§ Question proposed, That the clause stand part of the Bill.
§ Mr. Brooke
When the Government came into office in 1979, capital gains tax was unjust and damaging. Its most inequitable feature was that it taxed inflationary gains: it was in part a tax on maintaining the real value of the taxpayer's original capital. It was for that reason that we introduced indexation relief in 1982. In 1985, the indexation provisions were extended to give full relief for the effects of inflation after 1982. But at that time it was not possible to remove the charge on the inflationary gains of the 1960s and 1970s. The cost was too high.
My right hon. Friend's careful stewardship of the public finances has enabled him to tackle the problem in his Budget this year. That is what clause 91 does. Ideally, we would have extended indexation back to 1965, but when we looked into it, we found major difficulties. Quite often, the necessary records would no longer be available, particularly with shares, where there are provisions for pooling the cost of shareholdings built up in stages, and the precise cost and date of acquisition of a particular block of shares may well not have been retained. Moreover, extending indexation back in this way would have involved a very substantial compliance burden on taxpayers, who would often have had to undertake a good deal of work to put capital gains computations on the new basis; and it could have added significantly to the Inland Revenue's staff costs. Those practical problems ruled out the possibility of indexing the system back to 1965.
Instead, what clause 91 and schedule 7 do is bring forward the base date for computing capital gains from 1965 to 1982. This means that capital gains and losses will be confined to gains and losses arising since 1982, and of course only to real changes since then.
As in 1965, when capital gains tax was introduced, there are special rules to prevent taxpayers from being taxed on a larger gain, or given relief for a larger loss, than they have actually made. One example might be where a shareholding was bought for, say, £10,000 in 1975; was worth £2,000 in 1982; and is sold in 1988 for £15,000. Since 1982, the gain is £13,000, but overall only £5,000. The new rules will ensure that the taxable gain—subject to indexation—will be limited to the taxpayer's actual gain of £5,000. Another example is of shareholding bought for, say, £10,000 in 1975 which was worth £20,000 in 1982 and is sold in 1988 for £8,000. Here—again subject to indexation—the loss for tax purposes will be the taxpayer's actual loss of £2,000, not the £12,000 decrease in value since 1982.
§ Mr. Dafydd Wigley (Caernarfon)
I am following with interest, as I did at the time of the Budget, and I can see how that is worked out in relation to shares that had a specific value in 1982. But how will a computation be made in relation to, say, a second home? How will the value of that home in 1982 be established? If it is done by taking its present value and working back on an indexation basis, does that not automatically cancel out any liability to capital gains tax? Surely there is a considerable difficulty here. What advice can the Minister give on how to overcome it?
§ Mr. Brooke
The hon. Gentleman is quite right: it is a difficult issue. But it is an issue that already obliges us to make valuations from 1982 for the purposes of the existing legislation, and it is therefore something in which we have practice. I would be the last to deny that it is difficult, but nevertheless it is already under way.
In some cases there may be a gain under present rules and a loss since 1982, or vice versa; or there may be neither a gain nor a loss under the pre-Budget system. In those circumstances, the clause provides that from 6 April there will be neither a gain nor a loss for tax purposes. Again, there were equivalent rules in 1965 when capital gains tax was introduced.
These rules are fair, but they complicate the system, and they mean that many people will have to continue to keep records going back before 1982. As I have said, there were similar rules for 1965, when CGT was introduced. However, taxpayers were then able to make an election, covering their quoted shares and securities, that gains and losses would always be computed by reference to the 1965 market value, rather than under the special rules. Clearly, where an election was made, taxpayers were relieved of the need to keep pre-1965 records.
It has been suggested to us that, rather than be required to maintain pre-1982 records, some people would prefer to be able to make a similar election for 1982. This would of course mean that they would lose the protection of the special rules in the Bill. But it would in some cases relieve them of a significant compliance burden, and simplify their capital gains tax computations. And it would be wholly at the taxpayer's option.
We have decided that there is considerable merit in these suggestions. We propose to introduce measures under which taxpayers will be able to elect that, from 6 April 1988, their gains and losses on assets acquired before 1982 should be computed by reference to 1982 market values.
An election of this kind will be irrevocable. It will apply to all a taxpayer's assets, and to all his disposals after 6 April this year, including any that precede the election. In the case of groups of companies, it will have to be made—as was the case with the 1965 election—by the principal company, on behalf of the whole group.
If taxpayers' liabilities are not to remain open indefinitely, a time limit has to be set for making such an election. We propose that there should be two legs to this. First, all taxpayers will be able to make an election between now and April 1990, whether or not they make a disposal during that period of an asset acquired before 1982.
§ Mr. Boswell
May I intervene briefly with a simple query? We are aware that changes are being made in the 171 taxation of husband and wife. Will some special provision be necessary in that case, or is the matter already covered in existing law?
§ Mr. Brooke
The simple answer is that the taxation relating to husband and wife does not come in until 1990. Nevertheless, I shall pay attention to my hon. Friend's question.
§ Mr. Boswell
May I follow my question with another small point? What happens when an asset is jointly held? Is it likely to be possible, for example, for a husband to opt for a 1982 valuation, and for his spouse to opt for the alternative?
§ Mr. Brooke
My hon. Friend is luring me on to marshy ground. I do not wish to be absolutely categorical about the contents of taxation that seeks to be independent, but I think that the answer is no.
That first leg of our proposal will enable those who decide that they do not want the burden of keeping pre-1982 records to get rid of them immediately.
Secondly, if an election has not previously been made when a taxpayer makes his first disposal—after 5 April 1988—of an asset held in 1982, he will still be able to make one within two years of the end of the accounting period or tax year in which he makes that first disposal.
With these provisions, those who would prefer to can have the protection of the special rules in the Bill, by simply deciding not to make an election. But those who are willing to dispense with that protection will be able to opt for a less complicated regime, in which they need no longer keep pre-1982 records. This seems to us a useful and sensible improvement to the provisions as drafted in the Bill, and we shall be tabling the necessary provisions at Report stage.
§ Mr. Tim Smith (Beaconsfield)
Is my right hon. Friend aware that the changes he has just announced will be most welcome, especially to those who have smaller investments and for whom the rules in the Bill could have proved extremely complicated?
§ Mr. Brooke
I am grateful to my hon. Friend for his intervention.
I would like to make a few detailed technical points. Rebasing will use actual market values at 31 March 1982. Under the 1965 rules, for some assets, gains over a period straddling 1965 were time-apportioned in order to arrive at the gain since 1965—although the taxpayer always had the option of taking the actual 1965 market value. That was for practical reasons, to avoid forcing taxpayers to obtain a 1965 valuation of certain types of assets. There is no equivalent of the time-apportionment rules in this Bill. They are not needed, because, as I said to the hon. Member for Caernarfon (Mr. Wigley), 31 March 1982 market values are already built into the system for the purposes of calculating indexation relief. To include a time-apportionment option now would be an additional—and unwelcome—complication.
Rebasing will apply to companies—as well as to individuals, personal representatives and trusts. In general it will apply only where taxpayers are disposing, on or after 6 April 1988, of assets which they themselves held on 31 March 1982. But paragraph 1 of schedule 7 contains an important exception. It extends rebasing to cases where the taxpayer acquired the asset by a no gain, no loss transfer 172 from someone who did hold it in 1982. The main examples are where one spouse has given an asset to another, or an asset has been transferred within a group of companies.
The rest of schedule 7 is concerned with technical consequentials to rebasing. There is one provision, though, which it may be helpful to mention specifically now. At present, taxpayers who want indexation to be computed on the 1982 value have to say so. With rebasing, in most cases gains will be computed by reference to 1982 values— the exceptions arise under subsections (3) and (4) of the clause. It therefore makes more sense to provide, as we have done in paragraph 10 of the schedule, that indexation relief on assets acquired before 1982 will automatically be computed from the higher of actual cost or the value of the assets at 31 March 1982.
Clause 91 is part of a general reform of capital gains tax. We shall, of course, be debating the other clauses upstairs. But, very briefly, with the new top rate of income tax, and with inflationary gains taken out of tax, my right hon. Friend the Chancellor was able to propose, in clauses 92 to 97, the assimilation of the rates of capital gains tax with those of income tax. At the same time, it is proposed in clause 101 that the annual exemption, which was specifically increased in 1982 because relief was not at that time given for pre-1982 inflation, should be reduced for 1988–89 to £5,000. Under clause 98, which the Committee debated yesterday, husbands and wives will, from 1990, be taxed independently on their gains.
Taken together, these reforms will achieve a much more equitable balance between the tax burden on capital gains and that on income. Rebasing will remove the long-standing injustice of taxing inflationary gains. It will unlock many assets acquired in the 1970s and earlier, freeing capital for new investment. The new election I have announced today will enable taxpayers, if they wish, to discard pre-1982 records. Assimilating capital gains tax and income tax rates will substantially reduce the incentive to have capital gains rather than income, with all the distortions that result. I commend these provisions to the Committee.
§ Mr. Nicholas Brown
In his exciting speech, the Minister has clearly moved the Committee, mostly to other parts of the building, with his explanation of the problems faced by those who are unfortunate enough to have made a capital gain prior to 1982. The response from Opposition Members is that it is typical of the Government, in this Budget, yet again to be sorting out the problems of the wealthier members of society rather than the problems of the poorest. We have heard a lot about the problems of those who have made a capital gain prior to 1982. What about the problems of the generality of our population who have not come anywhere near doing any such thing? This Budget and the clause have absolutely nothing to say to them.
Every tax concession is potential public expenditure forgone. It is our view that a principal objective of public expenditure should be to redistribute wealth from those who have it to those who do not, rather than to redistribute further wealth to those who already have it.
§ Mr. Brown
If the hon. Gentleman will allow me to go a little further in my speech, I shall give way later. I want to move on to the detail of the changes as well as the generality.
173 The changes, in keeping with the main direction of the Budget proposals, do nothing to address the problems of the dispossessed or disadvantaged. The changes do nothing except give a further tax break to the wealthy. It is important to remember, as I reminded the Committee yesterday, that fewer than one in 100 of our fellow citizens pay capital gains tax. The clause, if accepted, means that still fewer people will pay capital gains tax, but they will still have their capital gain.
§ Mr. Butterfill
May I press the hon. Gentleman on his definition of the wealthy? Is he aware, in relation to property ownership, that quite a large number of people acquired property, originally for their own occupation, went abroad and while abroad let the property and it became subject to rent control and security of tenure was given to the tenant? Such people may have ended up with an unwanted investment property, originally purchased for their own occupation. Some of those people—I know of some in my constituency—are not wealthy people but are quite poor and have had to move into rented accommodation themselves. Those people, with mainly pre-1965 gains, will be specifically helped by this legislation. Does the hon. Gentleman at least approve of that element?
§ Mr. Brown
It is perfectly proper for Conservative Members to make the point about questions of degree and about types of capital gain. Those are perfectly proper areas for debate. However, the clause we are discussing goes much further than that, and I shall deal with the question of degree later.
At a total cost of £55 million to the Exchequer, capital gains tax on an individual's pre-1982 gains has been abolished. There is a similar cost of £235 million in respect of companies' gains. As I said before, that is public expenditure forgone. The key question that the Minister will have to answer when he responds to the debate is why the Government have chosen to spend public money in this way rather than in the many other ways in which it could have been spent. When the Minister responds to that point, as I am sure he will, the Committee will have to consider his remarks alongside yesterday's generosity to married couples who pay capital gains tax.
No doubt the defence will be that the gains, which were subject to taxation prior to rebasing were, at least in part, inflationary gains. The Chancellor referred to them in his Budget speech as purely paper profits. Yet that was compensated for in the taxation system by a flat rate tax of 30 per cent. and, alongside that, pretty generous individual annual exemptions.
It is also the case that inflation has a bearing on other tax as well as just capital gains tax. Therefore, the Government have to make the case for singling out capital gains tax for special sympathetic treatment. As I understand it, again by looking at what the Chancellor said in the Budget, the principal reason for that is that assets will be unlocked because they will no longer be subject to what he described as penal taxation and because the changes will help small business men and farmers in particular.
In proving that contention, the Government have two hurdles to clear. First, they have to demonstrate their case by example. They have to show that the operation of 174 capital gains tax has become unreasonably burdensome without rebasing and that rebasing is not just a handout to rich companies and individuals—particularly to those who are asset-rich such as property companies and, one suspects, particularly London and south-east based companies. In saying that I come to the intervention made earlier by the hon. Member for Bournemouth, West (Mr. Butterfill)—I accept that there are probably specific areas where such a case can be made out. I contend that such cases should be dealt with on that basis rather than to move from the particular to the general.
§ [Mr. Patrick Cormack in the Chair]
§ 5 pm
Even if the Government could clear those two hurdles, they have another, higher hurdle to get over. They have then to make a case for complete tax exemption on capital gains to 1982, which is in the clause. It is one thing to argue reasonably that a tax is too high or there are special circumstances in the period covered, but it is quite another to say that the tax should be done away with altogether. The implication is that every capital gain made in the 1970s potentially subject to capital gains tax was solely the result of what the Chancellor exaggeratedly stated to be rampant inflation. Such an argument is not tenable, but there it is.
