CAPITAL GAINS TAX: TAPERING RELIEF

HC Deb 14 July 1977 vol 935 cc846-73

'Subsections (4), (5) and (7) of section 20 to the Finance Act 1965 and subsections (3), (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.

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 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.

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 (Weston-super-Mare)

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 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 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 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 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 (Maldon)

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.

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 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 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 (Basingstoke)

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- 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 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 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 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 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.

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 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 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 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 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 (Blaby)

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 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 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

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.