§ 5.59 p.m.
§ LORD FERRIER rose to ask Her Majesty's Government whether they are prepared to consider making supplementary arrangements for the remission of income tax, surtax and estate duty, up to certain limits, on contributions to charity and church funds; and to move for Papers. The noble Lord said: My Lords, the general purport of my Motion is quite clear, and I trust that it will be agreeable to your Lordships if I assume that all in the Chamber are fully conversant with the method of contributing to charities by deeds of covenant. It is not my intention to suggest any limitation of the covenant system; rather do I seek to embellish it. However, your Lordships will require to know what specific proposals are in my mind.
§ As to covenants, I respectfully submit that, in addition to income tax, a measure of surtax as paid by the donor should be recoverable by the recipient, but that otherwise the system should continue. Further, I submit that every assessee might be permitted a tax—free allowance up to a limit of, say, £10 per annum, provided that that sum is paid to charity; and, further, that companies should be permitted an allowance up to, say, 1 per cent. of their profits free of tax if the amount is paid to charity. These three suggestions are set out in some detail in an article by Sir Peter Macdonald in The Times of October 2 last, and are known to Her Majesty's Government, particularly as they were the subject of a deputation at one time. My final suggestion is that the period of twelve months which must now elapse before a gift is free of estate duty should be reduced or graded.
§ The subject of charities has been debated in your Lordships' House on several occasions in recent times, and many of your Lordships will remember the debates and will be familiar with the Report presented by the Royal Commission on the Taxation of Profits and 557 Income, under the noble and learned Viscount, Lord Radcliffe, and the Report of the Committee on Charitable Trusts, presided over so ably by the noble Lord, Lord Nathan, who I am glad to see has put his name down to speak in this debate, particularly as the terms of reference of that Committee excluded considerations of taxation. On the covenant suggestion, it will be recalled that remission of surtax was withdrawn, in respect of gifts to charity, in 1946. There were a variety of reasons for this withdrawal. It was suggested, for instance, that the provision was subject to abuse, and that in any case the share of sacrifice by the Revenue might be substantial. If there is substance in these objections they could be avoided by the introduction of a ceiling of some sort. May I repeat that it is not suggested that the covenant system should be dispensed with?
§ It has been estimated (and I quote The Times article) that the annual cost to the Revenue of the suggested surtax relaxation would amount to some £3 million per annum. Incidentally, it should be borne in mind that a curious situation arose when income tax was reduced from 8s. 6d. to 7s. 9d. in the pound. This drop cost charities, under the then existing covenants, an estimated sum of £500,000 per annum. This was a severe blow to many individual recipients, dependent, of course, upon the form of covenant which had been given to them. However, so long as the covenant system continues, it is hard to see how there would be a reduction in the overall value of subscriptions to charity which the Radcliffe Commission appeared to fear.
§ I should like to make the point that there are a large number of potential givers who are reluctant—indeed, it would be unwise for them—to take advantage of the covenant system. I refer to people whose income varies widely from year to year. They cannot commit themselves ahead, certainly not so far as seven years or more. It is in order to give some encouragement to such individuals that the proposal for a tax-free allowance of, say, £10 a year —small as it is—is put forward. One can be sure that it would be used by others. One objection voiced to this £10 tax-free allowance is that the plan would involve a great deal of administrative work. I doubt it, how- 558 ever, for it is not suggested that such contributions need be vouched; and we find some parallel in the system in Canada, for instance. Ten pounds is so small a figure that the allowance is not likely to be abused; and in any case an assessee has to sign his return warranting its truth. I submit that, since it would not require a voucher, this concession would not add greatly to the Revenue Department's work.
The position of companies is different from individuals. They differ as their tax returns differ. Companies' subscriptions which, in the terms that I have suggested, might be considerable, would be vouched, but the additional work would not be a great addition to the already considerable complexity of companies' profit returns. Whether it is proper to suggest that industry should subscribe to charity at all is another matter. Further, companies suffer the same disadvantage as those individuals, to whom I have referred, whose income varies from year to year so that it is not competent for them to commit themselves for long periods ahead. But, of course, conditions vary as between company and company, as they vary between charity and charity, and it is fair to remind your Lordships that the fact is—and I quote from this article:
In recent years British industry has played an increasingly important rôle as the patron of charity.
My suggestion regarding estate duty on gifts is an entirely different matter. The position is, of course, that gifts cannot be taken fully into account by a charity until twelve months have elapsed, lest it be reduced by estate duty on the death of the giver—surely a reversal of the contention bis dat qui cito dat. To abolish this period altogether admittedly might be injudicious, though I would not subscribe to the sentiment which I have seen expressed that such a change would be undesirable because
Abolition would be a great encouragement to deathbed gifts.
That brings me to the philanthropy of the matter. It is not for me in this House to go too deeply into the fiscal aspects, and noble Lords will have read Chapter 1 of the Nathan Report which puts the subject in perspective. The Radcliffe Commission said—and I quote from page 54, paragraph 164:
Some relief has been allowed to charities ever since there has been an income tax in this country, although the comprehensiveness of the present exemption has only been reached by stages.
