HC Deb 10 May 1988 vol 133 cc208-43

Question proposed, That the clause stand part of the Bill.

Dr. Marek

On a point of order, Miss Boothroyd. I was under the impression that we were going to discuss clause 127. In the general hubbub and melee of hon. Members exiting from the Chamber, it appears that the Economic Secretary to the Treasury, who told me that he would take four minutes to open the debate on clause 127, did not catch your eye. I wonder whether he could raise a further point of order on this matter.

The Second Deputy Chairman of Ways and Means (Miss Betty Boothroyd)

I am very understanding about and sympathetic to the hon. Member's point of order, but I think that my voice is very clear. It was quiet in the Chamber when I put the Question, and there was no objection to it. Clause 127 has been agreed to.

The Economic Secretary to the Treasury (Mr. Peter Lilley)

Further to the point of order, Miss Boothroyd. Is it correct to say that clause 127 could have been dealt with even if it was not moved?

The Second Deputy Chairman

I put the Question on the clause. I looked towards the Minister, who did not move. I then looked towards the Opposition Front Bench and waited for an hon. Member to respond. There was no move to speak. The Question on the clause has been put and the clause has been accepted. If hon. Members on the Government Front Bench do not rise when the Chairman looks their way, there is nothing that the Chair can do about it. Clause 127 has been passed. We are dealing with clause 128. Does the hon. Member for Wrexham (Dr. Marek) wish to speak on clause 128?

Dr. Marek

Further to the point of order, Miss Boothroyd. We need an explanation from the hon. Member for Morecambe and Lunesdale (Mr. Lennox-Boyd), who was trying to get the Economic Secretary not to rise. I certainly saw the hon. Gentleman do that.

The Second Deputy Chairman

If an hon. Member tries to get another hon. Member to remain seated, that has nothing to do with the Chair. The Question on clause 127 has been put. There was an opportunity for Ministers to rise. No one did. Clause 127 has been accepted. We are now dealing with clause 128.

Mr. Calum Macdonald (Western Isles)

Further to the point of order, Miss Boothroyd. I do not know whether it is appropriate for Back Benchers to oppose a clause. I said no, with some hesitancy because I was looking at the Opposition Front Bench. I suppose that I said no with my normal accent, which people say is very soft-spoken.

The Second Deputy Chairman

Any hon. Member can oppose a clause. I have perfect hearing. I am not sitting in the upper Chair which has wings that prevent my hearing. I heard no opposition to the clause.

Mr. Lilley

Further to that point of order, Miss Boothroyd. May I make it clear that I did not want to deprive the Opposition of the opportunity to have a debate. Is it possible within the rules of the House of Commons for us to interpret broadly the meaning of clause 128, so that we can cover the topics in clause 127, which are essentially the same, since they involve inheritance tax? Perhaps we can do that, if it is agreeable to the Opposition.

The Second Deputy Chairman

The hon. Member has a sympathetic way of putting things to me. I think that that course would be very agreeable.

Dr. Marek

I thank the Economic Secretary to the Treasury, although I suspect that the real culprit is the hon. Member for Morecambe and Lunesdale, who never says anything in the Chamber. I unreservedly thank the Economic Secretary for suggesting that course and I thank you, Miss Boothroyd, for accepting the Economic Secretary's suggestion that we have a wide debate. Of course, we shall not be able to vote on clause 127, since we are technically on clause 128, but we will be able to have a debate on it. It is important that the country should understand the Opposition's reservations about the changes in inheritance tax and in respect of gifts to political parties.

I must now depart from the all-party accord that has developed over the past few minutes, to focus on the points of dissent on this issue. We must focus on the super-rich because, I say again, this is exactly what the Budget is about. It is about benefits for the super-rich at the expense of the poor getting poorer. We certainly will not talk in this debate about cuts in income tax from 60 per cent. to 40 per cent., about the disaggregation of income tax and the massive windfall gains that will come to the super-rich because of that. We will not talk about the separate nil rate bands for capital gains tax, because, yet again, those separate bands will produce a massive windfall for the super-rich. We will certainly not talk about the other opportunities for this very small, exclusive class of people in the business expansion scheme and the associated new Rachmanism that it will introduce. We will talk about taxes on wealth, the inheritance tax and gifts to political parties.

The same scandalous picture emerges, because the top rate band of inheritance tax is to be reduced from 60 per cent. to 40 per cent. It is true that the lower rate of 30 per cent. will be increased to 40 per cent., but, because of the increase in thresholds from £90,000 to £110,000, no one at that level will lose. It is true that they will not gain and that the people who will gain a lot are the massively wealthy. They are the people who will be able to benefit political parties under clause 128.

There will be a further polarisation of wealth in a country in which 1 per cent. of the super-rich own a quarter of all private wealth. That figure beggars the imagination. In the last two years the number of people paying inheritance tax has halved, from 40,000 to 20,000, and this Budget will give even more real money to the very few and privileged. Only 5,200 taxpayers paid inheritance tax last year at rates above 40 per cent. The estates averaged £475,000. After this Budget, the same people will on average save £29,000 each—a loss to the Exchequer of from £150 million to perhaps £200 million.

What could the Government have done with that £150 million? They could certainly have built more hospitals, roads, houses and schools. They could have rejuvenated a substantial part of the infrastructure of the country. They chose not to do that. They chose to give it away to people who are already so wealthy that I do not think that they know what their wealth is or can comprehend it.

Because of this Budget, the saving on an estate of £1 million is £148,000. What possible rationale, morality or justification can there be in giving that sum to those super-rich people, especially when their position is compared to that of the only moderately wealthy? To a person who leaves an estate worth £250,000 this Budget gives a saving of only £6,000. There again, one can detect the rationale of this Budget. The poor get nothing from it; it is all taken away from them through social security cuts and cuts in public expenditure. The moderately wealthy get just a bit, a few pickings; they get £6,000 on an estate worth £250,000. But people who are really wealthy, the super-rich, get everything that can be given to them by this immoral Government.

7.45 pm

Inheritance taxes are expected to raise just 2 per cent. of total tax receipts in 1987–88. Let us compare that with previous figures. Between the wars, inheritance tax and capital transfer tax, or its predecessor, estate duty, raised 15 per cent. Before the first world war they raised 30 per cent. That is yet another indication of what the Government are doing: consistently reducing the percentage of taxes and taxation paid by the rich in estate duty and inheritance tax.

Mr. Quentin Davies (Stamford and Spalding)

Would the hon. Gentleman like to remind the Committee what the rate of income tax was before the first world war so that it can make a true comparison of the contribution of estate duty or capital transfer tax before 1914 and currently?

Dr. Marek

It was very low, and it went up, as the hon. Gentleman will surely know, because of the world wars. Income tax has gone up and expenditure taxes have gone up, because we must remember that in 1979 the percentage of gross domestic product taken in taxation was 34 per cent. and it is now 38 per cent., showing quite clearly that the Tory party is the taxing party. Income tax has gone up and inheritance tax has gone down. Capital taxes have gone down and taxes for which one does not have to work or sacrifice one's leisure, which provide privilege and which give one power, have gone down. But taxes on earned income, for which one has to work and sacrifice one's leisure, have gone up. That is the immorality of the Government's case.

The Government have given up all pretence of governing in the interests of all the country and trying to be equitable. They have given up all pretence of taxing people justly and on a moral basis.

The hon. Member for Daventry (Mr. Boswell), in the previous debate, praised the capital gains tax as being progressive. He is not present now, but I wonder what he would have thought of this measure by the Government, who have abolished the progressive scale of inheritance tax and replaced it by a flat rate, rather similar to the poll tax. I would put it even more strongly. The Government are stealing the nation's money. It is money that should be in the hands of one-parent families, should be used to increase child benefit properly in line with inflation, should be given to the unemployed or old-age pensioners, should be given to retired couples by not cutting their housing benefit, and should be used for building the hospitals, schools, houses and roads that the country so desperately needs.

It is true that the Government have given a little to the ordinary working man and woman by cutting the basic rate of income tax from 27p to 25p, but they have given most of it to the wealthy and the super rich in this measure.

Mr. Butterfill

I do not think that any of us would disagree about the desirability of spending money on many of the things that the hon. Member has suggested, but surely that money can be spent only if it is first earned. If we were to do as he wants and stop this clause going through, surely that would destroy some of the businesses in this country that create the money to provide taxation to enable money to be spent on the things that he considers desirable. Surely he appreciates that in many cases inheritance tax is paid by family businesses.

Dr. Marek

The hon. Gentleman's latter point may be true, but I wonder how this tax and its cutting create money. I do not think that it creates any money at all. It is merely a way of passing wealth from one generation to another and encouraging the second generation to be idle and to live on their accumulated wealth.

Mr. Campbell-Savours

Friends of mine in America who study these matters say that that is the general view there. We now have one generation keeping the next, which in turn is keeping the next, because of the way that wealth is being transferred down through generations. The only way that we can stop that and restore the enterprise culture in the way that it should be restored is to bring in stringent inheritance taxes whereby each generation has some incentive to do a day's work.

Dr. Marek

My hon. Friend makes the point extremely well. There can be no rationale for only a 40 per cent. flat rate inheritance tax no matter how wealthy a person is.

There is no question of the Government saying that they are taking this step because they want to attract top people to the United Kingdom to run our industry better than we can ourselves or to create wealth. There is no question of reducing the tax simply to increase incentive. It will not increase incentive for anybody. My hon. Friend is right. We can argue about incentives with regard to the top rate of income tax. We may have different views on that, but at least there is an argument. In this case there is no argument.

The Government have no excuse for lowering the top rate of inheritance tax. They cannot say that it will provide a net increase in revenue for the Treasury. We have heard arguments for cutting income tax based on the premise that eventually the net tax collected will increase and the Revenue will benefit. However, I do not think that the Chief Secretary will try to adduce that as an argument. That is not the case. This is a straightforward robbery of the people.

In a press release from the Treasury—I hope that quoting it will not prevent my receiving press releases in future—the Economic Secretary says: Real tax revenue up following cuts in tax rates". That is patently not true for inheritance tax. He says: Father Pedro Navarette put it rather pithily when he warned rulers: 'He who imposes high taxes receives from very few."' Unfortunately, he who raises the thresholds and provides all manner of loopholes also receives very little from the very few, and that is what is happening here. Two years ago 40,000 people paid inheritance tax and 20,000 paid it last year. Even fewer will pay this year and there will be a net loss to the Revenue of £200 million. On top of that net loss to the Revenue is all the immorality associated with allowing people to pass on extreme wealth from one generation to another. The clause is morally offensive, and the Government know it.

Let me look at the history of the capital transfer tax, gifts to political parties and the new inheritance tax. I do not want to take too long about this, but in the Finance Act 1980 there was a reduction in the rates and an increase in some of the exemptions. In the Finance Act 1981 there was a further reduction in lifetime rates and an introduction of a 10-year cumulation period so that after 10 years one was free of tax. There was an increase in the annual exemption to £3,000. There were improvements in the position of agricultural property and there was an extension of transitional relief for the discretionary trusts.

Let us go forward one more year. In the Finance Act 1982 there was a further reduction in the rates and indexation of the bands. Again, there were amendments to discretionary trusts, alleviating charges still further. There was nothing in the Finance Act 1983, which may have been because of the election. In the Finance Act 1984 there was a further reduction in the rates. Something must have happened to the Finance Act 1985 as happened to our debate on clause 127 a short while ago—nothing.