The Government rebasing wipes out any tax liability for gains on assets accruing before 1982. However, capital losses generated before April 1988 appear to be carried forward and offset against rebased gains to be generated in future, even if the losses were accrued before the new April 1982 base.
One suspects that there are likely to be a spate of disputes between valuers and claimants about valuations of unquoted shares and of property. That must create an extra work load for the Inland Revenue, which has public expenditure implications, without any gain to the Exchequer; quite the reverse.
§ Mr. Butterfill
The hon. Gentleman will know that I am a chartered surveyor by profession, so I have some knowledge of valuing property assets. My hon. Friend's suggestion will probably simplify the work of the Inland Revenue and those valuing such assets. Certainly, we had to look back sometimes as far as 1965 at the dusty old records that we were obliged to keep to justify valuation, so this change will be a great benefit to us in carrying out those valuations. The change will be of benefit to the valuation profession as a whole.
§ Mr. Brown
I enjoyed discussing matters of detail with the hon. Member for Bournemouth, West in the previous Parliament, when I had Opposition responsibility for legal affairs rather than finance. In Committee, the hon. Gentleman attended to matters of detail assiduously. His intervention today reflects that.
I accept that the Government's proposals might simplify the work of valuers, but the change as a whole is bound to incite a great influx of work. Indeed, I understand that it is intended precisely to do that. There will be implications in that case for public expenditure, which I should like to have heard the Minister address, but perhaps he will do so in the wind-up. This matter, of course, is peripheral to the main thrust of our objections, and not their cause. Our main fear is that rebasing, together with indexation and the generous annual exemptions, which the Minister said will be disaggregated 175 for married couples from 1990, and a range of other reliefs and exemptions, will together thoroughly undermine the effectiveness of capital gains tax.
By undermining the tax, the Government act to the advantage of wealthier citizens—the less than one in 100, and perhaps many fewer, who have to pay the tax. It means that the burden of public expenditure falls on the rest of us. To the Labour party, that cannot be fair, and thus we shall be opposing the Government in the Lobby.
§ Mr. Tim Boswell (Daventry)
First, I thank my right hon. Friend the Paymaster General for his response to our amendment. We understand that his response is conditional, but we are grateful for the terms in which he made it. I did not have the opportunity to reply appropriately when the amendment was introduced but I shall do so now, especially as I decided rather churlishly to bowl the Minister a couple of bouncers on the tax treatment of married couples.
§ Mr. Brooke
As my hon. Friend has referred to bouncers, it might be easiest for me to clarify my response. He will recall asking me whether husbands and wives would be able to make separate elections on jointly held assets. After a number of preliminary embroidering remarks, I said I thought not. I have to reverse that answer now, and say yes, because the election has to be made in respect of all an individual's assets. Each spouse can make a separate election that will apply to their respective interests in jointly owned property in the same way as to assets that are not jointly owned. The position was the same for 1965.
§ Mr. Boswell
I am most grateful to the Minister for that concession and clarification. I must also respond to the Minister's general points about the propriety of trying to strip inflationary gains—particularly, dare I say, those occurring in the 1970s, when there were certain inflationary habits in Government. That must be desirable, because those of us who held any sort of assets in the 1970s must have been apprehensive that contingent liabilities would mount up or become actual liabilities in some cases, when assets were sold or had to be disposed of. It should be no part of Government's role to attack capital through the contingent vehicle of inflation.
However, I welcome the Government's proper action to bring into line the system of taxation for capital gains along with that of income. I welcome that, equally, because it is no part of balanced and sensible government to have a regime where people can convert income into capital gains to take advantage of a beneficial tax regime. The spirit behind the Government's action must be acknowledged.
My remarks can be more detailed on certain aspects.
§ Dr. John Marek (Wrexham)
If the hon. Gentleman believes what he has just said, would he go along with us and ask the Minister why there should be a £5,000 exemption from capital gains, which is much higher than the single or married person's allowance?
§ Mr. Boswell
I note the hon. Gentleman's point. My own view is that, bearing in mind that capital assets by definition tend to be held somewhat longer and that there are rules for trading in assets, as the hon. Gentleman knows, to bring people within the income tax system, it seems to be a reasonable balance and maintenance of relief. The point has been taken, but clearly one would not 176 want to see a very wide divergence between the two regimes. Perhaps I should go further and say that when we settle down under the new system, the distribution effects must be monitored. I shall deal with those points again in a moment.
With regard to compulsory purchase orders, I must record the fact that they do not enable a vendor to control a sale, as he has no choice in the matter, nor always the timing of a sale, which might cause difficulties for some people. Equally, in cases of voluntary disposals of assets, bearing in mind that capital gains tax is now at a higher rate than the 40 per cent. income tax rate for some higher rate taxpayers, as the hon. Member for Newcastle-upon-Tyne, East (Mr. Brown) implied, one might need to consider the de minimis provision, if not in this Bill then later, whereby a slightly larger proportion of an asset can be disposed of without attracting capital gains tax at the time.
Milk quotas were a new asset for farmland post-1982. It is odd that the milk quotas for many farms are now worth as much as the farms. Although the Government have responded by giving gains tax relief on milk quotas, the overall computation is not favourable. I should be grateful if the Government considered this matter.
Under the present system, capital gains have been brought broadly into line with income, but we are well aware that most people tend to hold on to capital assets significantly longer. My right hon. Friend the Paymaster General referred to the great virtue in wiping out the need to keep records pre-1982. It is what I think the ancient Romans called novae tabulae, or new tables—it is a matter of wiping the slate clean and starting again. We all know what happens to papers, despite the best will in the world. The family dog may get to work on the paperwork, as happened to me, or one's children may move away—
§ Mr. Boswell
I am certainly not saying anything unkind about dogs in this Committee. One may well find that records become less perfect and valuations less certain. I believe that the base year of 1982 will eventually need to be adjusted upwards, perhaps to 1992, which is another significant date for other reasons. I beg Ministers to think forward about whether there may be better ways of bringing the assessment of gains on continuing assets into the system in a way that is equitable in terms of income and calculable.
Stock dividends instance the problem well. My right hon. Friend the Paymaster General knows that many companies, for various reasons—modernity may be one—offer shareholders the option of stock dividends. People may receive rather portentous pieces of paper, which we are told are important, announcing that they may be entitled to have another seven shares, which will be taxable but will be paid as a stock dividend. That may be fine, but, because of the complications of the capital gains tax computations, many small shareholders would be ill-advised to take that option. It would lead eventually to an expensive calculation on a very small asset. As Ministers know, transactions for small shareholders are now extremely expensive and are a major part of the disposition of any holding. The benefits become limited when the accountant's bill is added, since all these annual or semi-annual processes must be followed through.
§ Mr. Butterfill
Does my hon. Friend agree that it seems clear that it is Inland Revenue practice to suggest a figure for settlement of a negotiated capital gain and that this is unfavourable to the taxpayer? The Inland Revenue knows that the cost of going to the special commissioners is so high that it can strike a bargain down the middle on the cost.
§ Mr. Boswell
That certainly would happen.
We now have machinery that is intended to be fair as between income and capital gains, and that is entirely proper. Many ordinary asset holders hold capital assets much longer than income, but the circumstances are not always identical. We need to put on our thinking caps to find a better regime for the future so that people are fairly taxed on their assets, without undue or onerous complications.
§ Mr. Alistair Darling (Edinburgh, Central)
I understand that the hon. Member for Daventry (Mr. Boswell) is a farmer. It is good to see that he maintains the tradition of farmers in complaining about the injustices visited upon them. I have some sympathy with him if he has to put up with a motorway going through his farmland, but he is keeping up the good tradition of pointing out the difficulties that afflict his industry.
I should like to address the general philosophy behind the clause. We are entitled to ask why this measure is such a priority. At first sight, it is quite attractive to suggest that anomalies should be wiped out. It is particularly welcome that those people with small savings and those who rely on their savings in old age can now realise their assets when they need them. We suspect, however, that the priority and motivation behind the clause differ entirely from that. I hope that the Minister will specify precisely what problem has led to the need for this clause. We should have regard to the fact that there is a substantial cost in terms of tax forgone—£235 million for companies and £55 million for individuals.
We have heard that there seems to be a difficulty in keeping records. The Treasury has seemed to go out of its way to save work for accountants. The justification for many measures seems to be that we do not have records, so we should not attempt to recover what might be due to the Exchequer. The principal reason advanced for the clause is that, between 1965 and 1982, there was rampant inflation, which has caused a manifest injustice. The Chancellor has said:But for gains that arose before 1982 the tax falls largely on purely paper profits resulting from the rampant inflation of the 1970s. In other words, it bites deeply, and capricously, into the capital itself."—[Official Report, 15 March 1988; Vol. 129, c. 1007.]The right hon. Gentleman went on to say that he felt that the capital gains tax should fall only on real gains and not on paper gains.
It is interesting that 1982, not 1979, is taken as the base year. The Government constantly tell us that the good times started to roll in 1979. We remember that inflation reached record heights shortly after the Conservative party attained office and continued for some time. Within Conservative mythology, the years 1979 to 1982 have been written off, almost like the lost years in the Soviet Union—it does not exist; it never happened, we do not want to know about it. That is why 1982, rather than 1979, has been chosen. The Government are well aware that, by 178 1982, inflation was starting to subside but the markets were fairly depressed. The Government have chosen the optimum year.
§ Mr. James Arbuthnot (Wanstead and Woodford)
The year 1982 was chosen because that was the year in which indexation was introduced.
§ Mr. Darling
The justification for 1982 is perfectly apparent. Indexation could have been backdated to before 1982. It lies with the Government to arrange matters in any way they want. The year 1982, rather than 1979, was chosen for obvious reasons, which I have given.
There was inflation, but surely no one is saying that there were not real gains at the same time. Even if it is desirable—I accept that there is some merit in this—that a person should not be taxed for paper gains purely because of inflation, real gains would have been made between 1965 and 1982. That is our principal objection to the measure. A second home bought in 1966 for £16,000 might have been worth more than £100,000 in 1982, and no one says that that was due purely to inflation. It was a real gain and a real benefit which accrued to the taxpayer. and it is wrong that such gains should be written off in this way.
As we said in the debate on the business expansion scheme, those who benefit are generally the better-off, rather than those at the lower end of the income and capital scales. That is the fundamental reason why Opposition Members object to this scheme. It seems to be another example of the Government looking after the very people whom they have supported, not only in this Finance Bill but in previous financial measures. It is manifestly unjust and I cannot see why it should be made a priority at this time.
We are entitled to ask, with nearly £300 million in tax forgone, what else it could have been spent on. This Finance Bill is about the arrangements of the country's financial affairs for the next 12 months, at a time when there are unprecedented calls on housing benefit, the Health Service, and so on. Is it not the case that this money might well have been diverted to other fields instead of being given in what is, in effect, a tax handout to those who, although I do not say are not deserving, perhaps do not have the priority needs that others do?
§ Mr. Butterfill
The hon. Gentleman states that we have given an unwarranted advantage to those who would have had pre-1982 real gains, as he puts it. Would he bear in mind the fact that we have at the same time increased the rate of tax from 30 per cent. to 40 per cent. and reduced the threshold of the disregards, so that the overall effect may well be in some cases to increase the tax paid?
§ Mr. Darling
Some individual taxpayers may well lose, but the general thrust is to reduce the burden. The thresholds have been reduced and, as was said earlier, the position of a married couple in 1990 will be infinitely better. The emphasis is going the wrong way once again and I cannot see—I look forward to the Minister responding to this—the justification for writing off gains, inflationary and real, in those years. To my mind, that adds weight to our opposition to this clause. We have to remember that 31 per cent. of our population are living in poverty. If the Government showed the same concern for the anomalies that they face within the social security 179 system I would not have so much objection. We are asking for equal treatment for those who have and those who have not.
There will have been inflationary gains and real gains in those years, but there were also inflationary wage rises, as the Government constantly tell us. So it is not true to say that somehow capital is alone in having suffered the ravages of inflation. The Government have shown themselves, in this clause, to be extending the double standards that they have practised for a long time now. It is for these reasons that we shall oppose this clause, because it is quite wrong and without justification.
§ Mr. Tim Smith
I am sorry that the hon. Member for Edinburgh, Central (Mr. Darling) feels the way he does, because anybody who looks back over the 23-year history of capital gains tax—I think that it was Lord Callaghan, the then Chancellor of the Exchequer, who introduced it in the 1965 Finance Bill—will see that although, of course, there is a flat rate, as the hon. Member for Newcastle upon Tyne, East (Mr. Brown) said, the rate of inflation must have been around 3 or 4 per cent.; it cannot have been more than that. So at that time, the kinds of inflationary gains that have subsequently taken place simply could not have been contemplated.
It will not do for Opposition Members to say that, because in their view the poor are being treated unjustly, that is some kind of justification for continuing to treat taxpayers unjustly, whoever they may be. Fairness is an important principle that should underlie taxation.