It cannot be emphasised too strongly, I feel, that it is the enormous growth in the weight of taxation and the implications of the Welfare State which has made such comprehensiveness of exemptions essential, and, with respect, I am contending that the present exemptions are not comprehensive enough.
§ My interest in the matter began when I was Convenor of a special Committee of the Church of Scotland with the task of obtaining help for Church Extension from industry. The author of the article from which I have quoted took a prominent part as a member of that Committee and both of us, as members and as treasurers of Kirk Sessions, have continued to be impressed by the fact that contributions to charity are affected by the inadequacy of exemptions. The right reverend Prelate who is going to speak will, I expect, confirm our experience in the North.
My Lords, it is a serious matter because I feel that the very spirit of the people is affected. The individual's will and ability to give to charity—and to give till it hurts—should not be crippled. I am one of those who feel that the nation is living too much on the spiritual capital of the past. Too much is it said: "What do we get out of this?", rather than: "What can we put into it?" Yet, as the noble Lord, Lord Pakenham said in the debate in 1949—and the noble Lord, Lord Nathan [Official Report. Vol. 216, col. 366], quoted him in 1959:
Without voluntary service the State would lose its soul.
I maintain that charities such as those we have in mind are the sinews of such service.
§ I have not mentioned that the U.S.A. and Canada have much more liberal arrangements for tax reliefs on gifts—more liberal than are suggested here—but conditions differ, of course, and there is a stage at which opportunities for abuse can be created. But it is safe to say that, in so far as contributions to church finances are concerned, the level of giving in this country compares unfavourably with that in North America.
§ There are wells of charity in this country from which the potential outflow is 560 frozen—or partially so—by the restriction of our revenue system. At the same time we must recognise that there are numerous ways in which the State aids religious and charitable bodies; and I do not suggest for one moment that they do not. But I need not remind your Lordships of the enormous contribution made to the public weal by charity to-day, quite apart from the wide field covered by religious institutions: to education: to research, both medical and technical; and to the maintenance of our national heritage in art and architecture and our beloved countryside. All are supported and furthered by charitable institutions. My Lords, the contribution made by religious institutions to the moral fibre of the people is incalculable because it spreads itself willy-nilly throughout the community, the majority of which take little or no part of the burden.
May I say, in conclusion, that I look forward to this little debate with keen anticipation, and trust that the noble Lord who is to reply will hold out some hope of relaxation. As the Chairman of Imperial Chemical Industries Limited is reported to have said only last night—though in a rather different context:
To-day it might he easier to give tax reliefs than at almost any time since the war.
I have said enough at this late hour, and I end by quoting from Wordsworth:
The primal duties shine aloft like stars.
The charities that sooth and heal and bless,
Lie scattered at the feet of men like flowers.
I beg to move for Papers.
§ 6.15 p.m.
§ LORD NATHAN
My Lords, I am sure your Lordships will all agree that we are indebted to the noble Lord who has just sat down for bringing this subject before your Lordships' House. It is a subject that touches a vast number of people, both donors and donees, in a vast number of activities. I do not know, my Lords, whether this is the kind of subject upon which one should make a declaration of interest to your Lordships. If it were so, I must say for myself that I am the most offending man alive because I am concerned with many charitable interests in many capacities, though, alas! (if "alas" is the right word) not thus far as a beneficiary.
As the noble Lord who has just sat down has said, the movement of volun- 561 tary service and of voluntary contributions to charities plays a very great part in the whole economic and social habits and customs of this country. It is, I think, deserving of encouragement. Indeed, in the debate some thirteen or fourteen years ago in your Lordships' House which was opened by the noble Viscount, Lord Samuel—whose illness we all regret—it was emphasised in all parts of your Lordships' House, for it is no Party matter, that charities of one kind or another—worthy charities—should receive some support and some significant approbation by the State. It was indeed following upon that debate that the Committee of which I was Chairman, and to which the noble Lord has referred, was brought into existence. I think, therefore, we may assume that there will be no differences of opinion among any of your Lordships but that voluntary service and charity should be encouraged; and voluntary service and charity go very much together. In fact, you might say, in a sense, that voluntary service is a charity in the best meaning of that term.
The State over the centuries has taken a very special and kindly interest in charity. The law has always looked upon it with special favour and has granted to charity facilities not granted to any other section of the community. Even in our present generation that has continued and it is a fact which none of us should overlook—nor did the noble Lord suggest that it was not so, or that it should be overlooked—that substantial contributions are made indirectly by the State to the resources of charity.