In the Finance Act 1986—here we go again—the capital transfer tax was replaced by the inheritance tax. It abolished the charge on lifetime gifts made more than seven years before death. Then, in the Finance Act 1987, there was a further reduction in the rates. This year, 1988, there is a further massive reduction in the rates and there is no justification in morality for it. Those activities of the Government are reprehensible and that is one reason why we want to debate clauses 127 and 128.

Before I close I want to refer to a document from Peat Marwick McLintock on Budget changes, with the headline: Inheritance tax: making the most of the changes". That is followed by two closely typed pages on how not a lot of people—20,000 at most—can make the most of the changes. They are the only people who will be paying inheritance tax and there will be fewer than 20,000 people paying inheritance tax in the coming year.

I have a document on inheritance tax from Price Waterhouse entitled "Planning for Inheritance Tax". That was valid in October 1986, so I leave it to the judgment of hon. Members what such a document will say after this Finance Bill. It says: For the first time since 1974, estate owners have the opportunity of passing an unlimited amount of property to later generations free of tax. Then there is a word of caution: No one can be certain how long the present inheritance tax regime will last; it may not survive a change of government. Well, Miss Boothroyd, you bet it will not survive a change of Government.

The document goes on to give many examples. For example, it says: it may be possible for a married couple to minimise risk by arranging for the spouse with the longer life expectancy to make a potentially exempt transfer … A transfer from, say, husband to wife followed by a gift to the recipient, may be in order". So will the topping up by £20,000 of a nil-band trust. That has probably occurred to those people who pay inheritance tax. There is another page with about half a dozen tips on how to save thousands, tens of thousands and hundreds of thousands of pounds because of the changes that the Government have introduced in the Finance Bill.

Mr. Ian Taylor (Esher)

Surely the firm of accountants is showing how sensible tax planning can be organised. That would apply whatever cut-off or threshold level there was for inheritance tax. It has nothing particularly to do with the Budget proposals. The Labour party is proposing to penalise those who have begun to amass assets, which it would tax penally upon death and transfer to the descendants.

Dr. Marek

I am not accusing the accountants of doing anything immoral or wrong. It is extremely useful that we have accounting firms which are able to set out clearly and lucidly all the advantages and loopholes that the Government have been able to create for the extremely wealthy. The 60 per cent. top rate on inheritance tax was not a penal rate.

I think that I have said enough to show the Committee that yet once again—

Mr. Beith

Does the hon. Gentleman intend to refer to other aspects of the clause which relate to political parties?

8 pm

Dr. Marek

I will do that, but briefly.

The Government are fearless in their regard for the rich and the super-rich; they want to enable them to become richer, to retain their wealth and to pass it on to succeeding generations, paying as little tax as possible in the process.

As to gifts to political parties, I have very little to say. As I understand it, the limit has been abolished. Anyone can make a contribution to a political party on his or her deathbed without having to pay tax. Previously the contribution had to be made at least a year before death for it to be tax-free. Again, the measure will benefit the Conservative party. I do not think that members of the Labour party or of the SLDP, by and large, will be able to contribute well over £100,000 to political parties. The Opposition will not benefit much from clause 128, but the Conservative party will benefit. I suspect it will benefit because basically Conservatives are mean and nasty people, present company excepted. They do not want to contribute their money until they are on their deathbeds; that is why the Government have introduced the clause.

Of course, there is hope here for the Opposition. If Conservatives do not want to give the money away until they are on their deathbeds, it means that they cannot believe in the measures which the Government have produced for us. We will vote against clause 128. I am grateful to you, Miss Boothroyd, for allowing the debate to range widely.

The Chief Secretary to the Treasury (Mr. John Major)

It is within the immediate recollection of the Committee over the last few minutes that events do not always transpire precisely as the Committee would have wished. I say to the Opposition that I am sorry that we cannot debate clause 127 in the form in which the Committee had expected. I am grateful to you, Miss Boothroyd, for the opportunity within the rules of order to refer to matters related to clause 127 in so far as they impinge on clause 128. I hope that you will allow a liberal interpretation of that, although I express my regrets to the Opposition that procedural technicalities will now deny them the right to vote on clause 127. Perhaps I may acknowledge at the outset that we are aware of the objections to clause 127 that the hon. Member for Wrexham (Dr. Marek) has set out cogently and clearly, and we shall certainly accept their vote in opposition even though it has not in practice been delivered and cannot now be delivered.

I shall direct my remarks principally to clause 128, and my hon. Friend the Economic Secretary, who with good fortune will later catch your eye, Miss Boothroyd, will endeavour to respond to the important points made by the hon. Member for Wrexham and to any other related points that you consider to be within the rules of order.

As the hon. Member for Wrexham said, clause 128 deals effectively with the one-year exemption point for donations to political parties. It is essentially directed to a very narrow point of tax law and seeks to remove an anomaly. Although he expressed it amusingly, the hon. Gentleman felt that the clause might offer financial benefit to the Conservative party, though perhaps not to other parties. My inquiries reveal that the Inland Revenue, so far as records determine, cannot trace a single donation to benefit a political party that would be affected by the provisions of the clause.

The clause abolishes the £100,000 limit for inheritance tax exemption for gifts to political parties made at, or within, one year of the death of the donor. The practical effect of the clause is to make all gifts to political parties entirely free of tax rather than, as at present, simply those made more than a year before the death of the donor. That means that no longer will tax be payable if the donor dies 364 days after making the donation but not if he lives one day longer, or two days in the case of a leap year. It does not admit any new or novel principle of tax law, although it re-establishes a traditional one. The reason for gifts being exempt if made one year or more before death is simply that they were being made for public purposes. That has been the position for many years. That, of course, is equally true even if the donor dies speedily after his generosity has been announced.

The clause also restores the parity of tax treatment which has existed traditionally between gifts to bona fide political parties—I will touch on the definition in a moment—and charities. A bona fide political party is defined as one with either two Members elected to the House of Commons or one Member elected and 150,000 votes cast to candidates of that party.

[SIR PAUL DEAN in the Chair]

Mr. Campbell-Savours

The Minister will be aware that the Labour Research Department and other organisations do interesting work on contributions made by industry to the Conservative party. I know of no contributions to the Labour party on that scale and I doubt whether there are many to the alliance. Are there many contributions of that nature to the Conservative party? Does the Minister expect an increase in those contributions? What kind of people give more than £100,000 to the Conservative party? Are they mad?

Mr. Major

If I may say so, not only are they not mad, but, so far as I can determine, they do not exist. I shall come in a few moments to the point, which I agree is relevant.

I shall turn first to what some may think is a curious link between gifts to political parties and gifts to charities. That is not a novel proposition. The link has existed, with minor breaks, since the 19th century and has been accepted during that period by Governments of all political complexions, sometimes alone and sometimes in partnership with other political parties. Indeed, it was most recently specifically re-endorsed by the Labour Government in 1975.

Mr. Beith

The Minister may say that the link is traditional, but did it not require an amendment which, as I recall, was supported by my friend, John Pardoe, to bring it about in the Finance Act 1975?

Mr. Major

It is correct that there was an amendment to the Finance Act 1975 because there had been an unintended change in the treatment of charities and political parties between 1972 and 1975. The 1975 amendment did precisely the same in principle as is being done by clause 128, which restores the parity of treatment between charities and political parties which had drifted apart in favour of charities.

I promised the Committee a moment ago that I would deal further with the definition of political parties. Having set out the definition, for the purpose of the record, perhaps I should record that the definition embraces not only the Government party and the principal Opposition party, but also the Labour and Co-operative party, the Social and Liberal Democratic party, the Social Democratic party, the Scottish National party, Plaid Cymru, the Ulster Unionists, the Democratic Unionists and the Social Democratic and Labour party, all of which, for the purposes of the clause, are bona fide political parties. It is an extensive list

As to the point that the hon. Member for Workington (Mr. Campbell-Savours) raised a few moments ago, I should say, for the avoidance of doubt, that donations of a size to benefit from the change, that is to say, £100,000 or more, are rare. I have not been able to locate a single occasion on which there has been a revenue loss to the Exchequer because of a donation of that size.

Mr. Alex Salmond (Banff and Buchan)


Mr. Major

I shall give way in a second.

I perhaps anticipate the question still lingering in the mind of the hon. Member for Workington. The fact that there do not seem to have been such donations is no reason why we should retain on the statute book an unnecessary and anomalous inhibition to such gifts, if donors wish to make them. That inhibition has arisen by accident, not design, and deserves to be removed.

Mr. Salmond

The Minister correctly anticipated the question. Might it not be the case that there is no expected Exchequer loss and no gifts of over £100,000 being made at the moment precisely because of the limit of £100,000 before taxation applies? Is there anticipation of loss to the Exchequer from the changes being introduced in the clause?

Mr. Major

That would be relevant only if the donor expected to die within a year of making the gift. As far as I am aware, there have been no donations of that size by people who expected to live for substantially longer than a year, so the underlying point that the hon. Gentleman made was answered by my remarks a few moments ago.

From 1894 to 1972—to come to the point made by the hon. Member for Berwick-upon-Tweed (Mr. Beith)—gifts to charities and political parties were treated alike for the purposes of estate duty. That was at no stage a matter or political controversy or fiscal abuse. In 1972, the Conservative Government introduced a special relief, exclusively for gifts to charities. They exempted gifts up to £50,000, even if they were made within a year of death, and, for the first time, broke that long-standing parity of treatment.

It did not stay broken for long, for the reason given by the hon. Member for Berwick-upon-Tweed. When the Labour Government introduced capital transfer tax in 1975, they doubled the then £50,000 exemption limit and restored once again complete parity between political and charitable gifts, which is the precise intent of clause 128. Subsequent increases in the exemption limit applied only to charities, thus breaking the link again.

These words do not pass my lips often, but I believe that the Labour Government were correct in 1975. There is no reason to discriminate against political parties in this way. They removed that discrimination and were right to do so.

This clause proposes to emulate that excellent example and restore the parity of tax treatment that existed for many years under both Labour and Conservative Governments.

Dr. Marek

I happen to have the Committee report of 5 February 1975. Replying, I think, to the present Chancellor of the Exchequer, who was moving an amendment, the Chief Secretary to the Treasury, Mr. Barnett, said: We want our political parties to be influenced by the great majority of people who subscribe to the faith of a party, not giving excessive influence to a small number of people who can subscribe large sums."—[Official Report, Standing Committee A, 5 February 1975; c. 930.] That is the essence of our argument against clause 128.

Mr. Major

I entirely understand that that is the essence of the argument that the noble Lord Barnett advanced in Standing Committee. However, it is also on record that on Report he introduced an amendment of a quite different sort. It restored the parity which had previously existed and which had precisely the same effect as clause 128. On reflection, between Committee and Report, the noble Lord and his right hon. and hon. Friends of the day clearly reached the same conclusion as my right hon. Friend the Chancellor when he decided to put clause 128 in the Bill. So there is unanimity of view between the noble Lord Barnett—and, no doubt, the right hon. Member for Leeds, East (Mr. Healey) who was then Chancellor of the Exchequer—and my right hon. Friend the Chancellor of the Exchequer. Such unanimity is not regularly reached and the Committee should note it with some pleasure.

The underlying point, accepted then as now, is that, just as there can be no justification for the Exchequer creaming off a slice of an individual's bequest to a charity, the Exchequer should not benefit if that individual chooses to leave money instead to a political party. That is something that we in this place should understand as well as most. The anomaly that has arisen over the years is unjustifiable. That is why we have chosen to end it in the Bill.

