE, ETC., CARRIED ON PARTLY ABROAD
  '(1) The provisions of this section shall have effect for affording relief from tax under Case I or II of Schedule D where in a year of assessment ("the relevant year") the activities of a trade (which expression in this section includes a profession or vocation) are carried on by an individual partly outside the United Kingdom and the individual makes a claim for the relief.
  (2) The relief shall be given by deducting from the profits of the trade in respect of which the individual is assessable to income tax for the relevant year (ascertained in accordance with sections 115 to 118 of the Taxes Act) the
  918
  foreign profits relief calculated in accordance with subsections (6) to (9) below.
  (3) If the foreign profits relief exceeds the assessable profits for the relevant year the excess shall be carried forward to the next following year of assessment and deducted from the assessable profits of the trade for that year and so on to subsequent years as respects any excess still remaining until either the full foreign profits relief is given or the individual ceases to be engaged in the trade, but in no circumstances shall the foreign profits relief or any part of it be allowed more than once
  (4) A claim for the foreign profits relief shall be made by notice in writing to the Inspector within two years of the end of the relevant year or within such further period as the Inspector may in the particular circumstances allow.
  (5) Payment in full of income tax in respect of the assessable profits of the trade for the relevant year (or any subsequent year to which the foreign profits relief or part of it might be carried forward under subsection (3) above) shall not be withheld or delayed because a claim for foreign profits relief may be made or has been made but not yet allowed, but on a claim being allowed such repayments of tax or other adjustments shall be made as are appropriate to give effect to the relief.
  (6) The foreign profits relief shall, where subsection (8) below applies be equal to 100 per cent., and where subsection (9) below applies be equal to 25 per cent., of the foreign profits for the relevant year.
  (7) For the purposes of subsection (6) above the foreign profits for the relevant year are the excess of the receipts of the trade property attributable to the activities of the trade personally carried on by the individual outside the United Kingdom in the relevant year over the deductible expenses of the trade properly attributable to those activities and in making the proper attribution all such apportionments of receipts and expenses referable partly to activities within and partly to activities outside the United Kingdom shall be made as are just in the circumstances.
  (8) This subsection applies (so that the foreign profits relief is 100 per cent. of the foreign profits) if and to the extent that the foreign profits or part of them for the relevant year are attributable to activities of the trade carried on outside the United Kingdom during a qualifying period which falls wholly or partly in that year and consists of at least 365 days.
  Sub-paragraphs (2) and (3) of paragraph 1 of Schedule 7 to this Act shall apply to determine what is a qualifying period for the purposes of this subsection.
  (9) This subsection applies (so that the foreign profits relief is 25 per cent, of the foreign profits) to any foreign profits for the relevant year which are not within subsection (8) above, but only if in the relevant year the individual carries on activities of the trade outside the United Kingdom on at least 30 qualifying days.
  For the purposes of this subsection a qualifying day is a day of absence from the United Kingdom which is substantially devoted to the activties of the trade (including travelling for the purposes of the trade).
  (10) Paragraph 6 of Schedule 7 to this Act shall apply for the purposes of subsections (8) and (9) above.
  (11) Where the trade is carried on by the individual in partnership the foreign profits relief shall be allowed against his share of the assessable profits of the trade for the relevant year (or of any subsequent year to which the relief is carried forward under subsection (3) above), but not so as to prevent the partners allocating the benefit of the relief between themselves in whatever way they agree.
  (12) This section has effect for 1977–78 and subsequent years of assessment."—[Sir G. Howe.]
  Brought up, and read the First time.
  Sir G. Howe: I beg to move, That the clause be read a Second time.
  Mr. Speaker: With this we may discuss the following:
  New Clause 8—Expenses in connection with trade, etc., carried on wholly abroad.
  New Clause 66—Separate assessment for work abroad.
  Sir G. Howe: The House, which has not had the pleasure of following the sometimes less than exhilarating proceedings in Standing Committee, will want to know why the clause has been tabled and what it is about. I shall relate the basic history.
  From 1974 the Government altered the basis of taxation of overseas earnings, required them to be remitted to this country and placed them on a full taxation basis. That has given rise to increasing anxiety and concern. Many people, whether employed or self-employed, have found themselves paying intolerably high levels of taxation on earnings made overseas. The Government have been driven by the facts of life and the advocacy of my hon. Friend's into altering the law so as to make some exceptions and concessions with the intention of reducing the tax rates payable on a proportion of earnings from overseas in certain conditions.
  The clauses giving effect to that are now in the Bill. Clause 31 provides some relief for expenses incurred on earnings overseas. Clause 30 provides basically that if an employee is overseas for 365 days, there is total relief on the earnings during that period. If he is overseas for more than 30 days, defined with some Byzantine complexity, there is relief on 25 per cent. of the earnings overseas in that period.
  Those provisions are for the benefit of employees, but there are no comparable provisions for the earnings overseas of self-employed people—those who are working in any trade, profession or vocation, whether as individuals or as partners. The Government propose to continue the regime whereby the overseas earnings of self-employed people continue to be subject to the full discipline and rigour of the tax code designed by the Chief Secretary and his colleagues. Anyone on being told about this must stand back with astonishment and say "If they have recognised the case for providing licensed

  921
  loopholes from our dreadful tax system for employed people, why is it that they have not been able to do the same for self-employed people?" The answer is astonishing to anyone who has any concept of equity, simpicity or intelligibility about the tax system. It is "We are frightfully sorry, but we cannot design a system to help these people."
  9.45 p.m.
  We cannot fail to notice that, as so often with this Government, the victims of their inertia or incompetence are the self-employed. On so many fronts, advertently or inadvertently, maliciously or otherwise, this Government have maintained or created additional burdens, traps and hazards for the self-employed so that those who fall into this category believe themselves to be the victims of a sustained war and vendetta.
  Seeing the Chief Secretary sitting benignly on the Treasury Bench it is hard to believe that he is steering a campaign of this kind. It may not be many weeks before he finds himself back in this situation—self-employed, seeking to scavenge such earnings as he can from any corner of the world where he can secure employment. One would have thought that self-interest would drive him in a sensible direction. It is intolerable to have a tax system which has such harsh edges about it that even this Government recognise that they have to abate them, and then to find that they say blandly "We are sorry, but we have not been able to work it out."
  We are not, after all, talking about self-employed barrow boys plying their trade up and down Oxford Street with no consequence to the economy. We are talking about people with highly professional skills—consulting engineers, accountants, architects and people with skills of that kind. They earn very substantial quantities of invisible earnings outside this country and, what is more, frequently they provide the foundation for larger contracting exercises and larger areas of employment for Britons overseas. They are the seeds of Britain's overseas trade. They help to pull back to this country substantial earnings. They make a major contribution to the health of the economy. There can be no justification for not seeking to remedy their position.
  922
  If one looks, as I have rather sadly, at the debates in Committee, one sees that my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) said, with that formidable authority that he can always command, that the case he was making was "virtually unanswerable." My only sense of surprise was that he included the word "virtually". It was a modest and uncharacteristic qualification. The case is unanswerable.
  In the face of the arguments of the Opposition, the Chief Secretary, on the face of it, was in a forthcoming mood. He said:
  "I join with all hon. Gentlemen who have spoken in wanting to see relief given both to the self-employed and special people as well as to employees. I want to explain some of the problems and then show how the amendments and new clauses, which have attempted very assiduously to deal with the problems so as to avoid some of the consequences that could befall an over-simplified scheme of relief, do not meet the situation going on to say how I hope that eventually we shall be able to do so."—[Official Report, Standing Committee D, 15th June 1977; c. 646.]
  Then the right hon. Gentleman went into an argument, which I find unconvincing, that it was very difficult to define —that it was impossible to define the amount of overseas earnings made in the circumstances and that it was impossible to define the period in which the earnings were made so as to fulfil the formula set out in the Opposition's new clause I find that wholly unconvincing.
  Perhaps I might weary the House for a moment with my own experience in a somewhat different role. When I used to ply my trade as a barrister on the Wales and Chester circuit, which, from chambers in London, might be regarded as earning one's living "overseas", I had to satisfy the Inland Revenue, as part of the purpose of the tax regime at that time, that I was spending two nights in Chester, one in Caernarvon and one in Dolgelly, claiming legitimate expenses. I had to keep records of the fee that I received in Caernarvon or in Haverfordwest. It was not difficult. I had to say that my earnings from the circuit were£X, my expenses were£Y and my total income was therefore£X minus Y. The problem was no more complicated than that. We are not convinced that it is beyond the ability of the Treasury to solve this problem.

  923
  The Chief Secretary closed his speech in Standing Committee by saying:
  "What I can say is that the Government, for their part, and certainly I for my part, will continue the search for a way to bring sole traders, professional people and partnerships into the relief. I cannot promise to be able to do that in time for Report, but I expect to be able to have the relief provision ready in time for the next Finance Bill.— [Official Report, Starding Committee D; 15th June 1977; c. 651–2.]
  That is simply not good enough. It is three years since the right hon. Member designed the régime from which he is now seeking to escape. It is nine months since a consultative document was produced to help those people who are employed. I cannot believe that it is beyond the capacity of a Government who have any real feeling for the self-employed to give relief in that area. If the Chief Secretary repeats what he said in Standing Committee—that he expects to introduce relief in time for the next Finance Bill—we shall ask why he has not got it ready in time for this one. I hope that the Chief Secretary will be full of enthusiastic repentance and will be ready to accept this new clause, which makes an unanswerable case.
  Mr. Ridley: I support what my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has said. The burden of the Chief Secretary's case upstairs was that it was far too complicated to work out the base period from which overseas earnings of the self-employed would derive, or indeed to assess what those earnings were.
  I intervened in that speech by the right lion. Gentleman and cited the case of a life insurance salesman who might make considerable sums in commission although he was employed. The Chief Secretary said:
  "I agree that there are problems, but the extent of the problem generally—and this is the point that I am trying to make—in the case of Schedule D is much greater than in the case of Schedule E."—[Official Report, Standing Committee D, 15th June 1977; c. 650.]
  I dispute that. Suppose that a salesman selling an expensive piece of capital equipment is employed by a big manufacturing firm, which arranged things so that instead of paying a salary to its salesmen it paid very large commissions on each sale. In this case, all that a salesman has to do is to stay 30 days and
  924
  have a rest in the delightful surroundings of Kuwait or Qatar and he qualifies for 25 per cent. relief just because he has made the sale. It seems just as easy to get round it if one is employed and to maximise one's foreign earnings as it is if one is self-employed.
  Take our newest export phenomenon —Sidi Ben Revie—who is being paid£300,000 a year tax-free to teach the United Arab Emirates how to play football. That is a most purposeful export. That is the sharp end of exporting which should attract the Duke of Edinburgh's award, and we are delighted. But suppose that he gets fed up with the heat, the sand and the conditions and comes back to England in a year. The Chief Secretary will be after him, the Revenue hounds will be on to him and the question will be raised of whether he was self-employed or employed out there. I suspect that he will prove that he was self-employed. If, however, it is proved that he was employed, it will make a considerable difference to the amount of tax he has to pay. That cannot be right. The complications, whether one is employed or self-employed, are equal and real.
  I am not convinced that we should have this relief for the employed. I have every sympathy for the man who works in the heat and sweat of the foundry—perhaps more sympathy for him than for the man who goes to Monaco to sell the product during a gentle weekend in the sun—but I do not accept the basic premise.
  Be that as it may, if we are prepared to give this relief at all, the complications are equal all round. To do it for the employed only enhances the unfortunate reputation that the Government have for bias against the self-employed. I should have thought that in the interests of their own public relations and their tentative and tendentious appeal to the self-employed —
  Sir G. Howe: The Government have given up caring.
  Mr. Ridley: My right hon. and learned Friend suggests that the Government have given up caring about the self-employed. Is it that no insult or injury to the self-employed matters to them any more, because they reckon that they are not

  925
  likely to be attracted to them in the polls? If so, it is a shocking state of affairs.
  If the Chief Secretary cannot design relief for the self-employed at the same time as he brings in relief for the employed, I suggest that it is better to scrap the whole thing and to bring it in again in another year on a fairer basis. It is the inequity of the situation that is offensive. It follows a whole history of other actions against the self-employed that will not lightly be forgotten.
  We are dealing with people who are not tax evaders or whelk stall operators. We are dealing with important firms of consulting engineers, technical experts, accountants, lawyers and so on. They are probably doing more for our exports than many of our manufacturing companies. I find the discrimination nauseous. As the Chief Secretary appears to be of the same—[Interruption.] The hon. Member for Liverpool, Walton (Mr. Heffer) could not run a whelk stall from a seated position.
  Mr. Heffer: The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) could not run anything from any position.
  Mr. Ridley: Having run a—
  Mr. Helfer: The hon. Gentleman should do a bit of work for his living.
  Mr. Ridley: Having run a contracting company for 10 years, I would not take on the hon. Gentleman, employed or self-employed.
  Mr. Heffer: I would not take on the hon. Gentleman if he were the last person alive.
  Mr. Ridley: I am seeking to keep in order under considerable provocation. I really have nothing more to say. The hon. Member for Walton succeeded in destroying my peroration, for which I give him full credit.
  Mr. Ridsdale: I support the new clause.
  I wonder whether this will be the first of many such clauses and exemptions. In order to stop abuse, the Government have got themselves into very difficult water. I am sure that they want to help those who help our invisible exports.
  926
  Our invisible exports provide half of what our manufacturing exports are achieving. For the Government to treat people who try to earn their living abroad in this way is a very poor effort indeed.
  10.0 p.m.
  I suggest to the Government that the one way to get round it and to help not only the self-employed but others is to see whether the earnings genuinely arise and then these people can be helped. Unless that is done, we shall have exemption after exemption and we shall not help those who are earning invisible wealth for this country. I ask the Government to consider the word "genuine". We should go back to the position that existed in 1974 and consider genuine earnings arising abroad.
  Mr. Joel Barnett: If I were being my customary polite self, I should say what interesting speeches we have heard. However, I am bound to say that the speeches of the right hon. and learned Member for Surrey, East (Sir G. Howe) and of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) were somewhat naive. The right hon. and learned Gentleman gave a somewhat superficial description of the situation. The right hon. and learned Gentleman knows why we have the clause giving relief for employees and he should know why it is not possible to give relief to the self-employed as well at this stage.
  The right hon. and learned Gentleman knows that this goes back to the days of the remittance basis that the right hon. Member for Sidcup (Mr. Heath) described so graphically when he spoke of the unacceptable face of capitalism. It derives precisely from that. The right hon. and learned Gentleman knows better than that, and if he does not, he should.
  Mr. William Clark: Answer the debate.
  Mr. Barnett: That is exactly what I am doing and I am trying to put things into the right perspective. The right hon. and learned Member for Surrey, East should not sit there mumbling, because he knows that it is true. It stems from the abuse of the remittance basis on a large scale.
  We had a choice. We could have simply abolished the remittance basis and put

