DEALINGS IN COMMODITY FUTURES: WITHDRAWAL OF Loss RELIEF

HC Deb 12 July 1978 vol 953 cc1621-93

Mr. Trotter

I beg to move amendment no 123, in page 20, line 38, after "from", insert "the disposal of".

Mr. Deputy Speaker

With this we are to take amendment no. 124, in page 21, line 2, at end insert: '(4) The following provisions shall have effect where in pursuance of this section a person furnishes to the Board particulars of a transaction or transactions effected or to be effected by him, that is to say—

1. (a) if the Board are of opinion that the particulars, or any further information furnished in pursuance of this paragraph, are not sufficient for the purposes of this section, they shall within thirty days of the receipt thereof notify to the said person what further information they require for those purposes, and unless that further information is furnished to the Board within thirty days from the notification, or such further time as the Board may allow, they shall not be required to proceed further under this section;
2. (b) subject to the preceding paragraph, the Board shall within thirty days of the receipt of the particulars, or, where that paragraph has effect, of all further information required, notify the said person whether or not they are satisfied that the transaction or transactions as described in the particulars were or will be such that this section shall apply,

and, subject to the following provisions of this section, if the Board notify him that they are so satisfied this section shall not apply to him in respect of that transaction or those transactions. (2) If the particulars, and any further information given under this section with respect to any transaction or transactions, are not such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the Board, any notification given by the Board under this section shall be void.'.

Mr. Trotter

These amendments relate to the complex provisions of clause 27 which brings rather draconian powers into force so far as an artificial scheme is in effect for the avoidance of tax by means of a commodity straddle. Those who are innocently engaged in commodity trading could be caught by the clause, and I do not believe that it was intended to apply other than to those who have deliberately set out to avoid tax by what is known as the Tucker scheme.

Amendment no. 123 would bring in the requirement that the clause should not apply unless the partnership, which is a feature of these schemes, had come to an end and the person concerned had disposed of his interest in the partnership. If the words in the amendment were included, the innocent type of transaction that might otherwise be caught would be excluded.

Amendment no. 124 is complex. I shall not go into great detail except to say that it is based on section 464 of the Taxes Act 1970 which brings to play on section 460 of that Act the main anti-avoidance section of that Act, a procedure whereby the taxpayer can obtain a clearance so that he can be satisfied that any scheme in which he is engaged will not be caught under the powers of that Act. Therefore, I am suggesting that it should be made clear to the House that the Government do not propose to catch schemes other than those of the Tucker nature, for which the clause has clearly been specifically designed.

The Chief Secretary may well not be able to accept the amendments. Their drafting may not be perfect on a very complex subject. But it would be very helpful if the right hon. Gentleman would give an undertaking tonight that it is not the Government's intention to apply this legislation to other than the main Tucker type of scheme.

Secondly, the right hon. Gentleman might be able to say that the Inland Revenue would be prepared to consider a case put to it by those engaged in commodity dealings to be given a clearance of schemes, so that they know in advance whether they are in danger of having the draconian effect of the clause applied to them.

Mr. Joel Barnett

The hon. Member for Tynemouth (Mr. Trotter) mentioned this matter to me, and I know of his concern that it is possible that this type of clause, which we shall debate more fully a little later, might catch what he considers to be genuine, innocent traders. I understand that concern. However, amendment no. 123 is not only defective; it wrecks the whole clause.

Mr. Trotter

That was not the intention of the amendment.

Mr. Barnett

I appreciate that. I only mention in passing that that is what it would do. I know that there may be some outside the House who might like that to be done, but I know that it was not the hon. Gentleman's intention.

Mr. Lawson

Substantiate that claim.

Mr. Barnett

The hon. Member for Blaby (Mr. Lawson) is the most remarkable hon. Member. He can never keep his mouth shut for more than about 30 seconds. I have hardly started to reply to his hon. Friend. I am now coming to his hon. Friend's amendment no. 124, which deals with the basic problem about which he was asking me both before the debate and this evening.

What the hon. Gentleman sought in order to deal with the central problem was a clearance procedure, which would more than meet his purpose. I have some sympathy with him, but the clause is clear. When the hon. Member for Mid-Sussex (Mr. Renton) moved his amendments in Committee, he said on precisely this point: As an individual subscriber to the London metal exchange, I have checked with other commodity markets and I am advised by those who operate in them that they have no objections to the technical wording of the clause. They do not see it as inhibiting their business in any way; it may mean a small loss of trade to those who buy and sell commodity futures but, as I say, they have no objection to the clause. I have not, therefore, tabled the amendments on that ground."—[Official Report, Standing Committee A, 6th June 1978; c. 698.] I do not think that I am quoting unfairly what the hon. Gentleman said.

I hope that it is clear that what the hon. Member for Tynemouth is seeking relates to an aspect about which those engaged in the commodity trades are not concerned. There will be other concerns. I do not want to do the hon. Member for Mid-Sussex an injustice, but I do not want to quote the rest of what he said. I am dealing with this particular problem.

If one instituted clearance procedures of the kind proposed in amendment no. 124, the only people who would benefit in practice would be not those genuinely in the commodity trades but the tax avoiders. At the considerable expense of the Inland Revenue, the avoiders and the devisers of schemes would be able to ask the Inland Revenue of each scheme "Can this be cleared?" The Inland Revenue would say "No" until eventually they got one that was right.

9.0 p.m.

I hope that the hon. Gentleman will not want clearance procedures that could work only in that direction. Indeed, I know he does not. He wants to assure himself and those outside that the innocent will not be caught by the clause. I assure him that it is nowhere near our intention to catch innocent people who are dealing in commodity futures. I shall be explaining more fully, on the next group of amendments, the kind of scheme that I am talking about. I think that it will be quite clear to anyone who understands these matters that there is no question of catching genuine traders as opposed to those who are seeking, as it were, to latch on to them for the purpose of tax avoidance, as spelt out in the clause.

Mr. Peter Rees

Will the right hon. Gentleman take the House into his confidence and explain why amendment no. 123 would deprive the clause of any effect? As I understood the scheme that was outlined to us in Committee, it was precisely on the point of the disposal of a partnership interest that gave rise to a loss. That was the objectionable element of the scheme. That was the point at which the tax relief crystallised. It seems to me that my hon. Friend the Member for Tynemouth (Mr. Trotter) hit precisely that point, and I for one am left completely in the dark on the question why his very well drafted amendment should rob the clause of any effect.

Mr. Barnett

I am happy to oblige the hon. and learned Gentleman. It is true that an essential feature of the scheme aimed at is the early withdrawal by the tax avoider from the partnership dealing in commodity futures, when the loss-making size of a straddle transaction has been closed out but the profit-making side has not. If the amendment were accepted, however, the tax avoider would argue that a tax reduction accrued not from his disposal of his interest from the partnership but from the losses in dealing. It is the latter which, if anything, gives rise to a claim for tax relief under the sections mentioned in subsection (1) of the clause. What would happen would be that the avoider would expect his arguments to be supported by the courts. That is why I say that the amendment would wreck the clause, and I assume that that is not what the hon. Member for Tynemouth or the right hon. and learned Gentleman have in mind.

Mr. Trotter

I am concerned with the effect on somebody who is in a partner ship and when, as happens, there has been a loss which may be the main effect of a transaction, but where it was not entered into with a view to having a scheme of the nature of that to which the Chief Secretary has referred. Surely those people will be affected by the proposal, because it is an innocently-entered scheme, in which there is a partnership that is continuing to trade. Those people, because they are in partnership and because they have had some tax advantage, as it happens, will be caught by the clause.

Mr. Barnett

I am happy to deal with that point further. If the hon. Gentleman will read the clause he will see that we are not talking about the usual kind of partnership between two individuals; we are talking about a partnership between an individual and a company. There are some partnerships of that sort which are genuinely trading; I do not dispute it. But the clause goes on to spell out many other things as well with which I was intending to deal when we came to the later group of amendments.

From what I said in Committee about the kind of scheme with which we are dealing, and the way in which the clause is drafted, I should have thought that the hon. Gentleman had nothing to fear. Bearing in mind the kind of scheme with which the clause deals, it would be very difficult indeed to find a genuine partnership in which there was at the outset an agreement not only that there should be a loss, but that at that point in time the partners should leave the partnership. It would be very difficult, I suggest, to find a partnership in which an arrangement of that sort had been written into the agreement and signed up in advance, before a profit had ever been made. If it is suggested that that is a genuine partnership, where somebody signs up in advance to lose money and then leaves before a profit is made on the straddle, I am bound to say that that kind of arrangement would be caught by the clause.

Mr. Trotter

Surely the point there is that the partner has left, whereas in the case that I illustrated the partner has not left. Surely, therefore, he should not be caught.

Mr. Barnett

If the hon. Gentleman is quoting to me a case in which there is not the kind of situation that I have described, I assure him that there is no danger of such a partnership being caught by the clause.

Mr. Trotter

I should like to put one further point, if I might, Mr. Deputy Speaker.

Mr. Deputy Speaker

Perhaps the hon. Gentleman will wait. He has a right to wind up when we reach the end of the debate, so perhaps he will reserve his winding-up speech until then.

Mr. Tim Renton

The Chief Secretary quoted quite correctly the remarks that I made in Standing Committee. Indeed, I made a point about those dealing in commodity markets. There was then no objection to this clause other than the aspect of retrospection. This is something else to which we shall be coming. I think that the point that is puzzling the House at the moment is purely in relation to amendment no. 123 and the insertion of the words "the disposal of".

The Chief Secretary himself said on 6th June: It is intended that the partnership should make quick losses and that he should then leave it. Indeed, that is written into the contract. The terms on which he is committed to then assigning his interest produce a financial loss to him roughly equal to the seller's fee."—[Official Report, Standing Committee A, 6th June 1978; c. 728.] The brief from which the Chief Secretar read just now in objecting to amendment no. 123 said that if the person involved did not leave the partnership he would then claim that the losses had arisen as a result of commodity dealings. I suspect that that is a totally different sort of situation.

I think that we are all genuinely trying to reach the right answer in this. The commodity straddle, in its very essence, means that, at one and the same time, one establishes two positions that are contradictory to each other. One goes long and short on proper futures at the same time and then, according to this scheme, one lifts the leg in the partnership which shows the loss and one disposes of one's interest in the partnership and takes one's loss and puts it off against United Kingdom taxable income.

That is a totally different concept from that of regular dealings. I therefore fail to follow why the Chief Secretary has been told by his advisers that they cannot accept amendment no. 123. I should have thought that it was inherent in the Chief Secretary's own argument that amendment no. 123 was acceptable.

Mr. Peter Rees

My hon. Friend the Member for Tynemouth (Mr. Trotter) is to be congratulated on having demonstrated in such a very clear and concise way the limitations and defects of this particular clause.

We are very used to the gambit that Treasury Ministers are apt to use in our debates by very rapidly reading, in an incomprehensible way, from the brief that has been put into their hands. We have heard this tried out on us, and the Chief Secretary has tried it again. He has attempted to say that amendment no. 123 would wreck the clause.

As the right hon. Gentleman explained the operation to us, both in Standing Committee and today—very rapidly, but we were able to take it in—the loss is realised when the operator, the participant, sells his interest in the partnership, and not from a course of dealing. He sells his interest in the partnership at the moment when, because of this straddle operation, the partnership would, if it had come to an end at that point in time, have realised a loss. It is nothing to do with partnership dealing.

I can only conclude—it is very rare for me to say this to the Chief Secretary—that the right hon. Gentleman has not really understood the operation about which he is so exercised.

What my hon. Friend demonstrated is that this clause is not drafted with the precision that we would like and, therefore, it leads him, and myself, on to realise that there is need for a clearance procedure. Leaving aside the more general constitutional positions that we shall be debating in a moment, there is obviously a real need for a clearance procedure so that those who may be caught, or think that they might be caught, shall be enabled to seek reassurance from the Inland Revenue.

It really is a very trumpery argument to say that the only people who can take advantage of this are those who would be wanting to abuse the tax system or those who would be wanting to take advantage of tax avoidance schemes. If that argument is really true, there is no case for any clearance system in our fiscal code.

The right hon. Gentleman knows as well as I do that there are sections—alas, not as many as I would like—that do contain a clearance procedure. There is section 464, which is operated, I understand, with reasonable success. The right hon. Gentleman will know that I recently put down a Question to him, in answer to which he gave the number of cases submitted to the Inland Revenue, the number of cases cleared, and the number of cases not cleared.

If the Chief Secretary is going to make this kind of anti-avoidance provision a regular feature of our fiscal code, he is bound to consider more seriously than he appears to have done the need for a proper clearance procedure. I believe that my hon. Friend has done us a great service in forcing this issue out into the open.

Perhaps this is not the moment to mount a major debate on this aspect of our fiscal code. Perhaps there will be another opportunity. I know that the House is very anxious to come on to the general constitutional point. As my hon. Friend the Member for Tynemouth (Mr. Trotter) has, as it were, focused the attention of the House on the limitations of this avoidance clause, I hope that he will not feel it necessary to press the matter to a Division, because he is secure in the knowledge that in a more leisurely and detailed way, we shall be able to explore the full horror of this clause in a moment of time.

Mr. Trotter

I accept my hon. and learned Friend's comments. I hope that we shall be able to consider this matter in greater depth and at leisure in the future.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Sir Geoffrey Howe (Surrey, East)

I beg to move, amendment no. 5, in page 21, line 1, leave out 'wholly before 6th April 1976' and insert 'before 25th November 1977'.

Mr. Deputy Speaker

With this we may take the following amendments:

No. 79, in page 21, line 1, leave out 'wholly before 6th April 1976' and insert 'before 11th April 1978'.

No. 10, in page 21, line 2, leave out '1976' and insert '1978'.

No. 6, in clause 28, page 21, line 27, leave out '2nd December 1976' and insert '5th April 1978'.

Sir G. Howe

We come now to the debate that has been foreshadowed to some extent in what hon. Members on both sides of the House have been saying. We are dealing with amendments affecting clauses 27 and 28—clause 27, already discussed, on commodity futures, and clause 28 on the right to repurchase.

The point common to all four amendments now before us is that they all relate to the dates on which the effective provisions of these two clauses should come into force. In other words, they all raise the question of retrospectivity in relation to both of these anti-avoidance clauses. That question has given rise to substantial and understandable interest, and it raises here, as it always does, very important issues.

Perhaps I may begin by explaining what the different positions are, represented by the Bill as it stands and the amendments now before us. First, in relation to clause 27, the Government's position as set out in the Bill is that the provision should come into force with effect from 6th April 1976. There is thus provision for two years' retrospectivity, and 18 months' retrospectivity earlier than the date of the first warning given by the Government that they would be legislating in respect of that.

Amendment no. 5 proposes that the provision should become effective from 25th November 1977, which was the date on which the first warning was given of the Government's intention in this respect. It was given on 25th November 1977, in a Written Answer by the Chief Secretary in answer to his hon. Friend the Member for Hayes and Harlington (Mr. Sandelson). In that Answer the Chief Secretary set out his awareness of the schemes in question, and he went on: The Revenue tells me that it does not recognise the ensuing claims as valid under existing law. However, its refusal to accept them will doubtless be contested and it could be some years before certainty is reached through the judicial process. To put the matter beyond doubt, therefore, the Chancellor will introduce appropriate legislation in next year's Finance Bill. Then there is the rather curious closing sentence: He will be considering from what date legislation against a claim to loss relief contrived in this kind of way should be effective."—[Official Report, 25th November 1977; Vol. 939, c. 965–66.] It is back to that date that our amendment no. 5 seeks to allow the provision to operate, but no further back than that.

The third position in relation to clause no. 27 is amendment no. 79, in the name of the hon. Member for Cornwall, North (Mr. Pardoe). That proposes no retrospectivity at all but that the provision should come into effect on 11th April of the present year—in other words, on the date of the Budget announcement.

There are those three positions in relation to clause no. 27—back for two years, says the Chief Secretary; back to the date of the announcement, 25th November 1977, say I and my hon. Friends; and back only to the Budget date, says the hon. Member for Cornwall, North.

There are only two options before the House in regard to clause 28. First, there is the Government's proposal, contained in the Bill, that the provisions should be retrospective to 2nd December 1976. That is the date of the first announcement, according to the Government. We propose that it should go back only to 5th April 1978, which effectively provides for no retrospectivity at all.

9.15 p.m.

The difference there arises because we do not accept that it is legitimate to go back to the Government's first announcement in December 1976, because they did not thereafter take advantage of the first opportunity that they had to include the provision in the 1977 Finance Bill. Indeed, curiously, they missed a second opportunity of doing that, because they made a second announcement of their intention to do it during the progress of the 1977 Finance Bill through the House of Commons, but even then they did not seek to incorporate their announced intentions in the 1977 Finance Bill, so that the slate was wiped clean by their inertia, if that is not to mix two metaphors too curiously. Having made two announcements, they failed to propose it in the 1977 Finance Bill, and they ought not to be allowed to make it retrospective beyond this year's Finance Bill.