8.15 pm

Gifts to charities and political parties had parity of treatment for more than three quarters of a century. When that was broken in favour of charities in 1972, the then Labour Government restored parity in 1975. It has since been broken again in favour of charities and this clause once more establishes parity and the symmetry of legislation passed by past Labour Governments and the present Conservative Government. I therefore commend clause 128 to the House.

Mr. Campbell-Savours

Tonight, I wish to say something about the more personal aspects of this issue. I am openly hostile to the principle of inheritance, which I believe borders on the morally wrong. I understand that millions of people in this country feel that they should have the right to pass on wealth from one generation to another. It may well be that society should allow people to transfer wealth in small amounts from one generation to the next.

When I was a young man, I had an argument with my parents, and it has lasted for many years. It is relevant to today's discussion. It arose, after I joined the Labour party in 1965, from my view that every generation had a self-standing responsibility to make its own way, and that society should give people the maximum opportunity and incentives to go out and do a fair day's work for a fair day's pay—and to join the free market and develop businesses. That is why I have consistently supported the Government over the years whenever I have felt that measures they were introducing would help small businesses.

The argument I had with my parents was about whether it was right for people to inherit. I announced 23 years ago to my family that I did not want to inherit anything from them, although in 1960 I received, to my eternal regret, £100 from an aunt. That was probably worth £800 or £900 in today's money, and it has compromised me down a lifetime.

I have stood by my view and today I stand to lose a substantial inheritance from my family. Every generation must be absolutely free-standing and should not receive wealth from previous generations. People must go out and make the effort and be given every incentive and opportunity in life. I know of friends who have not enjoyed the experience that I have, who knew that they stood to inherit large amounts of money later in life. Some of them have not done what they could have done because they knew they would inherit one day, so they lost the incentive to go out and make an effort themselves.

I know that this view is not uniquely held by people of my political persuasion. There are many Conservative families in this country who own large amounts of wealth but who are opposed to inheritance for precisely the reason that I oppose it. They know that effort is the way to build society. It is often people who are born into articulate, middle-class circumstances who are capable of going out into the world to make an effort and develop businesses.

Mr. Beith

A good friend of mine who is a Liberal and a successful small business man held the same view as the hon. Gentleman. It led him to decide he would pass on none of the money he had made to his children but that he should educate them privately—in this he differed from my view—and give them the best possible start in life. From the moment that they were 18 they would not receive a penny more from him. That shows that the hon. Gentleman's view has wide currency.

Mr. Campbell-Savours

I am grateful for that example of support.

I shall not identify them, but I have discussed this matter privately with Conservative Members on a number of occasions and I know that some of them will go a long way down this road with me. It would be wrong to identify them. I know that tonight they will vote with the Government in favour of cuts in this tax, in the knowledge that, as a result of this Budget, many people will inherit more money.

Mr. Quentin Davies

The hon. Gentleman recognises the great importance in any economy of incentives to work, and he has also mentioned the importance of incentives for enterprise to start one's own business. Does he recognise that, rightly or wrongly, many people do not work for themselves but for the younger generation? If we were to remove the possibility of people accumulating money for the benefit of their children, human nature being what it is, we would remove a substantial element of incentive for work and enterprise, from which society benefits.

Mr. Campbell-Savours

I have also discussed that matter within my family and with many others. I do not accept that proposition. What happens is that people who have made money, or who are acquiring wealth, seek to justify what they are doing, and they use that as an excuse. They say, "I am doing it for you and for those who follow me." They have to find some jusification for this acquisition of wealth. I do not say it to my children. I do not see why the hon. Gentleman, if he has children, would say it to them. If he did not have children, is it not possible that life might be just as exciting and that he might equally find incentives for going out there, generating wealth and making money? Is he saying that if he did not have children, he would not work as hard?

Mr. Davies

I believe that if we remove the possibility of human beings working for the next generation, we remove the major incentive that has led to human beings, down the millenia, accumulating capital. Without it, we would not have had any economic progress and we would still be in our caves.

Mr. Campbell-Savours

I thought that the hon. Gentleman was going to add a new strand to his argument, but he just repeated what he had already said. In my family, that motive has no bearing on the willingness, the eagerness or the desire of people to go out and create wealth. It had none when I made my announcement to them. They set out to do other things with their money, and my family is making provision for education in south Wales, through a trust. I am pleased that that is being done. That is the kind of choice that people should be making when they acquire wealth. They should be saying that they want to contribute to society, and should not think exclusively in terms of handing it over to their children, because they never understand when they do that what damage can be done to the forthcoming generation.

I see the hon. Member for Watford (Mr. Garel-Jones) shaking his head. We will not go into his personal circumstances, but I am sure that he would wish to intervene in the debate, were he not a Government Whip, to clarify the matter for us. People try to justify the acquisition of wealth on the basis that they will hand it on to the next generation, when there are perfectly acceptable reasons and incentives for people to create wealth.

I do not know how far we shall go with this argument, but I was told that Jeffrey Archer—an eminent journalist and author among other things—has made similar provisions and has made similar statements to mine, although I might be wrong. I am told that he is a model of entrepreneurial success, and it might be that he understands my argument. I know that there are Conservative Members who understand this argument, and it might be that he and others recognise that when one transfers wealth down through the generations, not only does the generation that accepts it sometimes lose the incentive to create wealth on its own account, but often passes the lack of incentive down to another generation and the damage can often be done within that generation, to the grandchildren. Often, they were not present when the wealth was made in the first place and they do not understand the mechanics, and often the pain and the sacrifice, of the people who generated the wealth.

We have all had these experiences—they are not exclusively known to Conservative Members. I understand what happens during that period, because I have seen it within my generation. Before Conservative Members vote tonight—no doubt they will be herded into the Lobby, although there have been some complications—they should think carefully. The Conservative party is not giving due consideration to what this argument is about, I understand that it maintains that it is the party of enterprise and of the entrepreneur. I lay claim to that title for the Labour party, because the Labour party understands the fundamental principle that to have true entrepreneurial endeavour we must ensure that the incentives are there. The way that the Government have gone about capital transfer tax and inheritance tax shows clearly that they do not understand that principle.

Mr. Julian Brazier (Canterbury)

The hon. Gentleman seems to feel that the sole and only point of wealth is to enrich the individual, although he stressed that the individual who passes it on can use it for other purposes. The same applies with wealth that has been transmitted, and I have two obvious examples. A friend of mine is a missionary on an unpaid basis in Africa, and he would not be able to do that if he had not inherited money from his parents. To take an example closer to home, I have worked for a family business that was all the more successful and close-knit precisely because the ownership of that business had been passed from father to son. This change in the legislation will make it possible for that to continue.

Mr. Campbell-Savours

There will always be exceptions to the rule, and I think that we can accommodate them by rejigging the law, perhaps not in the way that the Government would want. I put to the Committee what I am told is a fact—that in Japan, the level of inheritance tax is extraordinarily high. The Chief Secretary shakes his head, so perhaps my information is wrong. I am told that it is very high, but the Japanese manage to succeed industrially.

I am sure that there are lessons to be learned, if not from the Japanese, from what is happening in America. Inevitably, when the Americans realise the damage caused to society by the way that wealth is being transferred down the generations, they may react and deal with it. If we do not do so, it will be the cancer that undermines the whole of our economic activity in the future.

Mr. Beith

The hon. Member for Workington (Mr. Campbell-Savours) raised interesting questions that have to be considered by Conservative Members who seek to strengthen those aspects of our culture that support enterprise. I would not draw the same conclusions as the hon. Gentleman and I shall argue that there is a different way to tackle the problem. There is a tension inherent in the Government's philosophy, between their desire to encourage enterprise and the belief that people must stand on their own feet and the preservation within our society of large amounts of inheritance, which concentrates wealth among relatively small numbers of people.

Most of us must have had the experience that the hon. Gentleman has had of knowing people who have inherited in circumstances that have led them to do less well in their lives than they might otherwise have done.

We know of businesses which went wrong in the second or third generation, or the estate that went to seed because the person who originally built it up did not pass on with the estate the qualities of personality and commitment which had enabled him to build it up in the first place.

In contrast, the hon. Member for Canterbury (Mr. Brazier) has given examples of businesses which have benefited from being passed down through a family, and which have carried through the family a certain commitment to the employees which would not be at variance with the Government's philosophy, which is based on the belief that the family, having benefited, has an obligation to those who have worked for it for successive generations. Sometimes the employees also go from one generation to another.

8.30 pm

The Government do not seem to be addressing that important philosphical issue. They seem content to maintain the broad structure of capital taxation while easing its impact through the changes in inheritance tax that we are discussing on clause 128, instead of considering more radically what could be done to our capital taxation.

I hope that the hon. Member for Workington will support the argument that we have put to the Government for years—that radical changes in the taxation of capital transfer would encourage the wider distribution of wealth. We submit that the best way to do that would be by an accessions tax the burden of which falls upon the recipient and which would be graduated and have thresholds to ensure that people could receive relatively small legacies without suffering a tax penalty, but would have to pay tax on larger amounts.

Therefore, the donor would have an incentive to spread the wealth more widely, because the effective method of tax avoidance would be to distribute the gifts amongst the largest number of recipients. Whether they are members of the family, friends, good causes or whatever, the wider the gifts are distributed, the less likely is any one recipient to fall within the threshold. Such a tax should also have a cumulative effect so that any recipient should have receipts other than those from the one donor taken into account. That, too, would help to ensure that the wealth was more widely spread.

Instead, the Government are preserving a taxation system that appears to be a macabre lottery because of the seven-year rule that tax can be avoided entirely if death can be predicted. It would be hard to find a better case for bringing in President Reagan's astrologer than seeking advice on how to dispose of gifts by predetermining the time of death.

Why cannot the Government espouse the radical reforming zeal which the Chancellor wishes to have attached to his name in history and make some real attempt to change the capital taxation system so that it encourages the wider distribution of wealth with minimum pain and disincentive? The argument for reducing income tax levels is based primarily on incentives that the Government seem to recognise more readily at the top of the scale than at the bottom of the scale. It is based on the idea that taxing people at the point at which they are earning more money poses a very real disincentive. There is not the same powerful disincentive if people are taxed at the point at which they are receiving windfall gains, if the tax system is so organised that the person who can give away large amounts of money will do it more widely and a much better social purpose will be served as a result.

Therefore, we argue—we have tabled amendments to this effect—that there should be an accessions tax rather than an inheritance tax, and over the years we have set out ways in which that can be done.

We are also discussing exemption from inheritance tax relating to political parties. The Minister made a rather good case as he picked his way through the history of this matter. As I pointed out to him in an intervention, my former colleague Mr. John Pardoe was involved in seeking to bring about the limit which the Government now seek to abolish.

When I looked at the clause before tonight's debate, I considered the £100,000 to be a threshold and I believe that it was argued in those terms in 1975. Therefore, it would not be true to say that political parties and charities were put on a precisely equal footing. There was a difference between them which became more significant as time passed. Political parties effectively were frozen at the £100,000 threshold on tax liability for gifts made at or within one year of the donor's death. Charities had no such limit.

There is a case for a distinction between political parties and charities. I do not believe that it is a very strong case, as I regard political activity, which is primarily a voluntary activity, as analogous to charitable work in many ways. In a democracy, we ought not to regard political activity as being of less value than other voluntary activities in other areas of the law where such an argument is relevant. In a democracy it behoves us to recognise political activity.

That is why I believe that political work, particularly voluntary political work, should not be excluded from the honours system. I have more sympathy for those who engage voluntarily in political work than I have with the knights of the shires on the Conservative Back Benches. They should be regarded as eligible for recognition for their voluntary work as are those who engage voluntarily in other aspects of public life.