  927
  nothing in its place and given no relief whatsoever. However, we decided that we wanted to give some relief to those who spend some time abroad doing a first-class job for this country. In this instance we did it by giving relief for employees who spend 30 days a year abroad. We did that after consultation with all those involved. This is the best way to deal with the matter.
  I readily accept that in giving relief there arc anomalies. There is no way to avoid anomalies in dealing with such relief. When the right hon. and learned Member for Surrey. East talks about the victims among the self-employed and says that we are not dealing with barrow boys he must know that he is talking the utmost rubbish. We are talking about the difference between Schedule D and Schedule E.
  An interesting thing about the next new clause that we shall debate is that the Opposition will then be seeking to get people off Schedule E and on to Schedule D because it will be much better for them to be assessed as self-employed. The hon. Member for Blaby (Mr. Lawson) is muttering now. I know that he is not used to being criticised and I do not intend to do that. However, he does not like it when I tell him the truth about the background of the matter. The remittance basis from which it stems was abused, and in the tax system we have sought to deal with this in a reasonable and fair way.
  The right hon. and learned Gentleman said that he and his hon. Friends believed that there was little difference between Schedule D and Schedule E. Do they really believe that? The right hon. and learned Gentleman is aware that the Schedule E is an actual basis assessment whereas Schedule D is based on the preceding year—but not always. The matter is somewhat complicated. Expenses are calculated in one year and profits in another. The whole thing is extremely complicated and I do not apologise for that.
  Mr. Grieve: Will the Chief Secretary give way?
  Mr. Barnett: Let the hon. and learned Member for Solihull (Mr. Grieve) intervene when he is more rational. He knows that there is a considerable difference
  928
  between the Schedule D and the Schedule E basis.
  I said in Committee that I recognise the need to do something about the problem. but it is not possible without giving opportunities for abuse, to exempt in a simple piece of legislation the self-employed under Schedule D who are working abroad for 30 days in the year. We have to devise legislation that will be somewhat complex and that will take time if we are to avoid the sort of abuses that even hon. Members opposite would not want to see—though maybe I should withdraw that statement. Most hon. Members would not wish to see the sort of abuses that would be possible if we drafted loose legislation.
  Most people recognise that we have gone a long way towards helping. Certainly that is the view of those we consulted in drafting the legislation. Naturally, they would have liked us to include in the legislation this year something for the self-employed—the professional men we are talking about. We shall do that in next year's Finance Bill. The Labour Government will have many more Finance Bills to introduce and in next year's we shall deal with the problem while avoiding the abuses that would be inherent if we accepted the new clause.
  Mr. Peter Rees: I would not have intervened in this debate, since I spoke at certain length in Committee, but for the incredible reply of the Chief Secretary to this important new clause. He has sunk below the standards of punctilio and care that he shows from time to time.
  The hon. Member for Liverpool, Walton (Mr. Helfer) is saying something from a sedentary position. I can assure him that my hands are roughened from unremunerated manual toil as last weekend I was cutting down a few trees—in the manner of Gladstone. I say that to demonstrate my credentials for intervening.
  I also declare a personal interest as a professional person who occasionally swells this country's export receipts by professional representation in courts outside this country. The hon. Member for Walton seems to he encouraging me to go further away from this country. I must leave that to my electorate and the hon. Gentleman's future to his electorate.

  929
  The new clause was canvassed upstairs. The Chief Secretary has sought to appeal to emotion by reference to the remittance basis with its echoes of the face of capitalism, whether ugly, unacceptable, attractive or appealing, that we scrutinised with some care when examining the affairs of Lonrho. Since we are in an emotional area, I remind the House that right hon. and hon. Members have been quite ready to profit from capitalism. I know that some right hon. Gentlemen opposite have not thought it dishonourable to take paid appointments with multinational companies based in Liberia. I hope very much that the hon. Gentleman will realise that even he has a future under the capitalist system. Quite what it is I shall have to explore with him outside the Chamber.
  There have been other right hon. Gentlemen opposite who have cared to try their fortunes in the banking world, I am sure to the mutual profit of the banks that have employed them and themselves. I find this neither discreditable nor unreasonable. We live in a mixed economy, and I should much prefer that they hazard their skills and their labour, such as they are, in the private sector rather than that they should be carried as parasites on the public payroll in some nationalised industry.
  The hon. Gentleman indicates that he wishes to be carried on the private payroll, or does he prefer the softer, more opulent terms of the public payroll? To his credit, he forswore the public payroll. Perhaps I should not remind him of that short unhappy interlude in his career, but as he is barracking me from a sitting position and as I know him to be a man of robust resilience, I know that he is not ashamed to bandy words with me, and I am not ashamed to bandy words with him.
  Mr. Heller: Just to get the record straight, let me tell the hon. and learned Gentleman that my dealings with the banks seem to be profitable from their point of view. I borrow a few bob at a high rate of interest. The banks have done well out of me.
  Mr. Rees: I am glad to hear that the hon. Gentleman is so creditworthy. It is not for me to probe into his affairs. There is a great future for him on the Mersey
  930
  Docks and Harbour Board and other institutions of that kind. Whether that is compatible with his position in this House is perhaps a matter on which I might seek Mr. Speaker's ruling on another occasion.
  I leave the hot lush pastures of Liberia and the slightly cooler, if more moist, pastures of Cardiff and come back to the new clause. With characteristic self-restraint, I was disposed to say in Standing Committee that perhaps the case was virtually unanswerable for putting the self-employed on a level with directors and I picked companies at length such as Diebold Inc. or the Hodge Group—great respectable pillars of the capitalist system.
  I happen to be a threadbare professional man.
  Mr. Ridley: My hon. and learned Friend is consistently forgetting the Canning Town Glassworks.
  Mr. Rees: It is not for me to explore every recess of the capitalist system that has from time to time housed a denizen of the Government Front Bench, whether in this House or another place. Perhaps you, Mr. Speaker, in your infinite mercy and wisdom will find time for us to explore the situation of that company and those who at some time graced its board.
  I have declared by personal interest. I have declared what modest contribution I have made to the invisible exports of this country. I hope that I shall find myself shoulder to shoulder with the Chief Secretary in our endeavours quite soon because he, too, will no doubt be bending his considerable talents to assist the professional classes of this country both inside and outside the country.
  The purpose of this clause, which follows closely the clause that we debated at some length in Standing Committee, is concerned with all the various aspects of the export drive and how the Prime Minister with his well-known verve and enthusiasm could give us extra impetus and push. We come back to the same matter, and once again, apart from a singularly unfortunate lapse, which I am sure he is regretting, in his rather unsolicitous reference to the Lonrho Company, the Chief Secretary has advanced precisely the same argument and told us that the practical difficulties are too great and

  931
  that they defy even his and the Financial Secretary's agile minds.
  In the weeks between the Committee stage and Report the right hon. Gentleman, assisted by the vast resources of Somerset House, has been unable to devise a clause that will meet the aspirations that apparently both sides of the House cherish. Even the hon. Member for Walton apparently wishes to assist the self-employed. That is good news. I was beside him in debates on devolution and other constitutional issues, and it is good to know that we speak as one on the self-employed.
  Mr. Heifer: Stick with me and you will not go far wrong.
  10.15 p.m.
  Mr. Rees: I remember the dark days of last winter and look forward to fighting beside the hon. Gentleman iv the even darker days of next winter.
  Mr. George Cunningham: Get on.
  Mr. Rees: The hon. Gentleman is censorious of those who spread themselves in our debates, but he was not above exploiting our procedure to the maximum to achieve some sn-all constituency aim. Whether he was successful I am no longer aware, but he caused grief to the Patronage Secretary. I ask him to bear with me as I bore with him—
  Mr. George Cunningham: Get on.
  Mr. Speaker: Order. All those activities took place entirely at home, and what we are discussing relates partly to activities abroad. We really must get back to it.
  Mr. Rees: But for ill-timed interventions, I should have been on the new clause. The Chief Secretary has rested his case on practical difficulties, yet he and the Financial Secretary have had since the summer of 1974 to consider these problems. Between September and October 1974, with a burst of unaccustomed energy and acumen, the Chief Secretary constructed a whole new system of taxing capital—capital transfer tax. He is a man of great industry and ingenuity, so why has he not been able to deal a little more generously with the self-employed in the period since 1974? For all his fine words, he is dragging his feet.
  932
  It is not enough for the right hon. Gentleman to console us by saying that he will introduce another Finance Bill next year. We doubt it, and the problem is more pressing than that. The self-employed have suffered under his whiplash for too long. Had he applied himself, he could have produced something, since 1974 if not since the Committee stage.
  We appreciate that those assessed on Schedule E are assessed on a current year basis while those assessed under Case 1 and Case 2 of Schedule D are assessed on a preceding year basis—although not always. What insuperable problems does that create? The right hon. Gentleman has not shown his customary assiduity. Indeed, the Official Box has been thinning out during this debate, which suggests that he has not mobilised all the resources of Somerset House.
  I hope that we shall not he satisfied with these fair words and idle promises. The problem is immediate and deserves an immediate response. I hope, therefore, that my right hon. and learned Friend, recalling the fine times that he and I spent in various forts west of Offa's Dyke, will lead us into the Lobby unless we receive a far more concrete assurance than we have so far had.
  Sir G. Howe: I need no more encouragement than that given by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) to say that the Chief Secretary's answer is unsatisfactory. He has given no reason for not providing solutions to this problem along the lines in the new clause.
  The only thing that grieved us was the uncharacteristic intemperance with which the right hon. Gentleman denounced our arguments. It suggested that he had no confidence in his own case. One wonders whether he might not have been upset in recent days, having sweated his guts out writing draft after draft of the long-heralded White Paper only to see it torn to shreds by his colleagues in the Cabinet. However, it is not for us to speculate. There must be some curious reason for him to be less than his usual equable self. We shall deal with him in the same way as we have done so often in the past—by voting in favour of the clause and against him.
  Question put, That the clause be read a Second time:—
  The House divided: Ayes 182, Noes 226.

  Division No. 198.]

  AYES

  [10.20 p.m.

  Adley, Robert

  Grist, Ian

  Osborn, John

  Aitken. Jonathan

  Hamilton, Michael (Salisbury)

  Page, John (Harrow West)

  Alison, Michael

  Hampson, Dr Keith

  Page, Rt Hon R. Graham (Crosby)

  Atkins, Rt Hon H. (Spelthorne)

  Hannam, John

  Page, Richard (Wcrkington)

  Awdry, Daniel

  Haselhurst, Alan

  Pattie, Geoffrey

  Bain, Mrs Margaret

  Havers, Rt Hon Sir Michael

  Price, David (Eastleigh)

  Baker, Kenneth

  Hawkins, Paul

  Raison, Timothy

  Banks, Robert

  Hayhoe, Barney

  Rathbone, Tim

  Bell, Ronald

  Henderson, Douglas

  Rawlinson, Rt Hon Sir Peter

  Berry, Hon Anthony

  Hicks, Robert

  Rees, Peter (Dover & Deal)

  Biffen, John

  Higgins, Terence L.

  Reid, George

  Blaker, Peter

  Hodgson, Robin

  Rhodes James, R.

  Boscawen, Kon Robert

  Howe, Rt Hon Sir Geoffrey

  Rhys Williams, Sir Brandon

  Bottomley, Peter

  Howell, David (Gulldlord)

  Ridley, Hon Nicholas

  Boyson, Dr Rhodes (Brent)

  Howell. Ralph (North Norfolk)

  Ridsdaie, Julian

  Braine, Sir Bernard

  Hunt, David (Wirral)

  Rifkind, Malcolm

  Brocklebank-Fowler, C.

  Hurd, Douglas

  Roberts, Michael (Cardiff NW)

  Brooke, Peter

  Hutchison, Michael Clark

  Roberts, Wyn (Conway)

  Brotherton, Michael

  James, David

  Rossi, Hugh (Hornsey)

  Brown, Sir Edward (Bath)

  Jessel, Toby

  Royle, Sir Anthony

  Buchanan-Smith, Alick

  Johnson Smith, G. (E Grinstead)

  Sainsbury, Tim

  Buck, Antony

  Keilett-Bowman, Mrs Elaine

  Scott, Nicholas

  Budgen, Nick

  Kimbali. Marcus

  Shaw, Giles (Pudsey)

  Burden, F. A.

  King, Evelyn (South Dorset)

  Shaw, Michael (Scarborough)

  Butler. Adam (Bosworth)

  King, Tom (Bridgwater)

  Shelton, William (Streatham)

  Chalker, Mrs Lynda

  Knox, David

  Shepherd, Colin

  Channon, Paul

  Lamont, Norman

  Silvester, Fred

  Churchill, W. S.

  Lawson, Nigel

  Smith, Dudley (Warwick)

  Clark, Alan (Plymouth, Sutton)

  Le Merchant, Spencer

  Smith, Timothy John (Ashfield)

  Clark, William (Croydon S)

  Lester, Jim (Beeston)

  Spence, John

  Clarke, Kenneth (Rushclltfe)

  Lewis, Kenneth (Rutland)

  Spicer, Jim (W Dorset)

  Clegg, Walter

  Lloyd, Ian

  Spicer, Michael (S Worcester)

  Cockcrott, John

  Loveridge, John

  Sproat, lain

  Cooke, Robert (Bristol W)

  McCrindle, Robert

  Stanley, John

  Costain, A. P.

  Macfarlane, Neil

  Stewart, Ian (Hitchin)

  Critchley, Julian

  MacGregor, John

  Stokes, John

  Dean, Paul (N Somerset)

  Macmillan, Rt Hon M. (Farnham)

  Stradling Thomas, J.

  Dodsworth, Geoffrey

  McNair-Wilson, M. (Newbury)

  Tapsell, Peter

  du Cann, Rt Hon Edward

  McNair-Wilson, P. (New Forest)

  Taylor, R. (Croydon NW)

  Dykes, Hugh

  Madel, David

  Tebbit, Norman

  Elliott, Sir William

  Marten, Neil

  Thatcher, Rt Hon Margaret

  Emery. Peter

  Mather, Carol

  Thomas, Rt Hon P. (Hendon S)

  Farr, John

  Maude, Angus

  Thompson, George

  Fell, Anthony

  Maxwell-Hyslop, Robin

  Townsend, Cyril D.

  Fisher, Sir Nigel

  Meyer, Sir Anthony

  Trotter, Neville

  Fletcher, Alex (Edinburgh, N)

  Miller, Hal (Bromsgrove)

  van Straubenzee, W. R.

  Fookes, Miss Janet

  Mills, Peter

  Viggers, Peter

  Forman, Nigel

  Miscampbell, Norman

  Wakeham, John

  Fowler, Norman (Sullon C'f'd)

  Moate, Roger

  Walder, David (Clitheroe)

  Fox, Marcus

  Moore, John (Croydon C)

  Walker, Rt Hon P. (Worcester)

  Fry, Peter

  More, Jasper (Ludlow)

  Walker-Smith, Rt Hon Sir Derek

  Gardner, Edward (S. Fylde)

  Morgan, Geraint

  Wall, Patrick

  Gllmour, Rt Hon Sir Ian (Chesham)

  Morgan-Giles, Rear-Admiral

  Walters, Dennis

  Gilmour, Sir John (East File)

  Morris, Michael (Northampton S)

  Warren, Kenneth

  Glyn, Dr Alan

  Morrison, Charles (Devizes)

  Weatherill, Bernard

  Godber, Rt Hon Joseph

  Mudd, David

  Wiggin, Jerry

  Goodhew, Victor

  Neave, Airey

  Wigley, Dafydd

  Gow, Ian (Eastbourne)

  Neubert, Michael

  Young, Sir G. (Eating, Acton)

  Gower, Sir Raymond (Barry)

  Newton, Tony

  Grant, Anthony (Harrow C)

  Normanton, Tom

  TELLERS FOR THE AYES:

  Gray, Hamish

  Onslow, Cranley

  Lord James Douglas-Hamilton and

  Grieve, Percy

  Oppenheim, Mrs Sally

  Mr. Peter Morrison.

  NOES

  Anderson, Donald

  Boardman, H.