I will deal, if I may, with the three categories of tax set out in the noble Lord's Motion in the order in which he refers to them. There is, first, income tax. Every charity is exempt from income tax, and when I use the term "charity" I am using it not as a term for any philanthropic or benevolent enterprise. There are many such which are not charities in the sense in which I am using the term. I am using the term—I will not say in the strict definition laid down, as there is no precise definition—according to the well-recognised conception to which the courts of law have lent their imprimatur; charities in the broad sense of the term as we know them and as they are acknowledged by English law. They are all exempt from income tax and they 562 get that exemption in one of two ways. Either the donor of a continuing periodic contribution deducts the income tax at source, as he is authorised to do by Act of Parliament, as a periodic payment, and the charity then recovers through the Inland Revenue authorities; or the donor pays it gross, under a covenant, and he himself bears the tax. Whichever way it is done the charity suffers no income tax under the legislation as it stands at present. We cannot improve upon that situation.
As regards surtax, the position is far more complex. It was the position until, I think, 1946 that amounts covenanted for charities could be deducted for surtax purposes from the donor's surtaxable income in the same way as if the covenants were, or are now, in favour of private persons. In 1946 that concession was abolished, and I am bound to say that it has had a considerable effect in certain cases upon individual contributions made to charities. I do not say that it was an unfair withdrawal or that it operated unfairly in general, but so far as charities were concerned, undoubtedly they suffered, for the high surtax payer now has to pay not only the contribution which he covenants to pay but also surtax upon the amount as if it were still part of his disposable income, which having been covenanted away, of course it is not.
Moreover, I think on the whole it is fair to say that the sources of charitable contributions from private pockets are drying up. Indeed the amazing thing is how much there is still being given for charity. There were a short while ago, when I made some inquiries into the subject, no fewer than ten new charitable trusts being established every week—most of them not very large but ten new ones being set up every week. And I believe it is true—though I have not made any recent inquiries—that there is still a continuous number of new charitable trusts; but those are of course trusts for the once-for-all disposal of capital, and surtax relates solely to contributions made periodically over a period of time and contributions covenanted to be made over a period. The position is this. Is it fair as between one taxpayer and another—this is the dilemma—that one should receive in aid from the Exchequer what is in effect 563 a much larger contribution towards his charitable contribution than his neighbour with a smaller income? That seems to me a dilemma which it is extraordinarily difficult to resolve with justice as between one man and another and to one's own satisfaction. A man with a large surtaxable income, if he is allowed to debit a contribution for tax purposes against his chargeable income, gets a very large remission by way of deduction from the Exchequer. The man who makes precisely the same contribution but from a rather small income is in a very different position and receives very much less from the Exchequer. Perhaps "receives less from the Exchequer" is a loose term: he receives far less benefit from the remission than does the high tax payer. I make covenants myself; I know exactly how this works. I find it very difficult to reconcile a position in which a high tax payer is in effect suffering very much less in making his contribution than a low income tax payer. I think it is very difficult indeed.
As regards companies, the question of surtax of course does not arise. I think some authority at some time will have to consider the question of how far, if at all, companies are in law entitled to make charitable contributions. I think that is a very open question. As long as the amounts are small nobody is very much inclined to raise the question. But when we see in the lists published in the public Press these large amounts of contributions made by companies, some of them for periods of seven years, then I think one begins to wonder whether this is really in accordance with the duty and responsibility of company directors. I am not raising this question in any contentious way, nor indeed in order to discuss it today. But I think it is a matter which deserves to be looked into. I say no more about it than that. But it is important, because one must remember that there are really only two sources from which charitable contributions can be made, one from the pocket of the private person and the other from the treasury of a company. Those are the only sources from which charitable contributions can come, and somehow or other I think the position should be clarified.
I want to make a proposal which I ask the Government to consider. 564 That is that we should have regard to the machinery which has been adopted for charitable purposes on the other side of the Atlantic. Speaking quite broadly and in general terms the position is this. If a taxpayer can show to the fiscal authorities that he has expended fifteen per cent. of his income on recognised charitable purposes—and I mean "charitable purposes" in the strict sense —then he is allowed to deduct that fifteen per cent., or up to fifteen per cent., from his income for all tax purposes. The great advantage of that seems to me to be that everyone has the choice of how much he should contribute within the limit established, and it operates as regards all taxpayers in the same way: they are allowed to deduct it from their taxable income. On the whole I am inclined to the opinion that that would be perhaps the fairest and certainly the simplest method of dealing with a problem we are all anxious to solve.
I come now to the question of estate duty. As regards ordinary settlements and gifts made by a man within five years of his death, estate duty is payable on his death, but in the third, fourth and fifth years there is a diminishing liability in respect of that estate duty. As regards charities, a gift made more than twelve months prior to the death of the donor is free from estate duty on his death. That situation has an inconvenience to which the noble Lord has referred, which is that for a year the charity, if prudently administered, dare not use any part of that gift because it may become liable to death duties upon it. The death duties fall upon the charity, upon the donee, not upon the donor, and at the rate applicable to the donor's aggregated estate. So that if a millionaire whose estate is liable to estate duty at the rate of 80 per cent. makes a gift of £100,000 to a charity, that charity for a year is under the risk of having to pay 80 per cent. of it away in death duties should the donor die within that year.