The argument for a distinction or a threshold is that by definition charities do not represent political causes which can be advantaged by getting larger sums of money than other political causes. The argument may be weighted by the amount of money that is available to one political party. There seems to me merit in the threshold. It is almost certainly true, as has been argued, that the fact that recently there have been no gifts above the threshold may well be because people are pitching their gifts appropriately inside the threshold. Therefore, there is an argument for drawing a distinction between political parties and charities at the point at which gifts become very large.

I am bound to say that the history of the matter is sufficiently tortuous and complicated to give the Minister something of a leg to stand on when he says that the Government to some extent are redressing an anomaly by choosing to put the matter in the Bill in that form. I shall be very interested to hear what other views are expressed during the debate. I cannot advise my right hon. and hon. Friends to support the principle that gifts to political parties should be in a wholly different category from those to charities and that the whole principle should be opposed on those grounds.

Mr. Matthew Carrington (Fulham)

I shall crave your indulgence, Sir Paul, in addressing most of my remarks to the clause that is not before the Committee, and I hope that I shall be in order.

The effect of the two clauses is principally to simplify the way in which the inheritance tax operates. To that extent they are greatly to be welcomed. We have had much talk about the morality of inheritance tax, and indeed much talk about the morality of inheritance. The morality of inheritance tax, when the tax is complex and when the rates are very high, is the morality of avoidance; it is the ability of a whole industry to advise those who have accumulated a certain amount of wealth on the best and most efficient manner of passing on what wealth.

I turn to the remarks of the hon. Member for Workington (Mr. Campbell-Savours) about the effects of inherited wealth. I have a great deal of sympathy with his view that there are many well-recorded instances when the inheritance of wealth in the wrong fashion—sometimes too early—has caused the recipient of that wealth not to achieve his potential success in life. I would also point out that there are many instances in history, and I suspect in the present, of the inheritance of wealth having been of great benefit to society. Indeed, one does not have to look much further than the great philosophers of the 19th century. One can go back even further to philosophers such as Montaigne, who were able to do such great work purely because they could devote their energies to study because they had inherited wealth. They provided all of us with the benefits of that study.

I accept that inherited wealth is had for the individual in some instances, but there are many instances in which it has a good effect.

Mr. Macdonald

The hon. Gentleman referred to the fact that if philosophers inherit wealth it enables them to pursue their studies. Does he think that the fact that Ludwig Wittgenstein gave away his entire fortune in any way impaired his ability to philosophise?

Mr. Carrington

I am grateful to the hon. Gentleman for making my point. Wittgenstein would have been unable to make the decision to give away his great wealth unless he had had that great wealth initially, which gave him time to study. I agree that he came to a parodoxical conclusion, but that was equally true of his writings.

Mr. Campbell-Savours

The hon. Gentleman expressed sympathy for, if not agreement with, my views. Does he accept that those who make good use of what they have received could equally have been provided for if the transfer of money from one generation to theirs had been by way of indirect payment? In other words, they would not be direct recipients, after tax, of these moneys. Another arrangement would have to be provided.

Mr. Carrington

The hon. Gentleman opens up many possibilities about the way in which those whom society considers, on the whole, to be worthy of funding could be funded. That is true of authors and poets as well as of philosophers and, to some extent, scientists. When passing on wealth, one has to decide who is to be the beneficiary. History tells us that, unfortunately, political power and censorship have played a very unwelcome role by curbing the advances that society might otherwise have made. I accept that there are perhaps evils in inherited wealth, but there are perhaps even greater evils in the alternatives.

Dr. Marek

I hope that the hon. Gentleman does not accept that there are perhaps evils in inherited wealth. I hope that he certainly accepts that there are evils in inherited wealth. One only has to consider the events surrounding the French revolution in 1789 to recognise that fact.

Mr. Carrington

We are straying a long way from the clauses that are under discussion, but I hope that you will indulge me, Sir Paul, in a somewhat indulgent debate. The French revolution, as with so many other revolutions, started not with those who did not have wealth but with those who had very considerable wealth and privilege. They rebelled against the authoritarian power that other sections of society had over them, which they felt was unjust. What, in many ways, caused the French Revolution was inherited wealth being passed on among the bourgeoisie in France rather than an upsurge among those who had no money. I agree that great inherited wealth in France was attacked by lesser inherited wealth, but all of it was, nevertheless, inherited wealth. However, that was a different society and a different case.

8.45 pm

Inheritance tax needs to be put into perspective. The exemption level has been raised from £90,000 to £110,000. In absolute terms, that is a considerable sum of money, but I shall try to put it into perspective by considering what has happened in my constituency. It is now not unusual for a council flat at the top of a high-rise block to be valued for right-to-buy purposes at considerably in excess of £100,000.

People who exercise their right to own their own home, however modestly, in central London, elsewhere in the south-east and, as the economy develops, throughout the country, will now be exempted from inheritance tax. They will be able to pass on the benefit of their home, for which they have worked and struggled. Quite rightly, from society's point of view, it should be kept out of the tax net. By reducing inheritance tax to 40 per cent. it will be brought into line with the top rate of income tax. That, rightly, will simplify the taxation system.

What is the effect of penal taxation on inheritance? It makes it very difficult for people to pass on small businesses. They need time in which to grow within the compass of the family that started them so that wealth can be transferred from one manager to the next, perhaps across the generations. That is true of small manufacturing companies. It is even more true of the farming industry. I do not have many farms in my constituency, but I am reliably informed that the capital value of a farm will make it difficult, if inheritance tax bites hard, to pass it on.

The other aspect of inheritance tax that is bad for society is its effect on our artistic inheritance. One of its effects—though perhaps not on the great artistic treasures that are rescued by the state—relates to our minor artistic treasures: minor pictures and minor antiques. That heritage has been built up over the centuries. A very high rate of inheritance tax makes it very difficult to pass on those treasures to future generations. When a person dies, they are sold. The experience of the last 20 years has shown that the trade in antiques from this country in particular has been one way. They have been exported, with the result that minor works of art have been lost to us for ever overseas. One of the effects of inheritance tax has been to accelerate that trend.

The simplification of inheritance tax is greatly to be welcomed. It will enable families to pass on businesses, which they were unable to do before, and it will enable society to benefit from the wealth of one generation being passed on the the next.

Mr. Macdonald

I was grateful for the implication, if not the admission, by the Minister that the Conservative party is a charitable institution. We have often thought that to be the case, but the Minister's implication was interesting.

I think that you are quite right, Sir Paul, to indulge hon. Members. You are right to be liberal in your interpretation of how we may debate clause 128 and to allow us to refer to clause 127. The two clauses are linked. I am driven to that conclusion because, when I look at clause 127, I can find no justification for its inclusion in the Bill on the ground of economic efficiency or on the ground of social equity. I am driven to think that the reason for the inclusion of the clause is that it is linked to clause 128, in the sense that the governing party of this country gives money to the wealthy and hopes that the wealthy will end up giving money to the governing party. That is rather a blunt and crude conclusion, but I cannot find any other justification for clause 127.

I do not understand how the grounds of economic efficiency and incentives, which have been advanced about other cuts in taxation, notably income tax, can be stretched to justify the reduction in inheritance tax. I do not understand how the changes will act as incentives to those who are contemplating giving away estates to their children or to other recipients, particularly in view of the marginal nature of those changes. Those changes are not marginal when we consider the global sum given away, for example, through the cutting of the top rate of tax. According to the Government, that figure will be about £150 million. One would have thought that £150 million, plus the sum that will be lost through the raised ceiling, would be much better utilised in retraining unemployed workers than as a spurious attempt to confer a nebulous incentive upon the people who are thinking of giving away estates.

There is a difference between inheritance tax and income tax. Two or more parties are involved in inheritance tax—the person giving away the estate and the recipient of the estate. We must also take into account the disincentive effect on the recipients of estates. It is difficult to see how inherited wealth gives any incentive to the recipient to work harder. One would have thought that the contrary would be the case—that a substantial windfall gain through inheritance tax would be sufficient to kill any incentive to work.

Even if we concede that there is an incentive in reducing inheritance tax, surely it must be more than offset by the disincentive to the recipient. One wonders whether, if the Treasury had commissioned a study, the Government would have taken note of it, given what happened to the study on income tax and incentives.

We do not see any argument for the reduction of inheritance tax on the ground of incentives. The main basis on which to assess the changes in taxation is that of social equity. Within reasonable limits, it is right for individuals, when they die, to be able to leave some of the wealth that they have accumulated during their lifetime to their spouses and children. The hon. Member for Stamford and Spalding (Mr. Davies) said that that was, to some extent, what drives people on. They have an urge to accumulate a certain amount of money to pass on to their children. That is a reasonable and justifiable motive, but one cannot stretch the argument to say that people are driven in their working lives by the urge to make their children millionaires. People certainly work to give their children a secure foundation, but we cannot take the argument any further.

We all listened with interest to the comments of my hon. Friend the Member for Workington (Mr. Campbell-Savours). He argued against any form of inheritance, except within certain reasonable limits, and understood, from private conversations, that some Conservative Members also hold that view.

We are often told that the economic libertarian argument is the driving ideological force behind the Government. Philosophers of that persuasion believe that that is right, and they often say that their logic leads them to argue against any form of inheritance and that everybody should stand on their own two feet, independent of any social ties. If some of the economic libertarians on the Conservative Benches followed their beliefs to their logical conclusion, they would reach the same conclusion as my hon. Friend the Member for Workington.

That is not the Socialist point of view. As Socialists, we acknowledge family ties and duties, just as we acknowledge wider kinship to society as a whole. We believe that a balance must be struck. We consider the social effects of the accumulated wealth that has built up over successive generations. That is perhaps more deep-rooted in the United Kingdom than in other Western societies. An excessive accumulation has a serious social impact and is unhealthy for society as a whole. It cuts off economic opportunities.

We cannot say that there is anything approaching equality of opportunity when people start their working lives from such different bases. Those who begin with much more material advantage are bound to start the race ahead of the rest. When that process is repeated generation after generation, a certain rigidity is built into society, and we have the rise of a nebulous entity—some form of social establishment. That is unhealthy for society. Some Conservative Members go on about rigidities in the labour force, but they should look at the rigidities in the establishment through the accumulation of inherited wealth.

9 pm

Another bad effect of inherited wealth is the link between wealth and power and influence over social and political decisions. The link between clauses 127 and 128 is a sterling example of the link between wealth and social and political influence. The figure of £100,000 is redolent of people who have observed the P and O strike recently. Access to such wealth conveys social and political influence.

Vast social inequalities are to a large extent undesirable in themselves. Perhaps that is not true in an ideal world where there is a surplus of all goods and no scarcity anywhere. If society were divided between billionaires and millionaires, the same objections would not arise. Today, however, we have a society of scarcity, of less, and of abundance. Millions of people appear to have been thrown on the scrap heap and the Government make only token efforts to retrain, reskill and re-educate them so that they may have genuine opportunities. Only then could the Government claim that they really want equality of opportunity.

I am struck by the contrast between those who have been thrown on the scrap heap and those who will benefit from the Budget. I think of the reduction in inheritance tax and the impact of housing benefit changes on old people. How can it be right for the Government to give away millions of pounds to the already wealthy through these changes in inheritance tax and embark on changes to housing benefit which take away from old people all but £3,000 of savings? If the wealthy have a right to pass on their savings to their children, do not these old people have a right to pass on some savings to their children? What savings will they he left with after the housing benefit changes? Only enough to pay for their own funerals.