  Cartwrlght, John

  Archer, Rt Hon Peter

  Booth, Rt Hon Albert

  Castle, Rt Hon. Barbara

  Atkins, Ronald (Preston N)

  Bradley, Tom

  Clemitson, Ivor

  Bagier, Gordon A. T.

  Bray, Dr Jeremy

  Cocks, Rt Hon Michael

  Barnelt, Guy (Greenwich)

  Brown, Hugh D. (Provan)

  Cohen, Stanley

  Barnett, Rt Hon Joel (Heywood)

  Brown, Ronald (Hackney S)

  Coleman, Donald

  Bates, Alf

  Buchan, Norman

  Cook, Robin F. (Edln C)

  Bean, R. E.

  Callaghan, Rt Hon J. (Cardiff SE)

  Corbett, Robin

  Benn, Rt Hon Anthony (Wedgwood)

  Callaghan, Jim (Middleton & P)

  Cowans, Harry

  Bennett, Andrew (Stockport N)

  Campbell, Ian

  Crawshaw, Richard

  Bldwell, Sydney

  Canavan, Dennis

  Cronin, John

  Bishop, Rt Hon Edward

  Cant, R. B.

  Crowther, Stan (Rotheiham)

  Blenkinsop, Arthur

  Carter-Jones, Lewis

  Cryer, Bob

  Cunningham, G. (Islington S)

  Jeger, Mrs Lena

  Price, William (Rugby)

  Cunningham, Dr J. (Whiter)

  Jenkins, Hugh (Putney)

  Roberts, Albert (Normanton)

  Dalyell, Tam

  John, Brynmor

  Roberts, Gwilym (Cannock)

  Davies, Bryan (Enfield N)

  Johnson, James (Hull West)

  Robinson, Geoffrey

  Davles, Denzil (Llanelll)

  Johnson, Walter (Derby S)

  Roderick, Caerwyn

  Davies, Ifor (Gower)

  Jones, Alec (Rhondda)

  Rodgers, George (Chorley)

  Davis, Clinton (Hackney C)

  Jones, Dan (Burnley)

  Rooker, J. W.

  Deaklns, Eric

  Judd, Frank

  Rose, Paul B.

  Dean, Joseph (Leeds West)

  Kelley, Richard

  Ross, Stephen (Isle of Wight)

  de Freitas, Rt Hon Sir Geoffrey

  Kerr, Russell

  Rowlands, Ted

  Dell, Rt Hon Edmund

  Kilroy-Silk, Robert

  Sedgemore, Brian

  Dormand, J. D.

  Kinnock, Neil

  Selby, Harry

  Douglas-Mann, Bruce

  Lamborn, Harry

  Shaw, Arnold (Ilford South)

  Dunnett, Jack

  Lamond, James

  Sheldon, Rt Hon Robert

  Eadle, Alex

  Lee, John

  Shore, Fit Hon Peter

  Edge, Geoff

  Lestor, Miss Joan (Eton & Slough)

  Silkin, Rt Hon John (Deptford)

  Edwards, Robert (Wolv SE)

  Lever, Rt Hon Harold

  Silkin, Rt Hon S. C. (Dulwich)

  Ellis, John (Brigg & Scud)

  Lomas, Kenneth

  Sillars, James

  Ellis, Tom (Wrexham)

  Luard, Evan

  Silverman, Julius

  English, Michael

  Lyon, Alexander (York)

  Skinner, Dennis

  Evans, Fred (Caerphilly)

  Lyons, Edward (Bradford W)

  Smilh, John (N Lanarkshire)

  Evans, loan (Aberdare)

  McCartney, Hugh

  Snape, Peter

  Evans, John (Newton)

  McDonald, Dr Oonagh

  Spearing, Nigel

  Ewlng, Harry (Stirling)

  McElhone, Frank

  Spriggs, Leslie

  Fernyhough, Rt Hon E.

  McGuire, Michael (Ince)

  Stallard, A. W.

  Fletcher, Ted (Darlington)

  MacKenzie, Rt Hon Gregor

  Steel, Rt Hon David

  Foot, Rt Hon Michael

  Maclennan, Robert

  Stewart, Rt Hon M. (Fulham)

  Ford, Ben

  McNamara, Kevin

  Stoddart, David

  Forrester, John

  Madden, Max

  Stott, Roger

  Fraser, John (Lambeth, N'w'd)

  Magee, Bryan

  Strang, Gavin

  Freeson, Reginald

  Mahon, Simon

  Strauss, Rt Hon G. R.

  Freud, Clement

  Mallalieu, J. P. W.

  Swain, Thomas

  Garrett, John (Norwich S)

  Marshall, Jim (Leicester S)

  Taylor, Mrs Ann (Bolton W)

  Garrett, W. E. (Wallsend)

  Maynard, Miss Joan

  Thomas, Jeffrey (Absrtillery)

  George, Bruce

  Meacher, Michael

  Thomas, Mike (Newcastle E)

  Ginsburg, David

  Melllsh, Rt Hon Robert

  Thomas, Ron (Bristol NW)

  Gofdlng, John

  Mitchell, R. C. (Soton, Itchen)

  Tierney, Sydney

  Gourlay, Harry

  Molloy, William

  Tomlinson, John

  Graham, Ted

  Moonman, Eric

  Torney, Tom

  Grant, George (Morpeth)

  Morris, Alfred (Wythenshawe)

  Urwin, T. W.

  Grant, John (Islington C)

  Morris, Rt Hon J. (Aberavon)

  Varley, Rt Hon Eric G.

  Grimond, Rt Hon J.

  Moyle, Roland

  Wainwright, Edwin (Dearne V)

  Grocott, Bruce

  Melley, Rt Hon Frederick

  Wainwright, Richard (Colne V)

  Hamilton, James (Bothwell)

  Murray, Rt Hon Ronald King

  Ward, Michael

  Hardy, Peter

  Newens, Stanley

  Weetch, Ken

  Harper, Joseph

  Noble, Mike

  Wellbeloved, James

  Harrison, Rt Hon Walter

  Oakes, Gordon

  White, Frank R. (Bury)

  Hattersley, Rt Hon Roy

  Ogden, Eric

  White, James (Potlok)

  Hatton, Frank

  O'Halloran, Michael

  Whitehead, Phillip

  Hayman, Mrs Helene

  Orbach, Maurice

  Willey, Rl Hon Frederick

  Healey, Rt Hon Denis Heffer, Eric S.

  Orme, Rt Hon Stanley Ovenden, John

  Williams, Rt Hon Alan (Swansea W)

  Hooiey, Frank

  Owen, Rt Hon Dr David

  Williams, Sir Thomas (Warrington)

  Hooson, Emlyn

  Padley, Walter

  Wilson, Rt Hon Sir Harold (Huyton)

  Howell, Rt Hon Denis (B'ham, Sm H)

  Palmer, Arthur

  Wilson, William (Coventry SE)

  Howells, Geralnt (Cardigan)

  Pardoe, John

  Wise, Mrs Audrey

  Hoyle, Doug (Nelson)

  Park, George

  Woodall, Alec

  Huckfleld, Les

  Parry, Robert

  wool, Robert

  Hughes, Robert (Aberdeen M)

  Pavitt, Laurie

  Young, David (Bolton E)

  Hughes, Roy (Newport)

  Pendry, Tom

  Hunter, Adam

  Penhallgon, Davlo

  TELLERS FOR THF NOES

  Jackson, Colin (Brighouse)

  Perry, Ernest

  Mr. Thomas Cox and

  Jackson, Miss Margaret (Lincoln)

  Prescott, John

  Mr. Joseph Ashton.

  Janner, Greville

  Price, C. (Lewisham W)

  Question, accordingly negatived.

New Clause 14

  DIVERS IN THE NORTH SEA
  'A diver engaged in exploration or exploitation activities in a designated area (as those expressions are defined for the purposes of section 38 of the Finance Act 1973) shall be treated for tax purposes as a person carrying on a trade, profession or vocation in relation to such activities and not the holder of an office or employment.'—[Mr. David well.]
  Brought up, and read the First time.
  10.30 p.m.
  Mr. David Howell: I beg to move, That the clause be read a Second time.
  Extremely worrying stories have erupted in the Press recently about the taxation position of North Sea divers. It needs no explanation from me to bring home what a crucial job these people do. They work in a variety of conditions, almost every case involving extremely difficult conditions at great depths. They work under physical pressures so great that at the age of 45 their working careers are finished. They work in some cases under contract to one employer. Some work in the North Sea and others work abroad.
  The problem arises because a few months ago it emerged that the Inland Revenue had "recently decided "—that phrase came from a letter by the Financial Secretary to one of my hon. Friends —that the North Sea divers who hitherto had been taxed as self-employed under Schedule D were now to be regarded as employed persons to be taxed under Schedule E. That decision was reached rather suddenly and divers came ashore at the beginning of the tax year to find that their tax status had changed.
  The change was imposed, in a sense, over their heads in that it was established not with the divers themselves but with the contracting companies which employed them. This has caused many of them to feel that they have suffered an injustice. Whether that is true in every case is impossible for this House to determine. However, when we debated this matter in Standing Committee the Chief Secretary reassured me that, in spite of all the concern and all the statements from the divers that they would go abroad and that they could not possibly operate unless they were treated fairly,
  938
  he believed that their position was perfectly clear. He said in Committee:
  "The information that the Inland Revenue has is that all North Sea divers do qualify for inclusion under the Schedule E category."
  The Financial Secretary then spoke about an examination which apparently lasted
  "for the best part of a year"
  in which
  "a great deal of work was done in finding out the method of operation and the requirements of the particular tests for Schedule E."—[Official Report, Standing Committee D, 23rd June 1977; c. 1280.]
  Since we had that debate there have obviously been further discussions. Further points have been raised, in particular some points about what the Financial Secretary had to say in Committee. First, the question has been asked—I ask it again—what was this examination for a year? The representatives of the divers are not aware of any examination having taken place into their work, conditions and methods. Was the Department of Energy involved in this examination? Is it now in a position to be happy about the situation in which all North Sea divers have been thrown? What about the contracting companies, and possibly the oil companies, which need to get hold of teams of divers to do this dangerous work?
  The Financial Secretary talked about discussions with the companies and implied that there had been agreement. But my understanding is that there was no agreement in the usual sense of the word and that the companies were faced with little choice but to move on to an employed basis in dealing with the divers who were contracted to them.
  The Financial Secretary also said that it was simply a matter which could be settled in the courts. He said:
  "The question is the simple one of whether those people arc employees, or come within the category of self-employed…it is a question of fact, which will be determined by a court of law."—[Official Report, Standing Committee D, 23rd June 1977; c. 1285.]
  Earlier, on 9th May, the hon. Gentleman had written a letter to my hon. Friend the Member for Gloucestershire, South (Mr. Cope) in which he categorically said that the North Sea divers working with companies in the North Sea were

  939
  such that the Inland Revenue had taken a view that they were employees assessable to tax under Schedule E.
  The situation is highly ambiguous. Either a view has been taken—in which case it is a dangerous and absurd generalisation to apply to a group of people working under very difficult conditions—that they are all employed or this is a matter which can be further discussed, examined and determined by the courts in some way or other. I am not sure in what way the Financial Secretary would expect that determination to be made.
  Our quarrel is with the sweeping categorisation that has been made by the Inland Revenue that all these people are employed, when clearly some of them—possibly many, probably the majority—are still operating under conditions which may be described as self-employed. The effect of the Inland Revenue's insensitivity in laying down this rule generally is not that it will raise any more revenue or bring into tax all sorts of people who may have, in some way, been escaping. What has happened is that these people are going abroad. These British North Sea oil divers are disappearing from British waters and the contractors are employing foreign divers. Nothing has been gained but great damage has been done to a crucial part of the oil programme.
  A generalisation has been asserted without any understanding of the vast variety of conditions under which these people have to work. There has been talk that they can go to appeal. We want to know when those appeals will be. Will they be before the end of the current tax year in which the divers have been suddenly redesignated under Schedule E as employed people? Or will they take place at the end of next summer, which will be far too late because the divers will all have gone?
  If we can get the Financial Secretary in an amenable frame of mind, I would urge him to use his pressures to get the Revenue to think again about its approach to this problem. We are not asking that all those who claim to be self-employed should have that claim recognised. That is absurd. Obviously, the law has to be decided in relation to
  940
  the actual employment status of these people.
  Now we have reached a position where the North Sea divers are leaving because of their terrific sense of injustice. if the Financial Secretary would be prepared to consider it, a group of people could sit down and work out how best to handle the tax affairs of these divers. That would surely produce a much more realistic answer than the very insensitive and provocative course on which he is now set.
  That is my perfectly reasonable plea to the Financial Secretary, and that is what lies behind the clause. It seeks to reopen the matter. I hope we shall not have to press it, and that he will understand the reasonableness of what I am saying. If he were to take the line that he took upstairs, that the subject is almost not for him to comment upon because it is simply a question of the Inland Revenue proceeding as it apparently intends to do, I should have to advise my hon. Friends to pursue the matter in a different way.
  It is a reasonable proposition about a crucial area of our economy in regard to which there is a deep sense of injustice. I am not clear as to the point at which this curious twist in the affair has been taken, but certainly the lives of these people are being made intolerable, and if the situation continues it will simply drive them from our shores, at great loss to the national economy.
  Mr. Peter Emery: I have to declare an indirect interest in this matter. I have been more concerned than perhaps any hon. Member of this House with the fact that Britain has developed major diving techniques specifically related to the North Sea, going back to the early Hewitt field at the time of the gas discoveries.
  I have only a few things to add to the very poignant remarks of my hon. Friend the Member for Guildford (Mr. Howell). First, it is important to differentiate between air-breathing divers and divers who are on mixed gases and at saturation. There are different levels of income. But, having said that, I emphasise that all divers feel the same amount of unease, and they have a very strong feeling that they are being specially picked out.

  941
  Whereas there are between 800 and 1,000 saturation divers operating in the North Sea at this moment who are affected by this aspect of the tax regulations, if 200 saturation divers were to leave the North Sea it would be a major blow to the development of the oil resources of this country. The possibility of our being able to get foreign divers of experience to carry on saturation maintenance and the saturation work required in the North Sea is very much in doubt.
  By its obduracy the Treasury will not achieve any increase in revenue. What is involved is the possibility of major harm being done to an area of development which could be the economic salvation of our country, certainly in the long run.
  I urge the Financial Secretary to consider the suggestion that these divers should be treated in the way that the clause outlines, and to recognise that many of these people are working only during the weather window in the North Sea—from March to September or October—and that they will then be working overseas, in America or in Saudi Arabia, as far away as Jakarta or even Japan, for entirely different employers, although some of them for the same diving companies. But if foreign nationals come to take their place, those foreign nationals are resident abroad and are paid abroad, and not one penny of payment to the foreign divers comes to the British Exchequer. It seems that if the Treasury does not agree with the arguments that have been put forward by my right hon. and hon. Friends on the Opposition Front Bench, it is cutting off its nose to spite not just its face but the whole of its body.
  10.45 p.m.
  I can see no reason for the Treasury not holding to the position that used to exist or, if it sees a legal difficulty, getting out of the problem by accepting this clause. The clause would remove the difficulties and would be an admirable way of solving any legal problem about which the Treasury might be worried.
  If the Treasury does not do this, the only other resort is that some divers may consider turning themselves into limited companies, then having to be employed by the diving contractors, with the divers
  942
  themselves becoming consultants to the limited companies. That is the sort of aspect of avoidance which Treasury Ministers ought surely to try to stop, or which they should not encourage. That, again, would not directly benefit the Treasury in any way. If the Treasury is in any doubt, then please let it either revert to the previous position or accept the clause. In that way a major problem could be averted.
  Mr. David Price: I declare an interest in that I have been indirectly an employer of North Sea divers.
  I believe that this question is a very simple one. It goes back to conditions of contract and whether a diver should come under Schedule D or Schedule E under the normal rules of the Inland Revenue. That is all. There is no reason for hon. Members to get "up tight" about it.
  What worries my right hon. and hon. Friends, and has led us to table the clause, is the apparent assumption that North Sea divers should be under Schedule E and not Schedule D. I hope that the Financial Secretary can assure us that this apparent assumption does not exist. I put it to him that for a Schedule E basis of assessment to be applicable there must exist a contract of service rather than a contract for service. I think that the right hon. Gentleman would agree that the distinction between a contract of service and a contract for service is a fair distinction to use when deciding whether North Sea divers should come under Schedule D or Schedule E.
  If the right hon. Gentleman could accept the point that I am making, which I understand is the existing rule of the Inland Revenue, our whole debate could be resolved. Or, if one puts it in more common legal parlance—which I am sure will appeal to those of my hon. and learned Friends who are present tonight —for a Schedule E application to be correct there must exist what, in the quaint language of the law, is called "a master and servant relationship". For instance, does the diver have an entitlement to paid holidays or to a pension? These are the sort of basic things that come under a contract of service. If the relationship comes under that, I suggest that it is under Schedule E. If it does not, there is a prima facie basis for saying that it comes under Schedule D.