It has been suggested that there should be no limit of time at all, and that anyone should be entitled, up to the last ultimate moment, to make a gift to charity free of duty. I cannot help thinking that it would be anomalous, now that we have within the last two or three years abolished the Mortmain Acts, that we should reinstate the position when deathbed legacies can be made to 565 charities and exempt from duty. I believe that that would not be a forward step, but would be a retrograde step—that twelve months is not too long a period for a man to form a sound judgment as to whether he wishes to give to a particular charity, and how much he wishes to give, and that he should not be under any of the pressures under which one is liable to be if known to be in a dire state of ill—health and about to die. So I would stick to the year which is the present law; but I should be inclined to consider the same procedure as with regard to settlements—for the five years' period is split, so that during the third, fourth and fifth years there is a reduction; and I should be inclined to say that as regards contributions to charity made a year before the death of the donor there should be a reduction of tax, say one-twelfth every month, or something of that kind.
That is a broad idea—a contribution to thought, shall I say? I will not put it higher than that. I feel that the position is not quite so bad as it is sometimes painted; but, on the other hand, that there is solid ground for looking into this matter with a view to modifying the position in favour of charities and giving them a fuller assurance that their incomings shall not be unduly depleted by surtax or death duties. I believe, too, that the State has a duty in matters of this kind towards both voluntary service and voluntary charities: a duty which they should look at with the greatest care, with a view to assisting somewhat along the lines that I have ventured to indicate to your Lordships.
§ 6.33 p.m.
THE LORD BISHOP OF WINCHESTER
My Lords, I wish to speak only briefly to this Motion. I warmly welcome the Motion and am indeed grateful to the noble Lord, Lord Ferrier, for introducing this subject in your Lordships' House. In recent years I have had the privilege of paying two visits to Canada and the United States of America, and on each occasion have taken special interest in what has become known as the Stewardship Movement in those countries, and in particular the system whereby official encouragement is given by the State to individual persons and to industry to contribute to both Church and charity. Your Lordships have already been reminded of the system 566 as it works in Canada and in the United States—namely, that individuals or corporations are allowed to give to Church or charity up to 10 per cent. or even 15 per cent. of their respective gross income free of tax. This, incidentally, has operated successfully for thirty years in Canada, where the first £30 is regarded as a flat unvouched allowance; and I can testify to the fact that in those two countries great stimulus is given to giving by this system.
In 1959, the Churches Main Committee, of which I am Chairman, gave most careful consideration to whether or not it would be desirable to make representations to Her Majesty's Government regarding the possibility of introducing some such system into this country. We consulted the main Churches represented on the Committee and, as a result of consultation, I was encouraged to lead a small but highly representative delegation to the Chancellor of the Exchequer in November, 1960. The then Chancellor of the Exchequer was most sympathetic and expressed his desire to be helpful. It was therefore with special pleasure that I learned of the noble Lord's intention to move for Papers on this subject. As Chairman of the Churches Main Committee, I merely wish to say that I support this Motion, and that the Churches generally would be in favour of the proposals as outlined by the noble Lord, provided that the covenant system is allowed to remain.
I hope that your Lordships will allow me to make a brief reference to the proposals to which reference has already been made. First of all, there is the proposal that an individual person should be allowed an additional personal allowance of £10 for gifts to Church or charity, or both. This, I would submit, is a modest proposal. There are many people to-day who, from Christian or humanitarian motives, have discovered the privilege of giving to Church or charity a sum more closely approximating to the 10 or 15 per cent. on which remission of tax is allowed on the other side of the Atlantic. But even the remission of tax and surtax on this modest sum of £10 per annum would, I believe, encourage many who do not feel able to commit themselves to a 7 years covenant.
Secondly, may I make a brief reference to the subject of company contributions to Church and charity? The noble Lord, 567 Lord Nathan, has, quite rightly, raised an important question here—an issue to which much consideration has to be given. But the suggestion that there should be a remission of tax on company contributions to Church or charity of up to 1 per cent. of the company's profits would act as a great stimulus and encouragement to companies who want to give generously to Church or charity. I have met in recent years several leading industrialists who take the view that I know would be challenged by others, that modern industry is called to-day to accept the role occupied by mediaeval guilds, the role of patron of charity. This remission of tax, as suggested by the noble Lord, would give great encouragement to those in industry who are anxious to give generously to Church and charity.
I would make only a brief reference to the question of the 12-month gift period. I fully appreciate the point made by the noble Lord, Lord Nathan. May I just put what I see to be the other side of the picture?: that in the event of a donor giving a generous gift to Church or charity and then dying within the 12-month period, it is more than conceivable that a particular charity—that is, one concerned with medical research or with the relief of suffering—might be immensely relieved to be able to use such a gift, if it is substantial, for immediate purposes, rather than having to wait 12 months in order to avoid the possible risk of losing up to 80 per cent. of the gift in estate duty in the event of the donor's death. Finally, there is just one other suggestion or proposal: that the remission of surtax on covenanted gifts to charity should be restored. It was withdrawn in 1946. All I would say here is that I can say officially, on behalf of all the Churches, that we should greatly welcome the restoration of this surtax remission.