§ Mr. Campbell-Savours
Can the hon. Gentleman perhaps enlighten us as to how he justifies people not paying tax on real gains?
§ Mr. Smith
I have hardly embarked upon what I want to say, but I certainly was not planning to try to justify that. I believe that it is a matter of regret that the Treasury was unable so to arrange the new system that indexation was backdated to 1965. But we are talking about 23 years' history of certain assets, and we are told that this is simply not a practical proposition. I am sure that must be right.
The point that I want to make most forcefully to the Committee, because nobody has so far mentioned it, concerns what the rate of inflation was between 1965 and 1982. The hon. Member for Edinburgh, Central mentioned somebody who bought a house for £16,000 in 1965 and sold it for £100,000 in 1982. Since inflation over that period was 450 per cent., that would have taken the price up to £88,000, so the real gain would have been £12,000. The inflationary gain would have been £72,000. That is the size of the problem that the Government are addressing in this clause. People felt very strongly that this was desperately unfair, because there had been 450 per cent. inflation in the period and all of it was being taxed. In terms of fairness, that cannot be justified.
The consequence of that was that people did not sell their assets unless they absolutely had to. That is why I believe that the Treasury is right to say that now that we have a fairer system people, whether individuals or companies, will look at their asset portfolios, and we shall see assets unlocked. The Treasury has determined that the net result of this will be a loss of revenue of £55 million in the case of individuals and £230 million in the case of companies.
It must have made certain assumptions about people's behaviour. It is very difficult to know how people will 180 behave in the face of tax changes, except that one can he quite sure that they will not behave in the same way as they were behaving before. We all know that there will he more activity in this field. People will start to dispose of their assets, so we can expect the number of taxable transactions to rise. I would not be at all surprised if, just as in the case of the cuts in income tax, this did not lead in the long run to an increase in the yield from capital gains tax.
It is this that highlights the division between the two main parties in the House. The Opposition are concerned all the time, when it comes to taxation policy, with redistributing wealth, whereas we are concerned with what system of taxation will maximise the yield and encourage the creation of wealth, which will lead in turn to the generation of more taxation to pay for more public expenditure. It was a matter of regret to me that the Treasury was not able to make this change earlier, but I understand that that simply was not possible against the economic background that prevailed at the time. So the Government have said that from 1982 onwards there will be some degree of indexation.
It will be recalled that it is not unprecedented for a Chancellor of the Exchequer to take action when taxpayers are being hard hit by inflation, because in 1975 the right hon. Member for Leeds, East (Mr. Healey), who was then Chancellor of the Exchequer, seeing the crippling effect that inflation was having on companies, introduced overnight a huge stock relief and also increased capital allowances. These changes were introduced in 1975 because the cash flow of companies was so very badly affected.
I am glad that the same has now been done for people who, for one reason or another, have to pay capital gains tax. I also support the increase in the rate to 40 per cent. so that there will no longer be an incentive for taxpayers to convert income into capital, and vice versa. These changes make for a fairer and simpler tax system and I certainly support the inclusion of this clause in the Bill.
§ Mr. Wigley
I should like to follow on from the comments that have just been made. The hon. Member for Beaconsfield (Mr. Smith) referred to people looking at their asset portfolios. I must admit that not very many of my constituents spend their time looking at their asset portfolios, and many of them would not have the faintest idea what they are. That concept applies to a very small proportion of the people, although I accept that it may be of importance to Conservative Members.
In my constituency, this sort of question is more relevant to small farmers and small business people, whose assets are probably in one item—their land or their building. The portfolio is one small item, in all probability, and is not changed around for the sake of getting tax benefits. It is something that has to work very hard in order to keep itself alive.
I agree with the hon. Gentleman, however, on the desirability of backdating indexation to 1965, if that were practicable. That would have kept the two concepts clear—ensuring fair play in relation to the considerable inflation that was taking place at certain times in the intervening period and the capital gains that took place—and we would not be considering whether important sums of money, such as £290 million, were being appropriately dealt with.
§ Mr. Butterfill
Does the hon. Gentleman agree that small farmers would still have considerable problems in maintaining adequate records of, for example, improvements to their farms, which would need to be taken into account in computing any further liability to tax?
§ Mr. Wigley
Yes, I am aware of that and of the need for change for that reason. Therefore, I am not completely hostile to the changes. I share the Opposition's doubts about the Government's priorities, and I should have liked more to be done for those groups who are not helped by the Budget, but I can see the argument for trying to do something to overcome some of the complexities and technical difficulties facing many people, including small farmers in my constituency. I am aware from the farmers, and in particular from the accountants trying to help them, of the problems that they face. None the less, £290 million is £290 million, and in a year when it has been impossible to find £150 million for the full implementation of the Disabled Persons (Services, Consultation and Representation) Act 1986, one starts asking questions about priorities.
There is clearly a need to ensure a balance between the treatment of capital and revenue income. That balance must ensure that people invest in capital or with a long-term view to revenue income as opposed to short-term capital gain. I understand that some Conservative Members may not share that view, but that should be the motivation of the tax system. It should try to ensure that that is the outcome of the rules.
The hon. Member for Wrexham (Dr. Marek) made a valid point a moment ago when he said that we should be asking what is the acceptable threshold for exemption—what should be the allowance in that context. If a single person's allowance is £3,000, what is the justification for £5,000 in the context of capital gains? Last night we discussed the most appropriate level for a husband and wife who now have an allowance of £10,000 between them. It might have been possible for them to have an allowance of £3,000 or £3,500 each, bringing us back to the kind of level that exists for a single person. That would have been consistent with what we are trying to do in capital gains tax. The opportunity to achieve greater consistency in order to get the balance right seems to have been missed, yet hon. Members on both sides of the Chamber seem to be looking for balance.
Milk quotas have been referred to, and they definitely affect Wales. Given their special treatment, one hesitates to think what will happen, perhaps in the early 1990s, if milk quotas come to an end. I know that the conventional wisdom is that that will not happen, but it could, and I can imagine there being quite a minefield in that area. However, I would be straying well out of order if I went too far down that road.
I want to return to a matter on which I pressed the Minister earlier. Although I listened to what he said, I am not sure whether I understood him sufficiently well to explain the matter to my constituents. If one of my constituents had bought some land for £20,000 in 1966, which he disposed of now for £150,000, there would be a capital gain of £130,000. If the value of indexation from 1982 to 1988 is 50 per cent., that would put the value of the assets in 1982 down to £100,000, making a gain of £80,000, which would tie in with the 450 per cent. change in the 182 value of money over that period and a little more in real terms. However, I cannot see why, on the basis that indexation exists and there is a need now to make certain calculations for capital gains purposes, it gives us a valid valuation for this new datum base, which has to be established for 1982 for calculation purposes. I do not believe that that is the case.
The original value in 1966 and the present value, plus the index working back to 1982, is fine for present purposes, but on the changes that does not give us a real valuation for 1982. Whereas that can be easily worked out for shares, when it comes to land or buildings, which may, for a variety of reasons, have changed value, it is not so easy to work out a meaningful value in 1982. It may be possible to pluck a value out of the air and call it a notional value and do a split on a time basis, or something like that, but that is a far from satisfactory basis for establishing an important datum line for the future—the value in 1982.
I should be grateful if the Minister would clarify in more detail exactly how the existing provisions for the calculation of capital gains tax liability give a figure which is meaningful in the context of the use to which it will be put under clause 91. Unless that can be satisfactorily clarified, we are in danger of building an edifice on a base in 1982 which, in many instances, may be far from solid. Such a change will be with us for years to come. That point needs to be clarified. The definition needs to be equally applicable in all capital gains cases. We should not have a system which works well only for stocks and shares and creates a minefield in other areas. More than that I do not wish to say at this stage, but I should be grateful for the Minister's detailed response to those points.
§ Mr. Arbuthnot
Opposition Members have expressed their general dislike of the clauses relating to capital gains tax, but there is one point that they should not overlook and that is that for those who make large gains the effective rate of capital gains tax will have gone up by 10 per cent. as a result of the Bill. The capital gains tax rate for those who make smaller gains or who have smaller incomes will go down by 5 per cent. That effect of the Bill should not be ignored.
§ Mr. Arbuthnot
Yes. I have felt for a long time that the tax changes in Britain are introduced far too suddenly in order to prevent a few days of evasion or avoidance here or there. If we could have a bit of warning so that our tax legislation was sensible, rather than for the short-term bringing in of some revenue to the Treasury, we would end up with a much more sensible set of tax laws.
I welcome what my right hon. Friend has said in relation to the election for clause 91. I hesitate to say this, and I hope that I may be forgiven for doing so, but I raised on Second Reading the complications introduced by clause 91 and I am delighted that my right hon. Friend has been so responsive so quickly. It has been a habit of mine so far to be rather critical of our complicated legislation, particularly in relation to tax, and I am most grateful to my right hon. Friend for responding, not necessarily to me, but to all the representations that have been made
§ Ms. Joyce Quin (Gateshead, East)
The only sympathetic chord in me that the Government have struck this afternoon has been on the prospect of people destroying records before 1982. Even with my monthly household bills, it is difficult to keep records for more than a few months. Therefore, the idea of destroying records before 1982 is rather attractive. Apart from that, the rebasing put forward by the Government is not justified—or, at least we have not been given sufficient information to decide whether it is justified or not.
My hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) pointed out that fewer than one in 100 taxpayers pay capital gains tax. I wonder whether the Government estimate that the figure will be further reduced this year because of the rebasing decision. We have also heard about the cost to the Exchequer which rebasing will involve. Many of my right hon. and hon. Friends feel that the Government have been generous enough already to big business and to wealthy individuals and that this is just an additional way of being even more generous to them.
The people who are likely to benefit from rebasing will probably live in one corner of the United Kingdom, the south-east of England. This is yet another example of adverse regional trends. The answer to a parliamentary question tabled by my right hon. Friend the Member for Swansea, West (Mr. Williams) made it clear that higher rate taxpayers are concentrated largely in the south-east of England. Rebasing will channel even more money into that area. If the Government have any figures, I should like to see them. When analysing the Bill and its probable effects it is difficult to know precisely what the regional implications are because the Treasury seldom gives us the figures on a regional basis. Therefore, we do not have official sources for the figures which many of us suspect would be revealing.
Several hon. Members have referred to the extent to which profits made prior to 1982 were real profits or simply the result of inflation. I am in no doubt that many substantial real gains were made. An article in The Guardian on 17 March dealt with the reaction of the stock market to the changes in capital gains tax. It said:For example, shares in the electronics group Racal rose more than 7,000 per cent. between 1965 and 1982 when it was one of the market's star performers ... A large number of private and professional investors have now been relieved of capital gains tax liability on that enormous profit up to 1982".I do not know how closely the Government have looked at the short-term and long-term effects on the stock market of the rebasing decision. Certainly many people decided to sell their shares because of it and some shares fell as a result.
The same article pointed out:Brewery, property, life assurance and investment trust shares all benefited from the removal of pre-1982 tax liabilities".Selling was held back because of the previous policy on capital gains, but now big financial combines have been relieved of their huge capital gains tax liabilities.
§ Mr. Tim Smith
Does the hon. Lady appreciate that every company quoted on the stock exchange has benefited from the change, for the very good reason that between 1965 and 1982 inflation was 450 per cent.? Does not she think that one principle underlying taxation policy should be fairness?
§ Ms. Quin
I accept that a principle underlying taxation policy should be fairness, but I do not think that anyone could claim that the Budget was an example of fairness. The example I quoted made it plain that, whatever the level of inflation, there were considerable real gains made in addition.
I should like to hear the Government's view on how rebasing may affect the migration of individuals and trusts. When they transfer their residence, they will not have to pay capital gains tax on their way out of the United Kingdom. Has a calculation been done of the possible cost of the rebasing decision?
Several Conservative Members have referred to the accompanying measures on capital gains tax and to the fact that income tax rates and corporation tax have been brought into line. Have the Government considered the consequences for small businesses of the decision to have 40 per cent. and 25 per cent. rates? I understand that those associated with the British Venture Capital Association are concerned that it may mean a reduction in the amount of venture capital.
While I am not arguing against the change to 40 per cent. for capital gains tax, I believe that the Government should consider measures to make sure that small businesses, particularly in areas where they are most needed, can still expand and have access to venture capital. In this respect the Government might like to consider the proposal of the Labour party for a national investment bank with a large amount of money involved in venture capital.
I do not think that the Bill will do anything to end tax avoidance. Are the Government planning to offset the gains which will be made from the measure by a more efficient clampdown on tax avoidance?
I agree with my right hon. and hon. Friends that the Government have got their priorities wrong. The people about whom I am most worried are those with dwindling capital, such as pensioners who find that, because of the cuts in benefits and the changes in social security, they are for ever having to dip into the small nest eggs which they had saved over many years. It is distressing that people are worried about the payment of funeral bills when their small stock of capital has depreciated because they have had to dip into it so many times as a result of recent Government financial decisions. We are concerned about helping such people, and we do not believe that the Government have got their priorities right in the Finance Bill.