  943
  The meaning of the expression "master and servant relationship" is fairly clear. From all the information that I have about the conditions attached to offshore oil rigs, the "masters" are very often the divers. To a large extent the divers call the tune as to the conditions under which they operate, rather than the so-called employers. This must be resolved under the facts of the conditions of service of each individual diver.
  What worries me, and the reason why I support the clause, is that it appears that the Inland Revenue has made a major change and is assuming that a North Sea diver should be treated as coming within the master-servant relationship and, therefore, should come within Schedule E. The matter should be judged in terms of the individual conditions of service of the diver.
  Mr. Hamish Gray (Ross and Cromarty): I wish to speak on the importance of the energy aspect of this matter.
  The North Sea divers approached me some time ago and asked for my advice on the method that they should use to try to retain their self-employed status. I arranged a meeting with the Minister and attended it with the divers. I thank the Minister for the courtesy he showed them. Unfortunately, his courtesy was not followed by action and, therefore, we were bound to raise the matter on behalf of the divers.
  For 15 years the divers have enjoyed self-employed status. Their job has intensified in recent years, but basically it is exactly the same work as that which they have been doing throughout their careers. Yet, at a stroke, the Inland Revenue has decided arbitrarily to change their status to that of employed persons. This is resented very much by the divers.
  The divers were intent upon taking strike action at one stage, but, following the meeting with the Minister, I suggested to them than it would be better if, in view of the assurances of the Minister that he would consider their case again, they desisted from taking such action and waited to see what the outcome was. The outcome has not satisfied them, and there is a great danger not only that they will take industrial
  944
  action but that many of them will leave the service and work elsewhere.
  We must not be under any misapprehension about the jobs offered in the North Sea. They are not the only jobs available to the divers. There are jobs in various parts of the world to which they can go and in which they can make very good money at much lower tax rates.
  Mr. Graham Page: From his great knowledge of this matter, can my hon. Friend say how many divers are involved and how many have already left the service because of the new tax position?
  Mr. Gray: About 1,500 are involved, of whom between 800 and 900 are British subjects. The remainder come from elsewhere and dive for companies in the North Sea. One company with a work force of 160 recently lost 114 of its divers. A company which acts as an agency had to contact no fewer than 80 divers in order to obtain five crew members for a rig. That illustrates the seriousness of the position.
  I ask the Minister to think again about this matter because it is of great importance nationally. The divers are involved in every process in North Sea exploration and oil production. They examine the safety of the steel platforms. They examine the pipelines. They are involved at each stage in advising and in ensuring that Acts such as the Petroleum and Submarine Pipe-Lines Act are enforced. Should they decide to go elsewhere to work, the result could be very serious for our oil production. One would imagine that a Government finding themselves in the sort of economic position that this Government face would do all that they could to ensure that there was no interruption in the supplies of oil from the North Sea. It is most unfortunate that the Inland Revenue should have adopted the tactics that it has in enforcing this regulation.
  It has been suggested that the contractors have co-operated with the Government. To some extent they have. But it has not been voluntary co-operation. Too often these days we hear of arm-twisting in various forms. We hear of participation agreements in future licensing arrangements being achieved with a little arm-twisting here and there.

  945
  Now this practice appears to have spread into the tactics used by the Treasury.
  It is extremely disappointing. I hope that the Minister will think seriously about it and accept the clause.
  Mr. Michael Spicer: My hon. Friend the Member for Eastleigh (Mr. Price) was a little more than generous to the Government when he said that there seemed to be some doubt in their mind about whether these divers should be subject to Schedule E or Schedule D. The Government view expressed in the Committee by the Financial Secretary was quite clear. He said that the examination that had been carried out made it clear that these people, by the tests which had been used in the examination, came under Schedule E. That was quite clear and, as my hon. Friend the Member for Guildford (Mr. Howell) said, that is the nub of the Opposition's worry.
  The all-embracing nature of the Government's attitude to divers is manifestly absurd. Anyone who has studied the industry at all knows that there are at least some divers who have, by the nature of their jobs, to work on a contract basis. To introduce legislation which embraces all divers, as the Government clearly intend by this provision, under one form of taxation which is not applicable to many divers is extremely unfair.
  But it can be put even stronger. As my hon. Friend the Member for Ross and Cromarty (Mr. Gray) said, it is also very foolish. In the Evening Standard tonight we read that Britain will be the fifth largest oil producer in the next three or four years. If we have oil reserves larger than those of the United States, and if they are to be exploited in the national interest, it is stupid to make such a proposal.
  It may be, of course, that the Minister has some tremendously exciting new mechanical device for doing these underwater operations by automation. Unless he can come forward with alternatives to using divers, it is very serious to sabotage the industry by taxing divers in this way.
  Mr. Pardoe: Having listened to the debate, I find myself more and more confused by the issues in this case. Surely they cannot be quite as simple as has been made out. There must be some clear
  946
  definition of how a person becomes self-employed or how he is employed. Only Members of Parliament can simply say that they will all be self-employed one minute and employed the next, and they do that by passing legislation.
  There must be a fairly clear-cut understanding, not just for Inland Revenue purposes but for other purposes, including insurance, about whether or not a man is employed by a company. How, for instance, does a plumber who is now employed become self-employed? He starts working for himself. He may work for all sorts of people. He does not do all his work for one person. If a number of people in a village require the services of a plumber and they all employ him for parts of his time, he is self-employed. But if one of those people puts himself into a way of business where he requires a full-time plumber and he takes him on, it may be that the plumber becomes employed although previously he was self-employed.
  What has happened here is that some divers—perhaps most of them—have arrived at the situation, as a result of the development of North Sea oil, where they are working full-time for one employer, whereas previously they were working for several employers and, therefore, clearly were self-employed. I do not see how we can say that all divers will automatically be self-employed because they are divers, any more than we can say that all plumbers will automatically be self-employed because they are plumbers.
  I should like the Minister to give a simple and easy definition of what constitutes "self-employed" and to say how a diver or plumber or carpenter becomes self-employed or employed and, indeed, what constitutes the difference in status.
  11.0 p.m.
  Mr. Robert Sheldon: Emphasis has been laid in this debate on the problems and dangers involved in diving operations in the North Sea. Let me say at the outset that I recognise those problems, quite apart from any question whether a man is employed or self-employed.
  The hon. Member for Ross and Cromarty (Mr. Gray) and I have met a number of divers; I have also met representatives of the Association of Offshore Diving Contractors and officials from the tax office concerned in these matters in

  947
  Scotland. Everything I have seen leads me to accept the difficult nature of the work and to recognise the problems that arise from the short periods of activity, with all the hard work involved—work that is crucial in the North Sea operations. These are difficulties which the Inland Revenue has tried to resolve in ways in which I shall describe.
  The hon. Member for Honiton (Mr. Emery) mentioned the situation of saturation divers and what he said fits in with all that I know of the problem. The hon. Gentleman pointed to the need for these divers and asked for concessions in their case. If that were the only consideration involved, I do not think we should need to detain the House for very long on this subject, but many problems are created when one seeks to intervene in matters of taxation between one citizen and another.
  I noted one or two differences between the remarks made by the hon. Member for Guildford (Mr. Howell) in this debate and his contribution in Committee. This evening he mentioned the difficulties involved in the House deciding matters on a Schedule E or Schedule D basis. I fully accept that argument. But when this matter arose in Committee, the Opposition sought to point out: that one category of people should be regarded as self-employed and another as employed. We are starting on a slippery slope if we seek to determine by the political processes of this House how a person's tax affairs shall be judged or to decide whether he shall be regarded as employed or self-employed. So far, that process has been wholly divorced from the political process, and it is a matter that can be decided only by understanding of the actual work that is carried out by the person concerned. These decisions—and the Inland Revenue may make them wrongly from time to time—can be pursued to appeal through the courts in the normal way, and that must be the way to proceed.
  The Inland Revenue, in its dealings with North Sea diving companies, examined the basis of divers' employment and formed the view that it came within the limits of Schedule E. It made its decision known. It had discussions with the companies concerned and found that some, at any rate, seemed to agree that the conditions were those of the employee.
  Mr. David Howell: Will the Minister give way?
  Mr. Sheldon: Perhaps I may deal first with this point. I shall then gladly give way to the hon. Gentleman. I particularly welcomed the sensible approach made by the hon. Member for Eastleigh (Mr. Price). He said that we must not get excited about this matter, that we are dealing with facts, and that facts should be the basis of it. I entirely agree.
  Mr. David Howell: The right hon. Gentleman mentioned discussions that the Inland Revenue had with the contracting companies. Did those discussions take place before or after the Inland Revenue had reached its view on the status of North Sea divers? If afterwards, was it not a curious way for it to conduct the examination and reach its conclusion?
  Mr. Sheldon: The Inland Revenue made investigations with the companies and formed the view, which may be right or wrong, that divers came in the category suitable for being assessed under Schedule E. Having formed that view, it asked the companies to bring PAYE into operation.
  Mr. David Howell: I am sure that the Financial Secretary is trying to answer my question, but he has not done so. I asked whether the Inland Revenue held discussions with the contracting companies before or after it reached its view about Schedule E status. Will he please answer that question, because it is important?
  Mr. Sheldon: The Inland Revenue investigated the position with the diving contractors. Having investigated the position, it reached the conclusion that these people should be assessed under Schedule E.
  The hon. Member for Eastleigh showed the way ahead, and I should like to follow the points that he made. He pointed out, without getting too technical, that the difference consisted largely of the contract of service, which is of the Schedule E category, and the contract for services, which is of the Schedule D category. He said that the right way to approach the matter was on the basis of facts, and he asked that the Inland Revenue should look at it in that way. He was quite right. There is a corpus of law that determines whether an occupation should

  949
  be categorised as that of employee or self-employed.
  Mr. Grieve: Has there been any application to the courts with regard to this matter?
  Mr. Sheldon: I am coming to that point.
  The hon. Member for Cornwall, North (Mr. Pardoe) asked for a clear-cut understanding. That is what we are seeking to achieve now.
  During the past couple of days the Inland Revenue has agreed with the Association of Offshore Diving Contractors to discuss the operations of divers to determine whether they should be accepted as being within Schedule D or Schedule E. Both sides are trying to reach agreement on a number of cases that might be suitable as test cases. We have offered every facility to expedite the testing of such cases so that a final determination may be made. As the hon. Member for Eastleigh said, the right way to proceed is on the basis of facts.
  Mr. David Howell: The Financial Secretary has clearly applied his mind to the problem and I am pleased to hear that the test cases will be tried.
  I concede that the technical nature of our clause suffers from the same faults as does the approach of the Financial Secretary. His letter clearly stated that the Inland Revenue had reached a view on the whole nature of this work. This is a matter of administration rather than of tax law, and the Inland Revenue reached
  a view in advance; regardless of the infinite variety of this work and the fact that some people in diving were self-employed by any commonsense definition, they were all to be regarded as employees.
  We find that sweeping general proposition highly objectionable. In order to get a debate on administration rather than the law, we had to table a clause that went to the other extreme and said that the Inland Revenue's general view was wrong and another general view should be substituted.
  The precise nature of the clause is not ideal. The Inland Revenue and the Financial Secretary still adhere to a general sweeping view that is insensitively applied to a profession in which there are a variety of circumstances. The Minister should not be as satisfied as he appears to be with tax law being administered in this general sweeping way to cover people in totally different circumstances, some of whom may be employed but others of whom are clearly self-employed.
  We are left with this difficulty in the interstices between tax law and administration. It is worrying and is causing unease among divers and many others outside the House.
  Despite what I said about the difficulties of framing the right amendment, I urge my hon. Friends to show their concern and press the clause to a vote.
  Question put, That the clause be read a Second time:—
  The House divided: Ayes 161, Noes 194.

  Division No. 199.]

  AYES

  [11.13 p.m.

  Adley, Robert

  Chalker, Mrs Lynda

  Fox, Marcus

  Alison, Michael

  Channon, Paul

  Fry, Peter

  Atkins, Rt Hon H. (Spelthorne)

  Churchill, W. S.

  Gardiner, George (Reigate)

  Bain, Mrs Margaret

  Clark, Alan (Plymouth, Sutton)

  Glyn, Dr Alan

  Baker, Kenneth

  Clark, William (Croydon S)

  Godber, Rt Hon Joseph

  Banks, Robert

  Clarke, Kenneth (Rushcliffe)

  Goodtiew, Victor

  Bell, Ronald

  Clegg, Walter

  Gow, Ian (Eastbourne)

  Bennett, Dr Reginald (Fareham)

  Cockcroft, John

  Grant, Anthony (Harrow C)

  Berry, Hon Anthony

  Cooke, Robert (Bristol W)

  Gray, Hamish

  Biffen, John

  Coslaln, A. P.

  Grieve, Percy

  Blaker, Peter

  Dean, Paul (N Somerset)

  Hampson, Dr Keith

  Boscawen. Hon Robert

  Dodsworth, Geoffrey

  Hannam, John

  Bottomley, Peter

  du Cann, Rt Hon Edward

  Haselhurst, Alan

  Boyson, Dr Rhodes (Brent)

  Dykes, Hugh

  Hawkins, Paul

  Braine, Sir Bernard

  Elliott, Sir William

  Hayhoe, Barney

  Brocklebank-Fowler, C.

  Emery, Peter

  Henderson, Douglas

  Brooke, Peter

  Farr, John

  Hicks, Robert

  Brown, Sir Edward (Bath)

  Fell, Anthony

  Higgins, Terence L.

  Buchanan-Smith, Alick

  Fisher, Sir Nigel

  Hodgson, Robin

  Buck, Antony

  Fletcher, Alex (Edinburgh, N)

  Howe, Rt Hon Sir Geoffrey

  Budgen, Nick

  Fookes, Miss Janet

  Howell, David (Guildford)

  Burden. F. A.