It will be seen that these debates raise two interwoven and important issues. First, to what extent are retrospective laws of this kind admissible, if at all, in relation to the legislature? Underlying that, it raises the question, what is the basis of principle on which society is entitled to impose taxation on its citizens? What are the principles that guide the way in which that should happen, particularly so when the machinery for imposing such taxes is a democratically elected representative legislature?

Of course, we know that the history of representative government in this country, and in North America and other places, has centred around the key role played by the exercise of the taxing power, and the constitutional, political and legal status of the taxing power is very important. We must consider the whole of this subject in that context. It is not sufficient to say that we have a democratically elected representative legislature, so it may do what it likes, and that different societies have different methods of checking that.

Let us be clear what we are not considering. We are not concerned with retrospective legislation in the sense of legislation that confers relief—which legitimises a marriage or exonerates a Member of Parliament for sitting in this House when he is not entitled to—and that is a legislative act of mercy or legitimation. There is no controversy about that, and that is a perfectly acceptable form of procedure. Nor are we here concerned with retrospectivity in the wide general area of penal law. The imposition of punishment retrospectively, the creation of criminal offences retrospectively and the imposition of penalties retrospectively, in that wide meaning of the word "penalty", should certainly be accepted on all sides as being abhorrent and unacceptable. We are concerned with a rather different category, namely, the extent to which retrospectivity raises special difficulties of principle in fiscal policy. I do not believe that many people would argue that one can approach retrospectivity in relation to tax law in the same way as one would approach retrospectivity in relation to criminal or penal law. There is a substantial difference, at least in degree if not in kind, between the right approach to fiscal provisions and others.

What is the philosophy that we ought to balance in considering this question? I dare say that some Labour Members would subscribe to the intemperate notion that property is theft and, therefore, fiscal provisions can proceed wherever they like to deprive people of property. Certainly the Opposition reject that idea. We start from the premise that the citizen is entitled to the continued enjoyment of his property unless he is deprived of it by the due process of law, with proper compensation.

There are other people closer to the hearts of my hon. Friends who begin by thinking that taxation is theft and start off with sympathy with that proposition. That goes too far as well.

Society is entitled to require its citizens to make contributions and sometimes substantial ones to the defence, order and good government of the Realm. The right and power to impose taxes is part of that.

On that basis, the citizen is not entitled by dishonest or illegal means to evade taxes which are imposed. But it has generally been believed, and rightly so, that the citizen is entitled to avoid taxes which are imposed in the sense that he is entitled to adjust his affairs so as to minimise his burden within the law that is for the time being in force. There are many judicial and other observations to that effect.

Those are principles from which we start, and they are fairly easily stated and understood.

The difficulties arise when we begin to consider the extent to which some avoidance is more or less legitimate than others. Proper avoidance—the Chief Secretary has blessed it explicitly on many occasions in the House and in practice—is acceptable to everyone. It is the adjustment of one's affairs by making exempt transfers under capital transfer tax, by making covenants to charity, and by all the other steps that one takes in order to take advantage of licensed loopholes.

But there is a point when avoidance can be regarded as improper and unacceptable, deserving to be looked at critically, and deserving to be stopped up because it amounts to a defiance of or an escape from the underlying intention of the legislature. It is there that the difficulty arises. Where does that point arise? Can it be argued that something is manifestly an improper avoidance?

The House will recognise that in clear cases, that kind of avoidance against which the House is entitled to take action can be recognised, and I want to make it clear that there is no dispute on either side of the House about the nature of the transactions with which we are concerned. In Committee, the right hon. Member for Down, South (Mr. Powell) said of these provisions: this is an unmeritorious case. So far as I can judge, as tax avoidance schemes go the one with which the clause is concerned is specially unmeritorious."—[Official Report, Standing Committee A, 6th June 1978, c. 703.] That much in relation to the commodity provisions is common ground, and no one should say—and the Chief Secretary should not begin saying—that the Opposition are seeking to defend these provisions or standing as the friends of improper and mischievous tax avoiders. We are standing on a much more sure foundation of principle than that. But what we have to consider is how we deal with an admittedly unmeritorious provision of that kind. What do we do about it?

There are various alternative approaches which have been or can be adopted, and this debate is about the choice which we should make between them.

The more usual way is to have nothing to do with retrospectivity at all and to outlaw the provision, as in an ordinary Finance Bill, with the provision dating back only to the date of the Budget resolution. Normally, Parliament is concerned to do it in that way and, indeed, the courts have been concerned to see that retrospectivity is not involved. We all remember the case of Mr. Bowles against the Bank of England which led to the enactment of the Provisional Collection of Taxes Act. The House will be familiar with those provisions. The normal drill is that the tax becomes effective from the date of the Budget resolution and that that effectiveness lasts only until the Budget resolution is turned into legislation, until the expiry of four months, or until the dissolution of Parliament, and Parliament has taken that care to see that even the Budget resolution is legitimised in that way.

The second course is that it should be retrospective to the date of the clear announcement of a specific intention to propose particular legislation. That is what we propose as being acceptable in amendment No. 5.

This is a particularly British approach to the problem. It is what has been described by some people as the "sniper" approach, which is characteristic of our parliamentary technique, in which the proposal being attacked is precisely defined and that precise definition relates back to the original announcement.

In other countries, quite different approaches exist. In these cases the legislature has conferred wider powers on an official or a tribunal to deal at large with tax avoidance schemes that are generally subject to some kind of appeal procedure. That approach has not commended itself in this country. It was not recommended by the 1955 Royal Commission, and it was not even recommended to the Royal Commission by the Inland Revenue. It has found no friends here.

The other course that the Government are seeking to put forward here is the much more far-reaching and wide-ranging pattern of retrospectivity in which they seek to make the provision operate either in the absence of any warning, or behind the date of any warning or more widely than any warning that might have been given. It is to that proposal that we object in this debate.

It may surprise the House that that last approach which seeks to go back behind the warning and go wider than any warning is one that is not without precedent, at least in utterance, in this House. The question is how we decide what is right in this case. In other countries there is a written constitution which enables the courts to decide what is or is not proper. We do not have one, so it is very much a matter for this House to decide what is or is not acceptable when provisions of this kind are brought before us. It is a matter for the High Court of Parliament, if one can put it that way.

In this case, the Government approach was clearly set out by the Chancellor in his Budget Statement. He is seeking to shoot far too widely, and in a way that we find unacceptable. He said on 11th April this year: Tax avoidance has emerged recently in a new form which involves marketing a succession of highly artificial schemes—when one is detected, the next is immediately sold—and is accompanied by a level of secrecy which amounts almost to conspiracy to mislead. The time has come not only to stop the particular schemes we know about but to ensure that no schemes of a similar nature can be marketed in future."—[Official Report, 11th April 1978; Vol. 947, c. 1202.] The Chancellor has set out with his retrospective arrangements to destroy an industry. The Chief Secretary was even more explicit about it in Committee upstairs. He admitted that these provisions represented a threat, albeit to a small number of people. He went on: This is the only way to stop those people in that industry."—[Official Report, Standing Committee A; 6th June 1978, c. 729.] He set out to stop the industry by retrospective provisions deliberately introduced. Several hon. Members categorised him as seeking to legislate in terrorem. What we are concerned with is the legitimacy of the self-confessed terrorist approach. I do not think that the Chief Secretary would shrink from that. He uses this approach to justify retrospectivity beyond what we regard as acceptable.

The Chief Secretary, in order to justify the way in which he was approaching this matter, quoted from some precedents. He referred to Mr. Neville Chamberlain and also to Lord Jowitt when he was Solicitor-General in the 1920s and had just moved from being a member of the Liberal Party to supporting the Labour Party. It is right that in certain circumstances on previous occasions Chancellors of the Exchequer have sought to come to the House and justify that kind of approach.

9.30 p.m.

It is important to see how these matters have proceeded in previous cases. The House has been reminded, for example, that Lord Simon, when he was Chancellor of the Exchequer between 1937 and 1939, sought to proceed in the way that the Chief Secretary is proceeding. Lord Simon had moved from the Liberal Party to the Conservative Party. During the war, Kingsley Wood, who was Chancellor of the Exchequer, also sought to proceed in this sort of way, by seeking to denounce any other scheme of tax avoidance that might arise.

The precedent of assertion was in the background of the debates following the announcement by Sir Stafford Cripps in 1948. Sir Stafford was subjected to criticism when his proposals came forward in the 1950 Finance Bill. He was undoubtedly seeking to enact retrospective legislation in this terrorist fashion and to say that he was taking action in order to stop anyone contemplating similar tax avoidance action in future.

We object to the fact that such an approach is without limit. Once we allow a Government to say that they are taking powers not just to stop a particular form of tax avoidance that the House has identified as being unacceptable but also to prevent anyone from contemplating the introduction of anything of that sort, however broadly defined, in future, we are abandoning any pretence at effective parliamentary control of the rule of law.

Of course, it is possible to sympathise with the tax collectors and those who draft our laws. They will often seek to justify their case by showing a huge loss of revenue, but I do not believe that the House regards this approach as justifiable. There is no case for accepting the grapeshot approach which is implicit in the Chief Secretary's attempt to destroy the tax avoidance industry.

What is the tax avoidance industry which he is setting out to destroy? How do we recognise the tax avoidance that is regarded as illegitimate? If we adopt the grapeshot, retrospective method, how can we define the difference between acceptable, legitimate avoidance, based on the legitimate advice that is available to every citizen, and the avoidance that the Chief Secretary intends to shoot with his blunderbuss approach? How can we recognise when taking advice that at which the Chief Secretary is shooting?

Our complaint is that the approach suggested by the Chief Secretary jeopardises the acceptance and legitimacy of our entire system of tax collection and jeopardises the willingness of citizens to be bound by the rules of law enacted by the House, when they can have no confidence that the rules will be upheld and continue.

More fundamentally, the Chief Secretary's approach threatens to destroy the consent of the governed and the trust that exists betwen those who are taxed and those who collect and impose the taxes. If we go down this road, it can be used to justify almost any act of a Government. It is a very dangerous road.

If, for example, a Government find that a rich taxpayer has moved most of his assets outside the jurisdiction, this sort of tax-collecting technique could be used to deprive him of the rest of his assets before he has a chance of disposing of them. It can move quickly to justify a confiscatory approach, and that of which the taxpayer complains in this blunderbuss, terrorist technique would be equally loudly complained of, for example, by trade unionists or trade union leaders if a Government not formed by the Labour Party were to say "We propose to deal in this way, retrospectively, with trade union funds."

Mr. John Cronin (Loughborough)

The right hon. and learned Gentleman is making an interesting case. It is valid in many respects. However, is he not omitting one important safeguard? Any proposals of this nature that are introduced by the Government have to be passed by the House.

Sir G. Howe

That may amount to a safeguard, but it underlines and emphasises the importance of the duty that the House has to carry out. It underlines the importance of our duty in the context of a society that has no written constitution. There have been examples in the past where principles have been eroded and overridden and it is important to establish the principles that underline the matters that we are discussing. We must take care that we do not move in the wrong direction tonight.

Where would the position end if retrospectivity without limit, without warning, without limit of time, without limit of prior warning or announcement, were to be accepted as the pattern of legislation in the House?

The real danger to our society is the extent to which our fiscal and taxpaying morality has already been eroded, the extent to which throughout all classes, because of the way in which the House has been creating tax legislation and the nature of tax legislation that has been passing through the House, there is increasing contempt for our tax legislation and increasing contempt for its legitimacy.

We are not concerned with an issue affecting only a handful of clever men and women designing one tax avoidance scheme after another, the group that the right hon. Gentleman is pursuing. We are concerned with the very same issues that are giving rise to moonlighting and the spread of the cash economy. They are the same issues that are causing widespread resentment of the VAT man and the random checks of the Inland Revenue inspectors. The right hon. Gentleman may look surprised, but it is an important feature of a coherent society that the millions who pay their taxes should have respect for the tax system and confidence in the legislature that creates it. If that respect and confidence begins to crumble, we are in serious trouble.

The extent to which the right hon. Gentleman is concerned about the spreading of avoidance schemes is in itself a symptom and a consequence of a tax system that is overloaded. It may be said, and will be said, that tax avoidance occurred even when income tax was levied at much lower rates. However, in those days Parliament was willing to grant powers to stop it, in some cases retrospectively, and the fairness of the system was much more widely accepted. Today there is growing doubt about the fairness of the system. Its fairness is increasingly questioned.

Those who are paying income tax at 98p in the pound are driven to find ways of avoidance. That is not all. Those who are paying marginal income tax at 40p in the pound on average pay packets feel equally driven to avoidance. We are just as likely to find taxpayers at that level of taxation saying that it is daylight robbery on the average pound of overtime as we are at every other level. Many are coming to see avoidance as not merely a legitimate means of operating within the law and upholding the rule of law but as a means of challenging the politics of confiscation, envy and egalitarianism. We have reached the stage where the pursuit of equality has not produced an increase in liberty, although it might have produced a substantial growth in fraternity—the sense of brotherhood in opposition to the tax system which more and more people now feel in common.

We have an important choice to make about the direction in which we move within the tax system. We can either go in the direction of more and more severity, more and more retrospection, the stopping up of loopholes retrospectively and more intolerance—which in the end is the way to tyranny—or we can deliberately help to lighten the load of the taxpayer, ease the collar and begin to restore the system's acceptability and legitimacy. That is the right way in which to go.

That is why we reject without qualification the Government's proposal. It is unacceptable to have legislation of this type which goes back to a date selected at random from the air, without any foundation, warning or authority. We invite the House to reject the clause as it stands.

What about the alternative? We think that it is acceptable to go back to the date when the proposal was announced. It is interesting that those who have spoken against that proposition wish the proposal to come into effect on the date that the Bill was introduced. They even find it difficult to find a clear foundation of principle on that.

The right hon. Member for Down, South (Mr. Powell) made a formidable speech in Committee. He argued that only the date of the passing of Finance Bill was acceptable. He challenged retrospection to the date of the announcement. But let us examine the history of the capital transfer tax. The main charging provision of the capital transfer tax in the Finance Act 1975 is contained in section 20, which provides that A chargeable transfer is any transfer of value made by an individual after 26th March 1974 other than an exempt transfer. That legislation has a curious background. The date 26th March 1974—the foundation date for liability on gifts inter vivos—has no legitimacy in legislative terms. It was the date of the spring Budget Statement on 26th March 1974. In August 1974 a White Paper was produced which filled out in a more ample way the back-of-the-envelope proposals which were announced in March 1974.

In September 1974 Parliament was dissolved and we had a General Election. Throughout that time there was no Budget Resolution. Even if there had been, it would have been brought to an end by the dissolution of Parliament.

A second Budget was presented in November 1974 and the Budget Resolutions came before the House on 14th November 1974. The Bill was published on 10th December 1974. The first of the Budget Resolutions proposed that capital transfer tax should be effective from 26th March 1974.

That is a classic description of retrospective legislation. It was so retrospective that it overleaped backwards, not merely six or nine months, but a General Election and a potential change of Government. But when that legislation was before the House, when the Second Reading took place in December 1974, it was passed without dissent. The right hon. Member for Down, South did not raise his voice against it. When we considered section 20 of that Finance Bill at the Report stage, the debate occupied only half a column in Hansard. The capital transfer tax was introduced retrospectively, beyond any doubt.

The citizen who was eventually subject to the legislation as amended in the Finance Act 1975 began to be affected by it as a result of a bare announcement from the Dispatch Box by the Chancellor of the Exchequer in March 1974. It is difficult to see how one can stand on an absolute firm and rigid position on principle, save that which has emerged as sensible, constitutional convention.

9.45 p.m.

Our amendments represent just that. The conventions were summarised by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) in what has come to be known as the "Rees rule". With respect to my hon. and learned Friend, that exaggerates the importance of his contribution to the discussions because the conventions are founded in precedent. In Committee upstairs as reported at column 719, my hon. and learned Friend said that legislation of this kind can be regarded as acceptable by the House of Commons subject to four conditions. First, warning must have been given to the taxpayer of the intention to legislate in this way and the warning must have been precise in form. Second, the problem at which the warning has been directed should immediately be rererred to what is known as the tax reform committee for consideration—that is the committee that meets between the professions and the Inland Revenue. Third, if the committee can devise an appropriate legislative provision the draft clauses should be published immediately so as to give a second clear intimation to those who are likely to be affected. Finally, such a clause must without fail be introduced in the following Finance Bill.