I have spoken so far largely as representing the Churches of the United Kingdom, and in my capacity as Chairman of the Churches Main Committee. I would add a personal observation. I speak now purely as a person, and not as Chairman of that particular Committee. Although the Churches would agree to such suggestions as have been made by the noble Lord only if the covenant system were allowed to continue side by side (and I should hope that if 568 some other system were introduced the covenant system would be allowed to continue side by side) I feel bound to say, from my own knowledge of the system in Canada and America, that if I had to make a choice between the continuation of the covenant system and the introduction of the Canadian and American system I would support the introduction of the Canadian and American system.
My Lords, as I see it, there will in the years to come be a decreasing number of persons or industries who feel able to commit themselves to seven-year covenants. Even to-day only a limited number are able to make such covenants, and they come mostly from the larger income groups. It is vitally important for both church and charity to be able to look to a much wider clientele in the future, if their work is to continue. It is important that as much encouragement as possible should be given to the wide circle of those in the middle and lower income groups to give generously to church and charity. I know that the Radcliffe Commission took the opposite view, but I believe that, in view of the changing situation to-day, the Canadian and American system could result only in a wide increase in giving on the part of those whose incomes are such that they do not feel able to commit themselves to a seven-year covenant.
The noble Lord, Lord Nathan, pointed out in opening the memorable debate on charitable trusts in May, 1959, that one purpose of charitable trust law reform, which culminated in the Charities Act, was to stimulate giving to charity. The noble Lord reminded this House of a debate in 1949 when the late Lord Samuelcalled attention to the need for the encouragement of voluntary action to promote social progress".It was in the course of that debate that Lord Pakenham said some memorable words. It is a strange coincidence that the noble Lord who introduced this Motion felt led to quote those words, the same words upon which I felt appropriate to end. May I be allowed to underline them, because they were very significant:without voluntary service the State would lose its soul".My Lords, I would submit that voluntary giving of money is as vital an element of voluntary service as the voluntary 569 giving of time and talents. It is because I believe that the sort of suggestions outlined by the noble Lord in introducing this Motion would provide a great stimulus to the voluntary giving of money in the service of the whole community that I venture to hope that Her Majesty's Government will give the most serious consideration to the proposals outlined.
§ THE EARL OF LONGFORD
My Lords, may I intervene to thank the right reverend Prelate for what he was kind enough to say about me? Might I also make one small correction? He referred to the "late Lord Samuel". I am glad to tell the right reverend Prelate that Lord Samuel is still very much with us. I think that perhaps we might send a message of goodwill to him, as I read in the papers that he is not very well; but he is far from "late".
§ THE EARL OF LONGFORD
The only person who is "late" in this connection is "Lord Pakenham", who made the speech referred to, and who has been succeeded by the present Lord Longford.
§ 6.45 p.m.
§ THE EARL OF IDDESLEIGH
My Lords, I am in entire agreement with the right reverend Prelate in what he has said on behalf of the Churches Main Committee, and I think that his suggestion on his own behalf is well worthy of the most careful consideration. I rise to point out that the State in this country ought to adopt a particularly liberal attitude to one class of charity, because in this country the maintenance of ancient church buildings is the responsibility of the denominations that use those buildings and comes into the sphere of charity, whereas in many European countries it is the responsibility of the State to preserve those buildings. In France, and in Italy, I think, the buildings which we admire and love so much are the property of the State.
Last summer I enjoyed a holiday in the North of England, and I saw four exquisite mediæval cathedrals and some seven or eight splendid parish churches. In every one of those glorious buildings there was an urgent appeal for very considerable sums towards restoration. 570 I see now that an appeal is to be launched on behalf of the glorious cathedral of Lincoln for no less a sum than £200,000. The Times commented:It will cost about £200,000 to turn Lincoln into a safe, dry, and well-heated cathedral again and to increase the cathedral maintenance staff to an adequate figure. An appeal is to be launched in May, but will it raise the money? Lincoln may be one of our most beautiful and our most important cathedrals: it is also one of the most isolated of the nation's great buildings. And there have been so many other appeals.My Lords, let us hope sufficient sums will be raised. We in this country cannot contemplate the fate that has overtaken so many churches in France where the State is responsible for the fabric. In yesterday's Daily Telegraph there appeared a photograph and under it the description:A panel-beating workshop in the shell of the Church of St. Frambourg, at Senlis, near Paris, one of many buildings dating from the 12th and 13th centuries which the French Treasury has not enough funds to preserve.I am quite sure that such a situation is not in any foreseeable time likely to occur in this country. Let us be very sure that the State recognise that this great responsibility which rests upon us all is at present the work of private charity, and let the State make it possible for private charity to do this most necessary work.
§ 6.48 p.m.