  Forman, Nigel

  Hunt, David (Wirral)

  Butler, Adam (Bosworth)

  Fowler, Norman (Sutton C'f'd)

  Hunt, John (Bromley)

  Hutchison, Michael Clark

  Morris, Michael (Northampton S)

  Silvester, Fred

  James, David

  Morrison, Charles (Devizes)

  Smith, Dudley (Warwick)

  Jessel, Toby

  Morrison, Hon Peter (Chester)

  Smith, Timothy John (Ashfield)

  Johnson Smith, G. (E Grinstead)

  Mudd, David

  Spence, John

  Kellett-Bowman, Mrs Elaine

  Neave, Airey

  Spicer, Jim (W Dorset)

  Kimball, Marcus

  Newton, Tony

  Spicer, Michael (S Worcester)

  King, Evelyn (South Dorset)

  Normanton, Tom

  Stanley, John

  King, Tom (Bridgwater)

  Nott, John

  Stewart, lan (Hitchin)

  Knight, Mrs Jill

  Onslow, Cranley

  Stradling Thomas, J.

  Knox, David

  Oppenheim, Mrs Sally

  Tapsell, Peter

  Lamont, Norman

  Osborn, John

  Tebbit, Norman

  Lawson, Nigel

  Page, John (Harrow West)

  Thatcher, Rt Hon Margaret

  Le Marchant, Spencer

  Page, Rt Hon R. Graham (Crosby)

  Thomas, Rt Hon P. (Hendon S)

  Lewis, Kenneth (Rutland)

  Page, Richard (Workington)

  Thompson, George

  Lloyd, lan

  Pattie, Geoffrey

  Townsend, Cyril D.

  Loveridge, John

  Price, David (Eastleigh)

  Trotter, Neville

  McCrindle, Robert

  Raison, Timothy

  van Straubenzee, W. R.

  Macfarlane, Neil

  Rawlinson, Rt Hon Sir Peter

  Vaughan, Dr Gerard

  MacGregor, John

  Rees, Peter (Dover & Deal)

  Viggers, Peter

  Macmillan, Rt Hon M. (Farnham)

  Rhodes James, R.

  Wakeham, John

  McNair-Wilson, M. (Newbury)

  Rhys Williams, Sir Brandon

  Walder, David (Clitheroe)

  Madel, David

  Ridley, Hon Nicholas

  Walker, Rt Hon P. (Worcester)

  Marten, Neil

  Ridsdale, Julian

  Wall, Patrick

  Mather, Carol

  Roberts, Michael (Cardiff NW)

  Warren, Kenneth

  Maude, Angus

  Roberts, Wyn (Conway)

  Watt, Hamish

  Maxwell-Hyslop, Robin

  Rossi, Hugh (Hornsey)

  Wealherill, Bernard

  Miller, Hal (Bromsgrove)

  Royle, Sir Anthony

  Wiggin, Jerry

  Miscampbell, Norman

  Sainsbury, Tim

  Wigley, Dafydd

  Moore, John (Croydon C)

  Scott. Nicholas

  More, Jasper (Ludlow)

  Shaw, Giles (Pudsey)

  TELLERS FOR THE AYES:

  Morgan, Geraint

  Shaw, Michael (Scarborough)

  Mr. Jim Lester and

  Morgan-Giles, Rear-Admiral

  Shelton, William (Streatham)

  Sir George Young.

  NOES

  Archer, Rt Hon Peter

  Ellis, Tom (Wrexham)

  Luard, Evan

  Ashton, Joe

  English, Michael

  Lyon, Alexander (York)

  Bagier, Gordon A. T.

  Ennals, David

  Lyons, Edward (Bradford W)

  Barnett, Guy (Greenwich)

  Evans, Fred (Caerphilly)

  McDonald, Dr Oonagh

  Barnett, Rt Hon Joel (Heywood)

  Ewing, Harry (Stirling)

  McGuire, Michael (Ince)

  Bates, Alf

  Faulds, Andrew

  MacKenzie, Rt Hon Gregor

  Benn, Rt Hon Anthony Wedgwood

  Foot, Rt Hon Michael

  Maclennan, Robert

  Bennett, Andrew (Stockport N)

  Ford, Ben

  McNamara, Kevin

  Bldwell, Sydney

  Forrester, John

  Madden, Max

  Bishop, Rt Hon Edward

  Fraser, John (Lambeth, N'w'd)

  Magee, Bryan

  Blenkinsop, Arthur

  Freeson, Reginald

  Mahon, Simon

  Boardman, H.

  Freud, Clement

  Mallalieu, J. P. W.

  Booth, Rt Hon Albert

  Garrett, John (Norwich S)

  Marshall, Jim (Leicester S)

  Bradley, Tom

  Garrett, W. E. (Wallsend)

  Maynard, Miss Joan

  Bray, Dr Jeremy

  Glnsburg, David

  Meacher, Michael

  Brown, Hugh D. (Provan)

  Gourlay, Harry

  Mellish, Rt Hon Robert

  Brown, Ronald (Hackney S)

  Grant, George (Morpeth)

  Mitchell, R. C. (Soton, lichen)

  Buchan, Norman

  Grant, John (lslington C)

  Molloy, William

  Callaghan, Jim (Middteton & P)

  Grocott, Bruce

  Moonman, Eric

  Campbell, lan

  Hardy, Peter

  Morris, Alfred (Wythenshawe)

  Caravan, Dennis

  Harrison, Rt Hon Walter

  Morris, Rt Hon J. (Aberavon)

  Cant, R. B.

  Hattersley, Rt Hon Roy

  Moyle, Roland

  Carter-Jones, Lewis

  Hatton, Frank

  Mulley, Rt Hon Frederick

  Cartwright, John

  Hayman, Mrs Helene

  Murray, Rt Hon Ronald King

  Clemitson, lvor

  Healey, Rt Hon Denis

  Newens, Stanley

  Cocks, Rt Hon Michael

  Heffer, Eric S.

  Noble, Mike

  Cohen, Stanley

  Hooley, Frank

  Oakes, Gordon

  Coleman, Donald

  Hooson, Emlyn

  Ogden, Eric

  Cook, Robin F. (Edin C)

  Howells, Geralnt (Cardigan)

  O'Halloran, Michael

  Corbett, Robin

  Hoyle, Doug (Nelson)

  Orbach, Maurice

  Cowans, Harry

  Huckfield, Les

  Owen, Rt Hon Dr David

  Cox, Thomas (Tooting)

  Hughes, Roy (Newport)

  Palmer, Arthur

  Crawshaw, Richard

  Jackson, Colin (Brighouse)

  Pardoe, John

  Cronin, John

  Jackson, Miss Margaret (Lincoln)

  Parker, John

  Crowther, Slan (Rotherham)

  Janner, Greville

  Parry, Robert

  Cryer, Bob

  Jeger, Mrs Lena

  Pavitt, Laurie

  Cunningham, G (lslington S)

  Jenkins, Hugh (Putney)

  Pendry, Tom

  Cunningham, Dr J. (Whiteh)

  John, Brynmor

  Penhaligon, David

  Dalyell, Tarn

  Johnson, James (Hull West)

  Prescott, John

  Davies, Denzil (Llanelli)

  Johnson, Walter (Derby S)

  Price, C. (Lewisham W)

  Davies, lfor (Gower)

  Jones, Alec (Rhondda)

  Price, William (Rugby)

  Davis, Clinton (Hackney C)

  Jones, Dan (Burnley)

  Roberts, Albert (Normanton)

  Deakins, Eric

  Judd, Frank

  Roderick, Caerwyn

  Dean, Joseph (Leeds West)

  Kelley, Richard

  Rodgers, George (Chorley)

  Dell, Rt Hon Edmund

  Kerr, Russell

  Rooker, J. W.

  Dormand, J. D.

  Kilroy-Sllk, Robert

  Rose, Paul B.

  Douglas-Mann, Bruce

  Kinnock, Neil

  Ross, Stephen (lsle of Wight)

  Eadie, Alex

  Lamborn, Harry

  Rowlands, Ted

  Edge, Geoff

  Lamond, James

  Sedgemore, Brian

  Ellis, John (Brigg & Scun)

  Lomas, Kenneth

  Shaw, Arnold (llford South)

  952

  953

  Sheldon, Rt Hon Robert

  Strauss, Rt Hon G. R.

  White, Frank R. (Bury)

  Shore, Rt Hon Peter

  Swain, Thomas

  Whitehead, Phillip

  Silkin, Rt Hon John (Deptford)

  Taylor, Mrs Ann (Bolton W)

  Willey, Rt Hon Frederick

  Silkin, Rt Hon S. C. (Dulwich)

  Thomas, Jeffrey (Abertillery)

  Williams, Rt Hon Alan (Swansea W)

  Sillars, James

  Thomas, Mike (Newcastle E)

  Williams, Alan Lee (Hornch'ch)

  Silverman, Julius

  Tierney, Sydney

  Williams, Rt Hon Shirley (Hertford)

  Skinner, Dennis

  Tomlinson, John

  Williams, Sir Thomas (Warrington)

  Smith, John (N Lanarkshire)

  Torney, Tom

  Wilson, Rt Hon Sir Harold (Huyton)

  Snape, Peter

  Urwln, T. W.

  Wise, Mrs Audrey

  Spearing, Nigel

  Varley, Rt Hon Eric G.

  Woodall, Alec

  Spriggs, Leslie

  Wainwright, Edwin (Dearne V)

  Woof, Robert

  Stallard, A. W.

  Wainwrighl, Richard (Colne V)

  Young, David (Bolton E)

  Stewart, Rt Hon M. (Fulham)

  Ward, Michael

  Stoddart, David

  Watkins, David

  TELLERS FOR THE NOES:

  Stott, Roger

  Weetch. Ken

  Mr. Ted Graham and

  Strang, Gavin

  Wellbeloved, James

  Mr, Joseph Harper.

  Question accordingly negatived.

New Clause 15

  TAX TREATMENT OF MOBILITY ALLOW ANCE PAID TO WIFE
  'In section 8(2)(b) of the Taxes Act, after the word "pension" there shall be inserted the words "or a mobility allowance".'—[Mr. Newton.]
  Brought up, and read the First time.
  Mr. Newton: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker (Mr. Bryant God-man Irvine): With this we may discuss Amendment No. 16, in Clause 22, page 14, line 14, at end insert—
  `(d) in subsection (2)(b) Category A (retirement pension eligible for wife's earned income relief) after the word "pension" there shall be inserted the words "or mobility allowance"
  Mr. Newton: The clause was debated in Standing Committee and the vote upon it resulted in a tie, after another amendment on the same point had been negatived without a vote, and the Financial Secretary undertook then to look at the point. We hope to discover tonight that he has done so to good and favourable effect.
  I hope that the Minister will forgive me if I say that there seemed to be a little confusion in Standing Committee about precisely what we were seeking to do. At times the argument seemed to get confused with the taxability of mobility allowance, or whether it should be regarded as investment income or earned income. Taxability is not, of course, at issue on the clause, though it is a controversy in other ways. We all agree, however, that it should be treated as earned income rather than investment income.
  954
  The point of the clause is simply: whose earned income should it be regarded as in the case of a married woman?
  At present, as I think the House will know, where a mobility allowance is paidv to a married woman, it is income treated as the husband's earned income, and the wife's earned income relief is not available to set against it. A comparison can, therefore, be made between a wife who goes to work and can earn up to£860 a year without paying tax, and a disabled wife who receives, or may receive, a mobility allowance significantly less than£860 but who will then find that that allowance is taxed at her husband's top marginal rate.
  I believe—and I think that the hon. Member for Islington. South and Finsbury (Mr. Cunningham) agrees with me—that this is wrong. The clause seeks to change it.
  I emphasise that I an not arguing that all social benefits paid in respect of a wife, just because they are treated as taxable earned income, should be allowed to be set against the wife's earned income relief. There is a clear distinction which can be applied, which is whether they are paid by virtue of the husband's contributions or whether they are paid to the woman in her own right. If they are paid on the husband's contributions, I think it is probably reasonable that the wife's earned income relief should not be available.
  That position might alter if we were to make a complete change in our tax system and the way in which we tax married couples. Some suggest that they should be treated completely separately, but that is not the position at present. On the present position, I think it is reasonable that where the allowance is paid on the

  955
  husband's contributions it should be taxable, as it were, on the husband's income, but where it is paid on the wife's own contributions or where it is a non-contributory benefit—that is, where contributions have nothing to do with the matter —it should be regarded as the wife's income in every sense, and the wife's own earned income tax allowance should apply just as much as if she had earned the money at work.
  This is already recognised in the case of a retirement pension paid on the wife's own contributions, which can be set against her own earned income relief. It seems to me that one should follow through that logic to the non-contributory mobility allowance.
  In my view, the justice of the matter is absolutely straightforward, and I hope that the Minister will recognise it by accepting the new clause.
  Mr. George Cunningham: I do not think that there is any need at this time of night again to go over the ground that we went over in Standing Committee. The hon. Member for Braintree (Mr. Newton) has set out the position exactly as I would wish to set it out.
  My right hon. Friend the Financial Secretary undertook in Standing Committee to have consultation about the proposal that the hon. Gentleman and I made there. He had that consultation, and I am most grateful for the discussion that we have had. I think that he was satisfied that there is, to put it at the lowest, no breach of normal tax principles involved in doing what is proposed here. Perhaps indeed, as I certainly believe, consistency in the application of those tax principles requires that we should do what is proposed in the clause and my amendment, which have precisely the same effect.
  I hope and expect, therefore, that my right hon. Friend will now be happy to advise the House to accept the proposal.
  11.30 p.m.
  Mr. David Price: support everything that my hon. Friend the Member for Braintree (Mr. Newton) and the hon. Member for Islington, South and Finsbury (Mr. Cunningham) have said. As in all tax principles, the greater subsumes the lesser. I was net privy to the dis-
  956
  cussions on the mobility allowance and this one aspect of it in Standing Committee, but I can now make one point that was not made then.
  I declare an interest in the matter of the mobility allowance paid to a wife. As the House knows, my wife is a beneficiary of mobility allowance.
  There is a reason why I think we must look at the question again, and not only in respect of married women. It is that benefit in kind is taxable, which is a normal principle of the tax laws in this country, but until we moved from hardware mobility support for the disabled to support in cash such support was never taxable. Those who received trikes and four-wheeled vehicles were never taxed on them as benefit in kind, as they technically could have been.
  I think it right that we have moved from assistance in the form of hardware to cash assistance, and I have always congratulated the Government on this, as it gives greater freedom. But I do not believe that it is a change of kind that should involve a difference in the tax system. Therefore, I see the clause as dealing merely with one aspect of the greater problem.
  I understand that my hon. Friend's clause is not entirely objectionable to the Government, but I hope that they will reflect on the point I am making, that there has been a change of tax treatment although there has been no change in the reality, the substance, of what is being done. I am sure that the Under-Secretary of State for Health and Social Security with special responsibility for the disabled, whom I am glad to see here tonight, will agree that what the Government have done is to try to extend the parameters of public help for mobility for the disabled, but in essence that help is the same. Therefore, I cannot see why it should have a different tax treatment.
  I am sure that the Government will accept my point that if we should tax benefit in kind, mobility for the disabled is not an area in which to do it.
  Mr. Robert Sheldon: The hon. Member for Braintree (Mr. Newton) pointed out that the taxation of the mobility allowance was not at issue here, and I agree. There are many problems in that regard, which we have discussed in Committee and elsewhere.

