THE INDEXATION ALLOWANCE (Hansard, 13 July 1982)

§ Mr. Ridley
I beg to move amendment No. 98, in page 181, line 44, at end insert 'any of the following enactments applying to the initial disposal, namely'. With this it is convenient to take amendment No. 99, which is consequential. The amendments correct an error in the Bill. They remove a small uncertainty in the drafting and put the estimate of a disposal by a personal representative of a legatee on the basis that the Government originally intended.

§ Mr. Ridley
On a point of order, Mr. Deputy Speaker. It might be more convenient if we take amendment No. 175 with the next group of amendments.

Mr. Deputy Speaker
If the House agrees, we can take amendment No. 175 with the next group. To avoid any confusion, I shall ask the Financial Secretary to move amendment No. 175.

§ Mr. Ridley
I beg to move amendment No. 175, in page 185, line 3, leave out 'paragraph' and insert 'Part of this Schedule'.

Mr. Deputy Speaker
With this it will be convenient to take the following amendments: No. 163, in page 185, line 5, leave out 'Subject to paragraphs 9 and 11 below'. Government amendment No. 176.
No. 164, in page 185, line 28, leave out paragraph 9.
Government amendment No. 177.
No. 165, in page 186, line 15, leave out paragraph 10.
Government amendments Nos. 178 and 179.

§ Mr. Ridley
I am grateful to you, Mr. Deputy Speaker, for allowing us to discuss the next group together because the amendments all deal with the transitional arrangements for capital gains tax indexation between the 12 months immediately before 5 April this year and the period after that. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) put down some useful suggestions in those amendments. I hope that my hon. Friend will excuse me if I outline the matters. I do not wish to trespass on his amendments and I look forward to hearing what he says.
The first question is, what should be the treatment of share pools between 9 March 1982 and the end of the financial year, 5 April 1982? The second question is, what should be the treatment of share pools in the 12 months before the beginning of the financial year 1981–82? My hon. Friend and the Government are at one on what should be done about the three weeks between the Budget and the end of the financial year. We both suggest the abolition of special rules. The cost of this abolition is negligible. It is unmeasurable. There was no forestalling, and there were no bed and breakfast transactions designed to take advantage of the situation. I must concede to my hon. Friend that the legislation was not published. Even if it had been published, it would have been so complicated that nobody could have taken advantage of the short period in a way that the rules sought to guard against. We are at one that those rules should be abolished.
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As regards the transitional period, while shares in a pool prior to the Budget are waiting to acquire their 12 months' maturity, so to speak, so that they can become subject to the indexation allowance, my hon. Friend again suggests abolition. I should have liked to go along with him on that. It would have saved a great deal of transitional complication and it would have been easier for the taxpayer and the Revenue. However, there is a snag and it is for that reason only that we have not been able to accommodate him. This concession would cost £7 million in 1983–84 and £40 million in the first full year. In subsequent full years the amount would decline, but the cost might amount to £100 million overall.
If we were to make that concession for assets bought within less than a year of Budget day, so that they are entitled to the first year's indexation, we would have to extend that concession to non-quoted shares and other assets such as land, buildings and works of art. That would double the cost of the concession. Therefore, after a severe analysis, I must advise the House that to accept the amendment could cost, over a number of years, as much as £200 million.
Instead, we suggest modified rules under which the cost will be much lower—£5 million or less—in the first full year. These rules are much less complicated and restrictive. Although they are not all that my hon. Friend might wish, they go some way to simplifying the tax as well as making it slightly easier to administer. If my hon. Friend wishes, I can detail the new arrangements, but they are complicated and the House might have already studied them and be aware of what is proposed in the Government amendments.
My hon. Friend has been a persistent and well-informed critic of the detailed provisions of the capital gains indexation, while at the same time supporting the Goverment's intentions. I have nothing but admiration and gratitude for the way that he has made us look at all these points and seek to simplify and improve the tax. I pay tribute to his understanding, percipience and persistence. His main criticism is that it is not possible to continue with share pooling and that we should move to the share identification rules instead.
Although I cannot meet that point, the Government recognise that the ending of share pooling may cause problems for institutional investors such as the life offices, particularly in the use of their computers. We have, therefore, asked the Revenue to undertake discussions with the institutions on how the new rules can best be implemented in practice. I hope that those discussions will help them with their technical problems and we shall do our utmost to meet any reasonable requests that result from them.

§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
It is very difficult, after such a gracious tribute from my hon. Friend the Financial Secretary, to have anything critical to say. For some weeks we have had not a running battle but certainly a running and interesting discussion. Correspondence has taken place between myself and the Minister and between financial institutions and the Minister.
Particularly after an exchange such as we had in the early hours of this morning, I should not like the Treasury team—under the leadership of the Financial Secretary it has been a team—to think that the investing community, 942 of which I am one, as the House well knows, have been ungrateful to the Government for their willingness to concede the point that indexation of capital gains is proper, because to tax capital gains is a right thing but capital confiscation is a bad thing.
The Government have gone a very long way upon the path towards seeing that justice is done to those who invest their capital and wish to see it grow and not to be taken away from them.
I recognise—as does anyone who understands the problem—that when we try to draw up legislation to stop people avoiding tax but at the same time to let them take the full benefits of private gain, the complications are tremendous. It is shown by the fact that the very schedule that we are discussing tonight—which should be basically a simple one, because it is dealing only with one-year arrangements and in many ways is dealing only with a matter of months—takes up about eight pages of the Bill, so the complications involved are obviously many.
I am particularly heartened by the way that the Financial Secretary has been willing to understand that the comments from institutions, and particularly from the life offices and the Stock Exchange, have not been carping comments; the intention has simply been to try to make an excellent idea work better. I am glad to acknowledge that we have, at this late stage in the Bill, arrived at a stage where each side understands the other that much better. I do not altogether accept the Financial Secretary's suggestion that the total cost over some years could be £200 million if adopted my suggestions. Figures prepared for me show that the total cost over a period might be more like £30 million.
After an interesting and fruitful debate over some weeks and months, we have reached the stage where the Treasury is willing to accept that the investing public are grateful for the intentions and are willing to discuss the matter further so that a good idea can be made to work better. Therefore, it would be churlish of me not to accept the good faith of the Government and of the Financial Secretary, which I have never had any reason to doubt. In those circumstances, I shall not wish to pursue my amendment.