§ LORD LUKE
My Lords, I should like to make just a brief intervention in this debate. We are most grateful to the noble Lord, Lord Ferrier, for introducing the Motion. I personally am also grateful for the contribution of the noble Lord, Lord Nathan, who said, so rightly, that voluntary service and charitable endeavour are deserving of encouragement. I should like to pay a tribute to the great services to charity in general given by Lord Nathan.
§ LORD LUKE
The noble Lord delved into the position in regard to taxpayers, high and low, but I do not propose to follow him into that field. I should have thought that in this case the beneficiary is the most important part of the matter, and if you make concessions to the individual, whether a high taxpayer or a low taxpayer, you ease the burden of industry —that burden which has increased for industry because of high individual taxation.
571 The noble Lord began to question industry as a contributor at all. He decided not to go very far with that, and I shall not do so either. But it certainly seems to me that if industry were to drop out then causes deserving encouragement, as he put it, would be very seriously hit. I am all in favour of some remission of tax for contributors towards the Church and for charitable purposes, and without doubt this would make a great difference to donors and to recipients. But I presume that with most of these things the bone of contention will be that all of this remission will be at the expense of the State. It would appear to be logical to apply the law as it now stands in regard to covenants to single gifts.
I think we must remember that the difficulty facing charities of all kinds is that the costs of organising them, and of carrying on the projects, increase like everything else. Unlike most other activities, the income is voluntary, and the charity cannot raise its prices to cover the costs of whatever the services may be. Of course, it means that higher grants must be made for services, but it all has to come out of the same voluntary contributions. There seems, therefore, to be a real and urgent need for some action on the lines that have been proposed. The generosity of charitably-minded individuals is proverbial and could be encouraged if some concession were made. Industry, on whom so much of the burden falls, merits concessions in this sphere as large as, say, in allowances for capital investment. So I hope that as a result of this debate there may be some concession to assist all the worthy causes and services to the community which are carried out by so many agencies.
§ 6.53 p.m.
§ LORD STRABOLGI
My Lords, I should like to support what the noble Lord, Lord Ferrier, and other noble Lords have said in this debate, particularly the noble Earl, Lord Iddesleigh, when he spoke about the question of cathedrals and churches. I should like, very briefly, to make a plea for works of art which are left or presented to the State. An allusion has been made in the debate to the American system. It was not described exactly, but perhaps the noble Lord, Lord Ferrier, had it in mind. As 572 your Lordships are no doubt aware, in other countries, particularly, I believe, the United States, if a work of art is presented to one of the national galleries the owner is allowed tax remission for the amount, or a percentage of the amount, that the work of art has cost him. Moreover, I understand that in certain cases he is allowed to keep that work of art in his private residence, while enjoying the tax relief for that particular year, and the work of art passes to the public gallery only on his death. As a result of this, the United States galleries have been enabled to build up magnificent collections, and we are very glad that they have been able to do so.
I think that our own system is rather too rigid and should be reconsidered. We have not always been rigid. Take the case of the country houses. It was eventually agreed by the Government of the day that the owner of an historic house should be able to get a grant from the State for keeping it in repair, because it was accepted generally by all Parties that it was a national heritage. The owner of a modern house is not able to get a grant. That, of course, is an anomaly, and I suppose it could be argued by my noble friend Lord Nathan, if I may say so with respect, that to one taxpayer vis-à-vis another it was probably not fair. But here was an example where I think the Treasury acted perfectly correctly, and the preservation of these country houses, which are our national heritage, has been ensured.
In the case of old masters I understand that the National Gallery has a list of those still in private hands; and it is expected, one supposes, that in many cases they will come to the State in lieu of death duties. But what I had in mind were the more recent paintings, paintings of perhaps the nineteenth and twentieth centuries, which now fetch very high prices indeed but which it is still possible to buy. Old masters of first quality hardly ever come on the market. As a result of our system whereby these paintings are bought, the owners are in no way encouraged to leave them to galleries because they do not enjoy any tax remission on the gift.
At our auctions here in London we probably have some of the most important sales of works of art taking place anywhere in the world. That is the result 573 of a very intelligent and liberal policy on the part of the Treasury, whereby taxes are not paid at auction sales, as is the case in France, the United States and other countries. That enables our auction houses to compete very favourably with foreign markets. As a result, important sales, sometimes of American collections and of French collections, take place in this country. There are a number of very wealthy people in this country who are also art lovers, and tax remissions of this kind would enable them to compete with foreign buyers at auctions. They could buy a painting and present it to a gallery to get the tax remission. In some cases, if the owner wished it could go immediately to the gallery; in others it could stay in his own house until after his death.
The other day in The Times the Tate Gallery trustees reported a long list of gaps of very important paintings which were not in their collection. In some cases they felt that it would be impossible ever to acquire these paintings at the prices prevailing at present; and this in spite of the greatly increased grants which have been given the trustees by the Government. I feel that the system I have suggested would enable our galleries and museums to be enriched for the people of this country. In this way we should be able to compete with foreign museums and galleries, and really build up in this country a first-class collection of works of art which was worthy of the great interest which is being taken in them by our people.