  957
  The clause and the amendment seek to allow the wife's earned income allowance to be set against the mobility allowance. My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) put the point very cogently in Committee. The hon. Member for Braintree says that if the benefit is not given by virtue of the husband's contribution it is right that the wife's earned income relief should be available. I think that that is absolutely right, and it is the principle that we must abide by. I am pleased to have the support of the House on that.
  As my hon. Friend said, there is no breach of the tax principle in the amendment, and I am happy to accept the points made by him and the hon. Gentleman. I prefer the wording of the amendment, which will go some way to meeting the particular problems of those concerned, and suggest that the House accepts it.
  Mr. Newton: I do not mind whether it is the clause or the amendment so long as the principle is accepted. I am very grateful to the Financial Secretary. I beg to ask leave to withdraw the motion.
  Motion and clause, by leave, withdrawn.

New Clause 62

  TRUSTS FOR BENEFIT OF EMPLOYEES, &C.
  'In paragraph 17(1)(a) of Schedule 5 to the Finance Act 1975 (Settled Property Trusts for Benefit of Employees, &c.) after the words "carrying on" there shall be inserted the words "or formerly carrying on".'—[Mr. David Hunt.]
  Brought up, and read the First time.
  Mr. David Hunt (Wirral): I beg to move, That the clause be read a Second time.
  This is very much a tidying-up clause. Capital transfer tax exemption does not cover a situation that I should like to describe.
  When trusts for the benefit of employees were brought within the tax, there was very little discussion of the matter when the relevant new clauses were moved by the Government in Committee, and as there was a guillotine on Report
  958
  there was no discussion of the matter at that stage.
  Since that time a loophole has appeared. It would be closed by this clause without giving an opportunity for the avoidance of tax liability. If the proprietor of a family firm that has existed for a number of years retires, he may wish to set up a trust fund for retainers and employees who have been with him for, say, 50 years. However, if the firm is taken over in these days of takeovers and mergers, it is not possible for exemption to be claimed. If, for instance, it is taken over by GEC, such an old family firm is no longer able to ensure that such employees receive the benefits intended. The clause would allow such employees to benefit even though the identity of the family firm was lost in the larger identity of the major company taking it over.
  When such a proprietor makes his will is not relevant. What matters, obviously, is the situation of the firm at the time of his death, and it is at that time that the decision whether to give capital transfer tax exemption is made. If the firm is taken over between the making of the will and the death of the proprietor, the exemption is lost.
  This circumstance has arisen in a specific case which has come to my attention where someone wanted to set up a small family trust for his former employees. His firm had become merged in another partnership of professional people. He was told by the Inland Revenue that it would not be possible for him to claim this exemption. Therefore, there is a very real problem here which is not met within the terms of the present legislation.
  It is surely reasonable that if a person wishes to reward or give benefit to former employees of a firm of which he was the proprietor, or with which he had close contact, he should be allowed to do so without diluting all the limited capital he might have to benefit a much larger firm that has taken over his original undertaking.
  Take my original example of GEC. If between the date of making a will and the date of his death a person's company was taken over by GEC, the only way in which the testator's wishes could be put into effect would be by having his trust applied for the benefit of all the

  959
  GEC employees. His company might have employed only 20 people, but under the terms of the law the trust would have to be spread among the thousands of GEC employees.
  This is a very important point. It probably affects only a small number of cases. A solution to the problem is certainly to be found in the wording of the clause, which would be of great benefit to the existing legislation.
  Mr. Denzil Davies: The hon. Member for Wirral (Mr. Hunt) has raised an important and difficult point. He has written to me about the specific case that he mentioned. The difficulty arises when one firm takes over another and the firm that was taken over becomes merged into the larger entity. The exemption afforded through the capital transfer exemption trust is lost since the trust is not to benefit all the employees of the larger entity.
  The hon. Gentleman said that his clause was merely a tidying-up clause to solve this problem. But we are afraid that it could lead to manipulated situations in which it would be possible for a small group to get the capital transfer trust benefit by using the explanation in the clause.
  We recognise that there is a problem here and we shall look at it to see whether it is possible to draft something to meet the limited point that the hon. Gentleman has in mind without opening loopholes for avoidance. I hope that the hon. Gentleman will be satisfied with that for the time being. I cannot make any commitment because at the moment I cannot see how the matter will be dealt with, but we shall look at it.
  Mr. David Howell: I support my hon. Friend the Member for Wirral (Mr. Hunt) and I wish the Minister of State well in his endeavours to find a way through this matter. There were those of us who argued when the capital transfer tax legislation went through that it was a pity that the provision insisted upon application to all employees. We argued—in a sense it was a different argument from the one we are now pursuing—that there would be a great opportunity for the development of employee stock trusts of various kinds if the limitation could be less stringent and if the trust could apply to only a few employees.
  960
  I did not foresee then that it would arise in the context in which one firm is merged into a larger firm so that the employees of the firm that is taken over are no longer, by definition, all the employees. That creates this new problem which my hon. Friend the Member for Wirral referred to with lucidity and precision. I think that my hon. Friend has put forward a fair point. I hope that the Minister, without having to go back on the position taken up by the Government—I personally think too narrowly on the overall issue of capital transfer tax application to employee trusts—will now be able to find a way through.
  It is a situation that may come up again. It must surely stand in the way of our aims and wishes. The Conservative Opposition are very much in favour of seeing a wider ownership among employees of the wealth of firms and the wealth of the country. Labour Members, at any rate, believe in employee trusts where all the shares are transferred to all the employees.
  One way or another, I hope that enough common ground can be found to inspire the Minister to find his way through.
  Mr. Hunt: With the leave of the House, Mr. Deputy Speaker, I am grateful for the assurance that the Minister has given and 1 beg to ask leave to withdraw the motion.
  ion and clause, by leave, withdrawn.

New Clause 73

  TRUSTS FOR PERSONS IN RECEIPT OF ATTENDANCE ALLOWANCE
  '—(1) Paragraph 19 of Schedule 5 to the Finance Act 1975 (Trusts for mentally disabled persons) shall be amended as follows.
  (2) In sub-paragraph (1) after the words "a mentally disabled person" there shall be inserted the words "or of a person in receipt of an attendance allowance".
  (3) In sub-paragraphs (2)(a) and (3) for the words "he mentally disabled person" there shall be substituted the words "the person mentioned in sub-paragraph (1) above".
  (4) In sub-paragraph (2)(b) after the words "for the benefit of the mentally disabled person" there shall be inserted the words "or, as the case may be, for the care or maintenance of the person in receipt of the attendance allowance".
  (5) At the end of sub-paragraph (4) there shall be added the words "and 'attendance

  961
  allowance' means an allowance under section 35 of the Social Security Act 1975 or the Social Security (Northern Ireland) Act 1975".'.—[Mr. Pardoe.]
  Brought up, and read the First time.
  11.45 p.m.
  Mr. Pardoe: I beg to move, That the clause be read a, Second time.
  In Committee I moved New Clause 99, and New Clause 73 is a further attempt to get this matter dealt with in a rather re-drafted form. It deals with trusts for disabled persons. There are now tax concessions for trusts set up for mentally handicapped people.
  In Committee I argued that these concessions should be extended to trusts set up for other types of disabled people. The Government argued that there were special reasons which applied to the mentally handicapped. I do not deny that those people are in a special category. As I remember, the argument was that they were unable to handle their own financial affairs and, therefore, they had to have trusts, whereas other disabled persons might or might not be able to handle their financial affairs.
  I said that I did not believe that that distinction was valid. I am more and more convinced of that view. I believe that it would be sensible to make this quite minor change and to allow these same tax concessions to others. It is not too difficult to define, and it is fairly clear in New Clause 73 that we could use the entitlement to attendance allowance as the qualifying entitlement.
  Mr. Denzil Davies: As the hon. Member for Cornwall, North (Mr. Pardoe) has said, the clause extends the existing capital transfer tax relief for trusts for the mentally disabled to cover trusts for those in receipt of attendance allowance. A clause was moved in Committee which would have gone further than this one. It was resisted. However, this clause applies to those in receipt of attendance allowance. For that reason, and because it is more restricted, I am happy to recommend to the House that it be accepted.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

New Clause 74

  MAINTENANCE PAYMENTS
  'In section 15(1) of the Finance Act 1974 (maintenance payments up to£1,000 not to be investment income) for "£1,000" there shall be substituted "£1,500"2—[Mr. Pardoe.]
  Brought up, and read the First time.
  Mr. Pardoe: I beg to move, That the clause be read a Second time.
  Mr. Deputy Speaker: With this we may take the following amendments:
  No. 17, in Clause 22, page 14, line 33, at end insert—
  '(4) In Section 15 of the Finance Act 1974, subsection (1) shall have effect for the year 1977–78 and subsequent years with the omission of the words "the first£1,000 of".'
  No. 18, in Clause 22, page 14, line 33, at end insert—
  '(4) In Section 15 of the Finance Act 1974, subsection (1) shall have effect for the year 1977–78 and subsequent years with the substitution of "£2,000" for "£1,000".'
  Mr. Pardoe: This, again, goes back to arguments that we had in Committee about how maintenance payments should be treated. It is, in fact, a question of whether the maintenance payment is investment income or earned income. There is, of course, already an allowance of£1,000. Maintenance payments up to£1,000 are counted as earned income rather than investment income. I believe that many hon. Members felt that maintenance payments should not be counted as investment income at all, and certainly it seems that we ought to raise the limit. The clause seeks to raise the limit from£1,000 to£1,500.
  Mrs. Lynda Chalker (Wallasey): It came somewhat as a surprise to see New Clause 74 on the Order Paper, for no such clause had been tabled during the Report stage. This matter did not just start in the Committee stage of this Finance Bill. It started way back in 1960 and has had a continuing history. In fact, we have just managed to have an anniversary tonight of our debate on the Report stage of the Finance Bill last year on the subject of the investment income surcharge on maintenance income.
  While I welcome the clause moved by the hon. Member for Cornwall, North

  963
  (Mr. Pardoe), I am sorry that we are not hearing of Liberal support for our Amendment No. 17, which is being discussed with it, because hon. Members on both sides of the House—although maybe not those on the Government Front Bench—have said that they do not believe it right that maintenance income awarded through the courts should be regarded as investment income.
  The time is late and I do not wish to detain the House, but I think we should put on record whal. the values are and why we feel so strengly that this housekeeping allowance, awarded through the courts to separated and divorced women, should not be subject to the investment income surcharge.
  In answer to a parliamentary Question of mine on 7th April this year, the Financial Secretary told us that the value of the effective exemption of£2,500—the figure at which it now stands, without the clause—would be only£1,460 at April 1974 prices. When we look, therefore, at what the Government are giving this year in the Finance Bill, it does not stand comparison with the value of£2,000 at which it stood in April 1974.
  We are worried that the Government have so far seemed thoroughly unwilling to realise what a travesty this is for women who have had a very difficult time. In answer to a Written Question on 19th May this year the Government told us that the total level of exemption—that is, the£1,500 plus the additional£1,500 which would be effected by the clause—would need to be£315 more to retain its real value. We shall obviously not succeed with that.
  The words which are passed between the parties indicate to me that the Government have some sympathy with the clause moved by the hon. Member for Cornwall, North. We are glad to not this chink of light in the hitherto rather hard face of the Government against separated and divorced women, for the Government last year refused totally to see the wisdom of exempting this small number of persons from the investment income surcharge on their maintenance income.
  I draw attention to the fact that it is only those settlements made through the courts which are so levied, not those which are made in easier circumstances by agreement between the parties outside the
  964
  courts. We are dealing with the worst possible situation.
  In saying that we welcome the new clause, I give notice, certainly for all the women Members in the House who have spoken to me about this, that we do not intend to give up with the Treasury, and that we intend to see that maintenance income is relieved of the investment income surcharge as soon as possible.
  We hope very much that the Government will accept the clause. We shall be presenting amendments such as No. 17, which is in my name and that of my hon. Friend the Member for Braintree (Mr. Newton), on the next possible occasion, to make sure that we do not have to go through this rigmarole on anniversary occasions.
  Mr. John Moore: I hope that my hon. Friend will not exclude male colleagues from her statement.
  Mrs. Chalker: I should in no way wish to exclude my hon. Friend the Member for Croydon, Central (Mr. Moore), who last year loyally supported an attempt to remove maintenance payments from investment income surcharge. We missed last year by only 21 votes. I know that there is more understanding on this matter by some of the hon. Ladies on the Government side of the House than there seems to have been in the past by hon. Gentlemen on the Government side.
  It was in that light that I made that remark. All hon. Members should be able to see the sense of these arguments and want to get rid of this strange anomaly. It is discrimination, but, unfortunately, it does not fall within the scope of the Sex Discrimination Act, otherwise it would not be on the statute book.
  Mrs. Helene Hayman: The hon. Member for Wallasey (Mrs. Chalker) is right in what she says about the classification of maintenance payments as investment income. But what she says is not new. My right hon. Friend the Member for Blackburn (Mrs. Castle), who wished to be here this evening, has been fighting this battle for some time.
  It has been a cause of constant irritation to many thousands of divorced and separated women that maintenance payments—which they regard as earned,

  965
  since the money is earned by their husbands or ex-husbands—should suddenly become translated by some magical Treasury pen into investment income. It is also a source of financial hardship because of the level of investment income surcharge.
  All hon. Members should welcome New Clause 74, which at least increases the exemption limits. However, the clause does not deal with the principle involved, which is dealt with in Amendment No. 17. The principle is one on which we all feel strongly; namely, that there is a lunacy of accounting here that brings in this classification.
  Mr right hon. and hon. Friends on the Treasury Bench have much to think about in terms of the classification of various incomes and various dependencies, and perhaps when they take this matter on board they will also take on board the married man's allowance.
  The money involved in maintenance payments is not investment income, and it is very foolish to call it that. A divorced woman who came to me with a problem about the surcharge said, "If this is investment income, I would like to know where the capital is, because I would like to realise it." The money comes out of earned income. In view of the figures involved, we are not dealing with the poorest of one-parent families, but when we talk of figures of£2,000 or£2,500 a year, for a divorced or separated woman with a large family and heavy commitments, we are not talking about vast sums of money.
  The least that can be done is to accept New Clause 74. I hope that my right hon. and hon. Friends will look at the principle with more sympathy than they have done in the past.
  Mr. Newton: As the mover of related amendments which resulted in a tied vote in Committee, I, too, support every word spoken by my hon. Friend the Member for Wallasey (Mrs. Chalker) and the hon. Member for Welwyn and Hatfield (Mrs. Hayman). There is no logic, principle, or justice in regarding maintenance payments as investment income.
  It should be placed on record that no Minister, either last year or this year has
  966
  attempted to present any argument that such payments should be regarded as investment income. All that we were told in Committee by the Financial Secretary was that the matter had been treated in the same way by the last Conservative Government and by Governments before that, as if that in itself was a justification. That is not an argument. No one has attempted to state why maintenance payments should be treated as investment income.
  I think that many hon. Members on both sides of the House want the situation to be changed. I hope that the Government will look at the whole issue again before next year; otherwise it is clear that there is a majority in the House to defeat the Government on this issue. I hope that the clause will be treated sympathetically tonight.
  12 midnight
  Mr. David Howell: I begin by saying "What amazes me is that maintenance payments were ever considered as investment income." If those words sound familiar to the hon. Member for Cornwall, North (Mr. Pardoe)—
  Mr. Pardoe: I thought they were familiar.
  Mr. Howell: —it is because they were the words that he used in Committee. He also said that he was amazed that maintenance payments should ever be considered as investment income. Therefore, it is surprising that he and his hon. Friends have lowered their sights. I do not oppose the clause, it is plainly better than the present situation. It is wrong that maintenance income and investment income—two completely different concepts—should have become tangled up.
  We must continue to press the matter until we are able to disentangle these two completely different concepts which should have different applications of tax treatment. They are not even in the same world. On the one hand, we are dealing with divorced women awarded maintenance payments through the courts. They are often extremely modest payments and great difficulty is experienced in getting them updated in line with inflation. On the other hand, we are dealing with investment income and the separate issue whether investment income should carry the surcharge over and above income from earned sources.