Those rules, with their emphasis on a previous clear warning and legislation at the first opportunity to implement the previous clear warning are restating what is and has been generally accepted in this matter. For example, the Law Society submitted a memorandum to the House and the Committee in relation to this Bill. It contained a first part which was headed "Matters of Principle" and related to clause 27. The provision, it said, was intended to provide a credible deterrent to all future schemes of a similar artificial nature. It said that its deterrent effect rested on the fact that it was retrospective to a date prior to the date of the announcement that legislation was to be introduced. The Law Society went on: Legislation which imposes retrospective tax liabilities is wrong in principle.… It has no place in a free society based on the rule of law.… For these reasons Clause 26 is wholly unacceptable in its present form. It come to its substantive recommendation that Clause 26 take effect from the date on which it was first announced that legislation would be introduced to counter that particular scheme. The Law Society there is setting out the convention as it has come to be accepted—retrospection to the date of clear announcement. That has been the established practice over many years further back than that. If one goes back to the debates of 1949 and 1950, to which the right hon. Member for Down, South referred, Sir David Maxwell Fyfe, as he then was, said: I put this principle forward as quite unchallengeable; that the justification for retroactive legislation is that a reasonable and definite warning has been given to people likely to practise the matter to be struck at, and they have been given the opportunity to avoid that course."—[Official Report, 28th April 1949; Vol. 464 c. 499.] That practice has been followed for a number of years since then. One of the more recent examples was in the 1958 Finance Bill when Mr. Heathcote Amory, as he was, was Chancellor of the Exchequer. He said: In my opinion, one essential pre-requisite, if retrospective legislation is to be used, is that those concerned should have every reason to be aware of the taxation consequences of their specific actions and, therefore, have a chance of avoiding it if they wish … Nothing that I have said is intended to lay down the proposition, as far as I am concerned, that in no circumstances whatever would retrospective legislation, after warning, be justified."—[Official Report, 18th June 1958; Vol. 589, c. 1132.] Therefore a long tradition has developed which may be untidy but which can be regarded as an acceptable convention of the constitution along the lines set out by my hon. and learned Friend the Member for Dover and Deal in the rules that were enunciated upstairs.

Our position today, therefore, stands on a firm foundation of practice and constitutional convention. We accept the legitimacy of the date of the announcement. That is what we propose for clause 27. We do not accept clause 28, because the Government failed to introduce legislation to carry it into effect in the first subsequent Finance Bill. We reject absolutely the broad blunderbuss basis of the Government's approach which seeks to carry the provision back to a point in time chosen apparently entirely at random with the explicit intention of killing the industry, however defined, and preventing avoidance of whatever kind the Government choose to shoot at in the future. We cannot regard retrospection at large along those terrorist lines as possibly being acceptable.

I invite the House therefore to strike this judgment by voting for amendment no. 5, which is the foundation of principle for which we contend and the basis on which we shall have to consider the matter.

Mr. Joel Barnett

I found the speech of the right hon. and learned Member for Surrey, East (Sir G. Howe) somewhat strange. I have been accused of being like a terrorist, showering grapeshot on all and sundry. I want to deal with that charge, but I want first to deal with the purist line—I do not mean that in a derogatory sense—of the right hon. Member for Down, South (Mr. Powell), that, no matter how obnoxious or unmeritorious a case, this action should not be taken. Indeed, as he put it, if a scheme is unmeritorious, that is all the more reason not to have retrospective legislation against it. In that sense at least there are no party political considerations. Both the right hon. and learned Member for Surrey, East and I disagree with that view. For the reasons that he gave, the right hon. and learned Gentleman cannot accept that purist line, and I want to explain why I cannot accept it either.

It has been suggested that I may have been a reluctant convert to the introduction of this kind of retrospective legislation. I want to make it clear that I am reluctant only in the sense that I thought long and hard before agreeing to the type of provision contained in the clause, and that at the end I came to the conclusion—I had no doubt whatever—that the clause was absolutely right. However, I understand the concern expressed not only by the right hon. and learned Gentleman but by a number of my hon. Friends who have mentioned it to me, including my hon. Friend the Member for Hayes and Harlington (Mr. Sandelson). I appreciate their views, although I believe that, having had the matter explained, they now understand why the clause is necessary.

I want to explain what we are talking about. In the narrow purist sense of the right hon. Member for Down, South, this is retrospection, but it is in no sense of the word general retrospection. It is retrospection against what is generally accepted on all sides—I would never accuse the Opposition of wanting this kind of scheme to continue—to be an obnoxious industry and one which, without this clause, would not only continue but thrive.

What is more, the only penalty in this retrospective legislation is not a penal provision. The only penalty is that tax allowances which were never intended to be given to these people will not be allowed. It is retrospective only in the sense that each case in future will have to be brought to this House and the House will have to accept that it is a pure avoidance case, of the kind that I will explain, and purely artificial.

When my hon. Friend the Member for Loughborough (Mr. Cronin) interrupted the right hon. and learned Member for Surrey, East and mentioned this as a sateguard—that the House of Commons would have to pass legislation against every scheme, not now but in future—the right hon. and learned Gentleman dismissed the safeguard as unimportant. I should have thought that that was the most significant and important safeguard built into what we are doing.

Dealing with the scheme that we are talking about in this clause, the right hon. and learned Gentleman accepted that this was what he called an unmeritorious scheme. I should explain to the House that we are talking of a scheme under which an avoider joins a partnership in one or more commodity-dealing companies. As an individual partner and company, the tax avoider's share is 90 per cent. The main source of finance is a loan from a bank, which is controlled by the devisers of the scheme, and the only source of funds from the avoider is the fee that he pays to the deviser of the scheme.

There is a series of straddles in commodity futures to buy and sell. These are carried out over different times at different prices and a loss is arranged first, followed by a gain. In advance a contract is signed and agreed by the avoider that he will leave the partnership when the loss is made. In other words, he will make a specific amount of loss required for his purposes and then will leave when the straddle comes in and a profit is made. If anybody says that that is a genuine scheme, involving a genuine dealer—a genuine trade where one signs in advance to lose money and then before a profit is made, one leaves—he is wrong. Let there be no doubt that we are talking about an artificial scheme.

However, it is more than that. It is characterised by secrecy and obstruction. By the time this scheme or any other like it is stopped without retrospection, there will already have been many deals sold and ready. For example, if the House were to take the view advanced by the right hon. and learned Member for Surrey, East and were to put the matter back to the date when I gave a warning in November 1977, we know that there are many other schemes waiting to he submitted from the time when they were first initiated by the devisers of the scheme.

If in this case and in the future it is to be taken only from the date of the warning, this is what the small number of people in the tax avoidance industry or the devisers of schemes want to see happen. They would have the scheme stopped from November 1977, and all the others which they are waiting to submit to the Inland Revenue would be available to be submitted. When this scheme is stopped, out comes another, and away they go to continue and thrive.

When I say that that is the situation which the House wants to see stopped, that is the kind of scheme about which I am talking. It has a high degree of artificiality which by no stretch of the imagination could be considered to fall within the normal tax avoidance affairs of an individual taxpayer. It is incredible to believe that this is a normal tax avoidance scheme for legitimately reducing tax liability. There is no legitimate loss. There is only the fee paid to the tax avoider. There is no financial loss to match the tax loss.

The main case against what I propose is the argument that tax avoidance occurs because of the very high rates of income tax, amounting to 98 per cent. The great majority of schemes used for these purposes involve corporation tax and capital gains tax. They are aimed at avoiding not 98 per cent. tax but 30 per cent., 42 per cent. and 52 per cent. tax. They are not concerned with the very high rates of tax.

The right hon. and learned Gentleman says that high rates of tax create increasing contempt in the minds of the average taxpayer. What will be the effect on the average taxpayer if he knows that two or three people are avoiding £200 million in tax? What does that do to the average taxpayer who each week has his tax deducted under PAYE? When we are considering contempt for the tax system, we must consider that aspect.

We are then told by the hon. and learned Member for Dover and Deal (Mr. Rees), in his customary elegant manner, that the battle is one-sided on the Inland Revenue's part. But, as he must know, the battle is one-sided in this instance on the side of the tax avoider and the devisers of these schemes, for the reasons that I have explained. It is interesting that no one has yet come up with a proposition that will stop this kind of scheme—a scheme that brings as much contempt to the tax system as do any rates of tax devised.

10.0 p.m.

The right hon. and learned Member for Surrey, East then endorsed what he called the Rees rules. They are interesting, and I want to go through them. The first rule is that the warning must be precise. The hon. and learned Member for Dover and Deal did not deny that the warning given in November 1977 was precise. Indeed, he conceded that it was absolutely precise. I agree that should be done.

Secondly, the problem should be referred immediately to a tax reform committee. I agree with that proposition.

Thirdly, if legislation can be drafted to deal with tax avoidance, that should be done immediately—I agree—and it should be published.

Fourthly, it should be introduced in the immediately following Finance Bill. I agree with that.

The trouble, as the right hon. and learned Member for Surrey, East must know, is that if that is all we do, everything fails and this industry continues, for the reasons that I have explained.

The tax at stake in 1976–77 in only three schemes which are known so far—there may well be more—is nearly £200 million. The Inland Revenue has seen the accounts of two companies with artificial deductions of the kind which I have described, which could mean nearly £100 million in each case.

The purist approach would be to say "Never mind. Let that go on." That is because no purist or anyone else has come up with a proposition that would stop it. On the other hand, the right hon. and learned Gentleman's proposal equally would not solve the problem. Therefore, a small group of people would be cocking a snook at Parliament while the vast majority of decent people who pay their taxes would have to sit by and let it happen.

We have a straight choice tonight. The choice is to swallow our repugnance and introduce not a general form of retrospection but a somewhat novel kind, namely, a form which provided that in future each scheme must be acceptable to the House as deserving of being killed. I believe that that is what the House should do, particularly when we bear in mind that we are talking not about retrospection that imposes serious criminal penalties on individuals, but about not allowing tax relief that was never intended to be allowed. I believe that that is what the House should do, and I invite it to vote against the amendment.

Mr. Neville Sandelson (Hayes and Harlington)

I am impressed with the arguments that my right hon. Friend has adduced this evening. They have stilled a good deal of the disquiet that I expressed to him earlier. However, I should like to ask one question. Why has he fixed on the date of April 1976? Is that not an arbitrary date and an arbitrary exercise of his executive powers in this matter? Why that particular date? Why not go back a year or more, or come forward in time? Will he explain to me and to the House what has determined that particular date?

Mr. Barnett

As my hon. Friend will appreciate, any date is arbitrary in these matters. But, in practice, we do not believe that before that date any such schemes were prepared. Opposition Members find it amusing that we should fix a date to allow these schemes to be introduced. I am delighted to have my hon. Friend's commendation. I hope that he will support me in voting against the amendment.

Mr. Pardoe

At the outset of my remarks I declare what might be thought to be an interest. I am a member of the London Metal Exchange. I am not, however, in any sense a director of a broking company which could in any way be involved in such schemes. Indeed, I have searched the City far and wide to find anybody who is involved in these schemes, and my searches lead me to conclude that the Inland Revenue's estimate of £200 million is the utmost piece of poppycock, even by that Department's standards.

The Chief Secretary began by saying that we are dealing with an artificial scheme. I do not think that anyone doubts or denies that. All those who either support or oppose his argument accept that it is an artificial scheme. But what the right hon. Gentleman did not say is that it is also an illegal scheme, although he did say it when he gave his answer to a parliamentary Question on 25th November, he reiterated that view in Committee upstairs, and it is clear that he and the Inland Revenue together believe that this is an illegal scheme. Therefore, why must there be legislation against it?

The Chief Secretary went on to say that no one had found any way of dealing with the scheme other than by the way that he was proposing tonight. This is an illegal scheme. The way to deal with an illegal scheme is through the courts. That is the way to end this kind of tax evasion, and the right hon. Gentleman should take that course and not ask Parliament to change the law retrospectively simply because he thinks that the processes of law will be expensive, or time-consuming, or that he may lose a t the end of the day.

I emphasise that the position that my right hon. Friends and I take is that retrospective legislation, when it is against the interests of the individual, is always wrong. Retrospective legislation is, of course, very often in the interests of individuals, and that cannot be wrong. As the right hon. and learned Member for Surrey, East (Sir G. Howe) said, acts of indemnity in respect of Members of Parliament who were found to be sitting here when they should not have been were right. Perhaps the most interesting example from my point of view occurred way, way back, when Richard Strood, Member of Parliament in 1512, was convicted by the Stannary Court in Parliament of having proposed legislation to regulate Cornish tinners, and Parliament passed an Act of Indemnity which virtually quashed the conviction. That Act changed the law retrospectively, and it is generally held to be the basic statement of the freedom of speech, but it was in the interests of the individual, and I do not think that anyone, on either side of the House, is trying to make the point that all retrospective legislation, when it is in the interests of individuals, is wrong.

I do not think that many hon. Members on the Opposition Benches are trying to make the point that retrospective legislation is even unconstitutional. The supremacy of Parliament means that Parliament can do any darned fool thing that it likes. That is one reason why some of us believe that there is a need for major constitutional reform in Britain, to stop the unfettered dictatorship of Parliament. I think that this proposal—which will probably be carried by this place—ought to prove to hon. Members who hitherto have not appreciated the necessity for constitutional reform just how necessary it is. We need a Bill of Rights. We need entrenched clauses. We need them to protect the rights of the individual.

Nor is retrospective legislation anything new in this House. It is not even new as a means of closing tax loopholes, alas, because it has been used for that purpose by other Governments in the past on several occasions. The most clear-cut example of retrospective legislation in recent years—it was not related to taxation—was the War Damage Act 1965. The courts decided that the Burmah Oil Company was entitled to make a claim for damages against the Crown. Parliament decided to change the law to ensure that the company could not do that. Parliament changed the law retrospectively.

An amendment seeking to have the Second Reading of that Bill delayed for six months, which would have virtually meant that it would be wiped out altogether, was tabled by Mr. Eric Lubbock, now my noble Friend Lord Avebury, and was moved by my right hon. Friend the Member for Devon, North (Mr. Thorpe). The vote took place on 3rd February 1965, when the amendment was quashed by 222 to 229.

That was a very poor vote, bearing in mind that the House, Conservative versus Labour, was very evenly balanced in that Parliament. Indeed, the Conservative Front Bench abstained. But I must tell the right hon. and learned Member for Surrey, East, who was then plain "Mr." and the Member for Bebington, that his name was recorded on the correct side. He voted for virtue.

The history of the involvement of the House in retrospective legislation is, alas, not as clear-cut as some of us would like it to have been. It is pretty muddied. I have to give that to the Chief Secretary, who is obviously aware of it. But I hope that for Liberals retrospective legislation will always be repugnant, because it offends the rule of law.

I do not say that as a lawyer. I am not a lawyer, and I have no great love for lawyers' law or constitutional jargon, but it seems to me that if one is to say that ignorance of the law is no defence—and that is fine—I must be able to know what the law is. I must be able to find out what it is, and having found out what it is I must be able to act in accordance with it.

How can the rule of law apply if, having found out what the law is and got within it, I find that it can be changed retrospectively, so that the law at the time I acted is held not to be what it was when I performed the act? That is to suspend the notion of time. While that may be OK for Einstein, I do not think that it should be done by the Chief Secretary.

There are two conventions on human rights dealing with the matter. We are rather concerned with human rights at present. There is the United Nations convention, article 11(2) of which says: No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence under national or international law at the time when it was committed. There is the European convention, which says: No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed. It will be argued that the matter with which we are dealing is not a criminal offence. In other words, we can do with taxation things which we cannot do with the penal law. I am well aware that this point was argued in an article entitled Retrospective legislation and the rule of law in Britain by J. W. Bridge, who was there discussing the War Damage Act 1965. Having concluded that the Act must be regarded as a serious breach of the high standards of legislative behaviour which have been customarily observed by the United Kingdom Parliament", he added: One other field in which Parliament has had recourse to retrospective legislation on a number of occasions is that of taxation.… There can be little objection to this use of retrospective legislation since it may surely be regarded as an aspect of the 'game' played between taxpayers and the government. I do not believe that it is possible to distinguish constitutionally and in terms of human rights between the law on taxation and the law on other matters. I do not think that we should accept that argument for one moment.

The rule of law cannot exempt taxation, for who is safe? This is the point that I really want to make to the Chief Secretary. He will say that this will not be done to affect the way in which we conduct our normal personal financial affairs. But I suspect that in this place many of us make provision for our retirement by means of retirement annuity premiums. Those are tax-free when we pay the premiums. The investment income within the insurance fund, within the pension fund, is tax-free. There is a mass of tax concessions which ensures that the final amount of money that we get when we retire is greater than it would otherwise have been. We make those payments artifically only because of the tax concessions involved.

10.15 p.m.

What is to stop a future Government—perhaps on the very day on which I choose to retire—saying "Sorry, all that tax has to be paid back"? The Chief Secretary may say that it would not happen, because there are far too many people who have practised this type of tax avoidance. Is it, then, to be said that tax avoidance which is practised by a sufficiently large minority to be politically significant is apparently all right, and is safe from retrospective legislation, whereas tax avoidance which is practised by a small minority is apparently all wrong and can be dealt with by retrospective legislation? I do not think that we can uphold that view for one moment.

Then there is the argument that we should judge each case on its merits. I agree with the comment that this is a case without merit. Certainly it is extremely difficult to argue in favour of any of these people who have performed this kind of action. But let us not fool ourselves. This is not the only case of tax avoidance going on in Britain today. Tax avoidance is the most common national disease that there is in Britain, and it does not just affect very rich people who happen to have a few good financial advisers. The whole country is on the fiddle. Does not the Chief Secretary know? It is true. Every taxpayer has become a tax avoider, if not a tax evader, and the great majority are rapidly becoming tax evaders as well.