§ 6.59 p.m.
§ EARL ALEXANDER OF HILLSBOROUGH
My Lords, I must apologise for getting up, but may I just say a word? I have been most interested in this debate and I am very grateful to my noble friend Lord Nathan for his contribution. I am also grateful to my noble friend who has just sat down, for bringing before the House the position of the art treasures or gifts which are assigned to art galleries and the like. I must say, however, having been in Governments for a long time and having had to consider some of these things, that there was some sound sense talked by the noble Lord, Lord Luke, about what are the commitments of Governments in the matter, what are the costs to the nation.
574 There are a certain number of my noble friends who met this morning to talk about this Motion (though we did not have quite so large an attendance as we have had sometimes) who would be rather concerned if there were any really determined move to reduce this period of twelve months, which it has been said it would be desirable to reduce, or to wipe it out altogether, with regard to these gifts. They think, from one point of view, that it would perhaps be a fairly heavy cost to the national funds, to the Treasury. In other cases —not in the case of churches, of course, but in the case of a good many other charities which do not, in my view, come within the same respectable category as all those which have been rightly mentioned to-day—it is felt that there might at times be undue pressure upon persons nearing their end to make gifts of this kind. At any rate, a good deal of doubt has been expressed by some of my noble friends on that particular point, and I feel quite sure that the Treasury will pay considerable attention to that matter among the other matters they deal with.
I think it is a very reasonable thing, in view of the great and rising costs in the community at large, that where the Treasury can do so they should give such relief as is necessary to those who subscribe to the maintenance of such a great work as the work of preaching Jesus Christ and administering to the constituents of the Churches. But, of course, there is a very great difference in Churches. For example, I pay £58 a year tithe to the Church of England before I can even consider how much I can subscribe to my own Church, which must obtain in a village, with a membership of 77, something getting on for between £1,500 and £2,000 a year. We must be exceedingly careful if we are dealing with this matter as a State, using State funds, as to where the borderline of justice between one and the other begins and ends. I feel that all those who are subscribing to church work are doing a very good work, and if there is any general way of helping them in their contributions by way of relief from what otherwise would be taxation, that is a matter for great consideration by the State. I agree with that. But, as regards any alteration in the period of twelve months, I believe that a good many people, of all Parties, 575 in the House which controls expenditure would think very seriously before they would be willing to risk some of the dangers that might be attached to such a change.
§ 7.4 p.m.
§ LORD DERWENT
My Lords, I am grateful to my noble friend Lord Ferrier for introducing this Motion, because it is a matter that needs discussion. It is not a matter of which the Treasury are in ignorance, because my right honourable friend Mr. Selwyn Lloyd, when he was Chancellor of the Exchequer, received a deputation on this point; and I am perfectly aware that the present Chancellor of the Exchequer has these things before him. But I think it is important that we should have had this debate to-day, because we have again heard the case which has to be considered by every Chancellor, and we have had the benefit of certain suggestions from noble Lords, and particularly from the noble Lord, Lord Nathan, which I can promise will be looked at with the greatest care.
I am in something of a quandary as to how to deal with this debate, because, even if I were in a position to do so, or had sufficient knowledge to do so, I cannot anticipate the Budget. This is, of course, a matter for the Budget, and that makes my task rather difficult. On thinking it over, I have decided that the best thing to do is to give the case against many of the points that have been raised and against my noble friend's main contentions, not with the idea of saying that the case I shall put forward is stronger than the case put in support of the Motion but in order that both sides should be heard, so that, when my right honourable friend the Chancellor of the Exchequer decides, in this Budget or the next, or whenever it may be, to make alterations or not to make alterations, the case for and against will be on record. The case for has been put, and I shall put the case against, although we are, of course, as individuals, to some extent on the same side in this matter.
Perhaps I had better say first of all what I conceive to be the case to answer. There are really four points. The first was that the pre-1946 state of affairs, under which surtax relief was given for covenanted payments to charities by individuals under the seven-year covenants, 576 should be restored. The second point was that there should be a flat-rate allowance of £10 for individual taxpayers, to run both for income tax and surtax, for contributions to churches and other charities. The third was that a tax deduction should be allowed in computing company profits for donations to church and other charities. It has been suggested in au article (I cannot remember if it was mentioned to-day) that that should be up to 1 per cent. of a company's income. I am not sure whether that point was mentioned to-day, but I have figures to show what that might possibly mean. The fourth point was that donations to charities within one year of the donor's death should escape estate duty, or should be graduated. I think that is the case to answer.
§ LORD DERWENT
I am much obliged. I think I should say one word on the present position, because perhaps there may be a little doubt as regards that.