  967
  We are puzzled why maintenance income should be regarded as investment income. The hon. Member for Cornwall, North is also puzzled. However, I hear through various vibrations that it is possible that the Government will accept the clause. That is a slight advance on the previous position. Treasury Ministers must face the reality put to them by my hon. Friend the Member for Wallasey (Mrs. Chalker) again and again, that maintenance payments should not be treated as investment income. I hope that gradually we shall reach a better understanding on the matter. The clause is a small step on the way.
  Mr. Denzil Davies: Hon Members on both sides of the House have argued strongly on the point of principle that income from maintenance payments is not investment income; they want it to be taxed as earned income. The trouble is that it is not earned income either. Whatever hon. Members may say, in the tax legislation since the time of Lloyd George a distinction has been drawn between earned and unearned income, or between earned income and investment income. Income falls into one or the other category. The difficulty is that it does not fall very well into either. The hon. Member for Wallasey (Mrs. Chalker) looks puzzled. There is nothing puzzling about it. She should study the tax books and find out about these matters. Mrs. Chalker: I was looking slightly surprised because to tell a housewife, whether she is still with her husband or separated from him, who is still doing the household chores that she has not earned the housekeeping money is a travesty of the truth. I do not think that the hon. Gentleman will go on and say that we should decide whether the housekeeping should be taxed. The maintenance allowance is a payment to maintain the family and household which the husband has left. Therefore, it cannot be regarded as investment income. It is truly earned, but it is the husband who should be pay-the tax. Tax is already paid on it as earned income. The investment income surcharge should not be put on top.
  Mr. Davies: The hon. Lady is getting closer to the point. never said that it was not earned. I said that it was not earned income for tax purposes. It is
  968
  income in the hands of whoever receives it, whether man or woman; this is not a sex discrimination point. The income is not income from a trade, employment or profession. The trouble is that it tends to fall in between. That is the difficulty which Governments have faced. We have had strong representations from my right hon. Friend the Member for Blackburn (Mrs. Castle), my hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman) and others of my hon. Friends. In the light of those representations and in the light of the obvious anomaly which exists, we are happy to accept the clause, which increases the limit to£1,500. It means, in effect, that the first£3,000—up to£60 a week—will now be exempt from the investment income surcharge.
  Question put and agreed to.
  Clause read a Second time, and added to the Bill.

Clause 1

  SPIRITS, BEER, WINE, MADE-WINE, CIDER AND TOBACCO
  Mr. Wakeham: I beg to move amendment No. 1, in page 2, line 23, at end insert—
  '(8A) The excise duty payable in respect of wines derived from vines growing in the United Kingdom and Northern Ireland shall, in respect of amounts chargeable as a result of deliveries made from such vineyards, after 1st June 1977, be payable not later than 90 days after the end of the month in which the delivery is made'.
  In Committee the amendment resulted in a tied vote. Its purpose is to obtain a deferment of Excise duty from about 30 days to 105 days on wines made from English vines—in other words, an increase of credit.
  The cost to the Revenue would be very small. The reason why it is necessary to help English wine producers in this way is that they are especially hard hit as a result of our becoming a member of the European Community, because we cannot discriminate in favour of them as this would be against our commitment.
  There is no way in which I seek to change that commitment. Nevertheless, this is a new and struggling industry in agriculture paying taxation at the rate of about£2,500 per acre. No agricultural producer in this country or in Europe pays tax on his product at that rate.
  This modest amendment would give producers some small help with their cash flow in these early stages.
  Since the tied vote in Committee, I have had a number of letters from and seen a number of English wine producers. They feel that acceptance of this amendment would be a recognition by the Government that they take this industry, small though it is, seriously.
  I make no apology for raising this matter again. One of my reasons for doing so is to give the Minister an opportunity to make a better answer on this occasion than he did in Committee. His argument that to give this modest concession would be to infringe our Common Market commitment was somewhat unconvincing. But the hon. Gentleman undertook in Committee to look at this matter again with a view to seeing whether he could, some time next year, make some proposal to meet the problems that we raised.
  Mr. David Mitchell: I agree with my hon. Friend the Member for Maldon (Mr. Wakeham) that the Government should reconsider their attitude.
  Until about 1913 there were commercial vineyards in this country which had been producing wine since Roman times, and the re-emergence of a new, small industry which is beginning to grow entitles my hon. Friend to seek some help for it.
  The case is a little stronger than my hon. Friend put it. It rests on the fact that the firms with which the English wine growers are in competition do not have the disadvantage of having to sell their products to customers who have to pay very large sums in duty at the time that they take the products. One way to establish the British wine-growing industry would be to put it in a position in which it was no longer at a fiscal disadvantage compared with its Continental competitors in the Common Market. Therefore, I hope that the Minister will give serious consideration to the amendment.
  Mr. Robert Sheldon: This short debate echoes fairly closely the debate in Standing Committee when we had an interesting description of the history of the wine-growing industry. There is not a
  970
  great deal that I can add to what I said on that occasion. I said that I would be watching the position for next year, and that indeed is my intention.
  Let me deal with the comparison with Community countries. There is now a deferment of the relevant date if the wine is made from British-grown grapes. If we were to increase this deferment there would be a clear infringement of our Community obligation if we did not extend it to the larger quantities of imported wine.
  I am anxious to see the wine industry expand in accordance with the quality of its products—products which have increased and improved regularly. That was why I gave an undertaking to examine the matter. However, I can say no more at this stage. Perhaps the hon. Gentleman will understand the reasons why at this time I am unable to go further.
  Mr. Wakeham: I wish to give the Financial Secretary notice that we shall raise this matter again, but in view of his reply, I beg to ask leave to withdraw the amendment.
  Amendment, by leave, withdrawn.

Clause 4

  HYDROCARBON OIL ETC.
  Amendment made: No. 2, in page 5, line 19, after "1965", insert
  "and section 14(2) of the Finance Act (Northern Ireland) 1966".—[Mr. Joel Barnett.]
  Mr. Joel Barnett: I beg to move Amendment No. 3, in page 6, line 6, leave out "5th August" and insert "8th August".
  Mr. Deputy Speaker: With this we may also take Government Amendment No. 4.
  Mr. Barnett: Amendment No. 3 provides that the removal of the increase in the duty on light oil of 5p a gallon is postponed from 6 pm on Friday 5th August until 6 pm on Monday 8th August.
  Amendment No. 4 empowers the Commissioners of Customs and Excise to make repayments of the duty increase of 5p a gallon under arrangements made by them. I want to say something on that

  971
  matter because it might be helpful to those concerned.
  When we discussed the matter in Committee on the Floor of the House, I said that I would consult the trade interests about the suitability of the date, and, indeed about the whole problem relating to the change in respect of the 5p. I have taken that course, and these amendments relate to those discussions.
  The Petroleum Industry Advisory Committee, which represents the major oil companies, and the Motor Agents Association, representing garage interests, were unanimous that the date 5th August would not be suitable. It is a Friday preceeding one of the busiest holiday weekends. It is suggested therefore, that the date should be changed to Monday 8th August. That is what is contained in Amendment No. 3. Both bodies consulted were also unanimous that a change in the date would not in itself be enough to avert the risk of a petrol shortage. They advised that some repayments should be made on duty-paid stocks as an inducement to garages to maintain reasonable stocks.
  12.15 a.m.
  There is no precedent for repaying excise duty on duty-paid stocks when the duty is reduced. I. do not regard the relief for duty-paid stocks held on the introduction of VAT as a general precedent for compensation when excise duties are reduced. However, I recognise that the timing of the reduction of the petrol duty presents exceptional problems. That is why I have sought to meet the problem, following the discussions that have been held.
  We considered that we must take steps to prevent a possible shortage of petrol at certain garages. We concluded, therefore, that this matter called exceptionally for some compensation. Bearing in mind that this is a once-for-all exercise and that to be effective it must work quickly, I decided on a scheme that would enable a measure of relief to be channelled through the oil companies to distributors and garages. This scheme will be embodied in the arrangements to be made by the Commissioners of Customs and Excise, to which the amendment refers.
  The finer details of these arrangements are still being worked out between the Commissioners and the oil industry, but
  972
  the essential principles are decided. I am sure that the House would like me to outline them briefly.
  In the first place, those oil companies which are members of the Petroleum Industry Advisory Committee—that includes all the major companies—have undertaken to calculate and make the repayments to distributors and garages. They will, of course, be reimbursed by Customs and Excise. I think that I should express the Government's gratitude to the PIAC for undertaking to play such a major part in the scheme.
  The scheme is based on the maintenance of the normal pattern of petrol supplies and on the estimate that the minimum stock of petrol normally held by a garage is broadly equivalent to four days' deliveries, though this will not apply in the case of some garages which have an abnormal pattern of supplies.
  Mr. Freud: Will the right hon. Gentleman give way?
  Mr. Barnett: Perhaps I may finish this point. I shall then gladly give way to the hon. Gentleman.
  To qualify for a payment by its supplier, a garage must have had a delivery of petrol between 1st and 8th August if it received 8,500 gallons or more during June. If it received less in that period, it must, in order to qualify, have had a delivery between 25th July and 8th August. A garage will then be credited with 5p a gallon either on all its deliveries in the qualifying period up to a maximum equivalent to four days' average deliveries during June or on the quantity of the last load delivered to it in the qualifying period, whichever is the greater.
  Mr. Freud: In view of the Chief Secretary's careful computation of giving money back to the garages, will he explain what happened in the many instances where garages implemented the tax change overnight on existing stocks? In what way were the Government repaid?
  Mr. Barnett: I should not wish to join the hon. Gentleman in suggesting that garages somehow or other have been taking money from motorists in quite the way that he implied. No doubt some garages may have done that, but, in the main, garages work on small margins,

  973
  and they have problems with these matters.
  I am proposing a scheme to deal with an exceptional problem. In some cases it would create real hardship, particularly for some of the small—and even medium-sized garages, if some such scheme were not introduced. It is a rough and ready scheme. It was bound to be. However, I believe that a scheme of this kind represents what I hope will be seen as a substantial gesture to meet a special difficulty that genuinely applies to many garages. Is the hon. Gentleman not happy about that?
  Mr. Freud: In many instances it was announced that the duty on petrol would go up "from midnight tonight". In those cases there seems to be a good argument for saying that the Customs and Excise should be reimbursed.
  Mr. Barnett: The hon. Gentleman may be right in some instances. However, in the circumstances with which we are concerned, if something along these lines had not been done there would be a serious problem for motorists, because garages would have run their tanks very low—sometimes totally empty—and motorists would have been left without petrol. That is the only reason for the amendments and the elaborate scheme that we have entered into, which I hope will be found generally helpful.
  Mr. Newton: Is it not simply that it is unprecedented for a change of this kind to be signalled in advance? It is a one-off operation and it does not help to have analogies drawn with occasions in which the price goes up or down at midnight.
  Mr. Barnett: The hon. Gentleman is right. I have outlined the details of the scheme because I thought that they might be helpful for those who will be involved —the oil companies, garages and motorists. This is an unusual situation, and an unusual answer was necessary.
  There is something in the point made by the hon. Member for the Isle of Ely (Mr. Freud) about when it works the other way, but doing nothing in those special circumstances would have created considerable difficulties.
  We expect prices to be reduced to reflect the reduction in duty. I am sure that the vast majority of garages will play fair with the motorist. If they do not, my
  974
  right hon. Friend the Secretary of State for Prices and Consumer Protection assures me that he will vigilantly investigate any complaints that unfair advantage has been taken of the motorist.
  Some garages may have difficulty in adjusting their prices at precisely 6 p.m. on 8th August, which is the exact time that the duty payable on deliveries from bonded warehouses is reduced. Garages are free to anticipate the reduction by a day or more if they wish, but motorists should not expect the lower prices to be introduced generally until 9th August. It may be that some garages will feel that they should charge the new prices on 7th August, and perhaps those near the home of the hon. Member for Blaby (Mr. Lawson) will wish to reduce prices on 6th August in order to give him a positive advantage.
  This is a rule-of-thumb scheme which it is right to introduce in order to ensure the maximum help for garages and motorists.
  Mr. David Howell: As the Chief Secretary said, this is an elaborate, unsual, exceptional, rough and ready, rule-ofthumb scheme to meet special circumstances.
  Will there be a paper issued by the Commissioners to explain the arrangements, how long it will last, for how long the repayments will be made, and so on? Where should recipients look for instructions on how the repayments are to be made? For how long will the Commissioners have the power to make repayments? The admendment does not make clear when they will cease to have the power. How much will the scheme cost, and what effect will it have on the Index of Retail Prices in August?
  Mr. Barnett: The hon. Gentleman has asked some interesting questions. There are to be discussions on the detailed arrangements, and the results will be published to garages by the oil companies which are making the repayments.
  There is no time limit, and there is no real cost involved because, although it is difficult to know what would have happened if such a scheme had not been introduced, the odds are that the amount lost in revenue would have been the equivalent of the sum lost in the repayments. The answer to the hon. Gentleman's question is that the real cost is

  975
  likely to be negligible, and there may even be some gain if there is an increase in the amount of petrol used.
  Amendment agreed to.
  Amendment mode: No. 4, in page 6, line 10, at end insert—
  "(6) The Commissioners may make repayments of duty at the rate of 5p a gallon under arrangements made by them for avoiding dislocation in the supply of petrol to retailers and distribitors at the end of the period mentioned in subsection (5) above.'.—[Mr. Joel Barnett.]

Clause 5

  VEHICLES EXCISE DUTY: GREAT BRITAIN
  Mr. Denzil Davies: I beg to move Amendment No. 5, in page 6, line 16, leave out subsection (3).
  Mr. Deputy Speaker: With this we may take Government Amendment No. 6.
  Mr. Davies: The amendment is necessary to tidy up some inconsistencies in the Bill as a result of the unfortunate Government defeat in Standing Committee on the question of showmen's trailers. The object of the amendment is to align the drafting of the Bill with the amendment made in Standing Committee. I assure the House, and especially the hon. Member for Braintree (Mr. Newton), who moved the amendment in Committee, that there is no intention to undermine or reverse that amendment. I have written to the hon. Gentleman. I hope that that makes clear to the House the reason for these consequential drafting amendments.
  Mr. Newton: In an entirely modest and, I assure the House, brief way, I feel entitled to take scme small satisfaction from a tiny hat-trick this evening. I was the mover of the amendment on the mobility allowance, which has been accepted; I raised the point about the maintenance of divorced wives, which has been partially accepted; and now the Government have tidied up the Bill following the acceptance of my amendment in Standing Committee on the matter of showman's trailers.
  Because of that, I view Ministers in a singularly rosy glow at this moment for their co-operativeness, helpfulness and general virtue. I am grateful to the
  976
  Minister of State for not seeking to reverse the benefit that we gave upstairs to that entirely worthy body of men, the travelling showmen of England, and I am correspondingly grateful to the Minister for these tidying-up amendments.
  Amendment agreed to.