The contrast here is between handouts to the rich and the Government taking away from the really needy. The top 1 per cent. own one quarter of all private wealth, and the bottom half share just 4 per cent. of all private wealth. The Budget merely polarises existing inequalities. It deepens existing injustices and it deepens already unhealthy trends in society. Most of all, it confirms the image of the Budget and of the Government as callous, uncaring and deeply unfair.

Mr. Quentin Davies

The Committee must be grateful to the hon. Member for Workington (Mr. Campbell-Savours) because he raised in the debate on this clause also, which is not in fact the clause which is officially the subject of this debate, several philosophical and economic issues of wide and fundamental importance which must underlie any discussion of inheritance tax.

The hon. Gentleman started with the declaration of a private interest, and I ought perhaps to do the same. Unlike him, I am not able to renounce any substantial inheritance. If my parents were to predecease me—I hope that if that happens the event is as long delayed as possible—I would not stand to inherit any substantial wealth.

I am sure hon. Members will agree that we should be discussing not the chance fortunes of individuals but the basis of the collective good, of general advantage. In his analysis of that, the hon. Member for Workington based his argument on a fundamentally false premise, which was that people essentially work for themselves and not for future generations. My proposition is that, while people work for themselves, they work also for the new generation—for their own children and grandchildren.

I was particularly surprised that the hon. Member for Workington made that mistake, because he declared himself an expert on the subject of small businesses. I should have thought that anybody who knew about small businesses would have encountered a striking phenomenon about them. It is the frequent if not universal desire of people who set up small businesses to see their own children take them on and the hope that those businesses will provide a livelihood for their children and their children's children. They are hopeful of creating an institution that will outlast them and that will be of lasting benefit to future members of their families.

Let us suppose that I am wrong and that the hon. Member for Workington is right. What would happen if people worked only for themselves? The answer is that on a net lifetime basis no one would invest. I say "on a net lifetime basis" because it is conceivable, on the hon. Member's hypothesis, that some people might at an early stage in their lives invest—but that would only be to disinvest later in their lives. Some people—because one can never predict the date of one's death—might under-shoot and some might over-shoot, But in aggregate everything produced would be consumed in the course of the person's lifetime.

Mr. Morgan

Will the hon. Gentleman consider also the example of immediate post-war Japan? One anecdote told about it is symbolic of those who reconstructed Japan. It concerns the founder of the Honda motor cycle company, who was asked in the early 1950s, when Honda was already showing astonishing signs of growth and international competitiveness, why he was adopting such an extraordinarily highly geared financial approach—not highly geared in the sense of his motor cycles—to his company's expansion. It was far more than was sensible in relation to his equity stake in the business, given that any slight downturn would make the business collapse immediately. He replied that that might be so, but the assets he had created would be taken on by somebody else, and that would be all to the good of Japan. It is alleged that many Japanese business men followed exactly the same philosophy in setting Japan on the road to the great economic success that it now enjoys.

Mr. Davies

One of the remarkable things about Japan is its very high savings rate. I have always associated that with the strong sense of family and family continuity. Anybody who knows Japan—I know it a little, albeit not profoundly, and I admire it greatly—knows that the fundamental backbone of Japanese industry is still the family company and the desire to found a company that one's children and grandchildren can take on. That is the phenomenon about which I was speaking earlier, and it is a universal human trend. It is pronounced in Japan and has had particularly happy economic consequences for that country.

Mr. Chris Smith (Islington, South and Finsbury)

Is the hon. Gentleman aware that the country which currently tops the OECD league for revenue coming into the exchequer from wealth transfer taxes is Japan?

Mr. Davies

That may well be so, but the Government are tapping a particularly strong source of revenue, for reasons that I have already illustrated.

The Committee cannot deny the logic of my proposition, which is that if people worked only for themselves there would be no net investment on a lifetime basis, and they would accumulate at the beginning of their lives only to consume what they had produced before their lives came to an end. On that hypothesis, which is based on the view of human psychology that I have already attributed to the hon. Member for Workington—he has now returned to the Chamber; I am sorry that he did not hear the compliment that I paid him earlier—there would be no increase in human wealth or incomes, no progress, no civilisation.

What would happen if, in a misguided moment, the House of Commons were to take fiscal or legislative action—I sense that a number of Opposition Members would like us to do so—that would effectively prevent individuals from passing on to their children or grandchildren the wealth that they had accumulated? Such legislative and fiscal action would produce exactly the same results as if the views of the hon. Member for Workington on human psychology were correct. No one would look forward to passing on anything. Everyone would have every incentive to consume what he had produced in his lifetime. The same black consequences for our economy and for civilisation would flow from such action.

Mr. Carrington

I have listened with fascination to my hon. Friend's argument, but he has not addressed himself to one of the fundamental points about small businesses. The enthusiasm of someone who sets up such a business—the desire to pass it on and to make it grow as large as possible—is not only of benefit to the inheritors of the wealth, but also of direct benefit to the employees, and therefore to society as a whole.

Mr. Davies

I disagree with nothing that my hon. Friend has said; I think that human psychology is a great deal more complex than the hon. Member for Workington wished us to believe. I think that human beings are to some extent selfish and to some extent selfless, and that the ambit of that selfishness, or that selflessness, extends to their children, their grandchildren and their employees. Some people are selfish; some people think of the next generation. But my point is that there is in human motivation a substantial element of concern with one's family and one's heirs. Human society could not, except at its peril, deprive itself of the tremendous motive power—the tremendous incentive to work and be enterprising—with which that substantial strain in human psychology has provided us.

Mr. Campbell-Savours


The First Deputy Chairman of Ways and Means (Sir Paul Dean)

Is the hon. Gentleman giving way? I am not quite sure.

Mr. Davies

I thought that I had sat down, Sir Paul, but I do not wish to deprive the hon. Member for Workington of an opportunity to address the Committee again. I am happy to remain, as it were, notionally on my feet, while he makes the intervention that he wishes to make.

The First Deputy Chairman

We will assume that the hon. Gentleman is notionally on his feet.

Mr. Campbell-Savours

I do not wish to intervene.

Mr. Andrew Smith (Oxford, East)

I detected a shift in the emphasis of the hon. Member for Stamford and Spalding (Mr. Davies) following the intervention by the hon. Member for Fulham (Mr. Carrington). Until then, the hon. Member for Stamford and Spalding had been saying that someone worked for himself or for his children. If he did the former, there would be no net lifetime investment; therefore, only inheritance made it possible for such an investment to take place. His hon. Friend reminded him that there are other social obligations that people seek to fulfil and other contributions that can be made to society at large, of which one's children or descendants will be part.

9.15 pm
Mr. Quentin Davies

I do not know whether the hon. Gentleman was listening to the early part of my remarks. I emphasised throughout my speech, and do so again, that human psychology is complex and that there are many factors involved in it. I intervened in order to redress the balance that I believed had been upset by the remarks of the hon. Member for Workington (Mr. Campbell-Savours). Of course I would not deny that many people work entirely for themselves. My point was to try to bring home to the Committee, in its consideration of inheritance tax, the important part that is played by people's desire to benefit their descendants.

Mr. Smith

I understood the remarks of my hon. Friend the Member for Workington (Mr. Campbell-Savours) to imply not that people simply work for themselves but that they work in order to benefit both themselves and society at large and that their children would benefit more as a result of not inheriting the wealth that had been accumulated. Of course, they would benefit in the general sense through the contribution that that would make to society as a whole, and if society carried on according to those principles, it would be a healthier society for everyone.

Mr. Campbell-Savours

May I quote again the example of my family and the experience there? It is my view that the good that will be done with the money that within my family will be expended on education in south Wales will be far more than would ever be the case if it were given to me or to anyone else in my family who would stand to inherit. My family will be richer in every sense as a result of the decision that has now been taken as against handing the money on to me.

Mr. Smith

I agree with my hon. Friend, and that makes a compelling case for progressive inheritance taxation. The clause takes us further away from that. The important characteristics of the clauses are that they make taxation less progressive and give rise to an even greater concentration of wealth and income in the hands of the few. The Government have deliberately failed to tackle the many loopholes and devices by which inheritance taxation and its predecessors have become so much more honoured in the breach than in the observance.

Mr. Quentin Davies

The hon. Gentleman has totally misunderstood the essential point. The point is not what the hon. Member for Workington chooses to do with his inheritance, because, with respect, he did not create the wealth about which we are talking. His parents created the wealth. Therefore, the important point is their reason for having created that wealth. They created that wealth in the expectation of the hon. Member for Workington receiving part of it. Their expectations might have been disappointed or they might have been delighted to hand over the wealth to whatever good charitable cause the hon. Member for Workington designated. However, one cannot with impunity deprive the human race of the essential element in the economic incentive, which is to work in order to hand money to the next generation.

Mr. Smith

If the hon. Gentleman had been listening, he would have realised that I was advocating progressive inheritance taxation. He would not have heard me advocate total confiscation from one generation to another, and neither did my hon. Friend the Member for Workington. He said that there should be a reasonable threshold, as did my hon. Friend the Member for Western Isles (Mr. Macdonald).

The changes that we are debating merely compound the effect of the income tax changes and so much else that we have seen in the Budget. The hon. Member for Fulham made a not unreasonable point when he said that he saw merit in relating the taxation rates on inheritance to income taxation rates. However, with the banding being abolished in the case of inheritance tax, we are faced with precisely the same problem as that facing us on income tax.

The differential between the higher and lower rates has been narrowed and the progressive element of the taxation system is being squeezed out almost entirely from inheritance tax. That approach takes society away from the principle that Conservative and Labour Members have shown they support over the years—namely, that the wealthiest who own most should make a progressively greater contribution to the common good through taxation.

The retreat from that principle characterises the Budget more than anything else. It is a further confirmation that the Budget is for the rich at the expense of everyone else. Of course, it is very much at the expense of everyone else because. as my hon. Friend the Member for Wrexham (Dr. Marek) pointed out in his opening contribution, the general burden of taxation in society, including taxes on expenditure, is increasing under this Government when taxation on capital gains and transfers and inheritance tax is decreasing. The ability of the very wealthy to pass on wealth to their descendants is being paid for by the rest of us in the form of taxes on income and expenditure. In evaluating the taxation system as a whole, one has to consider what can be achieved by cuts in expenditure taxation, cuts in income taxation, or increases in public expenditure, and applying the money to those in social need. In that way inherited wealth can be taxed effectively.

Mr. David Martin (Portsmouth, South)

What the hon. Gentleman says assumes that the productive part of the economy remains static and therefore that the incentives of reduced taxation do not work. Surely more money is made as a result of reduced taxation and is therefore positive in society.

Mr. Smith

I am pleased that the hon. Member for Portsmouth, South (Mr. Martin) asks about incentives. Much of this debate has been precisely about the ability to inherit as a disincentive rather than an incentive to work. Indeed, the receipt of large amounts of unearned wealth is a powerful disincentive to many rich people.

According to market economics, which the Government and Conservative Members profess to follow, this is a great misallocation of resources, as there is no reason to suppose that the sons and daughters of the very rich will somehow be the most efficient custodians of, or reach the best decisions about, the way in which that wealth should be allocated and applied.

I have heard no evidence, certainly not during this debate, which I have sat through, to substantiate arguments from Conservative Members that higher or progressive inheritance rates would be a great disincentive to small business people. I have heard that point being made, but I have not heard any hard evidence of a correlation between the rates of taxation imposed and the amount of enterprise, the rate of formation of small businesses, or their success. There are no facts to substantiate the points made by hon. Gentlemen.