The Chief Secretary has only to go to his Saturday morning surgery or to his local Labour clubs to know that this is true. Even in his constituency his Labour clubs will occasionally leak the odd bit of truth over a pint of bitter. He really cannot live in a kind of fool's paradise where there is no tax evasion other than in the City of London.

I come now to the difference between dates. I do not want to make a great meal of the fact that we believe that 25th November 1977 involves retrospective legislation. It certainly does. It is not as bad retrospective legislation as the date that the Chief Secretary chooses, but that is just a time argument.

The argument of the right hon. and learned Member for Surrey, East is that 25th November 1977 is somehow all right because the Chief Secretary told Parliament in a Written Answer that the Government would take some action. But that parliamentary answer is extraordinarily unclear. It does not say when the action is to be taken, or what the action will be. In any case, do we really accept that a Written Answer is a substitute for legislation?

I accept, of course, what the right hon. and learned Gentleman said about capital transfer tax, and the fact that it was set out in a Budget Statement in March 1974, and enacted, after another General Election and after another Finance Act, in the latter half of 1974. Nevertheless, surely we all accept that Budget Statements are somehow different in this respect from Written Answers. Yes, they are different, and they have always been accepted as different in this House. Budget Statements change the tax law, and they do it all the time, and we have always accepted the fact.

I return to the wider problem I raised. The decision that the House will, I think, take tonight—

Sir G. Howe

Does the hon. Gentleman not accept that, of course, in the ordinary way a Budget Statement can have special force if what is stated is embodied in a Budget Resolution which is then approved by the House and remains in force for as long as provided by the provisions of the Taxes Act? That is the usual procedure. In the case of capital transfer tax, there was no such Budget Resolution in March 1974 and it was in mid-air throughout an election campaign until the Finance Bill was introduced in December 1974. That is a precedent of the clearest possible kind, which this House accepted virtually without argument.

Mr. Pardoe

I have already said that I accept that there was this point at that time. Looking back, I think that it is exceedingly unfortunate that we all allowed it to happen. I accept my share of the blame, because I was there, although the right hon. Member for Down, South (Mr. Powell) was not. Had he been, who knows, we might all have been told to do our duty.

Sir G. Howe

The right hon. Member was here in November.

Mr. Pardoe

Yes, that is right.

Finally, I come back to the issue of Parliament. Parliament, the dictator, can do what it likes. The hon. Member for Loughborough (Mr. Cronin) used this as a defence. He said to the right hon. and learned Gentleman "If Parliament votes for it, it is all right."

But what, in fact, does Parliament represent? Even if Parliament represented accurately and fairly the views of the British people expressed at the ballot box—the hon. Member for Loughborough will know that I do not accept that it does—Parliament cannot be left as the dictator in this kind of way. Parliament ought not to abolish the concept of time as it is endeavouring to do in legislation tonight. It ought not to pass retrospective legislation.

I hope that the House will support amendment no 79, which takes us to the Budget Statement and no further back.

Mr. Cronin

I propose to make an extremely brief speech, because I appreciate that many hon. Gentlemen, both in this Chamber and on the premises, would like progress to be made and to be able to return to their beds at an early hour.

I was astounded by the speech of the hon. Member for Cornwall, North (Mr. Pardoe). He said that the whole country is on the fiddle. I wonder what sort of company the Liberal Party mixes with. [HON. MEMBERS: "The Government."] I am talking about people outside this House. No one in his senses could suggest that there is any fiddling on the Government side of the House. From my long knowledge of my constituents, my impression is that most are honest, reasonable people who pay their income tax, with some grumbling but honestly, and are aware that they must do so. I find the remarks of the hon. Member for Cornwall, North extraordinary.

I agree with the hon. Member that retrospective legislation is undesirable, but I think that he has got away from the point. He was saying that it is very important that everyone should know whether he is offending against the criminal law. But here there is no question of crime. It is merely a question of people being prevented from having undesirable or anti-social profits. There is a very important distinction.

The right hon. and learned Member for Surrey, East (Sir G. Howe) said that it is difficult to draw a distinction between a proper and an improper tax avoidance. Obviously there are some difficulties. But we have had income tax for so long and there has been so much legislation on the subject that surely by now there are established precedents as to what is improper and what is acceptable tax avoidance.

Anyone is entitled to adjust his affairs so that he pays the minimum amount of income tax, within certain limits. All of us know how small business men, for instance, can have cars which they charge to income tax but which are probably not absolutely essential for their business. We all know that there is a certain amount of tax avoidance along those lines.

Mr. Norman Tebbit (Chingford)

The hon. Member has made a very interesting point. He said that he though that it should be within certain limits. Surely that is the case that is being made—that the limits should be certain. What the Government are proposing is that they should be uncertain and subject to the whim of the Government in retrospect.

Mr. Cronin

The hon. Member is—[HON. MEMBERS: "Right."] The hon. Member is recognised to be a very smart Opposition Member. In fact, he has a semi-official position in that respect, with three other hon. Members.

Mr. Tebbit

What position?

Mr. Cronin

If the hon. Member listened to me instead of anticipating my points, he would probably learn something. I suggest that he be patient and listen.

Mr. Sandelson

Is it not the case that it should be subject not to the will of the Government but to the will of the House, and that what the will of the House is must depend upon the particular circumstances and the particular context that we are discussing? In this context, my hon. Friend is perfectly right to suggest that here there is a contrived scheme to defeat the public interest and that the mere fact that it is tax avoidance as distinct from tax evasion does not touch upon the heart of the matter. It is a contrived arrangement to defeat the public interest. My hon. Friend has a point, and I want to hear what he has to say about it.

Mr. Cronin

With his usual brilliant intelligence, my hon. Friend has anticipated some of my speech. I hope that he will bear with me. The right hon. and learned Member for Surrey, East is worried that there will be no limit to this retrospective legislation. Obviously, there is a very clear-cut limit, because there are now established precedents as to what is anti-social and what is tolerable legislation. If that is not accepted, I do not know why we have had Committee and Report stages on Finance Bills during the 24 years that I have been a Member of this House. We ought to have learnt something by now.

The important thing is that Government can use their discretion in this matter. In the ultimate, the Government are responsible to the House and, at the next General Election, to the electorate.

Mrs. Elaine Kellett-Bowman (Lancaster)

What about the law?

Mr. Cronin

There is no question of the law being broken. This retrospection will only prevent people from obtaining ill-gotten gains. The important point, which my right hon. Friend the Chief Secretary has made very clearly, although some hon. Members have perhaps still not discerned it, is that there is no question of any punishment. There is only the intention to prevent people from obtaining ill-gotten gains from tax avoidance.

Mr. Tebbit

Will the hon. Gentleman give way?

Mr. Cronin

No. The hon. Gentleman has already had a fair hearing. Were his prospective intervention to be as futile as his previous one, it would serve no useful purpose.

The main point is that tax avoidance is now becoming a very anti-social and anti-national industry which must be stopped. I could say very much more about this, but my right hon. Friend the Parliamentary Secretary to the Treasury is sitting beside me in a manner which is not entirely supportive. I suggest that the time has come to end these parasitic organisations which take the money out of the pockets of all of us and of our constituents. If some people avoid tax in an anti-social way, other people have to pay for it.

The point that was made by my right hon. Friend the Chief Secretary has absolute and complete validity. Therefore, I hope that no hon. Member will support the rather backward views of the right hon. and learned Member for Surrey, East.

10.30 p.m.

Mr. Tim Renton

It is not often that I find myself in almost complete agreement with the hon. Member for Cornwall, North (Mr. Pardoe). On this occasion, I do, except about the date to which these schemes should be rolled back.

I suggest that the remarks by the Chief Secretary that these schemes are highly artificial is really a matter for the courts to decide. That is why the courts exist. In Committee, the right hon. Gentleman showed his attitude to this question in a very significant way. He said: But there is a risk that the schemes, although we believe them to have no validity, may well be found by the courts to be perfectly legitimate and the tax would be lost to the Revenue. Here I must interpolate the question: is not that what the courts are for? It is their job to decide whether the schemes are legitimate and, if so, to decide accordingly, and to protect the citizens and companies involved, however nasty the schemes are.

The Chief Secretary went on: it is incumbent upon us to see whether there are ways that we can stop it."—[Official Report, Standing Committee A, 6th June 1978, c. 730.] That is at the heart of this issue. It is not to do with the artificiality of the schemes as such. It is a fear that the courts will not find the way that the Government want. Therefore, the Government are saying, in effect, "The game has been played. We do not yet know the result. But we are afraid that we shall not like it. So we shall change the rules retrospectively to be sure that we get the result that we want." I believe that however nasty these schemes are and however intolerable they are, that argument is unacceptable to this House of Commons.

The Government feel that they have a good case for retrospective treatment in this instance, because we are talking about tax avoidance, and no one in general sympathises with tax avoidance. But the House should consider that what the Government are trying to do is to deal with the superficial effects without tackling the root cause.

There is no doubt that the root cause is high and oppressive taxation. It is this that leads people and companies constantly to seek ways of reducing their tax burdens. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said, there is a growing contempt for our tax system. The only way of tackling this is by diminishing the share of our gross national product that is absorbed by the public sector and has to be financed by the taxpayer. We have to increase productivity. We have to increase our growth in GNP. In this way, we can decrease tax rates without decreasing public services.

The Government have chosen to go the opposite route. They have chosen to increase tax, to increase the temptation to avoid tax, and now retrospectively to increase the punishment for that tax avoidance.

I remind the House of a quotation from Adam Smith's "Wealth of Nations", which is very relevant to what we are discussing: An injudicious tax offers a great temptation to smuggling, but the penalties of smuggling must rise in proportion to the temptation. The law, contrary to all the ordinary principles of justice, first creates the temptation and then punishes those who yield to it, and it commonly enhances the punishment, too, in proportion to the very circumstances which ought certainly to alleviate it—the temptation to commit the crime. That is precisely the route being taken by the Government, and they should rather think back to the example of the Chancellor of the Exchequer, one Robinson, in 1827—I cannot say whether he was a Tory or a Whig—who forgot to renew a quarter of the tobacco duty one July. There was a great deal of smuggling at the time. To his great surprise, the effect of forgetting to renew this quarter of the tobacco duty so decreased smuggling in the following year that a £700,000 Budget surplus was created and, in consequence, the reduction in the tobacco duty was continued.

That is the lesson that the Government should learn. But they choose instead to go the route not of freedom, not of forgetting to increase taxation, but, rather typically, of trouble, vexation and the oppression of the citizen", again to quote Adam Smith.

My real objection to the principle of retrospection is that once it is established it can be used for any purpose at any time. Take television licences, for example. We could well have a Government—either Labour or Conservative—in the future which did not like the BBC and claimed that it was biased in putting over Government actions. We have already heard such cries from Government Front Benches. In consequence, that Government could decide to discourage people from watching the BBC by doubling the television licence fee and making it retrospective for two or three years. Those people who could not afford to pay would have their licences removed. That would be a very effective way of controlling people's viewing and listening.

The Chief Secretary may say that sort of thing is impossible, and that it could never happen. But the House must remember that the Government have shown very bad faith in these matters, once the precedent is introduced. Take referenda, for example. We were told by the right hon. Member for Huyton (Sir H. Wilson) that the EEC referendum was a once-for-all occasion—a unique event. Now we find ourselves faced with referenda for the Scottish and Welsh Assemblies. Once retrospective legislation is accepted as a principle, it will be used for other reasons that are less acceptable than the crucifixion of tax avoiders, which is what the Government have in mind here.

What the tax avoiders were doing was legal when they did it. Had it not been legal, there would be no reason for clause 27 because the courts could deal with the situation. It has been stated repeatedly that an individual has the right to so organise his affairs that he pays as little tax as possible within the law at the time. This has been upheld by judges and Lords of Appeal. It is that right that the Government are seeking to overturn.

I believe that there is a case for retrospective legislation if it is to right a past wrong against an individual. The case of war widows pensions is an example of this. The views of society change. We become more generous about the amount of pension that should be paid, and it is right to consider retrospection in adjusting war widows pensions.

But there is never a case for retrospective legislation which oppresses the citizen and exacts a penalty from him for a past act that was legal when he did it but has since been declared illegal. Thus lies the way of dictatorship, and this is precisely the way that the Government want to take the House tonight. I hope that hon. Members opposite will resist the Government Whips in voting for this amendment.

Mr. Alexander W. Lyon (York)

I listened to the opening of this debate with interest in order to try to find out the cause of so much of the agitation that we have seen in the columns of The Times and on the Benches opposite. I find that we are discussing a particularly unmeritorious cause where everyone is agreed that the system of tax avoidance should be put to an end. I find that everyone is agreed that we must go back certainly to the Budget Resolution, and some of us are agreed that we should go back to the first statement of intent to legislate in November last year. The only issue dividing hon. Members as acutely as the hon. Member for Mid-Sussex (Mr. Renton) suggested is the issue of retrospection. We are not only in the area of the usual matters pertinent to a Finance Bill. We are in the issue of constitutional principle raised by the hon. Member for Cornwall, North (Mr. Pardoe) who said that we are discussing the rule of law.

I could take strictures from the Conservative Benches if the greatest abuse of the rule of law through retrospective legislation, which has adversely affected not just certain financial interests of a limited number of speculators but the vast population of black people in this country, had not arisen in the second schedule of the Immigration Act 1971 which was supported by most Tory Members and a great many of those who are raising the issue of retrospection with such verve.

When I listened to the hon. Member for Mid-Sussex declaiming that this is an unconstitutional principle which would adversely affect the interests of the individual, I considered this clause, which says that tax allowances should be taken away from people who do not deserve them and who would never have had them but for the fact that we were not able to legislate in time, and I considered the second schedule to the Immigration Act which said that a man who came here illegally before 1973 and had obtained immunity from deportation and the right to settle in this country because he was not prosecuted for the offence within six months should have his whole status here removed, should be able to be removed without a deportation order being served on him, could be taken off the street, away from his family and put in prison, sent back to the place whence he had come and be subject to the penalties of the criminal law.

The Conservatives all voted for that in a piece of legislation which was described by Lord Salmon in the case of Azam in the House of Lords as one of the most tortuous pieces of legislation he had ever heard. He said that he could not bring himself to interpret it in the way that the majority in another place interpreted it. That legislation was never interpreted in this House or explained to us by any Government of that time. It has adversely affected the lives of hundreds of people in this country since 1973—without any protest from the Conservatives who now raise the issue of constitutionality and the rule of law.

The person who raised the issue in this amendment with the greatest lucidity in the Finance Bill Committee was most pertinent in supporting the proposal in the Immigration Act. He voted with the Conservatives for what was undeniably retrospective legislation taking away the rights of people who, on his argument, were people whom he might have regarded as unmeritorious and whom most of us would regard as unmeritorious in the way in which they came into this country. However, those people had undeniably obtained a status in Britain, which apart from the retrospective legislation was irreversible.

10.45 p.m.

In most circumstances I do not accept the principle of retrospective legislation. The arguments that are advanced tonight on restrospectivity, especially where penal clauses are attached, should be weighed extremely seriously. However, where the House forms the judgment that there is totally unmeritorious action that has to be stopped and that the only way to stop it is by retrospective legislation, it must be right that a limited amount of retrospective legislation is permissible.

Mr. Ivor Stanbrook (Orpington)

rose—

Mr. Lyon

That must always be a matter of judgment.

It must always be for the House, in its wisdom, to decide the balance of interest. We are discussing a limited number of people who are making considerable gains from the rest of taxpayers by a scheme that no one in the House wishes to defend. The principle is undeniably right that that practice should be stopped. I believe that in this instance there is a case for retrospection.

Mr. Stanbrook

Does the hon. Gentleman agree that in his example there was involved a criminal who had committed a crime and who subsequently became liable for prosecution, where we are dealing with something that was not unlawful when it was done, which is completely different?

Mr. Lyon

Those who entered the country in the way I described before 1968 had not committed a crime. Those who came in between 1968 and 1973 committed a crime but they were immune from prosecution and deportation six months after entry. Therefore, when the 1971 Act took effect those people had acquired a status that was completely legal and it allowed them to say perfectly properly, "We are here to stay." By means of a Conservative piece of legislation the House removed that right. It was not merely the right to claim allowances, not merely money, but initially their freedom and then their total status and total livelihood in Britain. Those who passed that legislation have no claim to criticise my right hon. Friends for the sort of legislation that is contained in the clause. I support the clause.

Mr. Ian Gow (Eastbourne)

At the beginning of his speech the Chief Secretary said that he was a reluctant convert to the principle of retrospection. At the end of his speech he said that he thought it right for us to swallow our repugnance at retrospective legislation and agree to clause 27. The right hon. Gentleman made no converts from the Opposition Benches.

The key issue is whether we shall create a new precedent. There was a telling intervention by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) during the speech of the deputy leader of the Liberal Party, the hon. Member for Cornwall, North (Mr. Pardoe). My right hon. and learned Friend referred to the precedent that was created in respect of capital transfer tax. If we pass clause 27 unamended, we shall be creating a dangerous precedent.