Clause 6
  VEHICLES EXCISE DUTY: NORTHERN IRELAND
  Amendment made: No. 6, in page 6, line 38, leave out subsection (3).—[Mr. Denzil Davies.]
Clause 7

  UNITS AND METHODS OF MEASUREMENT IN CUSTOMS AND EXCISE ACTS
  Mr. David MitchellI beg to move Amendment No. 7, in page 7, line 31, at end insert
  'and any such order shall only be made after the Treasury are satisfied that the necessary spirit "tables" for ascertaining the strength of spirits at various temperatures and certified metric measuring instruments are adequately available'.
  I shall not detain the House for long at this hour. I hope that the Minister will be able to accept the amendment, but if, for any reason, he is not able to do so perhaps he will give the House an assurance that the contents or the amendment will be taken care of.
  The Government are proposing—hardly an explosive matter—to move from the traditional system of measuring spirit strengths to a measuring system based on the OIMC formula. It is interesting to note that the old British system for measuring the proof of spirits was to pour the spirit over gunpowder and put a match to it. If it exploded, it was proof. If the spirit had more water and only burned, it was below proof. Perhaps it is not unreasonable to move to a different method.
  The new system involves considerable detailed tables, because every calculation has to be at each degree of temperature change. Those who have to deal with these calculations—and I might have a partial interest to declare—ought to have an assurance that before the Treasury

  977
  introduces the order an adequate number of the spirit tables will be available for them.
  12.30 a.m.
  Mr. Robert Sheldon: The hon. Member for Basingstoke (Mr. Mitchell) was correct in his description of the replacement of the proof system by the new system, which has been introduced after discussions with the wine and spirits trade. The date which has been agreed fits in with the industry's plans to adopt metric sizes prior to metrication in the United States, which is scheduled for 1980. On practical grounds, it is not intended that the new system should be introduced until sufficient equipment and tables have been obtained. We should be able to meet those requirements, which are essential for the timetable that I have described.
  Amendment negatived.
  Further consideration adjourned.—[Mr. Joel Barnett.]
  Bill, as amended in the Committee and in the Standing Committee, to be further considered this day.

  PAROLE
  Motion made, and Question proposed, That this House do now adjourn.—[Mrs. Ann Taylor.]
  12.32 a.m.
  Mr. Clement Freud: On 16th June this year the Home Secretary, in answer to a Question, announced an experiment whereby reasons were to be given for the granting of parole for prisoners. I felt that that was very much a step in the right direction, until I received a letter today in which I learned that an answer to a question in another place has revealed that the experiment is a purely cosmetic or administrative one—a hollow experiment in which no prisoners are used at all. It seems that what happens is that people talk to one another and wonder how prisoners might have reacted had they been told.
  I accept that parole is a privilege not a right. Goodness knows, enough fuss is made of that. I am never quite sure why, because freedom, which is the outcome of parole, is a condition and not a state of mind or penal statistic.
  978
  What concerns me is not the description or specification but the way in which parole is implemented. At the moment, the prisoner does not know when or via whom he will hear the result. His next of kin are even worse off. Sometimes they do not know that parole has been granted until the prisoner is virtually on their doorstep.
  When prisoners are told that parole has been refused, they are not given reasons and tend to fear the worst. It is this senseless confidentiality that I should like to discuss.
  The latest detailed criteria state that the factors to be considered are the nature of the offence, criminal and other history and co-operation with parole supervision. I do not accept those three headings. The nature of the offence is known long before the parole board meets and the local review committee even sees the prisoner. The criterion of the criminal and other history, by its very name, is similar. As for co-operation with parole supervision parole is explained pretty well to people seeking it, and I do not accept that a prisoner who seeks parole will say "I shall not co-operate with parole supervision."
  This leaves the other three criteria, and these are the ones that desparately worry a prisoner. Parole is granted on prison behaviour and response to treatment on medical considerations or on home circumstances and employment prospects on release. What I should like to discuss are the reasons why it is impossible or seems to be impossible to publicise—certainly the Home Office does not at this juncture seem to do very much about publicising it—the category under which parole is refused. I ask for no more than that.
  At present, what happens, very simply, is that when a prisoner has parole refused, he always thinks the worst and the worst in the absence of a "Dear John" letter is desertion by his wife. You, Mr. Deputy Speaker, will be acquainted with a "Dear John" letter. It is the sort of letter that every prisoner fears. It says "Dear John, You will be in prison for a very long time and I am lonely and have found someone else."
  It is for this reason that I feel that a modest step might be taken in telling the prisoner and his family under which category parole is refused, with the obvious

  979
  exception of instances in which the security of the country or community would be jeopardised.
  The Parole Board's reasons for not granting such an explanation were stated in a report in 1975. They include members of the Board having different reasons for reaching the same conclusion. The report states,
  "Setting down reasons would be the determination of the highest common factor of their points of view, and there is a danger that these would be rather standardised and uninformative."
  I feel that something, no matter how crude, is better than nothing. If the board made it clear to the prisoner that the explanation was no more than the determination of the highest common factor, I see no reason why there should be anything more than a local problem. The local review committee draws up an explanation of its decision for the Parole Board. Therefore, it cannot be very difficult to give a similar if less specific reason to the prisoner himself.
  Another reason why it is stated that confidentiality should be retained is that the prisoner might be unable to handle the explanation, particularly if related to factors beyond his control. But the prisoner is bound to be released some day, so he will have to face these problems sooner or later. I think one should remember that prisons are now staffed with professionally trained probation officers, who are capable of explaining the Board's decisions.
  Another reason given is that, upon learning of the reasons for his rejection, the prisoner might demand an opportunity to refute them, with a further hearing and an appeal system. I accept this, but as it is so constantly said that parole is a privilege and not a right, I do not think that there need be any fear, because there are no complaints or appeals against a privilege.
  The most common ground that is given is that the explanation would create further problems and further tensions within prisons. It seems to me that there can be no greater problem or source of tension than that of uncertainty. According to Mr. Wright of the Howard League for Penal Reform, the largest single complaint that his organisation receives from prisoners and their families has to do
  980
  with this very matter. The greater the cloak of secrecy surrounding the system, the greater should be our suspicion of that system.
  But the psychological strain associated with the uncertainty of not knowing why an application has been rejected is detrimental to a prisoner. He can improve his future chances of parole if he is made aware of the reasons for its having been denied in the past. If a prisoner is told that the reason is his behavioural pattern in custody, he can work on that. It is better than his having the nagging feeling that his wife has run off with the milkman. Excessive secrecy encourages at best confusion and at worst cynicism among prisoners and their families about the board's decisions.
  The second point is the timing of the announcement of parole. At present most prisoners are told of the board's decision not later than two weeks before the earliest time at which they could be let out on licence. If one sits for an examination, one knows on what day one will learn the result. I see no reason why the decision of a local review board should be different. The Minister might think about announcing to a prisoner, in a prescribed way one month before he is eligible for parole whether parole will be granted, or under what broad heading it is refused. That month is important, because it will allow the prisoner to prepare himself mentally, physically and in every other way for the freedom that he is about to gain. It will certainly be of enormous help to this family, who should be informed officially at the same time.
  I know that there are difficulties. I worked hard on behalf of a constituent, put his case for parole as favourably as I could, because he seemed to me to be a man eminently suitable for release on licence. When he was granted parole, he asked the prison governor to ring me and ask me on no account to tell his family, because he wanted it to be a surprise. Charming as that may be, it cannot be much of a surprise for a family who have let the spare room to find a prisoner coming home unexpectedly. Even while one leans over backwards to be kind to people, it would be right to be realistic, and 1 should like there to be a definitive date when people are told "Yes" or "No"—prisoner and next of kin.

  981
  Another point I should like the Minister to ponder on is the composition of the local review board. Parole has not been in existence all that long, and there is a great tendency—with the appointment of fully qualified people—to have on the board probation officers with no experience of parole, because, by virtue of their seniority, parole was introduced after they stopped doing field work. Thought might be given to lowering the age or having more appointments of people acquainted with case work.
  I notice with some concern that even liberal criminologists are now coming round to thoughts of abolishing parole. Their argument is that when pronouncing sentence judges aim off. When one examines the case of the Porn Squad officer who received 12 years, it is pretty obvious that the judge imposed that sentence knowing that he would probably serve four or five years. These criminologists are of the opinion that it would be more sensible when a judge gives a sentence for that sentence to be served. I am sure that the Minister will agree that if that were so sentences would be very much shorter.
  I am very much against this view, because it seems to me that for prisoners, prison is about hope and parole is the hope that keeps prisoners sane; certainly it gives prisoners a vested interest in co-operating with the prison authorities. I should like to draw the attention of the House to Angel Face Probyn, who, the Minister will remember, spent 30 of his 43 years behind bars. On 15 occasions he escaped from prison. A great expert at escapes, he even escaped from Dartmoor. However, when the Parole Board was set up and the parole procedure introduced, he stopped trying to escape and used his considerable mental powers to get out of prison by parole. He succeeded and it was a very much more cost-effective method of gaining his liberty.
  I believe that it is the ambition of all sections of society to reduce the prison population so that it bears some relationship to the available accommodation. The parole system has gone a long way to help with the worst overcrowding. I am a total supporter of the parole system. I should simply like it to be administered more openly and more democratically. That would be to the enormous benefit
  982
  of prisoners, and their next of kin. I hope that the Minister will think on these things.
  12.47 a.m.
  The Minister of State, Home Office (Mr. Brynmor John): I am grateful to the hon. Member for Isle of Ely (Mr. Freud) for raising at this late hour a series of questions that concern us and to which we in the Home Office devote a good deal of time. I am also grateful to him for the opportunity to return to the Dispatch Box from which I strayed as long ago as nine hours. It is a welcome return for me.
  I set on record—because when people read these debates they need to be reminded of the facts—what the situation is. Although the hon. Member and I would agree that no parole system can be perfect, the parole system in this country is working extremely well although it is of comparatively recent vintage. Some 54 per cent. of prisoners receive parole at some time during their sentences. What is interesting is that the recall rate of those on parole licence remains at the low figure of 8 per cent. Some hon. Members who in some debates express exaggerated fears about people who are released on parole could well ponder that fact. Parole is a system of hope for the prisoner, as the hon. Member said, a system for ensuring that, if this behaviour warrants, he will get earlier release than otherwise.
  The hon. Member rightly said that the Home Office stresses that parole is a privilege rather than a right, but this means—and this is a fact that does not impinge on the consciousness of some people—that there are nevertheless rights grafted on to it. There is the right to be considered for parole after one third of the sentence, or 12 months, whichever is the later. Secondly, there is the annual review. Thirdly, there is the right to make written representations. Fourthly, there is the right to be interviewed by a member of the local review committee. Fifthly, there is the right to opt out of consideration, which I believe to be an almost equal right. Thus, on to a privilege are grafted a number of rights. What we are discussing tonight is on the borderline of right and privilege, namely, the supply of reasons.
  We do not aproach this matter with an undue care, but with a care which arises

  983
  from two main considerations. First, there is our concern that if reasons are given, that would lead to pressure for representations, to be followed by an appeal machinery, and that would create the impression that parole was a right rather than a privilege. The second point is the difficulty of giving reasons which do not create more harm than good.
  In an otherwise admirable presentation the hon. Member was somewhat unfair to the Parole Board experiment and the developments which are now taking place. The experiment has been carried out by the Board to determine whether its members could specify particular criteria for their unfavourable recommendations, bearing in mind that often a unanimous decision is really an amalgum of a series of subjective decisions upon this point.
  The hon. Member has categorised and castigated the experiment as being based upon a pure administrative convenience, not involving prisoners. But it does involve actual casework which is carried out carefully not least because we do not want to raise hopes which cannot be fulfilled. Until the experiment were known to be successful it would be unfair to involve prisoners and raise expectations which could not be met.
  In the result many difficulties were encountered but sufficient success has been achieved in this limited objective for my right hon. Friend the Home Secretary to decide, as was announced yesterday, that the experiment should now be extended to a number of local review committees representing different types of prisoners. This will be done in association with the normal tasks of the committees. That is necessary because many cases are refused by the Home Secretary on the advice of the local committees without them having gone through the Parole Board.
  I hope therefore that the hon. Gentleman will take comfort from the fact that the experiment is not only being maintained, but extended to another type of body. That is being done for two reasons. First, we certainly have not abandoned any hope of giving such reasons. Secondly, we are taking very seriously the point about giving reasons, and we are trying to work out as carefully as possible the way in which we can do so.
  984
  A number of difficulties are inherent in the giving of reasons. These dangers exist because some of the reasons which lead to the refusal of parole must obviously be beyond the prisoner's control and could cause him distress. I know that the hon. Gentleman believes that eventually the prisoner will have to come to terms with this aspect, but many of the reasons which lead to the first refusal for parole may be overcome at the second application. If the reasons were to be given at first refusal that could cause difficulties. It is possible that if, for example, there is temporary domestic discord and this is made known at the time of the first refusal, that could sour the prisoner's attitude and cause him to react violently.
  I do not want to labour the arguments against this idea. The hon. Gentleman, who takes such a close and keen interest in this subject, knows all the arguments, and they are underlined in the editorial which appeared in. The Times of 15th June last. We must be satisfied that the heavy responsibility can be put on the Parole Board to consider and communicate these facts and whether it would help the prisoner.
  The other point that needs to be made, because the hon. Gentleman got it somewhat wrong, is that the decisions on the recommendation of either the local review committee or the Parole Board are taken not by those boards respectively but by the Home Secretary. The hon. Gentleman suggested that the local review committee should communicate one month before in order to avoid confusion and surprise of a very unpleasant nature. I sympathise with the hon. Gentleman's sentiments in the sense that I believe that both sides of the equation need careful preparation. But it is the Home Secretary's decision. It cannot be taken by the local review committee. Nevertheless, I undertake to think about the matter to see whether there is an appropriate way that is consonant with the Home Secretary's responsibility.
  Mr. Freud: My point was not about the local review committee or the Home Secretary. It was simply that, however the decision is made, the prisoner should receive notification at a prescribed time.
  Mr. John: I take careful note of that. I take the point in the spirit in which it was made and I shall, of course, look at it.
  The hon. Gentleman raised another interesting point on which I should like to check. If he is right, I shall see what can be done to correct it. The hon. Gentleman suggested that there was a tendency for senior probation officers to be appointed to local review committees who are so senior that they have no firsthand experience of the probation system because of its comparative youth. I shall undertake to look at this and to communicate with the hon. Gentleman about the results of my injuries.
  The point to which I should like to revert is that it is the Home Secretary who comes to the conclusion. We must then, through the prison governor, inform the prisoner of the decision. We must also inform him in good time. I accept the sentiments expressed by the hon. Gentleman about the parole eligibility date. We are at one there. I shall look at the case that the hon. Gentleman has made, but I believe that the Government are taking real and reasonable steps to tackle this thorny problem of the giving of reasons by the Parole Board.
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  The hon. Gentleman knows that this is a matter on which there are divided views. The Government believe that if this proposition were to be implemented, it would have to be implemented for all cases out of a sense of justice. That would involve some public expenditure and manpower requirements, and we shall look at that as part of the experiment.
  I undertake to bear in mind the hon. Gentleman's important observations. We are not complacent about the situation. At a time when the prison population is so high, parole and how it can be most safely granted are very important. We want to ensure that if there are defects that are curable by the prisoner himself, he should be given the opportunity of correcting his mistakes in time for the subsequent consideration of the matter.
  It is because we are not complacent and because we are perfectly prepared constantly to examine new ideas that I welcome the hon. Gentleman's contribution to the debate. I shall look at it most seriously, and I hope to be in communication with him in the near future about some of the issues he has raised.
  Question put and agreed to.
  Adjourned accordingly at One o'clock.