My second argument in rejecting the change proposed in clause 127 is that it deepens the already profound inequalities in our society and the polarised distribution of income and wealth. As my hon. Friend the Member for Western Isles has pointed out, that distribution of wealth carries with it power and influence, which those with inherited wealth who exercise it have done nothing to earn or merit. This approach does not create the property-owning democracy that the Tories like to boast about to the people of this country, but further concentrates wealth and power in the hands of very few people. That entrenches ever more deeply the divisive and damaging class system.

When set against the deepening poverty of many in our society, the measure is nothing short of obscene. One cannot but be struck by the contrast between the treatment of the very rich in raising the threshold above which inheritance tax will be applied from £90,000 to £110,000—reducing by a quarter the number of estates to which the tax will apply and the treatment of pensioners who lose housing benefit as soon as they have capital of more than £8,000.

These changes are as significant for what they do not do as for what they do. They do nothing to tackle the wide-scale avoidance of inheritance tax. The Price Waterhouse booklet, from which my hon. Friend the Member for Wrexham quoted, showed that people already have the opportunity to avoid these taxes if they are well advised and do not suffer an early death. These changes do nothing to tackle the exemptions on gifts and the trusts and companies which have been created to take advantage of the further exemptions and concessions which are already available. They do nothing to tackle the many other devices by which people circumvent and minimise their tax liability. These changes ensure that the wealthy do not pay their fair share of taxation. My hon. Friend the Member for Wrexham referred to the diminishing share of the total tax take that is comprised in inheritance tax.

There is no justification for these concessions. The Chancellor boasted in his Budget speech that there would effectively be a 20 per cent. tax rate for businesses, which would be the lowest in the world. My hon. Friends have pointed out that much more successful and dynamic economies than ours have higher rates of taxation on inherited wealth. I do not accept the Chancellor's boast of Britain having the lowest tax rates in the world as reflecting any achievement by the Government. Rather, it is an indictment of a Government who, through their Budget and every other policy that they implement, put the interests of the very rich ahead of those of the rest of the country, at the cost of the poorest.

The Tory party glories in inequality of wealth. Just as the rest of the Budget makes Britain a more unfair society, plunging many people deeper into poverty and making the very rich even richer at the expense of the rest of us, so this inheritance tax proposal entrenches those divisions and passes them on from one generation to another. Paradoxically, this proposal will bequeath a poor legacy to our children.

Mr. Geoffrey Dickens (Littleborough and Saddleworth)

Before I became a Member, I envied the great skills of the late Iain Macleod. I felt that his judgment of one nation was the right formula on which to work. I was a working-class lad from a humble background and I felt that the party that represented the nation without that terrible class hatred was the Conservative party, so I wanted to become a Conservative.

I have listened with great interest to many of the Opposition's contributions. The words "wealth" and "inheritance" have been used as though they were dirty words. This country needs the great risk-takers, entrepreneurs, inventors and job-providers. They are the people who make the country tick. They create the wealth so that people can enjoy the benefits that are distributed. It is the Conservative party that seems to be distributing these things more fairly and targeting the help where it is needed most.

9.30 pm

One of the greatest motivations for successful people in this country is the thought that they may have something to leave their children, and that is a very commendable vision. I hope that one day I shall have something to leave my children, but it will be through hard work; it will not be through sitting back and following the politics of fear and envy—

Mr. Campbell-Savours

Do not be silly.

Mr. Dickens

It is not being silly; it is being absolutely realistic. This needs to be said. Those who create the wealth are the people who create the jobs. If they create jobs, there is more work for everybody and more wealth for their families. The bigger the cake, the bigger the slices to be picked up from that cake, making the country a better place in which to live and work. Why should these people not have something to leave to their children, without savage taxation?

Is it not the Conservative party that has looked after the people on the workshop floor, given them the chance to own shares in the company in which they work? Is it not the Conservative party that has helped council tenants to own their own homes? Is it not the Conservative party that wants children to be able to ascend the ladder of excellence and attain education beyond the means of their parents through scholarships? Those are the sorts of things that the Labour party ought to be doing for the disadvantaged. We are now doing them, and that is precisely why the nation keeps returning Conservative Governments—because we represent all classes of people.

I do not want to be too mischievous, but it is absolutely right for people to create wealth and jobs. It is right that they should be able to leave something to their children without suffering savage taxation. The wealthy will always pay the lion's share, whether it is the community charge, direct taxation or anything else. [Laughter.] Hon. Gentlemen laugh, but I must remind them that 50 per cent. of the community charge comes from the taxpayers, and the highest taxpayers are the wealthy. And 25 per cent. of the community charge comes from industries, which are also taxpayers. It is they who are creating wealth and jobs.

All this nonsense from the Opposition, using the word "wealth" as a dirty word, is absolutely disgraceful and they do themselves no favours whatsoever.

This clause is most important. It gives people that added motivation, when they believe that perhaps by their hard work, their labours and their toil, they can leave something to their children that will not be savagely taxed by the Treasury.

Mr. Nigel Griffiths (Edinburgh, South)

Clause 127 highlights the common theme of Conservative Budgets over the past nine years—nine years that have seen the burden of taxation increased for the average citizens of the country to give them an incentive to work harder, while during the same period the rich and the super-rich have had their taxes reduced to give them the same so-called incentive. Taxes on gifts and death duties have been lowered in successive Budgets to reward the wealthy and the well-heeled. Tax thresholds have been raised, tax rates have been lowered, aggregation periods have been reduced and the richest individuals have been enabled by the Conservatives to hand over large sums of money to others and to pay no tax at all if the gout does not claim them within seven years.

With clause 127 inheritance tax has been fixed at a single rate of 40 per cent. while the threshold has been raised by £20,000. The striking feature of clause 127 is the benefit that it confers on the really wealthy. A millionaire claiming no special reliefs or exemptions can, as a result of that clause, confer gains on his or her heirs of £145,000 at a stroke, enough to pay 5,000 mothers child benefit for a year at the index-linked level.

The £2 million estate benefits to the tune of £345,000, sufficient to raise the pensions of 900 senior citizens in line with pay and not the lower level that the Government have set. It is hardly surprising that those with modest estates of under £200,000 gain very little from that clause. I suppose that, in the light of the philosophy that is being propounded tonight by Conservative Members, people with estates of £200,000 deserve so little help because they have been so relatively unsuccessful in comparison with the achievements of aristo-rich.

Help has been lavished on the super-rich by the Government, but a very different attitude is shown by them to those on low incomes. The relatives of the rich are being encouraged to even greater dependency on the fruits of labours to which they have made no contribution, while those on social security or housing benefit are having their incomes forcibly reduced by the Government and, according to the Secretary of State for Social Services and the Government, their so-called dependency on the state reduced at the same time.

We have here a paradox where the Government are seeking to support the rich and the super-rich by making sure that relatives who have contributed so little gain so much from efforts towards which they have contributed nothing and in which they have made no investment, while others, many of whom have worked for the majority of their adult lives, receive from the Government not more but less. They have seen their pensions and their entitlement to benefits to which they have contributed reduced.

That is the nub of the clause and indeed, of the Budget. It is particularly important that we should reject clauses 127 and 128 because they are announcing a philosophy which is alien to the people of Britain. It is a philosophy that says that those people who have built up or inherited wealth, by whatever means, should be entitled to retain it. That is a philosophy that is not endorsed by many countries.

As the Financial Times has revealed, and as my hon. Friends have said and as has been conceded by Conservative Members this evening, the top of the OECD league in ensuring that wealth is taxed is one of the most successful economies—Japan. In Germany more is done to tax inherited wealth than in Britain. Those countries are doing more than ever to ensure that wealth is not passed on from generation to generation. but is ploughed back into wealth—creating enterprises, ensuring that fresh blood has the chance to use the money. But the Government are seeking to ensure that it is passed on in a moribund fashion—a fashion that died out many years ago. It is the corpse of a policy that has been resurrected and it will reap a bitter fruit for the Government, and an even more bitter one for the country.

Mr. Chris Smith

We have had a most interesting debate on clause 128, and the allied issues that lie at the heart of clause 127. Our deliberations have been given that added intellectual edge and zest by the hon. Member for Littleborough and Saddleworth (Mr. Dickens).

First let me deal specifically and briefly with the matters enshrined in clause 128. Is is sad that the Paymaster General is not here to contribute to the discussion, because in another incarnation he has an interest in the provisions of clause 128. It should not take a genius to work out which political party is likely to benefit most from the clause. Because it is the Conservative party, we shall certainly divide the Committee.

Mr. Beith

In a spirit of genuine inquiry, may I ask the hon. Gentleman whether he believes that the principle of the exemption with which clause 128 deals, and which was put in place by a Labour Government, should be retained? What is his argument for not correcting what the Government regard as an anomaly?

Mr. Smith

The anomaly is that political parties are treated differently from charities. While I accept some of the arguments which the hon. Member for Berwick-upon-Tweed (Mr. Beith) made about the value of political work, and especially the voluntary work which goes into political activity, I do not believe that political parties should be equated exactly with charities. That is why we think that the distinction should remain.

The matters in clause 127 have formed the principal subject of the debate on clause 128. It is worth noting that the provisions of clause 127 increase the threshold for the application of inheritance tax by six times the amount required by indexation. The accumulation of all rates at 40 per cent., while putting some people at a marginally higher rate, will mean that most people will pay radically less. May I point out to the hon. Member for Littleborough and Saddleworth that that happens against a background where the top 1 per cent. still earn one quarter of all private wealth and the bottom half share between them just 4 per cent. of all private wealth?

Mr. Dickens

Perhaps the hon. Gentleman would like to inform the House which of those two sections provides the jobs.

Mr. Smith

I could certainly tell the hon. Gentleman which of those two proportions provides the talent, the effort, the work and the labour which goes into making goods and producing the wealth of the country. The hon. Gentleman said that wealth is regarded by the Opposition as a dirty word. No, it is not. It is the misdirection of wealth which is regarded by us as reprehensible, and the distinction which I have just outlined represents a maldistribution.

The cutting of the top rate of inheritance tax to 40 per cent. will give those who are already wealthy an even greater boost. Only 5,200 taxpayers—fewer than one in 5,000—paid inheritance tax at rates above 40 per cent. last year on estates with an average value of £475,000. Assuming that a similar number would have paid the top rates of inheritance tax in the current financial year, the average gain from the cut in inheritance tax will be nearly £29,000. That is a direct gift from the Budget to those who are already wealthy.

For confirmation of that I turned to that well-known Socialist periodical, the Financial Times. In its analysis of the Budget of 16 March the Financial Times said: The outstanding feature of the Chancellor's proposals is the benefit it gives the really wealthy. A millionaire, claiming no special reliefs or exemptions, gains—or rather his or her heirs gain—£145,000 at a stroke. The £2 million estate benefits to the extent of £345,000. The newspaper also drew attention to the benefits that the Conservative Government had given over the past eight years to people passing on gifts. It said that just about every Budget has seen some easing of the burden of death and gift taxes: raised thresholds; lower rates; reduced aggregation periods; gifts between individuals totally relieved of tax if they survive seven years; finally, this change to a single rate of tax of 40 per cent. The evidence is clear that the real beneficiaries of clause 127 will be the extremely wealthy.