In Standing Committee the Chief Secretary said: I want to say at the outset that there is a major difference … between what might be called ordinary tax avoidance and schemes of this character."—[Official Report, Standing Committee A, 6th June 1978, c. 727.] I do not think that it is possible to make a distinction between types of tax avoidance schemes. The only test is whether the Government of the day have been able to draft their legislation with sufficient skill to meet their intentions. It is up to the Government so to frame their own legislation as to ensure that it catches for tax those people that it is intended to catch.

When the Chancellor made his Budget Statement he said something which I believe to be sinister. He said: The time has come not only to stop the particular schemes we know about but to ensure that no schemes of a similar nature can be marketed in future."—[Official Report, 11th April 1978; Vol. 947, c. 1202.] He said that for this particular scheme he was going to propose retrospective legislation but that he was not going to do that for avoidance schemes relating to capital transfer tax. He said that the Government's proposal would become effective only for this financial year.

The Chancellor was saying that we were to be faced with a further series of retrospective legislation whenever the Government of the day thought that they had drafted their past legislation defectively. The Government were giving notice that we were now about to embark upon a completely new technique of taxation—retrospection whenever the Chancellor of the day thought that his own tax laws had become defective.

For the Government to say that a taxpayer who has acted lawfully in the past is to be treated by the courts and the Government as having acted unlawfully is thoroughly repugnant. We are passing down a dangerous road this evening, if we agree to pass clause 27 without amendment. I hope that the House will carry the amendments.

Mr. William Hamilton (Fife, Central)

The speech that we have just heard would have been better made before the speech by my hon. Friend the Member for York (Mr. Lyon). If ever a case was destroyed it was destroyed by my hon. Friend Let Opposition Members not pretend that they are debating a matter of principle. They are doing nothing of the kind.

I cannot pretend to be other than anxious that we seem to be making an attack on a fundamental principle—the rule of law. But it is not the first time that this House has done that. Precedents have been quoted by the right hon. and learned Member for Surrey, East (Sir G. Howe). No doubt the Financial Secretary could give many more.

I have been in the House long enough to have heard considerable speeches by the present Lord Hailsham, then Quintin Hogg, Sir David Maxwell Fyfe and Sir Stafford Cripps arguing for or against the introduction of retrospective legislation, depending on the merits of the case. It used to be said, with some truth, that if the Tory Party had an indefensible case to defend they should put up Sir David Maxwell Fyfe and he would do it. Often he was put up to defend such cases.

So far in the debate no one has argued the purist case—that in no circumstances whatsoever shall retrospective legislation be introduced. I do not believe that the right hon. Member for Down, South (Mr. Powell) takes that view. He accepts that retrospective legislation of the benevolent kind which benefits individuals or organisations is acceptable. If he does not, we can say that there are no purists in the House.

The hon. Member for Cornwall, North (Mr. Pardoe) said that retrospective legislation that was to the benefit of individuals was good, and that presumably meant retrospection for the benefit of the public interest generally. He went on to say that it was not sufficient to say that in these cases the sovereignty of this Parliament must prevail and that a written constitution would prevent that. A written constitution would substitute the so-called tyranny of Parliament for the tyranny of the courts and the judges. They would interpret the written constitution. If there is to be a sovereignty anywhere I would prefer it to be in the hands of an elected body than in the hands of institutions that are accountable to no one.

The principle of retrospection can, I believe, apply not only if an individual or a group of individuals are to be benefited. I believe also that individuals can be penalised retrospectively where that is for the national interest as a whole. But the case for propounding that must be very powerful and persuasive.

When I came to this debate I was inclined to say that I believed that the principle of the rule of law should in no circumstances be infringed. But having heard what my right hon. Friend the Chief Secretary said—[Interruption.] I hope that hon. Members will acquit me of any kind of humbug in these matters. If I were not convinced by my right hon. Friend's case I would have no hesitation either in going home now or voting against the Government.

If my right hon. Friend's case were put in lay terms among the people I represent they would agree with me that financial thuggery and crookery was going on, and they would refuse to pay their taxes. I remember Mr. Douglas Houghton, as he then was, saying in this House that there were two groups of taxpayers in this country—the pay as you earn and the pay as you like. That is what we are discussing tonight. The case that my right hon. Friend advanced ought to have been heard by the miners. I referred to the miners in another context last night. I always refer to them. When we talk about taxpayers being dishonest and moonlighting we should realise that the PAYE taxpayer is seriously limited in what he can do in tax avoidance.

When the right hon. and learned Member for Surrey, East was talking about moonlighting he failed to point out that the great moonlighters in this country are on the Conservative Benches. There are more than a hundred lawyers in this House on both sides, and they are the biggest moonlighters in the country. So let no one pretend that moonlighting concerns only the fireman who climbs a ladder to clean a few windows. The lawyers here go to the Law Courts in the morning and refuse to serve on Committees so that they can earn their corn.

One of the reasons that induces me to support the Government tonight, quite apart from my right hon. Friend's powerful case, was what was almost the injunction by Mr. Bernard Levin in The Times this morning to some of us on the Labour Benches to oppose the Government. That is a very good recommendation for supporting the Goverment. I hope that all my hon. Friends will do the same. There has been no argument of principle from the Opposition on this matter, and I see no reason why in a case like this the Government should not act retrospectively. My right hon. Friend quoted the figures which showed that we are concerned here with £200 million and only a handful of people. If the Government cannot take action retrospectively to deal with that, it is not worth being in Government. So long as this House is sovereign in the end over that kind of possible abuse, I am happy to leave it in its hands.

11.0 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

I am sorry that the hon. Member for York (Mr. Lyon) is no longer with us, because I am sure that he would agree that I can dissociate the Liberals and my hon. Friends in the Scottish National Party from his comments about what the Conservatives did in the legislation he was talking about and the retrospective way in which that was carried through. I am sure that the hon. Member for Cornwall, North (Mr. Pardoe) will agree that we would want no part of that.

It is an open secret that the SNP has been in considerable difficulty over this matter. Hon. Members laugh, but this is a matter of principle. The right hon. and learned Member for Surrey, East (Sir G. Howe) made a fairly philosophical speech. I would ask him, philosophically, whether we are concerned here with morality or legality or a bit of both. When does morality prevail over legality and vice versa. Retrospection is retrospection is retrospection. It is all very well for the right hon. and learned Gentleman to chose the arbitrary date of 25th November last year as opposed to 6th April 1976. He said that that was the date of the announcement, but that is not the date when legislation took place. A principle is a principle is a principle.

The hon. Member for Mid-Sussex (Mr. Renton) said—I hope that he will forgive me if I took down his words incorrectly —"There is a case for retrospective legislation if it is to right a wrong." The Government are trying, belatedly, to right a wrong.

Mr. Tim Renton

Just to put the hon. Gentleman right, I said that that was so if it was to right a wrong suffered by an individual in the past.

Mr. Crawford

I accept what the hon. Gentleman says, but what the Government are doing—there is no Labour-SNP pact tonight—is trying to right not an individual but a collective wrong. The hon. Gentleman made a good Oxford Union speech, in what the Chief Secretary described as his usual elegant style. But he said that we were sniping at the corpus of law. On this Bench, we can quote J. B. Priestley, who said that England will always play the game by the rules until she starts to lose, and then she will change the rules.

We are talking about the rule of law, about the principle of one man, one vote. Many hon. Members, on both sides, including some who are here tonight, sought to change the rules on the referenda on the Scotland and Wales Bills. As one of my hon. Friends said earlier, quoting someone else, there will come a time when Britannia waives the rules.

The right hon. and learned Member for Surrey, East also said—I hope that he will forgive me if I took down his words incorrectly—"Tax avoidance is a legitimate means of challenging the rule of a confiscatory tax system." But we live with a tax system and whether or not we think that it is confiscatory, it is the law, and the right hon. and learned Gentleman cannot flout it. The hon. Member for Caernarvon (Mr. Wigley) will know what is happening with regard to the rule of law in Carmarthen just now.

Reluctantly, I must refer to what Mr. Bernard Levin said in The Times this morning: But is there none among the more genuinely independent spirits who will abstain or even vote the right way …?…Mr. William Hamilton? … Mr. Sandelson? He also said: The Scottish Nationalists are said to be planning to vote en bloc against it. We are not.

How many of the Ulster Unionists Mr. Powell can carry into the No lobby is not yet clear". This is 12th July, and many of them will be in Ulster, not here.

I heard what the Chief Secretary said about tax avoidance. Reluctantly, I am persuaded that on this issue in the last resort pure morality must prevail over legality. We cannot allow these amounts of money to be lost by the Treasury. The spirit of law must prevail.

Mr. Nick Budgen (Wolverhampton, South-West)

Hon. Members will want to concentrate on the important decision whether they should vote for amendment no. 79 or amendment no. 5—or both— and where they should indicate their preference.

I wish to deal with the argument of favouring legislation which has a retrospective effect, and I also wish to deal with the forceful and eloquent speech made by the hon. Member for York (Mr. Lyon). He said that it was wrong to legislate in a way that would have a retrospective effect on the immunities enjoyed by certain illegal immigrants. He thought that it was disgraceful to kick a minority around. Any law on citizenship must have a retrospective effect. The basis of the law on citizenship lies in defining whether a person is or is not a citizen. That is bound to confer benefits on some people and on other occasions is equally bound to confer disadvantages. It must be second category in respect of which retrospective legislation is necessary.

The argument advanced by the hon. Member for York was illogical. He said to the Opposition "You kicked this small unpopular minority of immigrants around. That was a disgraceful thing to do", but then went on "You have done this disgraceful thing. We will continue to do it". His view is "We believe that Messrs. Tucker and Bradman are a disagreeable pair. Let us kick them." If that argument is good in respect of immigrants, it is also a good argument in respect of Messrs. Tucker and Bradman. He should be on our side in dealing with retrospection.

Mr. Lyon

It is easy to set up a false argument and knock it down. I suggested that in every case the House had to balance the competing factors and that in the case of the Immigration Act 1971 the enormity of what was done then so outweighs anything that can be alleged in this case that the two are not directly comparable. In this case the overwhelming weight of argument falls in favour of the Government Front Bench.

Mr. Budgen

The hon. Gentleman said that it was an unfair attack on a minority, but on the other hand he said that he did not like the particular minority that the Labour Party dislikes and therefore on this occasion will join the mob.

I wish to deal with the arguments advanced by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) to support his timing—namely, 25th November 1977. I regret the way in which my hon. and learned Friend spoke of the unmeritorious nature of the scheme. He seemed to point to that as a factor that would justify him in selecting 25th November 1977. I see that my hon. and learned Friend the Member for Dover and Deal indicates dissent. I am grateful to him. I am glad that is so. I am glad that I misunderstood what my right hon. and learned Friend the Member for Surrey, East (Sir Geoffrey Howe) said.

I entirely agree with the hon. Member for Cornwall, North (Mr. Pardoe) on this point. He was right to say that, if we are seen to attack any minority by retrospective legislation, we undermine the legitimacy of the whole tax system. No matter how unpopular any minority may be and however much the mob may think at any moment "It would be a good idea to kick X", all of us know that at some stage or another we shall be in the minority. On any basis, it will undermine our sense of fairness and of legitimacy if we allow ourselves to attack a minority in a dubious constitutional way because we see it as being unpopular and lacking in merit.

The real reason for my right hon. and learned Friend the Member for Surrey, East supporting 25th November 1977 is that he sees it as supporting the Rees rules as adumbrated by my hon. and learned Friend the Member for Dover and Deal in Committee. The Rees rules are important. There is no doubt that the Tory Party, as all parties when in power, has done things of which it should be ashamed. I hope that in future the Labour Party will be ashamed of what it is seeking to do tonight. No doubt it will be ashamed when it gets back into Opposition.

The Rees rules are important, because they indicate how the Tory Party will behave when it is next in power. I believe that in looking at these rules we should have in mind the importance of certainty in all tax legislation. We should also have in mind the overriding importance that tax legislation should be approved and decided by the House of Commons, not by any outside body.

I derive support for that proposition from a most important and informative Addington Society lecture given by my right hon. and learned Friend the Member for Surrey, East Reported in the British Tax Review in 1977. In talking about the need to have a consultative and scrutinising body which would assist the Commons, he said: It is, however, difficult to imagine that Parliament would ever accept the idea of handing such powers of scrutiny over to a lay committee". I agree with him on that matter.

My hon. and learned Friend the Member for Dover and Deal introduced his rules as reported at column 719 in Committee. I think that it is important to look at the way in which he introduced them. In fairness to him, I would say that he introduced them with a considerable note of apology. For instance, when he introduced the third of his rules, he said: Thirdly, if the committee can hit on an appropriate legislative provision, the draft clause—I call it a draft clause although at this point of time it cannot, in fact, be a clause".—[Official Report, Standing Committee A, 6th June 1978; c. 719.] When he said that, in a suitably apologetic mood, he knew perfectly well that the whole concept of giving a professional body the duty and right to put forward draft clauses was likely to be objectionable to the House of Commons. He knew perfectly well that if that professional body was set up there would always be the risk that it might wish to disadvantage one particular scheme, or one particular set of people, and that it would be making decisions not of a technical nature but of a substantive nature. He knew perfectly well also that once that draft clause, as it might be called, had been put forward there would be a feeling in the House of Commons that people had altered their business affairs in conformity with that draft clause and it would be very difficult, in all fairness, for the House of Commons to change the draft clause.

I hope that we shall not adopt the Rees rules. I hope that we shall stick to what is admittedly a more purist line and shall not in the future perpetuate the wrongs that we may well have perpetrated in the past. All power does corrupt, but let us at least in opposition adumbrate some clear honest lines and not suggest that even at this stage we are contemplating the necessary shifts and evasions that power may force upon us.

11.15 p.m.

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

The House is unanimous that the proposals that clause 27 seeks to prevent, the various tax avoidance schemes, are objectionable and that the Government are right to take action to try to terminate them. There are two points of dispute that the House has to decide tonight: whether the date from which this retrospective legislation should take effect should go back two years to a time when not only was this activity not illegal but no warning had been given by the Government of an intention to legislate, or whether, as my right hon. Friends have suggested, at the very least it should be retrospective only to the date when the Government gave warning of their intention to produce such legislation.

All on this side of the House, and I hope at least some hon. Gentlemen on the Government Back Benches, will accept that whatever the need for this clause, however unfortunately necessary retrospective legislation might be on occasion, it is totally intolerable, improper and unnecessary that the retrospective nature of this legislation should date back to a time when not even any intention to legislate had been announced by the Government.

My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) put forward a powerful case in support of the amendment, but the only explanation that the Chief Secretary was able to give why it was not accepted as a reasonable compromise to meet the legitimate requirements of the Government—he suggested that the clause should be retrospective only to the date when the Government announced their intention to legislate—was that such an amendment, if implemented, would frustrate the desire of the Government because immediately new schemes would be submitted to the Treasury for other similar tax avoidance measures.

I have no doubt that the Chief Secretary is right that new schemes will be submitted, but what the right hon. Gentleman did not indicate was why, when such schemes were submitted, he or the Government could not then indicate a similar intention to legislate to make those measures illegal and, indeed, to make them illegal retrospective to the date of their announcement. Of course it is not a particularly cosmetically attractive method but it would be a way of ensuring that some of the basic rights of the citizen were not unnecessarily infringed and harmed in the way that the Government are proposing.

There is a second issue which the House has to resolve this evening, and that is whether this curious unholy alliance between the hon. Member for Cornwall, North (Mr. Pardoe) and my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) who say that the proposal should be retrospective only to the date of the Budget resolution, should prevail over the view of my right hon. and learned Friend the Shadow Chancellor of the Exchequer that it should be retrospective only to the date on which the Government announced an intention to legislate.

I hope the House will be clear that the issue of retrospection itself is not in dispute between these two possible amendments, because, despite the arguments being suggested by my hon. Friend the Member for Wolverhampton, South-West, even in the amendment which he wishes the House to accept, and which the hon. Member for Cornwall, North puts forward, there is an acceptance of retrospection. It is accepting that the clause should take effect retrospective to April of this year, for the reasons that were given.

I suggest to the House that the issue is not one of principle in choosing between the two amendments, but whether the common grounds of fairness and the normal criteria of the rule of law would be adequately met by the official Opposition amendment. In this case there is no reason to dispute that it would be so, because the question of fairness depends not simply on whether the activity in question was illegal at the time but on whether the person concerned, when carrying it out, had reason to believe that there would be retrospective legislation to cover it. If he had no reason to believe, not only that the activity was unlawful, or not permitted, or contrary to the law, but that there was no intention retrospectively to make it unlawful, it clearly would be grossly unfair to penalise him for any actions he took at that time.

Mr. Graham Page

Would my hon. Friend extend his argument to the fourth amendment, which covers the date when there was an announcement, a warning, of retrospective legislation, though the Government took 18 months, passed a Finance Bill and so on, without taking any action? Is not that also wrong?

Mr Rifkind

I certainly agree with my right hon. Friend that if there were unconscionable, unjustifiable and unnecessary delay between the date of a Government announcement and the date when the law was passed by the House that would be unacceptable. But what we are talking about now is an amendment which suggests that the law should be retrospective only, I think, to November of last year. Clearly, this is the first opportunity in the Bill to implement the promise or warning that the Government made then.