§ Mr. Rhodri Morgan (Cardiff, West)
It is a pleasure to have the opportunity to speak on a matter such as capital gains tax rebasing, because we simple roadsweepers, swineherds and such like on this side of the Committee have the opportunity to be educated by the professionals on the Conservative Benches from accountancy, merchant banking and chartered surveying. We are getting a free education. We should really pay to be Members of Parliament for the duration of the Finance Bill Committee stage.
I want to point out to the Minister and his cohorts on the Benches behind him that we are not yet satisfied about capital gains tax rebasing. Some Conservative Members say that rebasing has been done because of the concept of fairness, while others say that it has been done because of 185 economic performance. It is the supply side myth or the supply side causal relationship, as they would see it. The idea is that the performance of the economy will be improved by the rebasing because assets will be more fluid and flexible and people will be more willing to invest and take risks.
That is not necessarily the same thing as the idea that inflationary gains, which are not real gains, should not be taxable because they are not real. Taken in isolation and without regard for any one year's Budget, we would agree with that point. But how to tax inflationary gains, or how to avoid taxing them, and how to leave the tax system taxing effort and risk on a fair basis is extremely complicated, and rebasing to 1982 does not solve the problem.
I could give several examples. The hon. Member for Bournemouth, West (Mr. Butterfill) was present when we discussed the impact of the poll tax on the valuation of assets for the purposes of local government finance. That is relevant, because RPI inflation and asset inflation are entirely different; in fact, they can work in reverse. If retail prices index inflation increases, asset inflation—or deflation—can go in the opposite direction. The hon. Member for Bournemouth, West intervened in my speech when I made the point that asset price inflation has been high in areas such as Cardiff in the past two years. The valuation of office blocks and shops has doubled in the past two years. While retail price inflation may have been 7 or 8 per cent., asset price inflation has been 200 per cent.
How does one compensate for this asset price inflation, which is working at almost South American levels? Two weeks ago, on Third Reading of the Local Government Finance Bill, the hon. Member for Bournemouth, West took the view that, as there had been no rating revaluation in provincial cities such as Cardiff since the late 1960s, businesses there were paying artificially low rates, which led to artificially high rates of valuation. If I follow the argument, rent and rates are a combined charge on the user, so valuation is a residual element after people have paid rates and rents, and there can be hyperinflation of assets—of house prices in the south-east, of office block prices in provincial cities such as Cardiff.
It is, then, an extremely complicated matter to try to strip out RPI artificial gains. How are we to handle the genuine gains of Uruguayan proportions, which have infected western economies, at the asset level, but not at the RPI level?
§ Mr. Boswell
Does the hon. Gentleman agree that typical families who own one house and experience this high level of asset gains—which he fairly reports—usually want to transfer to another house? At the moment they can avail themselves of the capital gains tax exemption.
§ Mr. Morgan
None of us wants to introduce capital gains tax on the principal residence. I merely make the point that asset price inflation has risen to hyperinflationary levels during the past two years, whereas RPI inflation has been at levels that we would consider low since the OPEC price rises of 1972–73. Asset price inflation in house prices in the south-east and many other parts of the country of the past two, five or seven years has caused great difficulties for new buyers. However, that is not a matter for today.
186 Today we are interested in what has caused the hyperinflation of assets in this country in the past two years—for example, high street shops in provincial centres with good trading records and office blocks in centres such as Cardiff. How are those inflationary gains to be stripped out? Are they inflationary or real? How can they be compared with the so-called inflationary gains that the Government want us to forget and wipe away—the gains from 1965 to 1982, and above all those following the OPEC rises of July 1973, when hyperinflation took hold of the RPI?
§ Mr. Butterfill
Perhaps I can help the hon. Gentleman about property values. The reason that there has been an unusually high increase in the value of shops in many places is that there has been an increase in rental values, largely due to increases in turnover and profitability for shop operators. Those rental values have been compounded by a drop in the level of return required by institutional investors. That has meant that the multiple that people are prepared to pay of the rent demanded for shops has increased. Those two factors combined have led to the increases the hon. Gentleman mentioned.
Does the hon. Gentleman agree that there has been a relative shift between one asset and another, with one becoming more popular than the other? That is the reason for so-called real gains. I am not sure whether he thinks that that should necessarily be taxable per se.
§ Mr. Morgan
I shall have to reduce the offer I made to pay Conservative Members for the quality of technical education that we are getting this afternoon. The hon. Gentleman has now removed one of the key elements that he mentioned in his intervention on Third Reading of the Local Government Finance Bill. I believe that the Secretary of State for the Environment agreed with the hon. Member for Bournemouth, West when he said that one of the reasons for hyperinflation in asset value in the last four years in typical high street locations in the south of England and in prosperous provincial shopping centres such as those in Cardiff and Newcastle was the long-delayed rating revaluation—since 1969 or, in some cases, 1973.
§ Mr. Butterfill
I said that that was an underlying cause of part of the rent increase, not all. Rates have been held down, but I have just said that, in the context of capital values, one must take into account not only the rent increase but the reduction in yield required to produce enhanced capital value.
§ Mr. Morgan
I take it that the hon. Gentleman agrees with me that he said two weeks ago that rent rises were partly caused by the delayed rating revaluation, and also be reducing yields. If part of the reason for the hyperinflation of asset values in commercial property in the past two years has been a delay in the Government's district valuers' service carrying out the revaluation—we all agree that it should be carried out more frequently than every 19 years—it becomes extremely complex to try to strip out RPI inflationary gains—unreal gains—which should not be taxed, and real gains, which should be taxed and from which every honest taxpayer should be willing to contribute.
If the delay in revaluation was at least a partial cause of artificially high rent returns, and therefore of the valuation put on commercial property, it is extremely difficult to 187 work out why we are trying to correct, through the rebasing provisions, one form of unfair taxation on purely monetary gains, but are not trying to compensate for the other problems because they were apparently caused by Governments of both parties grossly delaying commercial revaluation, which delay has contributed to hyperinflation in important commercial properties in the past two years.
My hon. Friend the Member for Gateshead, East (Ms. Quin) mentioned Racal as the classic example of the company that did well when the rest of the country did badly. During the OPEC decade, when huge quantities of disposable income were shifted out of this country into OPEC countries—between July 1973 and early 1986, when oil prices fell from $35 a barrel to $8 a barrel—massive gains could he made by selling, for instance, tactical radios to armies in the Gulf states. Companies in that line did extremely well during that brief period and made 7,000 per cent. gains. As I think the hon. Member for Beaconsfield (Mr. Smith) said, they have stood still during the past two and a half years, as all the income that went to the Arab countries suddenly sloshed back into western countries when the price of oil dropped to roughly half what it was in early 1986.
One then tries to work out what is the inflationary gain that we all assume was general throughout the economy for companies that were having to cope, like all western economies, with the problems caused when all that disposable income was being shifted from western consumers to the OPEC countries. Some companies did extremely well out of that because they managed to spot the opportunities for selling goods to the states which suddenly had all that disposable income.
How does one equate the proper way of compensating for inflationary gains for companies such as Racal, which was the supreme example of the gainers from the OPEC price rise, with that for the companies at large, such as those in heavy industry, which manufactured capital goods for our use, when investment was falling through the floor and they had to suffer a wait of 10 or 12 years without an order for a power station or a steel works? This is an extremely complicated issue.
§ [MR. TED LEADBITTER in the Chair]
§ 6 pm
§ The hon. Member for Beaconsfield mentioned my right hon. Friend the Member for Leeds, East (Mr. Healey) and the introduction of stock appreciation relief in 1975. I think that we would all agree that that relief was given at an extremely generous level. Its function was, in part, that of stock appreciation relief and in part, to do the job about which we are now talking. We could probably agree that it was at least in part intended to cover capital gains that would be taxable but that ought not to be taxable but, as it was too complicated to rebase capital gains so that inflationary gains would not be taxable, stock appreciation relief meant that corporation tax dropped to virtually zero receipts in the closing years.
§ That was partly because profitability was extremely low as consumer disposable income was suddenly washed out of western countries and into the OPEC countries and it was difficult for people to make profits in the western countries in the period from 1974 to 1977. Stock appreciation relief went somewhat over the top partly in order to compensate the company not only for the cost of replacing stocks at inflationary prices but for the capital 188 gains which they were not making, but which they appeared to be making on paper with rampant inflation in the period from 1974 to 1981.
§ Mr. Tim Smith
I do not think that stock relief went over the top. Each year it compensated the company, as a deduction from its corporation tax liability, for the extra replacement costs of carrying the same trading stock. That change was forced on the Chancellor of the Exchequer at that time. If he had not made it, many companies would have gone to the wall. However, at the same time, people were forced to pay capital gains tax on similar inflationary gains, and that was wrong.
§ Mr. Morgan
I do not know whether the hon. Gentleman is completely disagreeing with me or is coming 50 per cent. towards what I said. I do not say that the prime purpose was not stock appreciation relief, because it was. No honest member of the staff of the Inland Revenue would have been willing to engage in administering the scheme if he had thought that its purpose was entirely different from that set out in the rubric. I think that hon. Members on both sides would agree that stock appreciation relief was pitched generously and administered generously to ensure that companies did not go out of business because of inflation, and the Inland Revenue was not too fussy about seeing whether what it was administering was strictly stock appreciation relief or a combination of the extraordinary tax liabilities that could arise not only out of stock appreciation but on capital gains which were not real, but which could place an extraordinary capital strain on companies. As a result, the tax take on corporation tax disappeared virtually to zero in the closing years of the period from 1976 to 1981. It brought in virtually no revenue because stock appreciation relief was generous and was doing part of its job.
In stripping out the 1965 to 1982 capital gains and, in particular, in stripping out the hyperinflation of the period from 1974 to 1981, we must have regard to the fact that we might be compensating people twice—once for what has already been done by the over-the-top element in the stock appreciation relief, which meant that companies simply did not pay corporation tax, and, secondly, in the formal structure of the rebasing provisions that we are discussing today.
Are we talking about fairness—in other words, a major effort to strip out statistically exactly what were the inflationary gain and not to tax those—something with which we would all agree—or are we talking about somehow or other restructuring the capital gains tax system so that it encourages the economy to perform better so that assets can be freely traded at a fair level and people do not get bogged down in paperwork when they are trying to run businesses and so on? Again, we would agree with that aim. However, we would not be happy with the explanations that we have heard so far, as they have jumped about from fairness to performance and from performance back to fairness. We need to know the real purpose behind this rebasing provision.
§ Mr. Nicholas Winterton (Macclesfield)
I hope that the hon. Member for Cardiff, West (Mr. Morgan) will forgive me if I do not follow his line of argument. However, he made one point to which I would respond as a Back Bencher on the Government side. What the Government are doing is a rough and ready way of solving the dreadful problem of inflation that plagued this country from 1965 189 to 1982. Some of the matters to which the hon. Gentleman drew the attention of the Committee are valid and I am sure that my right hon. Friend the Paymaster General will be responding to them positively and constructively.
§ Dr. Marek
Perhaps the hon. Gentleman could give us a rationale about the comparison between housing benefit and the changes in social security? The Prime Minister said that when one has reorganisation, there are gainers and losers, but in this reorganisation of capital gains tax and rebasing to 1982, there are no losers—they are all gainers.
§ Mr. Winterton
There are occasions when it is better not to give way, and this may have been one. I made strong representations to the Government on the matter of housing benefit and social security reform because I felt that they pitched the capital limit and started the taper too low. As the House knows, my right hon. Friend the Secretary of State for Social Services promised amendments which will be introduced by regulations. That has eased the situation, although I wish that he had gone further than he has. In these social security reforms there have been gainers and losers. I agree that, under the capital gains proposals in clause 91 and schedule 7, everybody gains.
§ Mr. Winterton
Yes. Everybody gains in some way, and some more than others. That is my understanding of the situation. I shall address my remarks to one particular sector, and I hope that my right hon. Friend the Paymaster General will consider my argument and see whether it is possible for the Government to introduce some amendment at a later stage of the Bill, perhaps on Report, to meet the problems that face minority shareholders in a small private unquoted company. There is no doubt that this group of people lose out under these proposals. It is an extremely complicated matter, and generally small businesses and private companies welcome what the Government are doing. It is good news for all old established private companies which may seek a quotation on the London stock exchange at some time.
However, the capital gains provisions produce a surprising effect. If the shares of a private company are owned by a single shareholder, these capital gains are entirely free from capital gains tax. On the other hand, in a family business, where the shares have been shared out among members of the family perhaps to give—again very much in accordance with Conservative philosophy—succeeding generations a continuing interest in the development of the business, then if, for example, there were five equal shareholders, those indexed capital gains to March 1982 will effectively be taxed not at zero rate, as for a single shareholder, but at about 30 per cent. That was confirmed to me by a tax barrister who examined the legislation.
The Revenue considers that such shareholders are minority shareholders without influence, and therefore the deemed cost of their shares is reduced by about 75 per cent. That has the unfortunate effect that the retiring owners of family companies, if the Bill goes through unamended, will 190 be strongly discouraged from transferring their shares to their children, or indeed to others who may be working in the business.