9.45 pm

The people who benefit will already be taking advantage of a wide range of mechanisms, especially the establishment of a variety of trusts that provide the possibility of planning to avoid inheritance tax. It is ineresting to note that tax avoidance experts say of this provision in the Budget that people should not simply take the gift that the Chancellor is giving them because it may be removed by a change of Government. I can happily assure them that they are correct in that assumption.

The basic principle of inheritance tax has been an interesting part of the debate. It was first mentioned by my hon. Friend the Member for Workington (Mr. Campbell-Savours) in an interesting and provocative speech.

Mr. Win Griffiths (Bridgend)

My hon. Friend might be interested to know that our hon. Friend the Member for Workington (Mr. Campbell-Savours) is more fastidious and rigorous than God himself in his beliefs on inheritance. Leviticus chapter 25—I hope that Conservative Members will look it up at the end of the day—recommends that wealth should be inherited for seven generations, but at the seventh the family should be divested of it all and start again.

Mr. Smith

I commend my hon. Friend on his learning. It is interesting that my hon. Friend the Member for Workington is more severe than the Old Testament in this respect.

I liked the formulation of my hon. Friend the Member for Western Isles (Mr. Macdonald) better. He said that we must acknowledge the ties of kinship and of family but strike the right balance. He thought that the Government proposals had not struck the right balance.

Mr. Morgan

Does my hon. Friend agree that the philosophical cleavage between the silver spoonists on the Conservative side who believe in inheritance, and us, who believe that genuine competitive entrepreneurism can start only from a level playing field can best be summarised by saying that we are the real followers of Alderman Roberts of Grantham and believe that necessity is the mother of invention; they believe that necessity is the invention of mother.

Mr. Smith

My hon. Friend is right as usual. The Government and Conservative Members have made much in the debate of their proposals for income tax changes and of the incentive effect of being able to keep more of the wealth that one earns. There may conceivably be some justification in some of the principles that underlie those comments about this so-called enterprise culture. There can be no such justification for saying that someone who benefits from the fruits of his or her efforts should be able to pass that on to members of a subsequent generation who have not, by their efforts, contributed to the making of that wealth. The balance that the Government have been attempting to strike in clause 127 cannot be justified.

The hon. Member for Stamford and Spalding (Mr. Davies) constructed an intellectual gem when he said that human beings are at times selfish and at time selfless. As an observer of human nature, I feel that that must be accurate. The Conservative Government have, over the past few months, forgotten the selfless side of human nature. The Budget has spoken entirely to the selfish. The top rate tax reductions were bad enough. These adjustments in inheritance tax rates are even worse. In asking my right hon. and hon. Friends to vote against clause 128, I presume that we are, by so doing, clearly demonstrating our fervent opposition to clause 127.

Mr. Lilley

I apologise to the Opposition if they lost the opportunity to vote on clause 127 as a result of my natural, although unexpected, reticence and the procedural uncertainties.

Benjamin Franklin said: nothing can be said to be certain, except death and taxes. Death has always held a peculiar attraction for the tax man, I suppose because the dead are the one group of taxpayers who cannot complain. The desire to bequeath an inheritance to one's heirs is one of the most powerful ambitions that motivate people. It is the objective that drives men to build up businesses, accumulate capital, build and improve houses and even to invest, as my hon. Friends the Members for Fulham (Mr. Carrington) and for Stamford and Spalding (Mr. Davies) have said so eloquently.

It is foolish to blunt such a potentially creative force by punitive inheritance taxes. If people know that the majority of their lifetime's effort will go not to their chosen heirs or causes but to the state, many will be discouraged from even starting on the path of enterprise. Others will sell out prematurely and enjoy the fortune themselves or devote themselves to the time-consuming process of tax avoidance. Even those who are insensitive to the prospect of inheritance tax may realise that their businesses will die with them when the executors are obliged to break into its assets to pay punitive death duties.

Those are the reasons why we have sought to ease punitive death taxes in this Budget. We have taken two further steps this year. First, we have substantially raised the threshold at which the tax is paid. Simple indexation would have required lifting the threshold from £90,000 to £94,000. Instead, we raised it by 22 per cent. to £110,000. This will take a quarter of all estates out of tax entirety.

This follows a 27 per cent. increase in the threshold last year, so I remind my hon. Friends that in two years we have increased the threshold by 56 per cent.—substantially ahead even of the increase in house prices. Hon. Members who object to that presumably wish to bring more and more estates into taxation.

Secondly, we have scrapped the previous four rates of tax, ranging from 30 per cent. to 60 per cent., and replaced them with a simple flat rate of 40 per cent. The effect of that, plus the rise in the threshold, will be to reduce the burden of taxation on all estates. Since 1979 we have reduced the top rate of tax from 75 per cent. to 40 per cent., and simplified the structure by moving from no fewer than 14 different rates to just one.

Mr. Morgan

Is the Minister claiming that now that people have much less incentive to engage in tax evasion the number of accountants in this country will decline sharply as there is no longer need for them?

Mr. Lilley

Last week I spoke at the Institute of Taxation, and received a rather frosty reception from the president on account of the Chancellor's remark that that was the one profession that we hoped did badly out of the Budget. Of course, we believe that such professionals will find interesting and valuable uses for their talents elsewhere.

The hon. Member for Wrexham (Dr. Marek) quoted from the speech that I made to the Institute of Taxation, and mentioned my remarks about Father Navarette and his wise words on the disincentive effect of punitive taxation on income. The hon. Gentleman imagined that the reductions in taxation and the loopholes that had been left would mean that we would not succeed in getting much income from inheritance tax, and that the changes that we have made would reduce revenue.

It is worth noting that since we have cut the top rate of taxation from 75 per cent. to 60 per cent., as well as raising thresholds so that 96 per cent. of all estates are free from duty altogether, the revenue from the duty on estates has risen by about one half in real terms. When I first discovered that, I asked my officials whether we had created an incentive for people to die early. Hon. Members will be pleased to know that that probably is not the case. The buoyant yield of inheritance tax reflects the rise in asset values, the growing prosperity of the country, the increase in the number of businesses and, of course, the delayed effect of spouse exemption—in other words, the estates which were relieved from taxation when they were passed on to a spouse are now coming into taxation when the surviving spouse, usually the widow, passes on.

Although, as the hon. Member for Cardiff, West (Mr. Morgan) implied, many people went to considerable lengths to avoid paying inheritance tax, the incentive to do so certainly has been reduced, and is further reduced in the Budget. With a growing economy and an enterprise culture, we are confident that the base of inheritance tax will be buoyant in future. We welcome, as did my hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) in his valuable speech, the fact that nearly two thirds of people own their own homes. Consequently more people are able to leave their homes to their children. As more people acquire shares, they will have investments to bequeath to their heirs. As more people build up businesses that nearly two thirds of people own their own homes. Consequently more people are able to leave their homes to their children. As more people acquire shares, they will have investments to bequeath to their heirs. As more people build up businesses, they will leave family firms.

The hon. Member for Workington (Mr. Campbell-Savours), for whose integrity I have great respect and who is the sea-green incorruptible of the Labour party, made an interesting point. He intervened in the speech of my right hon. Friend the Chief Secretary to say that, in his view, the very process of inheritance undermines the spirit of enterprise. He is the living proof to the contrary. The fact that he renounced the prospect of inheritance did not stop him setting up a successful small business, and I pay tribute to him.

Mr. Lilley

The hon. Gentleman is an example to us all in this respect as in so many others, but he was not deflected from that path by the possibility of obtaining from his parents a substantial inheritance which he chose voluntarily to renounce. The hon. Gentleman asserted that we suffered relative to Japan in that Japan, in his view, had higher inheritance taxes. Until this year, if one left £500,000 to one's heirs in this country, one would have had to pay more tax than in Japan. Similarly, if one left £1 million in this country, more tax would have had to be paid than in Japan. The hon. Member for Edinburgh, South (Mr. Griffiths) referred to a person leaving £2 million. Until this year, one would have had to pay more tax on that amount than in Japan. Since the Budget, the position of those who leave £2 million is slightly better in this country than in Japan. However, I do not believe that the hon. Gentleman will maintain that Britain has benefited in the past from our high inheritance tax compared with Japan.

10 pm

Small businesses that are passed on to heirs pay considerably less inheritance tax than is paid in Japan because of the special exemptions that we make. We are particularly concerned to ensure that the growth in prosperity of family businesses is not threatened by the burden of inheritance tax. The abolition in 1986 of capital transfer tax on lifetime giving enables family businesses to be passed on to the next generation tax-free.

Mr. Morgan

Is the Minister willing to accept that 99 per cent. of all independent commentators have attributed much of the superior economic growth performances of both Germany and Japan since the second world war, compared with this country, to the fact that to an extraordinary extent there has been continuity of wealth in this country, which has been associated with very slow economic growth? Japan and Germany had to start afresh in 1948. Much of their greater wealth has been created by first generation entrepreneurs.

Mr. Lilley

I do not know which economic commentators the hon. Gentleman employs, but he should employ new ones. Germany has the lowest inheritance tax of any of the countries that I have considered, if wealth is passed on to a close relative or to a child. This country has far fewer family businesses than Germany and Japan. We want to reverse that trend.

If tax is payable, the effective rate for a family business that enjoys 50 per cent. business property relief is less than 20 per cent. That is one of the lowest rates in any major Western economy. The desire to leave something to one's children and grandchildren, to friends and to causes that one supports is both natural and altruistic and a penal burden should not be imposed.

We do not believe in a one-generation society—each generation starting anew with nothing. Furthermore, it is not realistic. Each generation stands on the shoulders of its predecessors. As a society, we inherit the wealth, technology and infrastructure that have been created by previous generations. It is only reasonable that individuals should also have the right to pass on inherited wealth to their heirs as they choose.

The hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to clause 128. I welcome his support for it and the support of his party in 1975 when the unfortunate anomaly was created. It is right and reasonable that we should recognise the right of individuals to pass money to political parties, if they so wish.

Several hon. Members have said that the only beneficiary of this change will be my right hon. Friend the Paymaster General, wearing his other hat. When I was chairman of the Bow Group, the right hon. Member for Leeds, East (Mr. Healey) was trying to introduce a wealth tax. I met my counterpart, the then chairman of the Fabian Society, now Lord Ponsonby, who told me that he had just been lobbying the right hon. Member for Leeds, East because he feared for the finances of the Fabian Society if it were unable to benefit from the inheritances that it received. He asked me to support him. I had to say that, as fas as I knew, the Bow Group had never received any inherited money and that it was not in that fortunate position.

This change stands to benefit all sides of the political spectrum, and I commend it to the House.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 259, Noes 192.