The matter must be dealt with cautiously, because there are dangerous problems involved. But when those conditions have been fulfilled, as they have on this occasion, it is unnecessary for the hon. Member for Cornwall, North to take the line that he takes. He would like the House to believe that he is taking his position based on principle and hostility to retrospection. In fact, his amendment concedes that some element of retrospection is necessary. I shall be happy to give way if he will explain how some element of retrospection is not involved in the amendment which he asks the House to accept.

Mr. Pardoe

The fact of the matter is that it has become accepted by all parties in the House over a long period—

Mr. Budgen

And justified by law.

Mr. Pardoe

Yes. It has become accepted that what is said in the Budget Statement is enacted therefrom. Indeed, a large part of the whole Finance Bill starts from the Budget Statement. Therefore, for the hon. Gentleman to suggest that the things said in the Budget Statement and enacted from that date are in any way retrospective legislation is a total misuse of the word "retrospection", and the hon. Gentleman knows it perfectly well.

Mr. Rifkind

I do not know it perfectly well, because all that the hon. Gentleman has said it that it has become accepted that it is fair and reasonable that legislation retrospective to the date of the Budget Resolution should be acceptable to the House and to the country. But the hon. Gentleman knows perfectly well that a statement made in the Budget may not eventually pass into law. The House may this evening throw out any element of retrospection. Indeed, it could have removed the whole clause from the Bill. That was almost done in Standing Committee. If that happened, a statement made at the time of the Budget would not have turned into law and an attempt to create restrospective legislation would not have applied.

Any proposal, as put forward by the hon. Gentleman, to make this legislation take effect from four months ago must inevitably be retrospective. It is nonsense to suggest otherwise. Therefore, the proper amendment to accept is that put forward by my right hon. and learned Friend.

Mr. Peter Rees

It is trite to observe that these are three very important amendments and that they have generated an extremely important debate. The House has been called on to consider first the question of tax avoidance and then a constitutional question of what I conceive to be considerable significance.

I ask the House to look at the question of tax avoidance first against the tax system as a whole. I imagine that I shall not entirely carry Labour Members with me when I say that tax avoidance has become more acute of late because of the tax system under which we labour at present. It is complex and the rates are high. Indeed, on other, perhaps unrelated, occasions, even the Treasury Front Bench would be prepared to concede those two propositions.

I think that it was the hon. Member for Fife, Central (Mr Hamilton) who was disposed to demur when some of my hon. Friends commented that tax avoidance and indeed tax evasion were rife throughout our society. The hon. Gentleman remarked that lawyers were the greatest moonlighters in the House. I must declare a personal interest as a lawyer, but one who has sat on every Standing Committee on the Finance Bill but one, I think, since 1970. I have emerged bloody but I hope unbowed after six weeks in Room 10 upstairs—an experience that I shared with another lawyer, the Minister of State. These are, perhaps, personal disclaimers.

Mr. Eric S. Heffer (Liverpool, Walton)

The hon. and learned Gentleman would have been better off if he had been moonlighting.

Mr. Rees

The hon. Gentleman is absolutely right in a financial and professional sense. I would have been far better off. I hope that I shall not sound arrogant in saying that I hope I was able to make some small contributions to our debates in Committee.

I think it is also right to observe that the Revenue does not come to this problem entirely with clean hands, and that there are on the statute book a variety of provisions which have been criticised both inside and outside this House, and by the courts which have been called on to construe them. Since the hour is late, I shall not take the House through the details of those provisions. But I suggest to the Chief Secretary that if he wants to command universal acceptance for the tax system which he is commending to the House, he would be well advised to go through the whole tax code with his advisers to see whether there is not a whole range of provisions which from at this late stage could well be pruned off the statute book.

The Chief Secretary, in referring to tax avoidance, spoke of those who deliberately flout the intention of Parliament. The question we have to ask ourselves is this: how can the intention of Parliament be gleaned except from the statutes which we enact? We are all aware that the legislative process is a rather imperfect one, and that we do not always produce the finely tuned, finely designed, finished article that we had in mind when we set our hands to the task. But those outside this House are not required to look into our minds or even required to study very closely the speeches we make in our debates. They are concerned only with the finished articles and the statutes which reach the statute book. It is, in a sense, begging the question to suggest that tax avoidance is constituted where people flout the intention of Parliament. That cannot as readily be gleaned as the Chief Secretary would have us believe.

Beyond that, the mood of the House changes considerably on these questions. What is avoidance in one era becomes accepted fiscal practice in another. Before Labour Members lightly dismiss that proposition, I merely ask them to consider clause 21, which we have already passed, which has enlarged the reliefs for golden handshakes. I daresay that 10 years ago no one on the Labour side would have had a good word to say for golden handshakes. Indeed, there would have been considerable pressure to diminish even the limited reliefs that were offered by the Finance Act 1960. But times have changed and it has now been realised that very many people in constituencies represented by Labour Members will lose their jobs through the rundown of the steel industry. They will be given golden handshakes.

By a surprising turn of events, the Government have commended to us a provision designed deliberately to raise the limit so as to take people in the steel industry out of the charge to tax. I do not grudge them that relief. I merely give it to the House as an instance of a change in climate, showing that what was avoidance in one year becomes accepted practice in another.

I shall not suggest that the scheme at which the Chief Secretary has aimed his darts will ever become accepted practice. That would probably strain the credulity and imagination of the House a little too far. I am not entirely certain that the Chief Secretary understands the scheme. Certainly the amendments, moved so ably by my hon. Friend the Member for Tynemouth (Mr. Trotter), demonstrated rather clearly—although the House was somewhat empty at the time—that the Chief Secretary did not realise at what point of time the loss, and therefore the relief, would be generated. But he has presumably behind him advisers who are able at a later stage to take him aside and point out to him the error of his ways.

11.30 p.m.

The Chief Secretary was a little disposed to inflame the debate by talking about a sum of £200 million being at stake. I do not know how he can possibly tell the House what is at stake, because at an earlier stage, as the House will recall, the Chancellor of the Exchequer said that these schemes were hedged around with a secrecy which amounted to a conspiracy of silence.

But still, let us divide £200 million by four. A sum of £50 million pounds would be a considerable sum. I agree that it is a problem that we must face squarely.

So again, it is possible that I may lower slightly the temperature of debate—[Hon. Members: "Oh."] We must try to approach these problems dispassionately. I know that on occasions I have been guilty of the fault that I am attributing to the Chief Secretary.

The Chief Secretary was disposed to say that these were schemes largely undertaken by corporations. The House should know at once that the scheme at which this clause is aimed could be undertaken only by an individual. So again, I am not entirely persuaded that the Chief Secretary has understood the dimensions of the problem. I suspect that he has, perhaps, been a little overborne by the pressures of the last few months. The load of his office has, perhaps, proved too much for him. Perhaps he deserves a little rest. Perhaps we shall afford him that rest quite soon.

Again, there is a certain ambivalence in his approach to this problem because he told his hon. Friend the Member for Hayes and Harlington (Mr. Sandelson)—whose conscience so obviously needed assuaging this evening— The Revenue tells me that it does not recognise the ensuing claims as valid under existing law."—[Official Report, 25th November 1977; Vol. 939, cc. 965–66.] I have no doubt—and this is the only possible inference to be drawn from that reply—that the Inland Revenue has taken counsel's advice—perhaps from some moonlighting lawyer who knows?—perhaps even from the Solicitor-General, who by custom and practice, is prone to advising the Government on matters of this kind.

If indeed the Inland Revenue has received solid assurance from its legal advisers that it is bound to win in the courts, then I hope that it is testing these schemes and I hope that it will be proved right. I hope that the advice that has been given to the Inland Revenue is good. If the advice that has been given is good, the particular mischief of this scheme is unimportant. We are beating the air. We are being asked to perpetrate a constitutional monstrosity for no very good reason whatever.

I think that the Chief Secretary would have been well advised, perhaps, to defer asking the House to enact this clause until the courts have pronounced that the advice given to the Inland Revenue was wrong, if indeed it was.

But let us accept that the problem of tax avoidance is one that must be faced squarely by an Administration of whatever complexion. Indeed, this is a problem that has faced Conservative Administrations. For all I know, it may well have faced Sir William Harcourt back in 1894. But still, I do not think that it is necessary at this hour to take the debate so far. [HON. MEMBERS: "Hear, hear."] I am sorry that the antecedents of the Lib-Lab pact are not proving as interesting to Labour Members as I had hoped.

At an earlier stage in this debate, the Chief Secretary was disposed to say that no practical solution had been offered to the Government. I rather demur at that because I ventured to put a suggestion to the Government in Standing Committee. I asked them at least to consider the possibility of a general anti-avoidance provision, such as the Australians have laboured under for many years and, indeed, such as this country had in regard to profits tax introduced by the Finance Act 1951. But obviously my advice fell on deaf ears. The Chief Secretary was lukewarm almost to the point of frigidity about that suggestion. He was not disposed to take it up or to examine it. It may well be that after close examination it would not even commend itself to my right hon. and hon. Friends. But at least that is something that the Government should have explored before coming to the House with this provision.

Let us accept for the purposes of this debate that there are difficulties about that solution. Certainly it is not one which we have been asked to consider by the Chief Secretary tonight.

How is this matter to be met? It is to be met by legislation. Here I am led on to the whole question of retrospection. There is a purist view, which was perhaps most elequently and logically deployed by the right hon. Member for Down, South (Mr. Powell) in our debate upstairs. It was slightly less logically and elegantly deployed by the hon. Member for Cornwall, North (Mr. Pardoe) in our debate this evening. I have great sympathy with that point of view. I have been forced off it with considerable reluctance, although I should say to the hon. Member for York (Mr. Lyon), not by a recollection of any part that I may have played in the debate on the question of immigration. I am bound to say that I think he gave the House a false analogy, but perhaps there will be another occasion when we can debate that.

I do not like to bandy the phrase "the rule of law", because perhaps it has a slightly trite, almost pedagogic ring about it. It is perhaps too closely associated with the legal profession, and I do not think that we should look at this tonight as lawyers, if indeed we are. I think that this is a matter of constitutional significance which we have to judge as parliamentarians.

If on the other hand we are reluctant to accept the position that one can at no point legislate retrospectively, it will be very difficult indeed to counter schemes of this kind. I give this point to the Chief Secretary. Therefore, how, as a matter of practical politics, are we to deal with the question of avoidance, at least in this very sophisticated area? Again I give this to the Chief Secretary. The schemes are sophisticated. I do not think that they are hedged around with a secrecy which amounts to a conspiracy of silence. I have read about this in the press, as presumably has the Chief Secretary, because the answer which he gave to his hon. Friend the Member for Hayes and Harlington referred specifically to an article in The Sunday Times.

If, however, our legislation is to infringe what is generally considered to be a basic constitutional precept that it should not be retrospective, how are we to frame it. This is how the rules which have been ascribed to me by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) come into play. I believe that the root principle is that a person should be on notice of what the consequences are likely to be if he embarks on a particular scheme or a particular venture. Of course, there is a certain sanctity about the law and, of course, subject on the whole are not required to follow our debates. They are entitled to say "We stand on the statute book". But still, I think that the underlying principle is that everyone should be on notice about what the consequences of his acts are likely to be if he embarks upon them.

This is where these rules have been devised. As I said, I am a little coy about accepting their paternity because I believe that they are distilled from that experience of situations with which this House has been faced over a considerable period of time, both under Labour and Conservative Administrations. Indeed, the right hon. Member for Down, South took us back to what he called the "Black and Lord" amendments of 1948. The House has certainly been debating these matters for some 30 years, and I have no doubt for longer than that. Indeed, my right hon. and learned Friend suggested that there were precedents even before the war.

The virtue of these rules would be—I do not need to go over them again, because—[HON. MEMBERS: "Hear, hear".] I am bound to say to all those hon. Members who cheered so loudly when I disclaimed any intention of repeating them that I did not notice them in the House at the time my right hon. and learned Friend gave them to the House. As they were not, they may not perhaps entirely appreciate the consistency and good sense of the position which we Conservatives are adopting. Still, I have no doubt that before those hon. Members come to form a view and vote in the Division, they will refer to the debates which we had in Committee on 6th June.

These rules would at least have this merit. They would ensure that those who embarked on these schemes would, from the moment that the announcement was first made, be on notice that they were at risk. From the moment that the reform committee which meets at Somerset House had considered and formulated a possible clause, they would know with a certain accuracy the kind of countermeasures which would be taken. Finally, of course, they would be assured that these matters would be debated closely by this House at the earliest opportunity.

May I attempt to reassure my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) that there is no question of delegating our responsibilities to the reform committee? It is merely that it is a convenient body—it may be that another body occurs to my hon. Friend—which can look into the technicalities of this matter and produce perhaps more rapidly than would otherwise be the case, the kind of provision which we should have to consider in the next Finance Bill.

But then it is of crucial importance that the House should at the earliest opportunity consider these matters in the very next Finance Bill. This is where the Opposition take particular exception to clause 28, which has not been the subject of detailed debate. There, the warning was given—I concede that the initial warning was of a relatively precise kind—some two or more years ago, and there was ample opportunity in the last Finance Bill for the Government to have embodied this clause, had they so willed. I do not believe it is right that taxpayers should be left in a state of continuing uncertainty for a period of years.

This is the basis of the amendments. Amendment No. 5 would take Clause 27 back to 25th November last year, which was the date given by the Chief Secretary in a reasonably precise answer to a reasonably precise question. I agree that this matter was not referred to the tax reform committee, but this is perhaps a provision for the future. I concede that it has been embodied in legislative form for this House to debate and consider in some detail at the earliest opportunity. We say, with a certain reluctance but based on precedents that this House has accepted in the past, that this amendment is one which we would find acceptable. It is a compromise which we have designed to assuage the delicate susceptibilities of the Chief Secretary, who has got this problem a little out of perspective. However, if the right hon. Gentleman will not accept this carefully nurtured olive branch, the only consistent course for the Opposition will be to vote for amendment no. 79 which would make this provision law from the date of the Budget Statement.

It will be for the House and for the country outside to judge who has leaned over backwards to observe the constitutional proprieties and to meet a problem which we all recognise to exist.

On clause 28, I commend to the House amendment no. 6, which would make the clause operative only from 6th April, and that is because, consistently with the rules which my right hon. and learned Friend spelled out to the House, the Chief Secretary has failed to put the clause before the House at the earliest opportunity.

I end on this note—[HON. MEMBERS: "Hear, hear."] I am glad that I carry right hon. and hon. Members with me on this. We are fortunate in some ways and unfortunate in others in not having a written constitution. If our constitution can be spelled out, it depends on precedent and convention. If we enact these two clauses in their present form, we shall embody in our constitution a practice and a precedent which we shall regret in years to come.

I know that Government supporters have a particular horror and detestation of tax avoidance. But, before they go into the Division Lobby, they might care to ponder to which areas of public and private endeavour with which they are particularly concerned—and my right hon. and learned Friend gave one instance—the principle of retrospection which the Chief Secretary asks them to support might be applied. As he observed in Committee, this is a novel use of the weapon of retrospection.

It is not designed precisely to hit a target that has been described in advance. It is avowedly designed to create uncertainty in a field where the subject is entitled to certainty. I hope that the whole House will ponder on the consequences of passing this clause unamended tonight, and will, on reflection, accept amendments nos. 5 and 6.

11.45 p.m.

Mr. Joel Barnett

The hon. and learned Member for Dover and Deal (Mr. Rees) asks me how I know that those concerned with these schemes are flouting the intention of Parliament. Let me explain. Let us suppose that the man we are talking about enters into a partnership in a company for a fee in return for which he agrees to leave that company when he has made a sufficient loss and before it starts to make a profit. I can only describe that as an artificial scheme. I know that the hon. and learned Member does not like such schemes and nor do I.

The hon. and learned Member also suggested that genuine cases might be caught. Genuine companies and genuine people do not normally enter into a partnership with a company in order to make a loss and sign an agreement to leave before that company makes a profit. That is a somewhat unusual partnership, to say the least.

Everybody wants to stop these schemes. But nothing the hon. and learned Gentleman, or any of his hon. Friends have said tonight will stop them. Nor will it stop the industry. The courts, we are told, should deal with them. Perhaps they will find in favour of these schemes, perhaps they will not. What we do know is that, in these circumstances, tax avoidance would be able to continue and thrive.

The other amendment that the hon. and learned Member is recommending would go back to the date of the warning in November 1977. But he knows that by donig that we should not stop the industry from pursuing schemes of an identical kind. We are dealing with a few people who are able, at the expense of millions of taxpayers, to avoid large sums of money in tax payments.

We are voting tonight not for retrospection in general, but for retrospection in a narrow sense to stop an industry which is taking or seeking to take, hundreds of millions of pounds at the expense of millions of taxpayers who pay their taxes regularly. On top of that one must understand that this case and every future case would have to be approved by the House of Commons before the scheme could be stopped.

This is a novel form of retrospection, I agree. The kind of penalty we are talking about will not put people in prison, as was proposed by the Conservatives in legislation in 1971. It will not remove the status of individuals on a large scale. It will remove from a few people the opportunity to avoid tax at the expense of many. That is what we are doing tonight.