There have been letters on the subject in the Financial Times, and I believe in other papers. A letter from a City firm of chartered accountants refers to a lettercontrasting the taxation consequences of a complete sale of a company by a single shareholder with that of a sale by five family shareholders,which, its experts say,highlights an important anomaly made worse by the 1988 Budget proposals.The letter goes on to provide an even more curious explanation of what is going to happen. It says:In fact the anomaly is even more curious. If the business had either been carried on by a partnership or by a company owned by a partnership, even with five proprietors the 31st March 1982 valuation would have been on a controlling interest basis. This follows the Inland Revenue's Statement of Practice 1/75 which includes the following paragraph.I hope that the House will excuse me if I read it out, as I think it is important:'Where it is necessary to ascertain the market value of a partner's share in a partnership asset for capital gains tax purposes, it will be taken as a fraction of the value of the total partnership interest in the asset without any discount for the size of his share. If, for example, a partnership owned all the issued shares in a company, the value of the interest in that holding of a partner with a one-tenth share would be one-tenth of the value of the partnership's 100% holding.'The letter finishes with a plea:The relevant provisions in this year's Finance Bill are to be debatedtoday.It is to be hoped that an appropriate amendment will be tabled.
I could have tabled an amendment, but the matter is extremely complicated, and I believe that the Treasury needs to consider it very carefully. The anomaly existed before, but it is made worse by the changes in the Bill. I have had the privilege of discussing the matter with the Financial Secretary, in my view, all too briefly. In addition, it is my intention to submit to the Treasury my views and evidence in writing, suggesting amendments and asking for its views on those amendments, so that at a later stage of the Bill, hopefully. the Government will understand the problem and the particular difficulties that the proposals will cause to minority shareholders in private unquoted companies. I am confident that my right hon. Friend and his ministerial colleagues did not intend that to happen when they proposed these fairly radical changes in the Budget.
I end my remarks—I hope that they have been constructive—by saying that I am seeking the understanding of the Committee and, more difficult, of the Treasury. I hope that my right hon. Friend will take my remarks to heart and discuss them with the Treasury, and hopefully, at a later stage in the Bill, table amendments to remove, or at least to reduce, the anomalies, which I believe are unfair and should be rectified.
§ Mr. Doug Henderson (Newcastle upon Tyne, North)
You may recall, Mr. Leadbitter, that I made my first contribution upstairs in Committee when you were in the Chair. It is a privilege for me to make my first contribution in Committee of the whole House under your chairmanship.
191 Conservative Members will recall that before this Government came to power political parties in this country accepted the need for a degree of progressivity in tax on income and capital.
§ Mr. Henderson
Perhaps later. I have hardly begun my speech.
It is most disturbing that clause 91 is a further step towards denting any belief in progressivity. Clearly, as Conservative Members have already acknowledged during the debate, it helps the richer sections of the community.
Hon. Members will recall that capital gains tax was initially introduced because of the very obvious weaknesses in estate duties. We have heard from my hon. Friend the Member for Cardiff, West (Mr. Morgan) about the debate on stock appreciation during the 1970s. The Committee will recall that that debate was about capital that was held by individual citizens. I recognise that the changes which took place in 1982 on indexation are welcome. We cannot criticise those changes six years later. They were necessary on the grounds of efficiency, so that the real value of a particular asset was assessed when it was transferred from one individual to another.
I can say to Opposition Members that, whether the issue is social justice in relation to capital gains or whether it is revenue, the Government of the day can alter the rate of tax which applies at a particular level. I accept completely that there should be indexation.
I was interested to hear the argument put forward by the hon. Member for Beaconsfield (Mr. Smith). I hope that he will not be offended, but even he—renowned as a fairly strong supporter of the Government—understands that if there is no form of indexation prior to 1982, it will be a free ride for the holders of capital during that period.
I do not think that that can he justified on any grounds. It certainly cannot be justified on the ground of social justice or of tax revenues, and we are always hearing from Conservative Members about the need to maximise revenues. I hope that Conservative Members will accept that it cannot be justified on grounds of efficiency, because the real value of the transfer of a particular asset would not be taken into account. We are talking about efficiency in the economy and the need for some people to dispense with assets that they do not need at a particular time or, when they decide to get rid of them and transfer them to others who need them for productive reasons, that that should be done through a fair system.
§ Mr. Boswell
I am most grateful to the hon. Gentleman for giving way. I did not wish to interrupt him earlier in his speech. I wish to raise two points. First, does he accept that, under the new basis for capital gains tax, for the first time there is a progressive system in relation to long-term gains at 25 per cent. and 40 per cent? Secondly, bearing in mind that some of the assets purchased on or before 1965 may not be realised for 50 years, is he confident that even the Inland Revenue could conduct a realistic valuation of the 1965 basis of private companies in the year 2015?
§ Mr. Henderson
I am grateful to the hon. Gentleman for raising those two points. I shall return to his second point later. I was going to mention it in any case.
192 On the first point, I agree that it is desirable that there should be some progressivity in the rate of tax that is charged. On the face of it, this is so, compared to the previous system.
The hon. Member for Daventry (Mr. Boswell) will remember that under a Labour Government capital gains tax was higher for everybody. Capital gains tax is being restored for certain sections of the community, but the hon. Member for Daventry, who has a good working knowledge of how taxation affects the farming community, will be aware that when, under the new system, the marginal rate of tax applies to capital gains, it will be easy for a male farmer with a higher income to transfer an asset to his spouse with a lower income from another source. She will then be able to claim capital gains tax at 25 per cent. In that sense, it is not progressive. The Committee upstairs will consider in more detail the principle of separate taxation. I accept that principle, but anomalies have been created that have undercut the arguments in favour of capital gains tax progressivity.
Rebasing cannot be looked at in isolation. We have to consider the background to rebasing. The fact that only one out of 100 taxpayers will be affected is a telling point that cannot be ignored. We have to consider also the changes that were made in 1986. Lifetime gifts are no longer liable to capital transfer tax. Many asset holders have been let off the tax hook.. Having already been let off the tax hook, they are now being given a free ride on the assets that they held before 1982. A tax lawyer has told me that the capital assets of families are now on a permanent tax-free merry-go-round and that some assets will have more owners than there were owners of the Rowntree share certificates during the last few weeks. That is true. Transfers will be made from one member of a family to another at the lower rate of tax, whenever that is possible.
Other background factors have to be taken into account when considering the corporate sector, whose tax liability has already been reduced, due to the reduction in the rate of corporation tax. That, too, will be let off the hook on its asset values before 1982.
The Government claim that they are tax reformers, but the impact of many of the Government's changes, including clause 91, is to dismantle taxation measures in such a way as to benefit the rich. The rich have gained dramatically. My hon. Friend the member for Edinburgh, Central (Mr. Darling) said that the effect of the proposed changes is that £55 million will be given to individuals in 1989–90 and that £235 milllion will be given to companies. The speculators of the 1970s who were out to make a fast buck by buying property are now being let off the hook by the Government, who say that they will protect them from losses that were made before 1982, by allowing their losses to be set against gains that were made after 1982. I suggest that that is to have one's Nigel cake and eat it.
The Minister said that the records that would enable another course of action to be taken do not exist. That argument is unacceptable. It bears little relationship to the way in which business is conducted. We are dealing largely with property and shares. Records of the purchase price of property are always kept. Records are also kept, at both ends, of transactions in stocks and shares. They are kept by the current holders of the shares and by the institutions that sell stocks and shares. If the argument were reversed and if it were said that anybody who held an asset before 1982 would be given an additional bonus in the 1988 Budget, provided that they could say what was the original 193 price of the asset, I am sure that the records would soon be found. Even small farmers would quickly find the records that would enable them to qualify for their bonus. The argument that records have not been kept is unacceptable.
I have received a letter from a gentleman who is living on £73.53 a week invalidity benefit. He has lost £8.19 a week because of the housing benefit changes. Why is there to be this free ride for the rich on the value of their assets before 1982 while this poor fellow, who fought for his country and who is now suffering for it, has lost over 10 per cent. of his real income? If he is told that he has to suffer because the economy has become more efficient and that we shall all gain from it in the longer term, he might understand the argument, even though he might not agree with it. But if he is told that all this money has been given away to the rich because property records or records of stocks and shares cannot be found, he will say that he does not believe it. I should be tempted to agree with him. We are responsible for monitoring the changes to the fiscal law. We must challenge the Government when we believe that the legislation they have introduced is unfair.
§ Mr. Butterfill
Does the hon. Gentleman accept that it is not always the record of the purchase price that is in question? It may be the value of the property at 5 April 1965 that is in question. If an asset were acquired before that date, one would have to provide a theoretical valuation of what that asset was worth at that time. It may be difficult to establish that value, if the asset is property. Properties around it may have been bought. If the property is in a clearance area, the surrounding properties may have been knocked down. The asset may have changed materially since 1965.
It may also be difficult to prove what the condition of the property was at that time—for example, whether it had central heating, or whether central heating was installed subsequently. It is difficult to make a theoretical valuation for property. It is even more complicated if the property is not owner-occupied. It may contain several tenants, in which case it may be necessary to look at the nature of the leases at that time and at what might have happened to those leases. It would also be necessary to consider by how much the rent and investment yields may have increased in relation to income. Those are all theoretical points, and my profession would have to make a guess about those assets in 1965. It is by no means as simple a problem as the hon. Gentleman makes out.
§ Mr. Henderson
I do not wish to be flippant, but I recall a professor of economics telling me that one could be Chancellor of the Exchequer with first-year university applied economics. I do not know whether that is true, but, with something less than first-year university applied economics, one could work out an approximate evaluation of assets held in 1965. It is a question of the retail prices index compared with other indices, and the hon. Gentleman knows that to be the case.
The Minister must put forward convincing reasons why that effective handout to the rich should be made. Will he argue that the additional relief will aid business? That will be difficult to argue because, as I understand it, most assets that are clearly seen to be productive towards business are largely exempt from capital gains tax in any case. I cannot 194 therefore see any argument that the Minister can make out for that case, although I shall listen with interest to his reponse.
It is sometimes argued that we have to hand out money because we must make more available for investment in industry in this country. Again, it will be interesting to see whether the Minister deploys that argument, but, if there is an argument for investment, it does not matter whether it is in the public or private sector. It does not matter whether the Government build a new railway line between London and Dover or whether it is done by the private sector. In either case, it will probably cost a similar amount. Such arguments will not cut much ice with my disabled constituent who has already raised with me the question of the lack of social justice.
It is also argued that it is not worth while having an assessment before 1982 because it would cost more to assess the asset than the amount that would be raised. That argument cannot be made out, because the cost will not vary very much, whichever dates are used. My constituent will not be particularly charmed if the Minister comes forward with that argument.
The Conservative party has often said, particularly before it came to power in 1979, that it was necessary to do some things in the national interest that might be unpalatable, but, even on this occasion, it cannot clam that it is in the national interest. The Minister should admit that this is part of the handout to the Government's rich backers and supporters and that the benefit to the rest of the community is nil.
I hope that those Conservative Members who have noted the philosophical arguments that have been put forward, and other Conservative Members, such as the hon. Member for Beaconsfield, who have recognised the technical arguments, will join us in opposing clause 91.
§ Mr. Campbell-Savours
I shall be brief, as I have already spoken twice on the Bill. I want to address the point made quite reasonably by a number of Conservative Members about the difficulties of valuing assets for the purpose of estimating their value up to 23 years ago.
The Inland Revenue has much experience of those matters. As I understand it, it is now doing precisely that. That is how it assesses capital gains tax liability. In all my years in this place, I have never had any complaints from constituents about unreasonable treatment in the valuation of their assets. I assume that the Inland Revenue would have been involved in estimating the value of assets held between 1965 and 1982. Perhaps the hon. Member for Bournemouth, West (Mr. Butterfill) will intervene if I am wrong. If he accepts that the Inland Revenue has such experience, surely that destroys any argument that may be used about the principle of valuation.
§ Mr. Butterfill
The hon. Gentleman tempts me to intervene. I have certainly received many complaints about that matter and perhaps I can give him an anecdote from my experience. Only six months ago I managed to agree with the Inland Revenue the final computations in respect of a sale of shares in a company that I was running and that I sold at the end of 1976. It has taken almost 12 years to agree the valuation. That is due to the complexities that can arise in respect of private companies and properties. A whole division of the Inland Revenue deals with those 195 matters day after day. Those people have a high level of expertise, but the complexity of the transactions is enormous and the cost to the taxpayer great.
§ Mr. Campbell-Savours
The Inland Revenue may have a whole division involved in valuing such things, but I am sure that it has the necessary expertise. In eight years, no constituent has ever brought such a case to me, and I am sure that is true of many of my hon. Friends. Accountants in my constituency are keen to come to me if they want my support in making representations, and I willingly provide it wherever possible. I am sure that they would have come to me if the problem had existed.
Those matters are exaggerated because they serve the purpose of the argument. The Government may introduce the measure not only to help a small minority of people, but because they are obsessed with reducing the number of civil servants. They may believe that they can make economies in Civil Service numbers in this area when another Government of a different political persuasion might be less keen to make so-called economies.