Division No. 294] [10.4 pm
Adley, Robert Bright, Graham
Aitken, Jonathan Brittan, Rt Hon Leon
Alison, Rt Hon Michael Brooke, Rt Hon Peter
Allason, Rupert Brown, Michael (Brigg & Cl't's)
Amess, David Browne, John (Winchester)
Amos, Alan Bruce, Ian (Dorset South)
Arbuthnot, James Bruce, Malcolm (Gordon)
Arnold, Tom (Hazel Grove) Buchanan-Smith, Rt Hon Alick
Ashdown, Paddy Burt, Alistair
Atkins, Robert Butcher, John
Atkinson, David Butler, Chris
Baker, Rt Hon K. (Mole Valley) Butterfill, John
Baker, Nicholas (Dorset N) Campbell, Menzies (Fife NE)
Baldry, Tony Carlile, Alex (Mont'g)
Banks, Robert (Harrogate) Carlisle, John, (Luton N)
Batiste, Spencer Carlisle, Kenneth (Lincoln)
Beaumont-Dark, Anthony Carrington, Matthew
Beith, A. J. Carttiss, Michael
Bellingham, Henry Cash, William
Bennett, Nicholas (Pembroke) Chapman, Sydney
Bevan, David Gilroy Chope, Christopher
Biffen, Rt Hon John Churchill, Mr
Blackburn, Dr John G. Clark, Dr Michael (Rochford)
Blaker, Rt Hon Sir Peter Clark, Sir W. (Croydon S)
Bonsor, Sir Nicholas Conway, Derek
Boscawen, Hon Robert Coombs, Anthony (Wyre F'rest)
Boswell, Tim Coombs, Simon (Swindon)
Bottomley, Mrs Virginia Couchman, James
Bowden, A (Brighton K'pto'n) Cran, James
Bowis, John Critchley, Julian
Boyson, Rt Hon Dr Sir Rhodes Currie, Mrs Edwina
Brandon-Bravo, Martin Curry, David
Brazier, Julian Davies, Q. (Stamf'd & Spald'g)
Davis, David (Boothferry) Kirkwood, Archy
Day, Stephen Knapman, Roger
Devlin, Tim Knight, Greg (Derby North)
Dickens, Geoffrey Knight, Dame Jill (Edgbaston)
Douglas-Hamilton, Lord James Knowles, Michael
Dover, Den Knox, David
Dunn, Bob Lamont, Rt Hon Norman
Durant, Tony Lang, Ian
Fallon, Michael Latham, Michael
Farr, Sir John Lawrence, Ivan
Favell, Tony Lester, Jim (Broxtowe)
Fearn, Ronald Lightbown, David
Fenner, Dame Peggy Lilley, Peter
Field, Barry (Isle of Wight) Livsey, Richard
Finsberg, Sir Geoffrey Lloyd, Sir Ian (Havant)
Forman, Nigel Lloyd, Peter (Fareham)
Forsyth, Michael (Stirling) Lord, Michael
Forth, Eric Lyell, Sir Nicholas
Fox, Sir Marcus Macfarlane, Sir Neil
Franks, Cecil Maclean, David
Freeman, Roger McLoughlin, Patrick
French, Douglas McNair-Wilson, M. (Newbury)
Fry, Peter McNair-Wilson, P. (New Forest,
Gardiner, George Madel, David
Garel-Jones, Tristan Major, Rt Hon John
Gill, Christopher Malins, Humfrey
Goodhart, Sir Philip Mans, Keith
Goodlad, Alastair Maples, John
Goodson-Wickes, Dr Charles Marland, Paul
Gorman, Mrs Teresa Marshall, John (Hendon S)
Gow, Ian Marshall, Michael (Arundel)
Gower, Sir Raymond Martin, David (Portsmouth S)
Grant, Sir Anthony (CambsSW) Mates, Michael
Gregory, Conal Maude, Hon Francis
Griffiths, Sir Eldon (Bury St E') Mawhinney, Dr Brian
Griffiths, Peter (Portsmouth N) Maxwell-Hyslop, Robin
Grist, Ian Mayhew, Rt Hon Sir Patrick
Ground, Patrick Mellor, David
Grylls, Michael Miller, Hal
Gummer, Rt Hon John Selwyn Mills, Iain
Hamilton, Hon Archie (Epsom) Mitchell, Andrew (Gedling)
Hampson, Dr Keith Mitchell, David (Hants NW)
Hannam, John Moate, Roger
Hargreaves, A. (B'ham H'll Gr') Montgomery, Sir Fergus
Hargreaves, Ken (Hyndburn) Morrison, Hon Sir Charles
Harris, David Moss, Malcolm
Haselhurst, Alan Moynihan, Hon Colin
Hawkins, Christopher Mudd, David
Hayes, Jerry Neale, Gerrard
Hayhoe, Rt Hon Sir Barney Nelson, Anthony
Hayward, Robert Neubert, Michael
Heseltine, Rt Hon Michael 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, G. (Cannock & B'wd) Patten, John (Oxford W)
Howell, Rt Hon David (G'dford) Pattie, Rt Hon Sir Geoffrey
Hughes, Robert G. (Harrow W) Pawsey, James
Hunt, David (Wirral W) Porter, Barry (Wirral S)
Hunter, Andrew Porter, David (Waveney)
Irvine, Michael Portillo, Michael
Irving, Charles Price, Sir David
Jack, Michael Raffan, Keith
Jackson, Robert Redwood, John
Janman, Tim Renton, Tim
Jessel, Toby Rhodes James, Robert
Johnson Smith, Sir Geoffrey Riddick, Graham
Jones, Gwilym (Cardiff N) Ridley, Rt Hon Nicholas
Jones, Robert B (Herts W) Ridsdale, Sir Julian
Jopling, Rt Hon Michael Roberts, Wyn (Conwy)
Kellett-Bowman, Dame Elaine Rossi, Sir Hugh
Kennedy, Charles Rost, Peter
Key, Robert Rowe, Andrew
Kilfedder, James Rumbold, Mrs Angela
King, Roger (B'ham N'thfield) Ryder, Richard
Kirkhope, Timothy Sayeed, Jonathan
Shaw, David (Dover) Thompson, Patrick (Norwich N)
Shaw, Sir Michael (Scarb') Thorne, Neil
Shelton, William (Streatham) Thurnham, Peter
Shephard, Mrs G. (Norfolk SW) Townend, John (Bridlington)
Shepherd, Colin (Hereford) Twinn, Dr Ian
Shepherd, Richard (Aldridge) Waddington, Rt Hon David
Shersby, Michael Walker, Bill (T'side North)
Sims, Roger Wallace, James
Smith, Sir Dudley (Warwick) Waller, Gary
Smith, Tim (Beaconsfield) Ward, John
Speller, Tony Widdecombe, Ann
Spicer, Sir Jim (Dorset W) Wiggin, Jerry
Spicer, Michael (S Worcs) Winterton, Mrs Ann
Squire, Robin Yeo, Tim
Stern, Michael
Stewart, Allan (Eastwood) Tellers for the Ayes:
Stewart, Andy (Sherwood) Mr. Mark Lennox-Boyd and
Taylor, Ian (Esher) Mr. Stephen Dorrell.
Taylor, Matthew (Truro)
Adams, Allen (Paisley N) Fisher, Mark
Allen, Graham Flynn, Paul
Anderson, Donald Foot, Rt Hon Michael
Archer, Rt Hon Peter Foster, Derek
Ashton, Joe Foulkes, George
Banks, Tony (Newham NW) Fraser, John
Barnes, Harry (Derbyshire NE) Fyfe, Maria
Barron, Kevin Galbraith, Sam
Battle, John Galloway, George
Beckett, Margaret Garrett, John (Norwich South)
Bell, Stuart Garrett, Ted (Wallsend)
Benn, Rt Hon Tony George, Bruce
Bennett, A. F. (D'nt'n & R'dish) Gilbert, Rt Hon Dr John
Bermingham, Gerald Golding, Mrs Llin
Bidwell, Sydney Gordon, Mildred
Blair, Tony Gould, Bryan
Blunkett, David Graham, Thomas
Boateng, Paul Griffiths, Nigel (Edinburgh S)
Boyes, Roland Griffiths, Win (Bridgend)
Bradley, Keith Grocott, Bruce
Bray, Dr Jeremy Hardy, Peter
Brown, Gordon (D'mline E) Harman, Ms Harriet
Brown, Nicholas (Newcastle E) Heller, Eric S.
Buchan, Norman Henderson, Doug
Buckley, George J. Hinchliffe, David
Caborn, Richard Hogg, N. (C'nauld & Kilsyth)
Callaghan, Jim Holland, Stuart
Campbell, Ron (Blyth Valley) Home Robertson, John
Campbell-Savours, D. N. Howarth, George (Knowsley N)
Canavan, Dennis Howell, Rt Hon D. (S'heath)
Clark, Dr David (S Shields) Hoyle, Doug
Clarke, Tom (Monklands W) Hughes, John (Coventry NE)
Clay, Bob Hughes, Robert (Aberdeen N)
Clwyd, Mrs Ann Hughes, Roy (Newport E)
Cohen, Harry Hughes, Sean (Knowsley S)
Coleman, Donald Illsley, Eric
Cook, Robin (Livingston) Ingram, Adam
Corbett, Robin Janner, Greville
Cousins, Jim Jones, Ieuan (Ynys Môn)
Cox, Tom Jones, Martyn (Clwyd S W)
Cryer, Bob Lambie, David
Cummings, John Lamond, James
Cunliffe, Lawrence Leighton, Ron
Cunningham, Dr John Lestor, Joan (Eccles)
Darling, Alistair Lewis, Terry
Davies, Rt Hon Denzil (Llanelli) Litherland, Robert
Davies, Ron (Caerphilly) Lloyd, Tony (Stretford)
Davis, Terry (B'ham Hodge H'I) Lofthouse, Geoffrey
Dixon, Don Loyden, Eddie
Dobson, Frank McAllion, John
Doran, Frank McAvoy, Thomas
Douglas, Dick Macdonald, Calum A.
Dunnachie, Jimmy McFall, John
Eadie, Alexander McKay, Allen (Barnsley West)
Eastham, Ken McKelvey, William
Ewing, Harry (Falkirk E) McLeish, Henry
Fatchett, Derek McNamara, Kevin
Faulds, Andrew McTaggart, Bob
Field, Frank (Birkenhead) McWilliam, John
Madden, Max Robertson, George
Mahon, Mrs Alice Robinson, Geoffrey
Marek, Dr John Rogers, Allan
Marshall, Jim (Leicester S) Rooker, Jeff
Martlew, Eric Ross, Ernie (Dundee W)
Maxton, John Rowlands, Ted
Meale, Alan Ruddock, Joan
Michael, Alun Salmond, Alex
Michie, Bill (Sheffield Heeley) Sedgemore, Brian
Millan, Rt Hon Bruce Sheerman, Barry
Mitchell, Austin (G't Grimsby) Sheldon, Rt Hon Robert
Moonie, Dr Lewis Shore, Rt Hon Peter
Morgan, Rhodri Short, Clare
Morley, Elliott Skinner, Dennis
Morris, Rt Hon A. (W'shawe) Smith, Andrew (Oxford E)
Morris, Rt Hon J. (Aberavon) Smith, C. (Isl'ton & F'bury)
Mowlam, Marjorie Smith, Rt Hon J. (Monk'ds E)
Mullin, Chris Snape, Peter
Murphy, Paul Soley, Clive
Nellist, Dave Spearing, Nigel
O'Brien, William Stott, Roger
O'Neill, Martin Strang, Gavin
Orme, Rt Hon Stanley Straw, Jack
Paisley, Rev Ian Taylor, Mrs Ann (Dewsbury)
Parry, Robert Turner, Dennis
Patchett, Terry Wall, Pat
Pendry, Tom Wardell, Gareth (Gower)
Pike, Peter L. Wareing, Robert N.
Powell, Ray (Ogmore) Welsh, Andrew (Angus E)
Primarolo, Dawn Welsh, Michael (Doncaster N)
Quin, Ms Joyce Williams, Rt Hon Alan
Radice, Giles Williams, Alan W. (Carm'then)
Randall, Stuart Winnick, David
Redmond, Martin Wise, Mrs Audrey
Rees, Rt Hon Merlyn
Reid, Dr John Tellers for the Noes;
Richardson. Jo Mr. Frank Haynes and
Roberts, Allan (Bootle) Mr. Frank Cook.

Question accordingly agreed to.

Clause ordered to stand part of the Bill.

Forward to