We must balance our repugnance about retrospection in legislation with the other objective and consider whether we should allow our democratic society to be held in contempt by a few people for very large sums of money at the expense of the rest of the community. Therefore, I urge my hon. Friends to dismiss the amendments.

Question put, That the amendment be made:—

The House divided: Ayes 248, Noes 275.

Division No. 264]	AYES	[11.50 p.m.
Adley, Robert	Buck, Antony	Edwards, Nicholas (Pembroke)
Aitken, Jonathan	Budgen, Nick	Elliott, Sir William
Alison, Michael	Bulmer, Esmond	Emery, Peter
Arnold, Tom	Burden, F. A.	Eyre, Reginald
Atkins, Rt Hon H. (Spelthorne)	Butler, Adam (Bosworth)	Fairgrieve, Russell
Atkinson, David (B'mouth, East)	Carlisle, Mark	Farr, John
Baker, Kenneth	Chalker, Mrs Lynda	Fell, Anthony
Banks, Robert	Channon, Paul	Finsberg, Geoffrey
Bell, Ronald	Churchill, W. S.	Fisher, Sir Nigel
Bendall, Vivian	Clark, Alan (Plymouth, Sutton)	Fletcher, Alex (Edinburgh N)
Bennett, Sir Frederic (Torbay)	Clarke, Kenneth (Rushcliffe)	Fletcher-Cooke, Charles
Bennett, Dr Reginald (Fareham)	Cockcroft, John	Fookes, Miss Janet
Benyon, W.	Cooke, Robert (Bristol W)	Forman, Nigel
Berry, Hon Anthony	Cope, John	Fox, Marcus
Biffen, John	Cormack, Patrick	Galbraith Hon T. G. D.
Biggs-Davison, John	Corrie, John	Gardiner, George (Reigate)
Blaker, Peter	Costain, A. P.	Gardner, Edward (S Fylde)
Body, Richard	Craig, Rt Hon W. (Belfast E)	Gilmour, Rt Hon Sir lan (Chesham)
Boscawen, Hon Robert	Crouch, David	Gilmour, Sir John (East Fife)
Bottomley, Peter	Crowder, F. P.	Glyn, Dr Alan
Bowden, A. (Brighton, Kemptown)	Davies, Rt Hon J. (Knutstord)	Godber, Rt Hon Joseph
Braine, Sir Bernard	Dean, Paul (N Somerset)	Goodhart, Philip
Brittan, Leon	Dodsworth, Geoffrey	Goodlad, Alastair
Brocklebank-Fowler, C.	Douglas-Hamilton, Lord James	Gorst, John
Brooke, Hon Peter	Drayson, Burnaby	Gow, lan (Eastbourne)
Brotherton, Michael	du Cann, Rt Hon Edward	Gower, Sir Raymond (Barry)
Brown, Sir Edward (Bath)	Durant, Tony	Grant, Anthony (Harrow C)
Bryan, Sir Paul	Dykes, Hugh	Gray, Hamish
Buchanan-Smith, Alick	Eden, Rt Hon Sir John	Grieve, Percy
Griffiths, Eldon	Macmillan, Rt Hon M. (Farnham)	Rossi, Hugh (Hornsey)
Grylls, Michael	McNair-Wilson, M. (Newbury)	Rost, Peter (SE Derbyshire)
Hall-Davis, A. G. F	McNair-Wilson, P. (New Forest)	Royle, Sir Anthony
Hamilton, Archibald (Epsom & Ewell)	Madel, David	Sainsbury, Tim
Hamilton, Michael (Salisbury)	Marshall, Michael (Arundel)	St. John-Stevas, Norman
Hampson, Dr Keith	Marten, Neil	Scott, Nicholas
Hannam, John	Mates, Michael	Scott-Hopkins, James
Harrison, Col Sir Harwood (Eye)	Mather, Carol	Shaw, Giles (Pudsey)
Harvie Anderson, Rt Hon Miss	Maudling, Rt Hon Reginald	Shaw, Michael (Scarborough)
Haselhurst, Alan	Maxwell-Hyslop, Robin	Shelton, William (Streatham)
Havers, Rt Hon Sir Michael	Mayhew, Patrick	Shepherd, Colin
Hawkins, Paul	Meyer, Sir Anthony	Shersby, Michael
Hayhoe, Barney	Miller, Hal (Bromsgrove)	Silvester, Fred
Heath, Rt Hon Edward	Mills, Peter	Sims, Roger
Higgins, Terence L.	Miscampbell, Norman	Sinclair, Sir George
Holland, Philip	Mitchell, David (Basingstoke)	Skeet, T. H. H.
Hordern, Peter	Moate, Roger	Smith, Timothy John (Ashfield)
Howe, Rt Hon Sir Geoffrey	Molyneaux, James	Spence, John
Howell, David (Guildford)	Moore, John (Croydon C)	Spicer, Jim (W Dorset)
Howell, Ralph (North Norfolk)	More, Jasper (Ludlow)	Spicer, Michael (S Worcester)
Hunt, David (Wirral)	Morgan, Geraint	Sproat, lain
Hunt, John (Ravensbourne)	Morris, Michael (Northampton S)	Stainton, Keith
Hurd, Douglas	Morrison, Charles (Devizes)	Stanbrook, Ivor
Hutchison, Michael Clark	Morrison, Hon Peter (Chester)	Stanley, John
Irving, Charles (Cheltenham)	Neave, Airey	Steen, Anthony (Wavertree)
James, David	Nelson, Anthony	Stewart, lan (Hitchin)
Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Neubert, Michael	Stokes, John
Jessel, Toby	Newton, Tony	Tapsell, Peter
Jones, Arthur (Daventry)	Normanton, Tom	Taylor, R. (Croydon NW)
Jopling, Michael	Onslow, Cranley	Taylor, Teddy (Cathcart)
Joseph, Rt Hon Sir Keith	Oppenheim, Mrs Sally	Tebbit, Norman
Kaberry, Sir Donald	Osborn, John	Townsend, Cyril D.
Kellett-Bowman, Mrs Elaine	Page, John (Harrow West)	Trotter, Neville
Kershaw, Anthony	Page, Rt Hon R. Graham (Crosby)	van Straubenzee, W. R.
Kimball, Marcus	Page, Richard (Workington)	Vaughan, Dr Gerard
King, Evelyn (South Dorset)	Pattie, Geoffrey	Viggers, Peter
King, Tom (Bridgwater)	Percival, Ian	Wakeham, John
Kitson, Sir Timothy	Peyton, Rt Hon John	Walder, David (Clitheroe)
Knight, Mrs Jill	Pink, R. Bonner	Walker, Rt Hon P. (Worcester)
Knox, David	Powell, Rt Hon J. Enoch	Walker-Smith, Rt Hon Sir Derek
Lamont, Norman	Prentice, Rt Hon Reg	Wall, Patrick
Langford-Holt, Sir John	Price, David (Eastleigh)	Walters, Dennis
Latham, Michael (Melton)	Pym, Rt Hon Francis	Warren, Kenneth
Lawrence, Ivan	Raison, Timothy	Weatherill, Bernard
Lawson, Nigel	Rathbone, Tim	Wells, John
Le Marchant, Spencer	Rees, Peter (Dover & Deal)	Whitelaw, Rt Hon William
Lester, Jim (Beeston)	Rees-Davies, W. R.	Whitney, Raymond
Lewis, Kenneth (Rutland)	Renton, Rt Hon Sir D. (Hunts)	Wiggin, Jerry
Lloyd, lan	Renton, Tim (Mid-Sussex)	Winterton, Nicholas
Loveridge, John	Rhodes James, R.	Wood, Rt Hon Richard
Luce, Richard	Rhys Williams, Sir Brandon	Younger, Hon George
McCrindle, Robert	Ridley, Hon Nicholas
Macfarlane, Neil	Ridsdale, Julian	TELLERS FOR THE AYES:
MacGregor, John	Rifkind, Malcolm	Mr. John Stradling Thomas and
MacKay, Andrew (Stechford)	Roberts, Wyn (Conway)	Sir George Young.
NOES
Abse, Leo	Buchanan, Richard	Davidson, Arthur
Allaun, Frank	Callaghan, Rt Hon J. (Cardiff SE)	Davies, Bryan (Enfield N)
Anderson, Donald	Callaghan, Jim (Middleton & P)	Davies, Rt Hon Denzil
Archer, Rt Hon Peter	Canavan, Dennis	Davies, Ifor (Gower)
Armstrong, Ernest	Carmichael, Neil	Davis, Clinton (Hackney C)
Atkins, Ronald (Preston N)	Carter-Jones, Lewis	Deakins, Eric
Atkinson, Norman (H'gey, Tott'ham)	Cartwright, John	Dean, Joseph (Leeds West)
Bagier, Gordon A. T.	Castle, Rt Hon Barbara	de Freitas, Rt Hon Sir Geoffrey
Bain, Mrs Margaret	Clemitson, Ivor	Dell, Rt Hon Edmund
Barnett, Guy (Greenwich)	Cocks, Rt Hon Michael (Bristol S)	Dempsey, James
Barnett, Rt Hon Joel (Heywood)	Cohen, Stanley	Dewar, Donald
Bates, Alf	Coleman, Donald	Doig, Peter
Bean, R. E.	Concannon, Rt Hon John	Dormand, J. D.
Benn, Rt Hon Anthony Wedgwood	Cook, Robin F. (Edin C)	Duffy, A. E. P.
Bidwell, Sydney	Corbett, Robin	Dunn, James A.
Bishop, Rt Hon Edward	Cowans, Harry	Dunwoody, Mrs Gwyneth
Blenkinsop, Arthur	Cox, Thomas (Tooting)	Eadie, Alex
Booth, Rt Hon Albert	Craigen, Jim (Maryhill)	Edge, Geoff
Boothroyd, Miss Betty	Crawford, Douglas	Edwards, Robert (Wolv SE)
Bottomley, Rt Hon Arthur	Crawshaw, Richard	Ellis, John (Brigg & Scun)
Bradley, Tom	Cronin, John	Ellis, Tom (Wrexham)
Bray, Dr Jeremy	Crowther, Stan (Rotherham)	English, Michael
Brown, Hugh D. (Provan)	Cryer, Bob	Evans, Fred (Caerphilly)
Brown, Robert C. (Newcastle W)	Cunningham, G. (Islington S)	Evans, Gwynfor (Carmarthen)
Brown, Ronald (Hackney S)	Cunningham, Dr J. (Whiteh)	Evans, Ioan (Aberdare)
Buchan, Norman	Dalyell, Tam	Evans, John (Newton)

Ewing, Harry (Stirling)	McCartney, Hugh	Sedgemore, Brian
Fernyhough, Rt Hon E.	McDonald, Dr Oonagh	Selby, Harry
Fitch, Alan (Wigan)	McElhone, Frank	Sever, John
Flannery, Martin	MacFarquhar, Roderick	Shaw, Arnold (llford South)
Fletcher, Ted (Darlington)	McGuire, Michael (Ince)	Sheldon, Rt Hon Robert
Foot, Rt Hon Michael	MacKenzie, Rt Hon Gregor	Shore, Rt Hon Peter
Fowler, Gerald (The Wrekin)	Maclennan, Robert	Short, Mrs Renée (Wolv NE)
Fraser, John (Lambeth, N'w'd)	McMillan, Tom (Glasgow C)	Silkin, Rt Hon John (Deptford)
Freeson, Rt Hon Reginald	McNamara, Kevin	Silkin, Rt Hon S. C. (Dulwich)
Garrett, John (Norwich S)	Madden, Max	Silverman, Julius
Garrett, W. E. (Wallsend)	Magee, Bryan	Skinner, Dennis
George, Bruce	Mahon, Simon	Smith, Rt. Hon. John (N Lanarkshire)
Gilbert, Rt Hon Dr John	Mallalieu, J. P. W.	Snape, Peter
Ginsburg, David	Marshall, Dr Edmund (Goole)	Spearing, Nigel
Golding, John	Mason, Rt Hon Roy	Spriggs, Leslie
Gourlay, Harry	Maynard, Miss Joan	Stallard, A. W.
Graham, Ted	Meacher, Michael	Stewart, Rt Hon M. (Fulham)
Grant, John (Islington C)	Mikardo, lan	Stoddart, David
Grocott, Bruce	Millan, Rt Hon Bruce	Stott, Roger
Hamilton, W. W. (Central Fife)	Miller, Dr M. S. (E Kilbride)	Strang, Gavin
Hardy, Peter	Mitchell, Austin (Grimsby)	Summerskill, Hon Dr Shirley
Harrison, Rt Hon Walter	Mitchell, R. C. (Solon, Itchen)	Swain, Thomas
Hart, Rt Hon Judith	Molloy, William	Taylor, Mrs Ann (Bolton W)
Hattersley, Rt Hon Roy	Moonman, Eric	Thomas, Dafydd (Merioneth)
Hayman, Mrs Helene	Morris, Alfred (Wythenshawe)	Thomas, Jeffrey (Abertillery)
Healey, Rt Hon Denis	Morris, Rt Hon Charles R.	Thomas, Mike (Newcastle E)
Heffer, Eric S.	Morris, Rt Hon J. (Aberavon)	Thomas, Ron (Bristol NW)
Henderson, Douglas	Moyle, Rt Hon Roland	Thompson, George
Hooley, Frank	Murray, Rt Hon Ronald King	Thorne, Stan (Preston South)
Horam, John	Newens, Stanley	Tierney, Sydney
Howell, Rt Hon Denis (B'ham, Sm H)	Noble, Mike	Tilley, John
Hoyle, Doug (Nelson)	Oakes, Gordon	Tinn, James
Huckfield, Les	Ogden, Eric	Tomlinson, John
Hughes, Mark (Durham)	O'Halloran, Michael	Tomney, Frank
Hughes, Robert (Aberdeen N)	Orbach, Maurice	Torney, Tom
Hughes, Roy (Newport)	Orme, Rt Hon Stanley	Tuck, Raphael
Hunter, Adam	Ovenden, John	Urwin, T. W.
Irvine, Rt Hon Sir A. (Edge Hill)	Owen, Rt Hon Dr David	Varley, Rt Hon Eric G.
Irving, Rt Hon S. (Dartford)	Palmer, Arthur	Walker, Harold (Doncaster)
Jackson, Miss Margaret (Lincoln)	Park, George	Walker, Terry (Kingswood)
Janner, Greville	Parker, John	Ward, Michael
Jay, Rt Hon Douglas	Parry, Robert	Watkins, David
Jeger, Mrs Lena	Pavitt, Laurie	Watkinson, John
Jenkins, Hugh (Putney)	Pendry, Tom	Weetch, Ken
John Brynmor	Perry, Ernest	Weitzman, David
Johnson, James (Hull West)	Phipps, Dr Colin	Wellbeloved, James
Johnson, Walter (Derby S)	Prescott, John	White, Frank R. (Bury)
Jones, Alec (Rhondda)	Price, C. (Lewisham W)	White, James (Pollok)
Jones, Dan (Burnley)	Price, William (Rugby)	Whitehead, Phillip
Judd, Frank	Radice, Giles	Whitlock, William
Kaufman, Rt Hon Gerald	Rees, Rt Hon Merlyn (Leeds S)	Wigley, Dafydd
Kerr, Russell	Reid, George	Willey, Rt Hon Frederick
Kilroy-Silk, Robert	Richardson, Miss Jo	Williams, Rt Hon Alan (Swansea W)
Kinnock, Neil	Roberts, Albert (Normanton)	Williams, Alan Lee (Hornch'ch)
Lambie, David	Roberts, Gwilym (Cannock)	Williams, Rt Hon Shirley (Hertford)
Lamond, James	Robertson, George (Hamilton)	Williams, Sir Thomas (Warrington)
Latham, Arthur (Paddington)	Robinson, Geoffrey	Wilson, Gordon (Dundee E)
Leadbitter, Ted	Roderick, Caerwyn	Wilson, Rt Hon Sir Harold (Huyton)
Lestor, Miss John (Eton & Slough)	Rodgers, George (Chorley)	Wilson, William (Coventry SE)
Lever, Rt Hon Harold	Rodgers, Rt Hon William (Stockton)	Wise, Mrs Audrey
Lewis, Ron (Carlisle)	Rooker, J. W.	Woof, Robert
Litterick, Tom	Roper, John	Wrigglesworth, Ian
Loyden, Eddie	Rose, Paul B.	Young, David (Bolton E)
Luard, Evan	Ross, Rt Hon W. (Kilmarnock)
Lyon, Alexander (York)	Rowlands, Ted	TELLERS FOR THE NOES:
Lyons, Edward (Bradford W)	Ryman, John	Mr. James Hamilton and
Mabon, Rt Hon Dr J. Dickson	Sandelson, Neville	Mr. Jim Marshall.

Question accordingly negatived.

Amendment proposed: No. 79, in page 21, line 1, leave out 'wholly before 6th April 1976' and insert 'before 11th April 1978'.—[Mr. Pardoe.]

Question put, That the amendment be made:—

The House divided: Ayes 254, Noes 275.