I wish to simplify the matter for the general public who may have difficulty in following our debates. If they listen to what is being said in Committee today, they may not understand what we are talking about. I want to make it clear what we are talking about.
If, between 1965 and 1970, a person bought a painting for £100,000 and decided to sell it this year for £10 million—the last £5 million of that having accrued between 1982 and 1988—the first £5 million, which represents the increase in value between 1965 and 1982, would not be subject to tax.
§ Mr. Boswell
Will the hon. Gentleman tell the House how much tax has already accrued to the Exchequer under the previous regime on that notional gain which is now hypothetically released? Will he also tell us how much capital gains tax would accrue to the Exchequer under the present regime, if the person were to die possessed of that asset?
§ Mr. Campbell-Savours
I can only say what the Minister would say to the hon. Gentleman, although I do not have an hon. Friend to whom I can turn for a reply. If he gives me written notice of the question, I assure him that I will give him an answer when I have secured it from the Minister.
I should like to make it clear to those who are listening to our debate today that many people, although they may be few as a proportion of the population, will make millions of pounds out of the concession. They will simply not be liable to tax. That is what we object to.
My hon. Friend the Member for Cardiff, West (Mr. Morgan) spoke most ably about the problems that arose with stock relief in the late 1970s. It should be admitted that stock and appreciation relief related not only to a fixed volume of stock. In practice, people claimed relief on an increasing volume of stock over a period of years. Many people thought that an abuse of the scheme, but it was extremely difficult for the Inland Revenue to keep a check on it. One hon. Gentleman is an accountant, and I think that I once heard him talking about this matter at a meeting outside this Chamber. He might care to confirm that I am right. It could be argued that that was a windfall for much of British industry as it was able to avoid tax within the law.
196 Such a process led to an increased value being put on companies. If that increase were realised before 1982, it could be said to be an increase which bore no relation to increases as a result of inflation. Surely such an increase should be subject to capital gains tax.
Many people invested in assets in the hope that, one day, there would be a law to reduce liability. People invested in coins, stamps, furniture, paintings and antiques, often in the belief that what is happening today would happen. It is they who will be substantial beneficiaries. I only hope that when the Government's proposed changes are evaluated outside, the majority of people will understand that a very small number will today, as a result of this concession, gain a very large amount of money. That is happening at a time when people at the bottom of the income scale are gaining almost nothing. Indeed, they are losing.
§ Dr. Marek
I should like to echo what my hon. Friend the Member for Workington (Mr. Campbell-Savours) said. He encapsulated the debate in his last two sentences. A very few people will make a lot of money from the clause.
Yet again, more Opposition Members than Conservative Members have spoken. One or two Conservative Members have tried valiantly to defend the indefensible, but, by and large, the Conservative Benches have been silent and only Opposition Members have recognised the effect of the tax and been able to deploy the arguments.
The hon. Member for Beaconsfield (Mr. Smith) is muttering something. I understand that he is retained by Price Waterhouse. If he wishes to intervene, he should stand up and I shall give way to him.
§ Mr. Tim Smith
I am most grateful to the hon. Gentleman for giving way. He cannot have been listening carefully because, to take the example given by the hon. Member for Workington (Mr. Campbell-Savours), if a man bought a painting for £100,000 in 1965 and sold it for £550,000 in 1982—
§ Dr. Marek
Indeed. The House should reflect on the alleviation of capital gains tax and compare it with housing benefit. People on income support and those in 197 receipt of housing benefit do not know what will happen to them. Local authorities cannot tell them what will happen. The Government were rightly forced to make changes to their new system.
The Government announced on Budget day that CGT would be rebased on 1982. I maintain that there are only gainers from that change. Moreover, the Government left three weeks for people who pay CGT to arrange their financial affairs to their advantage. The new system came in on 6 April. That sums up the Government's philosophy. The rich—those who pay CGT—know that nothing the Government will do will upset them. Indeed, the Government will ensure that their tax charges diminish. People who depend on social security, income support or housing benefit, however, have all sorts of administrative difficulties put in their way. They do not know how much money they will have to live on next week. They have to keep guessing, but they know that money will be taken away from them each year.
The Committee has been occupied for about three hours considering the case of about one in 100 taxpayers, because that is how many pay CGT. From 1991, each individual will have a CGT allowance of £5,000. Certain married couples will benefit to the tune of £50 million in the coming financial year. The tax-free allowance remains at £5,000, but that should be compared with the single allowance of £2,605. Where is the morality there?
§ Mr. Boswell
Does the hon. Gentleman agree that companies also pay capital gains? They have shareholders—approximately 9 million of them—all of whom are potential capital gains tax payers.
§ Mr. Brooke
It would be helpful if the hon. Gentleman would clear up one matter regarding which we were left in doubt last night. I refer to the Opposition's policy on the capital gains exemption for married couples. The two speeches made by Opposition spokesmen lead in conflicting directions. Is the hon. Gentleman proposing that the exemption for couples should not exist or that there should be only one exemption for everyone?
§ Dr. Marek
I will not answer that question now, for one good reason. We are here debating a Finance Bill that has not been introduced by the Opposition. I shall be delighted to answer the hon. Gentleman's question in due course, when we are seated on the Government Benches. We are discussing a Finance Bill introduced by the present Conservative Administration—it is their seventh or eighth Bill—and the present proposals before the Committee will give a very few people a very large amount of money. There is no doubt about that.
As to exemption for capital gains between married people, that is a subject of which the ordinary man or women in the street has no comprehension. They have no idea what it is about, and they wonder why the House of Commons spends three or four hours discussing it. The ordinary married couple do not pay capital gains tax and 198 have not even heard of it. Yet the Paymaster General was trying to create a rift over what was said last night by my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) and by my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) where no rift exists. If the right hon. Gentleman will read last night's debate, he will see that the Opposition's case is clear. We oppose massive handouts to wealthy people who do not work for that wealth, and who will enjoy even more wealth as a result of the Bill.
§ Mr. Brooke
Last night, the two Opposition Members to whom the hon. Gentleman referred gave conflicting interpretations, and he is not prepared to say which of them is correct.
§ Dr. Marek
I have it directly from the words of my hon. Friends the Members for Newcastle upon Tyne, East and for Islington, South and Finsbury. The comment of the right hon. Gentleman is clearly untrue and there is no rift among the Opposition in expressing its feelings about this iniquitous measure, which creates more riches for those who are already rich.
I return to the subject of the way in which wealthy married couples will benefit from these measures. As each spouse will have their own £5,000 allowance, they will not be able, as they have in the past, to aggregate their gains and losses. However, what is to prevent one spouse from transferring his or her losses by a transfer of assets at nil loss or nil profit to the other spouse, in order to set that loss against the other spouse's gains? I hope that the Paymaster General will pay careful attention to that point, which was raised by my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson). It clearly reveals a flagrant loophole established by the Government in order that wealthy people may evade capital gains tax. Will the Paymaster General close that loophole? Is there to be wide interpretation of artificial transfers? That loophole clearly exists and something should be done about it.
§ Mr. Butterfill
Does the hon. Gentleman include in his definition of the wealthy the sons and daughters of people who may have purchased their council houses and bequeathed them to their children? Such beneficiaries may be left with a few thousand pounds, which they choose to invest in stocks and shares—there are some 9 million shareholders in this country. Are they among the "wealthy" whom the hon. Gentleman wants to tax? Will he discriminate against wives and husbands in that way? Many people who might otherwise be Labour voters may wish to know the answers to those questions.
§ Dr. Marek
The answer is clear—it is, no. The hon. Gentleman asked me whether I considered such people to be wealthy. My answer is no, and that ought to be the end of the matter.
I shall now describe to the Committee some of the actions which the Government have taken in relation to the old capital transfer tax, which is now renamed the inheritance tax. I may say, first, that accountancy practices have benefited greatly from the last few years of the Government's various Finance Bills. I am sure that the 199 hon. Member for Beaconsfield will agree. Those firms have paid high salaries to attract staff from the Inland Revenue. I do not know of any particular firm which has done that, but I know that many firms in the aggregate have done so. As a result, many people have left the Inland Revenue, so impoverishing the compliance with tax collection that the Inland Revenue has been able to achieve—particularly in respect of capital gains tax. That is in spite of having lower and lower tax rates, according to the Government.
I am not criticising accountancy firms for doing anything illegal, but the work created for them by the Government is in addition to privatisation issues and public sector business. Therefore, those firms are now extremely profitable. It is interesting to ask which firm is sequestering the assets of the National Union of Seamen and how much that firm is getting out of it. The truth is that capital gains tax is not getting easier as the years go by simply because rates are getting lower or because there will not be any problems as a result of rebasing to 1982. In fact, accountancy firms—I do not object to this—will continue to place great emphasis on devising for their clients the best methods of adjusting their tax affairs.
The answer to it all is not to keep on the track which the Government are following, of giving handouts to the rich, but to try to police the existing tax laws effectively. The Opposition believe that that policing is something to which the Government have not given a great deal of attention. Is it, for example, the Chancellor of the Exchequer's mission in life to provide a living to accountancy firms—[HON. MEMBERS: "Yes!"] No, that should not be the case, but I am glad at last to have the agreement of some Conservative Members. Unfortunately, because of the way in which the Government are formulating their policies, taxes are more and more difficult to apply, with the result that even more livings are to be made by those in accountancy firms working for their clients in avoiding as much capital gains tax as possible.
The provision for rebasing to 1982 is most iniquitous. The point has been made that inflation was 450 per cent. between the time when the tax was introduced in the 1960s until 1982. However, there were many real gains made over and above any inflationary gains. My hon. Friend the Member for Cardiff, West (Mr. Morgan) made that point and described some of the gross anomalies which exist. One action the Government could have taken was not to make any change whatsoever.
It is the job of Inland Revenue to negotiate with those who wish to make gains by selling their assets at a particular time, in order to achieve a satisfactory valuation. I am sorry to hear that the case of the hon. Member for Bournemouth, West (Mr. Butterfill), took 12 years to resolve but that is not a criticism of the law—it is a criticism of the way in which the law is interpreted by accountants and by the Inland Revenue. Other ways can be found of ensuring that valuations are arrived at much sooner.
If the Government intended to do anything about capital gains tax before 1982, they should not have swept it away. I reiterate that the Government are giving away a lot of money to a very few people.
I make now my point about the inheritance tax. When that concession is added to the gifts that will be made to people who pass on their estates under the inheritance tax we shall be discussing next, to the cut in the top rate of income tax from 60 per cent. to 40 per cent., to the disaggregation of married couples' incomes—and none of 200 us on the Opposition Benches are against separate taxation for married couples—and to the windfall gains that will be made by wealthy married couples as a result of the proposals, the result is a most iniquitous, thoroughly immoral Budget. Clause 91 is one of its immoral clauses, and we shall vote against it.
§ [MISS BETTY BOOTHROYD in the Chair]
§ 7 pm
§ Mr. Brooke
As the hon. Gentleman says, I am looking forward to replying to it.
The hon. Member for Newcastle upon Tyne, East (Mr. Brown) raised a number of questions about the consequences and purposes of the clause. It is the clear intention of the clause to unlock gains which will he taxed at higher rates. The hon. Member for Edinburgh, Central (Mr. Darling) quoted the costs in terms of relief for both individuals and companies in the coming year. He did riot quote the £65 million in 1989–90 that we shall secure as a result of the rate change in capital gains tax, or indeed the £15 million that we shall secure as a result of the change to the annual exemption.
The beneficiaries—as the hon. Gentleman said in a side wind—will also be the life insurance companies and the holders of policies in those companies. The hon. Gentleman made much play of the gain that will be made by property companies—and, indeed, the gains of other companies—but, as has been said, those will be taxes in the hands of the shareholders. The hon. Member for Wrexham (Dr. Marek) dismissed that, as though shareholdings were in some way disembodied, and that may well explain what has lain behind much Socialist policy in the past. The fact remains that those gains will be taxed when the individual shareholders realise their own gains.
The hon. Member for Newcastle upon Tyne, East mentioned those who might gain. But for higher rate taxpayers generally, the overall capital gains tax reform is likely to be broadly revenue-neutral. My hon. Friend the Member for Macclesfield (Mr. Winterton) implied that there would be no losers. Alas, the role of the dodo in "Alice's Adventures in Wonderland" cannot be played in terms of these clauses, because unquestionably there will be losers.
I was asked whether I was suggesting that all gains were inflationary. Of course the Government are not saying that, but we cannot return to 1965, for the reasons that we have adduced during the debate.
§ Mr. Nicholas Brown
I am grateful to the Paymaster General for giving way, because this question is at the heart of our objections. We accept that in the 1970s inflation created some anomalies, and in an intervention I said that we agreed with the Government that the matter must be dealt with. Surely, however, the Government do not contend that every potential capital gain created in the 1970s was caused by inflation alone. If that is not their contention, what reason can the Government give to the Committee for exempting everything prior to 1982 from tax?
§ Mr. Brooke
I do not think that the hon. Gentleman heard what I said a moment ago. I agreed that all gains were not inflationary. What I was saying—and I shall say it again—was that the information does not exist to enable us to take indexation back to 1965, which by implication would be the solution that the hon. Gentleman suggests.