Division No. 265]	AYES	[12.04 a.m.
Adley, Robert	Arnold, Tom	Baker, Kenneth
Aitken, Jonathan	Atkins, Rt Hon H. (Spelthorne)	Banks, Robert
Alison, Michael	Atkinson, David (B'mouth, East)	Bell, Ronald
Bendall, Vivian	Hamilton, Michael (Salisbury)	Page, Rt Hon R. Graham (Crosby)
Bennett, Sir Frederic (Torbay)	Hampson, Dr Keith	Page, Richard (Workington)
Bennett, Dr Reginald (Fareham)	Hannam, John	Pardoe, John
Benyon, W.	Harrison, Col Sir Harwood (Eye)	Pattie, Geoffrey
Berry, Hon Anthony	Harvie Anderson, Rt Hon Miss	Percival, Ian
Biffen, John	Haselhurst, Alan	Peyton, Rt Hon John
Biggs-Davison, John	Havers, Rt Hon Sir Michael	Pink, R. Bonner
Blaker, Peter	Hawkins, Paul	Powell, Rt Hon J. Enoch
Body, Richard	Hayhoe, Barney	Prentice, Rt Hon Reg
Boscawen, Hon Robert	Heath, Rt Hon Edward	Price, David (Eastleigh)
Bottomley, Peter	Higgins, Terence L.	Pym, Rt Hon Francis
Bowden, A. (Brighton, Kemptown)	Holland, Philip	Raison, Timothy
Brittan, Leon	Hordern, Peter	Rathbone, Tim
Brocklebank-Fowler, C.	Howe, Rt Hon Sir Geoffrey	Rees, Peter (Dover & Deal)
Brooke, Hon Peter	Howell, David (Guildford)	Rees-Davies, W. R.
Brotherton, Michael	Howell, Ralph (North Norfolk)	Renton, Rt Hon Sir D. (Hunts)
Brown, Sir Edward (Bath)	Hunt, David (Wirral)	Renton, Tim (Mid-Sussex)
Bryan, Sir Paul	Hunt, John (Ravensbourne)	Rhodes James, R.
Buchanan-Smith, Alick	Hurd, Douglas	Rhys Williams, Sir Brandon
Buck, Antony	Hutchison, Michael Clark	Ridley, Hon Nicholas
Budgen, Nick	James, David	Ridsdale, Julian
Bulmer, Esmond	Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Rifkind, Malcolm
Burden, F. A.	Jessel, Toby	Roberts, Wyn (Conway)
Butler, Adam (Bosworth)	Jones, Arthur (Daventry)	Ross, Stephen (Isle of Wight)
Carlisle, Mark	Jopling, Michael	Ross, William (Londonderry)
Chalker, Mrs Lynda	Joseph, Rt Hon Sir Keith	Rost, Peter (SE Derbyshire)
Channon, Paul	Kaberry, Sir Donald	Royle, Sir Anthony
Churchill, W. S.	Kellett-Bowman, Mrs Elaine	Sainsbury, Tim
Clark, Alan (Plymouth, Sutton)	Kershaw, Anthony	St. John-Stevas, Norman
Clarke, Kenneth (Rushcliffe)	Kimball, Marcus	Scott, Nicholas
Cockcroft, John	King, Evelyn (South Dorset)	Scott-Hopkins, James
Cook, Robin F. (Edin C)	King, Tom (Bridgwater)	Shaw, Giles (Pudsey)
Cope, John	Kitson, Sir Timothy	Shaw, Michael (Scarborough)
Cormack, Patrick	Knight, Mrs Jill	Shelton, William (Streatham)
Corrie, John	Knox, David	Shepherd, Colin
Costain, A. P.	Lamont, Norman	Shersby, Michael
Craig, Rt Hon W. (Belfast E)	Langford-Holt, Sir John	Silvester, Fred
Crouch, David	Latham, Michael (Melton)	Sims, Roger
Crowder, F. P.	Lawrence, Ivan	Sinclair, Sir George
Davies, Rt Hon J. (Knutsford)	Lawson, Nigel	Skeet, T. H. H.
Dean, Paul (N Somerset)	Le Marchant, Spencer	Smith, Timothy John (Ashfield)
Dodsworth, Geoffrey	Lester, Jim (Beeston)	Spence, John
Douglas-Hamilton, Lord James	Lewis, Kenneth (Rutland)	Spicer, Jim (W Dorset)
Drayson, Burnaby	Lloyd, Ian	Spicer, Michael (S Worcester)
du Cann, Rt Hon Edward	Loveridge, John	Sproat, Iain
Durant, Tony	Luce, Richard	Stainton, Keith
Dykes, Hugh	McCrindle, Robert	Stanbrook, Ivor
Eden, Rt Hon Sir John	Macfarlane, Neil	Stanley, John
Edwards, Nicholas (Pembroke)	MacGregor, John	Steel, Ft Hon David
Elliott, Sir William	MacKay, Andrew (Stechford)	Steen, Anthony (Wavertree)
Emery, Peter	Macmillan, Rt Hon M. (Farnham)	Stewart, Ian (Hitchin)
Eyre, Reginald	McNair-Wilson, M. (Newbury)	Stokes, John
Fairgrieve, Russell	McNair-Wilson, P. (New Forest)	Stradling Thomas, J.
Farr, John	Madel, David	Tapsell, Peter
Fell, Anthony	Marshall, Michael (Arundel)	Taylor, R. (Croydon NW)
Finsberg. Geoffrey	Marten, Neil	Taylor, Teddy (Cathcart)
Fisher, Sir Nigel	Mates, Michael	Tebbit, Norman
Fletcher, Alex (Edinburgh N)	Mather, Carol	Thorpe, Pt Hon Jeremy (N Devon)
Fletcher-Cooke, Charles	Maudling, Rt Hon Reginald	Townsend, Cyril D.
Fookes, Miss Janet	Maxwell-Hyslop, Robin	Trotter, Neville
Forman, Nigel	Mayhew, Patrick	van Straubenzee, W. R.
Fox, Marcus	Meyer, Sir Anthony	Vaughan, Dr Gerard
Freud, Clement	Miller, Hal (Bromsgrove)	Viggers, Peter
Galbraith Hon T. G. D.	Mills, Peter	Wakeham, John
Gardiner, George (Reigate)	Miscampbell, Norman	Walder, David (Clitheroe)
Gardner, Edward (S Fylde)	Mitchell, David (Basingstoke)	Walker, Rt Hon P. (Worcester)
Gilmour, Rt Hon Sir Ian (Chesham)	Moate, Roger	Walker-Smith, Rt Hon Sir Derek
Gilmour, Sir John (East Fife)	Molyneaux, James	Wall, Patrick
Glyn, Dr Alan	Moore, John (Croydon C)	Walters, Dennis
Godber, Rt Hon Joseph	More, Jasper (Ludlow)	Warren, Kenneth
Goodhart, Philip	Morgan, Geraint	Weatherill, Bernard
Goodlad, Alastair	Morris, Michael (Northampton S)	Wells, John
Gorst, John	Morrison, Charles (Devizes)	Whitelaw, Rt Hon William
Gow, Ian (Eastbourne)	Morrison, Hon Peter (Chester)	Whitney, Raymond
Gower, Sir Raymond (Barry)	Neave, Airey	Wiggin, Jerry
Grant, Anthony (Harrow C)	Nelson, Anthony	Winterton, Nicholas
Gray, Hamish	Neubert, Michael	Wood, Rt Hon Richard
Grieve, Percy	Newton, Tony	Young, Sir G. (Ealing, Acton)
Griffiths, Eldon	Normanton, Tom	Younger, Hon George
Grimond, Rt Hon J.	Onslow, Cranley
Grylls, Michael	Oppenheim, Mrs Sally	TELLERS FOR THE AYES:
Hall-Davis, A. G. F	Osborn, John	Mr A. J. Beith and
Hamilton, Archibald (Epsom & Ewell)	Page, John (Harrow West)	Mr. Richard Wainwright.

NOES
Abse, Leo	Fletcher, Ted (Darlington)	Millan, Rt Hon Bruce
Allaun, Frank	Foot, Rt Hon Michael	Miller, Dr M. S. (E Kilbride)
Anderson, Donald	Fowler, Gerald (The Wrekin)	Mitchell, Austin (Grimsby)
Archer, Rt Hon Peter	Fraser, John (Lambeth, N'w'd)	Mitchell, R. C. (Soton, Itchen)
Armstrong, Ernest	Freeson, Rt Hon Reginald	Molloy, William
Atkins, Ronald (Preston N)	Garrett, John (Norwich S)	Moonman, Eric
Atkinson, Norman (H'gey, Tott'ham)	Garrett, W. E. (Wallsend)	Morris, Alfred (Wythenshawe)
Bagier, Gordon A. T.	George, Bruce	Morris, Rt Hon Charles R.
Bain, Mrs Margaret	Gilbert, Rt Hon Dr John	Morris, Rt Hon J. (Aberavon)
Barnett, Guy (Greenwich)	Ginsburg, David	Moyle, Roland
Barnett, Rt Hon Joel (Heywood)	Golding, John	Murray, Rt Hon Ronald King
Bates, Alf	Gourlay, Harry	Newens, Stanley
Bean, R. E.	Grant, John (Islington C)	Noble, Mike
Benn, Rt Hon Anthony Wedgwood	Grocott, Bruce	Oakes, Gordon
Bidwell, Sydney	Hamilton, James (Bothwell)	Ogden, Eric
Bishop, Rt Hon Edward	Hamilton, W. W. (Central Fife)	O'Halloran, Michael
Blenkinsop, Arthur	Hardy, Peter	Orbach, Maurice
Booth, Rt Hon Albert	Harrison, Rt Hon Walter	Orme, Rt Hon Stanley
Boothroyd, Miss Betty	Hart, Rt Hon Judith	Ovenden, John
Bottomley, Rt Hon Arthur	Hattersley, Rt Hon Roy	Owen, Rt Hon Dr David
Bradley, Tom	Hayman, Mrs Helene	Palmer, Arthur
Bray, Dr Jeremy	Healey, Rt Hon Denis	Park, George
Brown, Hugh D. (Provan)	Heffer, Eric S.	Parker, John
Brown, Robert C. (Newcastle W)	Henderson, Douglas	Parry, Robert
Brown, Ronald (Hackney S)	Hooley, Frank	Pavitt, Laurie
Buchan, Norman	Horam, John	Pendry, Tom
Buchanan, Richard	Howell, Rt Hon Denis (B'ham, Sm H)	Perry, Ernest
Callaghan, Rt Hon J. (Cardiff SE)	Hoyle, Doug (Nelson)	Phipps, Dr Colin
Callaghan, Jim (Middleton & P)	Huckfield, Les	Prescott, John
Canavan, Dennis	Hughes, Mark (Durham)	Price, C. (Lewisham W)
Carmichael, Neil	Hughes, Robert (Aberdeen N)	Price, William (Rugby)
Carter-Jones, Lewis	Hughes, Roy (Newport)	Radice, Giles
Cartwright, John	Hunter, Adam	Rees, Rt Hon Merlyn (Leeds S)
Castle, Rt Hon Barbara	Irvine, Rt Hon Sir A. (Edge Hill)	Reid, George
Clemitson, Ivor	Irving, Rt Hon S. (Dartford)	Richardson, Miss Jo
Cocks, Rt Hon Michael (Bristol S)	Jackson, Miss Margaret (Lincoln)	Roberts, Albert (Normanton)
Cohen, Stanley	Janner, Greville	Roberts, Gwilym (Cannock)
Coleman, Donald	Jay, Rt Hon Douglas	Robertson, George (Hamilton)
Concannon, Rt Hon John	Jeger, Mrs Lena	Robinson, Geoffrey
Cook, Robin F. (Edin C)	Jenkins, Hugh (Putney)	Roderick, Caerwyn
Corbett, Robin	John Brynmor	Rodgers, George (Chorley)
Cowans, Harry	Johnson, James (Hull West)	Rodgers, Rt Hon William (Stockton)
Craigen, Jim (Maryhill)	Johnson, Walter (Derby S)	Rooker, J. W.
Crawford, Douglas	Jones, Alec (Rhondda)	Roper, John
Crawshaw, Richard	Jones, Dan (Burnley)	Rose, Paul B.
Cronin, John	Judd, Frank	Ross, Rt Hon W. (Kilmarnock)
Crowther, Stan (Rotherham)	Kaufman, Gerald	Rowlands, Ted
Cryer, Bob	Kerr, Russell	Ryman, John
Cunningham, G. (Islington S)	Kilroy-Silk, Robert	Sandelson, Neville
Cunningham, Dr J. (Whiteh)	Kinnock, Neil	Sedgemore, Brian
Dalyell, Tam	Lambie, David	Selby, Harry
Davidson, Arthur	Lamond, James	Sever, John
Davies, Bryan (Enfield N)	Latham, Arthur (Paddington)	Shaw, Arnold (llford South)
Davies, Rt Hon Denzil	Leadbitter, Ted	Sheldon, Rt Hon Robert
Davies, Ifor (Gower)	Lestor, Miss Joan (Eton & Slough)	Shore, Rt Hon Peter
Davis, Clinton (Hackney C)	Lever, Rt Hon Harold	Short, Mrs Renée (Wolv NE)
Deakins, Eric	Lewis, Ron (Carlisle)	Silkin, Rt Hon John (Deptford)
Dean, Joseph (Leeds West)	Litterick, Tom	Silkin, Rt Hon S. C. (Dulwich)
de Freitas, Rt Hon Sir Geoffrey	Loyden, Eddie	Silverman, Julius
Dell, Rt Hon Edmund	Luard, Evan	Skinner, Dennis
Dempsey, James	Lyon, Alexander (York)	Smith, Rt. Hon. John (N Lanarkshire)
Dewar, Donald	Lyons, Edward (Bradford W)	Snape, Peter
Doig, Peter	Mabon, Rt Hon Dr J. Dickson	Spearing, Nigel
Dormand, J. D.	McCartney, Hugh	Spriggs, Leslie
Duffy, A. E. P.	McDonald, Dr Oonagh	Stallard, A. W.
Dunn, James A.	McElhone, Frank	Stewart, Rt Hon M. (Fulham)
Dunwoody, Mrs Gwyneth	MacFarquhar, Roderick	Stoddart, David
Eadie, Alex	McGuire, Michael (Ince)	Stott, Roger
Edge, Geoff	MacKenzie, Rt Hon Gregor	Strang, Gavin
Edwards, Robert (Wolv SE)	Maclennan, Robert	Summerskill, Hon Dr Shirley
Ellis, John (Brigg & Scun)	McMillan, Tom (Glasgow C)	Swain, Thomas
Ellis, Tom (Wrexham)	McNamara, Kevin	Taylor, Mrs Ann (Bolton W)
English, Michael	Madden, Max	Thomas, Dafydd (Merioneth)
Evans, Fred (Caerphilly)	Magee, Bryan	Thomas, Jeffrey (Abertillery)
Evans, Gwynfor (Carmarthen)	Mahon, Simon	Thomas, Mike (Newcastle E)
Evans, Ioan (Aberdare)	Mallalieu, J. P. W.	Thomas, Ron (Bristol NW)
Evans, John (Newton)	Marshall, Dr Edmund (Goole)	Thompson, George
Ewing, Harry (Stirling)	Marshall, Jim (Leicester S)	Thorne, Stan (Preston South)
Faulds, Andrew	Mason, Rt Hon Roy	Tierney, Sydney
Fernyhough, Rt Hon E.	Maynard, Miss Joan	Tilley, John
Fitch, Alan (Wigan)	Meacher, Michael	Tinn, James
Flannery, Martin	Mikardo, Ian	Tomlinson, John

Tomney, Frank	Weitzman, David	Wilson, Gordon (Dundee E)
Torney, Tom	Wellbeloved, James	Wilson, Rt Hon Sir Harold (Huyton)
Tuck, Raphael	White, Frank R. (Bury)	Wilson, William (Coventry SE)
Urwin, T. W.	White, James (Pollok)	Wise, Mrs Audrey
Varley, Rt Hon Eric G.	Whitehead, Phillip	Woof, Robert
Walker, Harold (Doncaster)	Whitlock, William	Wrigglesworth, Ian
Walker, Terry (Kingswood)	Wigley, Dafydd	Young, David (Bolton E)
Ward, Michael	Willey, Rt Hon Frederick
Watkins, David	Williams, Rt Hon Alan (Swansea W)	TELLERS FOR THE NOES:
Watkinson, John	Williams, Alan Lee (Hornch'ch)	Mr Ted Graham and
Weetch, Ken	Williams, Rt Hon Shirley (Hertford)	Mr Thomas Cox.

Question accordingly negatived.

Sir G. Howe

On a point of order, Mr. Deputy Speaker. I understood that amendment no. 6 had been selected for a vote.

Mr. Deputy Speaker (Sir Myer Galpern)

No. I am afraid that I must rule that amendment no. 6 has not been selected for a vote—only for debate.

Further consideration adjourned.—[Mr. Joel Barnett.]

Bill, as amended in the Committee and in the Standing Committee, to be further considered this day.