§ Mr. Darling
Is the right hon. Gentleman saying that no information exists for before 1982? Surely, while it is perfectly possible that information concerning events in 1965 is more difficult to come by, information for 1981, 1979 or 1977 could readily be acquired. If the right hon. Gentleman concedes the principle that there are pre-1982 non-inflationary gains, he could at least have made some attempt to go further back. The hon. Member for Beaconsfield (Mr. Smith) agrees.
§ Mr. Brooke
I do not know what makes the hon. Gentleman believe that all details in a particular year would readily be available. Some details in each of the years going back to 1965 would be difficult to secure.
§ Mr. Morgan
The right hon. Gentleman is now adducing a new principle—that there should be no taxation without information, and that taxation is possible only where records exist. Surely that is an incentive for the destruction of records, and the proposal becomes impracticable. Is the right hon. Gentleman really saying that the main motive behind the legislation is the absence of records?
§ Mr. Brooke
The hon. Gentleman may well have given me a soubriquet with which I shall go down in history. Our concern, however, is the particular detail that is required to reopen questions back to 1965 in terms of indexation when the information is not universally available. The point that I have made from the beginning of the debate is that indexing back to 1965 is not a feasible proposition because of the lack of available information, and that is the position on which I shall stand.
§ Mr. Brooke
I should like to make a little progress. I shall be on my feet for some time to come.
The hon. Member for Wrexham declined to state the Opposition's position on exemption. Conflicting opinions were given by his hon. Friends—
§ Mr. Brooke
I am responding to the hon. Member for Wrexham. He asked me whether I had read the report of the debate. I have had the advantage of reading it, whereas all that he did was to consult his hon. Friends the Members for Newcastle upon Tyne, East and for Islington, South and Finsbury (Mr. Smith). A question remains which the hon. Member for Wrexham noticeably declined to answer. We do not know whether that was because he did not know the answer, or because the Opposition have not yet decided. That question is whether the exemption will be lower for everyone, or whether there will be no exemption for married couples.
My hon. Friend the Member for Daventry (Mr. Boswell) raised the subject of milk quotas. Two possibilities may arise. Milk quotas are assets that did not exist in 1982: the European Community rules under which they exist were introduced later.
§ Mr. Nicholas Brown
The right hon. Gentleman suggests that there is some confusion, at least in his mind, about Opposition policy on capital gains tax and disaggregation. I think that it is a bit wide of the clause, but if he were to explain precisely what his misunderstanding is, we could deal with it. So far he has alleged inconsistency, but he has not told the House what it is. I suspect that the inconsistency is in his own mind alone, because no one else has picked it up.
§ Mr. Brooke
I am surprised that the hon. Gentleman should wish us to explore that further. He will remember that, in the context of the individual's £5,000 exemption, he accused the Government ofnot arranging the allowances so that the change is neutral in terms of the public purse.He may wish later to explain what he meant by that, but it was a statement.
The hon. Member for Islington, South and Finsbury also said:If the Government removed the £5,000 exemption allowance from capital gains tax, we would be entirely and immediately in favour of independent taxation of capital gains."—[Official Report, 9 May 1988; Vol. 133, c. 88–111.]
In those circumstances it is reasonable for me to ask whether what they are proposing is no exemption for couples, or a lower exemption for everyone. If they are intending to remove the exemption, that would bring 9 million shareholders under the capital gains tax regime, which require universal tax returns for 30 million people and involve the employment of a further 1,000 to 2,000 Inland Revenue staff.
§ Mr. Nicholas Brown
There is no inconsistency in that. We are putting proposals to the Government. My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) stated something that would be overwhelmingly acceptable and I stated something that I should have thought the Minister would see as being closer to his position. We were not setting out the Labour party's position; we were stating things that the Government should have considered but did not.
§ Mr. Brooke
I am conscious of the difficulty that the Opposition are having in terms of determining their policy on anything. However, to discuss it in Committee of the whole House during debates on the Finance (No. 2) Bill, with different hon. Members on the Opposition Front Bench putting forward a series of different proposals in order to get a reaction from the Government, seems to be an extraordinary way for Her Majesty's loyal Opposition to go about deciding their policy. It is reasonable for us to seek to know what the policy is, because 9 million shareholders in this country are affected by it.
I shall return to the subject of milk quotas. There are two possibilities. The first, which will more frequently happen, is where a milk quota is disposed of at the same time as the associated farm land. Where that is so, the full benefit of rebasing will, where appropriate, already be available under the Bill. That will be done through the computation of the gain on the farm land itself. Splitting it between the land and the quota will achieve nothing extra.
The second—a more rare occurrence—is where the quota is sold separately from the land. Under Ministry of Agriculture, Fisheries and Food arrangements, the Ministry may buy back quota from a dairy farmer under what is known as the outgoers scheme. In those more 203 exceptional circumstances, quota may be disposed of independently of the land. The details are complex, but in some circumstances the payment by the Ministry to the outgoing farmer may take the form of income, in which case there is no question of capital gains tax. In other circumstances, the payment may take the form of capital and a gain may arise. However, that gain is not attributable to any asset that the taxpayer held in 1982. The quota did not exist then and it is an asset separate and entirely distinguishable from the farm land, as is clear from the fact that it can be sold back to the Ministry independently of the land. In giving that answer I am also responding to the hon. Member for Caernarfon (Mr. Wigley).
My hon. Friend the Member for Daventry also raised the question of stock dividends. There will be complications when shares issued as a stock dividend are sold if capital gains tax is then payable. However, those complications will not arise for the vast majority of small investors, who will be below the annual exemption.
The hon. Member for Edinburgh, Central asked why we had settled on 1982 for rebasing and not a different year. The reason was, as my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) said, that market values at 31 March 1982 are already built into the system for indexation. If the hon. Gentleman is asking why the year was fixed at 1982 and not 1979, I should say that that would be a perverse suggestion since there would be a cost to the Revenue in the relief if it had been taken back to the earlier date.
§ Mr. Darling
The right hon. Gentleman seems to be having a great deal of difficulty with the year 1982. Will he explain why 1982 was chosen? There may well have been a cost, but the Government could have done anything they wanted on the matter of indexation. To return to the point made earlier, why is it that before 31 March 1982 information suddenly becomes patchy, whereas after that there is as much information as the Revenue needs?
§ Mr. Brooke
I remind the hon. Gentleman that 1982 was chosen because the decision was taken in the 1982 Budget. The hon. Gentleman will recall an exchange between his hon. Friend the Member for Newcastle upon Tyne, East and myself earlier on the subject of the Labour party amendment which suggested the date 1974. That was also a wholly arbitrary date. The hon. Gentleman will recall that it was withdrawn without debate.
My hon. Friend the Member for Beaconsfield (Mr. Smith) supported the hon. Member for Newcastle upon Tyne, East's point about the 30 per cent. flat rate. He made a most helpful contribution to that subject.
The hon. Member for Caernarfon came back to me on the question of valuation. The hon. Gentleman appears to assume that indexation is computed by reference to disposal value. That is not the case. It is normally computed, under existing law, on market values at 1982. That is the same figure as will be needed for rebasing. The Inland Revenue is experienced in valuing land and other assets at 1982 market values. In spite of the problem in valuation mentioned by the hon. Member for Caernarfon, I noticed that the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) appeared to be prepared to value anything.
204 I am grateful to my hon. Friend the Member for Wanstead and Woodford for his appreciation of the move by the Government on the subject of the election.
The hon. Member for Gateshead, East (Ms. Quin) asked about real versus inflationary profits during the period concerned. I have already spoken about that. In terms of the behaviour of individual shares on the stock market, it would not be practicable to give indexation relief back to 1965. On average, rebasing is no more generous than indexation back to 1965 would be. The hon. Lady also asked about migration. I am glad to say that under the present Government, with lower income tax rates, the number of those leaving the country is likely to be reduced.
The hon. Member for Cardiff, West (Mr. Morgan), given the historical tendency of the Labour party to argue that our economic success—
§ Mr. Brooke
I shall come to the speech made by the hon. Member for Workington (Mr. Campbell-Savours).
The hon. Member for Cardiff, West attributed the lack of success in the economy during the previous Labour Government to the problems of OPEC and the oil industry. However, the present Opposition attribute all our success to that, despite the fact that the contribution of the oil industry to the revenues of the Treasury is now small, especially after the fall in the oil price.
My hon. Friend the Member for Macclesfield asked about the valuation of shares in 1982 in private companies. It has been suggested that rebasing has an unfair effect where minority shareholders in a private company sell the company jointly. In those circumstances, the sale price will reflect the control premium, whereas the 1982 valuation will be of individual minority shareholdings. This is riot really a rebasing point. It concerns how one values shares at a time when there is no sale. The only basis one can use is open market value—the amount that the particular shareholding would have fetched in the market had it been sold. If people have a minority holding, the market will not value it at the premium that would attach to a controlling or 100 per cent. shareholding. Frequently, when people come to sell, they will sell a simple minority holding and the price they receive will reflect that.
I shall study closely what my hon. Friend said in terms of the letter relating to controlling partnerships. If a partnership does own all the shares in a company, it does so as a single entity, no matter how many partners there are. When it comes to selling the shares, the partnership will act as a single investor. The valuation of the shareholding in the market and for tax will be on a controlling holding basis and, as with other assets, each partner will be treated as having a proportionate interest in that value.
The hon. Member for Newcastle upon Tyne, North came back to the question about records. It seems that there will be a continuing gulf between the Government and the Opposition on whether the records are available. It remains our contention that they are not.
The hon. Member for Workington, who replied to a question put to me by one of my hon. Friends by saying that he would consult me and write to my hon. Friend later, was, I thought, being unduly modest, as earlier in the debate he knew all the answers to questions put to me.
205 The hon. Members for Newcastle upon Tyne, North and for Wrexham referred to the tax on transfers between husbands and wives. We have established ourselves as the party of the family through our proposals relating to independent taxation. The Opposition will be the party of the anti-family, if they are going to introduce taxation on transactions between husbands and wives.
Even after all the changes to capital gains tax since 1979, the yield on disposals this year by individuals and trusts will be about three times the equivalent for 1978–79, which is a real increase of more than 50 per cent. Most of the cost of rebasing lies with companies. Even so, the yield on disposals by companies this year is seven times greater in real terms than the yield in 1978–79.
I rest my case on a final verdict about these proposals. The Institute for Fiscal Studies set up a working party on capital taxes, which in February produced an interim report on reforming capital gains tax. While considering the options for reform open to the Chancellor, the institute happened on what was effectively the Budget package—1982 rebasing, charging gains as the marginal slice of income, a basic rate of 25 per cent. and a single higher rate of 40 per cent. It commented:Clearly such a scheme has much to commend it. It would also seem to be the logical counterpart in the personal sector to the reform made in the 1987 Budget in the corporate sector … The main objection … is that the key problem … with CGT is left unremedied, namely its complexity. Still, it cannot be a valid objection to a sensible reform package that it is not perfect.
I commend the proposals to the House.
§ Question put, That the Clause stand part of the Bill:—
§ The Committee divided: Ayes 262, Noes 194.208
|Division No. 293]||[7.21 pm|
|Adley, Robert||Brandon-Bravo, Martin|
|Aitken, Jonathan||Brazier, Julian|
|Alison, Rt Hon Michael||Bright, Graham|
|Allason, Rupert||Brittan, Rt Hon Leon|
|Alton, David||Brooke, Rt Hon Peter|
|Amess, David||Brown, Michael (Brigg & Cl't's)|
|Amos, Alan||Browne, John (Winchester)|
|Arbuthnot, James||Bruce, Ian (Dorset South)|
|Arnold, Tom (Hazel Grove)||Bruce, Malcolm (Gordon)|
|Aspinwall, Jack||Buchanan-Smith, Rt Hon Alick|
|Atkins, Robert||Burt, Alistair|
|Atkinson, David||Butcher, John|
|Baker, Nicholas (Dorset N)||Butler, Chris|
|Baldry, Tony||Butterfill, John|
|Banks, Robert (Harrogate)||Campbell, Menzies (Fife NE)|
|Batiste, Spencer||Carlile, Alex (Mont'g)|
|Beaumont-Dark, Anthony||Carlisle, John, (Luton N)|
|Beith, A. J.||Carlisle, Kenneth (Lincoln)|
|Bellingham, Henry||Carrington, Matthew|
|Bennett, Nicholas (Pembroke)||Carttiss, Michael|
|Benyon, W.||Cash, William|
|Bevan, David Gilroy||Chapman, Sydney|
|Biffen, Rt Hon John||Clark, Dr Michael (Rochford)|
|Blackburn, Dr John G.||Clark, Sir W. (Croydon S)|
|Blaker, Rt Hon Sir Peter||Clarke, Rt Hon K. (Rushcliffe)|
|Bonsor, Sir Nicholas||Conway, Derek|
|Boscawen, Hon Robert||Coombs, Anthony (Wyre F'rest)|
|Boswell, Tim||Coombs, Simon (Swindon)|
|Bottomley, Peter||Couchman, James|
|Bottomley, Mrs Virginia||Cran, James|
|Bowden, A (Brighton K'pto'n)||Critchley, Julian|
|Bowis, John||Curry, David|
|Boyson, Rt Hon Dr Sir Rhodes||Davies, Q. (Stamf'd & Spald'g)|
|Braine, Rt Hon Sir Bernard||Davis, David (Boothferry)|
|Day, Stephen||Knowles, Michael|
|Devlin, Tim||Knox, David|
|Dickens, Geoffrey||Lamont, Rt Hon Norman|
|Douglas-Hamilton, Lord James||Lang, Ian|
|Dover, Den||Latham, Michael|
|Dunn, Bob||Lawrence, Ivan|
|Durant, Tony||Lee, John (Pendle)|
|Fallon, Michael||Lester, Jim (Broxtowe)|
|Farr, Sir John||Lightbown, David|
|Favell, Tony||Lilley, Peter|
|Fearn, Ronald||Lloyd, Sir Ian (Havant)|
|Fenner, Dame Peggy||Lloyd, Peter (Fareham)|
|Field, Barry (Isle of Wight)||Lord, Michael|
|Finsberg, Sir Geoffrey||Lyell, Sir Nicholas|
|Forman, Nigel||Macfarlane, Sir Neil|
|Forth, Eric||Maclean, David|
|Fox, Sir Marcus||McLoughlin, Patrick|
|Franks, Cecil||McNair-Wilson, M. (Newbury)|
|Freeman, Roger||McNair-Wilson, P. (New Forest)|
|French, Douglas||Madel, David|
|Fry, Peter||Major, Rt Hon John|
|Gardiner, George||Malins, Humfrey|
|Garel-Jones, Tristan||Mans, Keith|
|Gill, Christopher||Maples, John|
|Goodhart, Sir Philip||Marland, Paul|
|Goodlad, Alastair||Marshall, John (Hendon S)|
|Goodson-Wickes, Dr Charles||Marshall, Michael (Arundel)|
|Gorman, Mrs Teresa||Martin, David (Portsmouth S)|
|Gow, Ian||Mates, Michael|
|Gower, Sir Raymond||Maude, Hon Francis|
|Gregory, Conal||Mawhinney, Dr Brian|
|Griffiths, Sir Eldon (Bury St E')||Maxwell-Hyslop, Robin|
|Griffiths, Peter (Portsmouth N)||Mayhew, Rt Hon Sir Patrick|
|Grist, Ian||Michie, Mrs Ray (Arg'l & Bute)|
|Ground, Patrick||Miller, Hal|
|Grylls, Michael||Mills, lain|
|Gummer, Rt Hon John Selwyn||Mitchell, Andrew (Gedling)|
|Hamilton, Hon Archie (Epsom)||Mitchell, David (Hants NW)|
|Hampson, Dr Keith||Moate, Roger|
|Hannam, John||Montgomery, Sir Fergus|
|Hargreaves, A. (B'ham H'll Gr')||Morrison, Hon Sir Charles|
|Hargreaves, Ken (Hyndburn)||Morrison, Hon P (Chester)|
|Haselhurst, Alan||Moss, Malcolm|
|Hawkins, Christopher||Mudd, David|
|Hayes, Jerry||Neale, Gerrard|
|Hayhoe, Rt Hon Sir Barney||Nelson, Anthony|
|Hayward, Robert||Neubert, Michael|
|Heathcoat-Amory, David||Nicholls, Patrick|
|Hicks, Robert (Cornwall SE)||Nicholson, David (Taunton)|
|Higgins, Rt Hon Terence L.||Nicholson, Emma (Devon West)|
|Hill, James||Onslow, Rt Hon Cranley|
|Hind, Kenneth||Oppenheim, Phillip|
|Hogg, Hon Douglas (Gr'th'm)||Page, Richard|
|Holt, Richard||Paice, James|
|Howard, Michael||Patnick, Irvine|
|Howarth, Alan (Strat'd-on-A)||Patten, John (Oxford W)|
|Howarth, G. (Cannock & B'wd)||Pattie, Rt Hon Sir Geoffrey|
|Howell, Rt Hon David (G'dford)||Pawsey, James|
|Hughes, Robert G. (Harrow W)||Porter, Barry (Wirral S)|
|Hunt, David (Wirral W)||Porter, David (Waveney)|
|Hunter, Andrew||Portillo, Michael|
|Irvine, Michael||Price, Sir David|
|Irving, Charles||Raffan, Keith|
|Jack, Michael||Redwood, John|
|Jackson, Robert||Renton, Tim|
|Janman, Tim||Rhodes James, Robert|
|Jessel, Toby||Riddick, Graham|
|Johnson Smith, Sir Geoffrey||Ridley, Rt Hon Nicholas|
|Jones, Gwilym (Cardiff N)||Ridsdale, Sir Julian|
|Jones, Robert B (Herts W)||Roberts, Wyn (Conwy)|
|Jopling, Rt Hon Michael||Roe, Mrs Marion|
|Kellett-Bowman, Dame Elaine||Rossi, Sir Hugh|
|Kennedy, Charles||Rost, Peter|
|Key, Robert||Rowe, Andrew|
|King, Roger (B'ham N'thfield)||Rumbold, Mrs Angela|
|Kirkhope, Timothy||Ryder, Richard|
|Kirkwood, Archy||Sayeed, Jonathan|
|Knapman, Roger||Shaw, David (Dover)|
|Knight, Greg (Derby North)||Shaw, Sir Michael (Scarb')|
|Knight, Dame Jill (Edgbaston)||Shephard, Mrs G. (Norfolk SW)|
|Shepherd, Colin (Hereford)||Thurnham, Peter|
|Shepherd, Richard (Aldridge)||Townend, John (Bridlington)|
|Shersby, Michael||Twinn, Dr Ian|
|Sims, Roger||Vaughan, Sir Gerard|
|Smith, Sir Dudley (Warwick)||Waddington, Rt Hon David|
|Smith, Tim (Beaconsfield)||Wallace, James|
|Speller, Tony||Waller, Gary|
|Spicer, Sir Jim (Dorset W)||Walters, Dennis|
|Spicer, Michael (S Worcs)||Ward, John|
|Squire, Robin||Warden, Gareth (Gower)|
|Stern, Michael||Widdecombe, Ann|
|Stewart, Allan (Eastwood)||Wiggin, Jerry|
|Stewart, Andy (Sherwood)||Winterton, Mrs Ann|
|Stradling Thomas, Sir John||Winterton, Nicholas|
|Taylor, Ian (Esher)||Yeo, Tim|
|Taylor, Matthew (Truro)|
|Thompson, D. (Calder Valley)||Tellers for the Ayes:|
|Thompson, Patrick (Norwich N)||Mr. Mark Lennox-Boyd and|
|Thorne, Neil||Mr. Stephen Dorrell.|
|Abbott. Ms Diane||Faulds, Andrew|
|Adams, Allen (Paisley N)||Field, Frank (Birkenhead)|
|Allen, Graham||Fisher, Mark|
|Anderson, Donald||Flynn, Paul|
|Ashton, Joe||Foot, Rt Hon Michael|
|Banks, Tony (Newham NW)||Foster, Derek|
|Barnes, Harry (Derbyshire NE)||Foulkes, George|
|Barron, Kevin||Fraser, John|
|Battle, John||Fyfe, Maria|
|Beckett, Margaret||Galbraith, Sam|
|Bell, Stuart||Galloway, George|
|Benn, Rt Hon Tony||Garrett, John (Norwich South)|
|Bennett, A. F. (D'nt'n & R'dish)||Garrett, Ted (Wallsend)|
|Bermingham, Gerald||George, Bruce|
|Bidwell, Sydney||Gilbert, Rt Hon Dr John|
|Blair, Tony||Golding, Mrs Llin|
|Blunkett, David||Gordon, Mildred|
|Boateng, Paul||Gould, Bryan|
|Boyes, Roland||Graham, Thomas|
|Bradley, Keith||Griffiths, Nigel (Edinburgh S)|
|Bray, Dr Jeremy||Griffiths, Win (Bridgend)|
|Brown, Gordon (D'mline E)||Grocott, Bruce|
|Brown, Nicholas (Newcastle E)||Hardy, Peter|
|Buchan, Norman||Harman, Ms Harriet|
|Buckley, George J.||Hattersley, Rt Hon Roy|
|Caborn, Richard||Henderson, Doug|
|Callaghan, Jim||Hinchliffe, David|
|Campbell, Ron (Blyth Valley)||Hogg, N. (C'nauld & Kilsyth)|
|Campbell-Savours, D. N.||Holland, Stuart|
|Canavan, Dennis||Home Robertson, John|
|Clark, Dr David (S Shields)||Howarth, George (Knowsley N)|
|Clarke, Tom (Monklands W)||Howell, Rt Hon D. (S'heath)|
|Clay, Bob||Hoyle, Doug|
|Clwyd, Mrs Ann||Hughes, John (Coventry NE)|
|Cohen, Harry||Hughes, Robert (Aberdeen N)|
|Coleman, Donald||Hughes, Roy (Newport E)|
|Cook, Robin (Livingston)||Hughes, Sean (Knowsley S)|
|Corbett, Robin||Illsley, Eric|
|Corbyn, Jeremy||Ingram, Adam|
|Cousins, Jim||Janner, Greville|
|Cox, Tom||Jones, Barry (Alyn & Deeside)|
|Cryer, Bob||Jones, Martyn (Clwyd S W)|
|Cummings, John||Lambie, David|
|Cunliffe, Lawrence||Lamond, James|
|Cunningham, Dr John||Lestor, Joan (Eccles)|
|Darling, Alistair||Lewis, Terry|
|Davies, Rt Hon Denzil (Llanelli)||Litherland, Robert|
|Davies, Ron (Caerphilly)||Livingstone, Ken|
|Davis, Terry (B'ham Hodge H'l)||Lloyd, Tony (Stretford)|
|Dixon, Don||Lofthouse, Geoffrey|
|Dobson, Frank||Loyden, Eddie|
|Doran, Frank||McAllion, John|
|Douglas, Dick||McAvoy, Thomas|
|Dunnachie, Jimmy||Macdonald, Calum A.|
|Eadie, Alexander||McFall, John|
|Eastham, Ken||McKay, Allen (Barnsley West)|
|Evans, John (St Helens N)||McKelvey, William|
|Ewing, Harry (Falkirk E)||McLeish, Henry|
|Fatchett, Derek||McNamara, Kevin|
|McTaggart, Bob||Roberts, Allan (Bootle)|
|McWilliam, John||Robertson, George|
|Madden, Max||Rogers, Allan|
|Mahon, Mrs Alice||Rooker, Jeff|
|Marek, Dr John||Ross, Ernie (Dundee W)|
|Marshall, Jim (Leicester S)||Rowlands, Ted|
|Martin, Michael J. (Springburn)||Ruddock, Joan|
|Martlew, Eric||Salmond, Alex|
|Maxton, John||Sedgemore, Brian|
|Meacher, Michael||Sheerman, Barry|
|Meale, Alan||Sheldon, Rt Hon Robert|
|Michael, Alun||Shore, Rt Hon Peter|
|Michie, Bill (Sheffield Heeley)||Skinner, Dennis|
|Millan, Rt Hon Bruce||Smith, Andrew (Oxford E)|
|Mitchell, Austin (G't Grimsby)||Smith, C. (Isl'ton & F'bury)|
|Moonie, Dr Lewis||Smith, Rt Hon J. (Monk'ds E)|
|Morgan, Rhodri||Snape, Peter|
|Morley, Elliott||Soley, Clive|
|Morris, Rt Hon A. (W'shawe)||Spearing, Nigel|
|Mowlam, Marjorie||Stott, Roger|
|Mullin, Chris||Strang, Gavin|
|Murphy, Paul||Straw, Jack|
|Nellist, Dave||Taylor, Mrs Ann (Dewsbury)|
|O'Brien, William||Thomas, Dr Dafydd Elis|
|O'Neill, Martin||Turner, Dennis|
|Orme, Rt Hon Stanley||Wall, Pat|
|Parry, Robert||Warden, Gareth (Gower)|
|Patchett, Terry||Wareing, Robert N.|
|Pendry, Tom||Welsh, Andrew (Angus E)|
|Pike, Peter L.||Welsh, Michael (Doncaster N)|
|Powell, Ray (Ogmore)||Wigley, Dafydd|
|Prescott, John||Williams, Rt Hon Alan|
|Primarolo, Dawn||Williams, Alan W. (Carm'then)|
|Quin, Ms Joyce||Winnick, David|
|Radice, Giles||Wise, Mrs Audrey|
|Redmond, Martin||Tellers for the Noes:|
|Rees, Rt Hon Merlyn||Mr. Frank Haynes and|
|Reid, Dr John||Mr. Frank Cook.|
§ Question accordingly agreed to.
§ Clause ordered to stand part of the Bill.
§ Schedule 7 agreed to.
§ Clause 127 ordered to stand part of the Bill.