The general position is that a contributor to a charity is not at present entitled to any tax relief for his contribution, any more than for any other voluntary payment; but the covenant system enables contributors to charities to increase the value of their contributions at the expense of the Exchequer. That is the first thing, I think, to get into everyone's head. Your Lordships know it, but sometimes it is not realised outside. The next thing is this: that the Exchequer already contributes 7s. 9d. of every £1 given under covenant. The withdrawal of the surtax deduction which we were talking about has not discouraged covenants. On the contrary, the numbers have risen from about 300,000 in 1946, when this was done away with, to 1,100,000 in 1962; and the cost of the income tax relief to the Exchequer has risen from £2¼ million to £8 million.
At this point I would also mention that, apart from receipts under covenant, charities have, in the aggregate, a very substantial income (and this was referred to to some extent by the noble Lord, Lord Nathan) from investments which are exempt from tax, and the cost to the Exchequer of relief on this income must 577 not be overlooked. It is calculated that, including the £8 million in respect of covenants, the total cost—that is, including the investments—of charity exemption is about £50 million. My Lords, that is a contribution, let us remember, by the State.
Before I refer to the Radcliffe Commission I think I should briefly refer to this question of what happens in the U.S.A. and Canada. There are all kinds of differences between their tax system and ours —though of course we will note what has been said to-day. For example, they do not have, so far as I am aware, the covenant system that we have for charities, which of course brings in to charities a tremendous amount paid for by the State. The only other thing I will say about the U.S.A. and Canada at the moment is that we also have different systems about works of art. The noble Lord will be aware, for instance, that at a death it is not clone by income tax but by estate duty. If at death one has a picture of national importance, and it is declared of national importance (it need not be an old master, it can be a modern picture), then no duty is paid on it unless it is sold. If it is later sold to, say, the National Gallery, or something like that, then there is still no estate duty paid on it. So it is not that the State does nothing in this respect.
§ LORD STRABOLGI
My Lords, I appreciate that. I have alluded to that in my speech. That, of course, is a concession regarding estate duty, but I wish to widen this scheme to encourage those who can afford it to buy works of art of the present, not inherited; to buy works of art now and get income tax remission.
§ LORD DERWENT
I understand what the noble Lord meant. I stressed this because I did not think he made it quite clear that there are concessions at the present time. His point will be seriously looked at.
The Radcliffe Commission on Taxation of Profits and Income, in their Final Report in 1955, recommended against the introduction of allowances for charitable contributions on two grounds. First, they took the view that if tax allowance was introduced for subscribers, then the covenant system, under which charities now benefit, must 578 end. They doubted whether charities generally would gain by the change. The view has been put forward that the allowance and the covenant can run side by side. But it seems to me that people paying annuities to charities under covenant ought not to be given' a tax allowance for contributions as well, and that people claiming the tax allowance ought not to have their covenants recognised for tax purposes. I know that the two could run side by side, but it would mean that the State was virtually giving two bites at that apple. There would be complications in working a system of this nature.
Secondly, the Radcliffe Commission thought that the proposal must be ruled out because of the administrative burden for the Inland Revenue. An allowance for taxpayers would have to be dealt with by local tax districts throughout the country which would all have to be able to decide whether or not the bodies receiving the donations for which relief was claimed were charities.
§ LORD NATHAN
My Lords, forgive me for this interruption, but that is now dealt with under the new Charitable Trusts Act.
§ LORD DERWENT
I shall come to that, and I shall say that it is not adequately dealt with. In contrast to the present arrangements they would have to be dealt with locally. They are now dealt with centrally by a specialist staff.
Further, if the allowance varied with the taxpayer's actual contributions, there would be considerable work in vouching his expenditure and seeing that the appropriate relief was given under Payas-you-Earn. The Charities Act, 1960, to which the noble Lord, Lord Ferrier was referring, will not, in the Board of Inland Revenue's view, solve these difficulties. Even if it were possible to supply all local tax offices with a copy of the complete register of charities to be maintained under the Act, with the revisions made from time to time, it would be a great burden of work for them to deal with many millions of claims for relief for charitable donations. That is the difficulty. At the moment it is dealt with centrally. It is a question of keeping local offices informed. It would be extremely difficult. Moreover, not all charities are required to register under the Act. For example, a charity 579 with no endowment or income from property exceeding £15, and which holds no land, is exempt; and even if local tax offices could recognise which recipients were charitable, the difficulties of operating P.A.Y.E. and vouching expenditure would remain.
It was said by the noble Lord, Lord Ferrier, that an allowance of the actual contributions (subject to a maximum) would be of particular assistance where a person whose income is subject to fluctuations wants to adjust his contributions to charities as his income goes up or down—for example, a farmer. In that case it is suggested that the man would not take full advantage of the covenant system if one year he is doing well and another year badly. It is difficult to see that there is any weight in the argument that a person who feels he can make an exceptional donation in a year in which his income is higher than usual should be given tax relief for that donation, when a large part of the cost would effectively fall on the Exchequer. The proposed allowance would be costly to the Exchequer, and a good part of the relief would go to those who make charitable donations already, without there being any guarantee that they would increase their donations.
My Lords, I should like to say a word about surtax. The proposal is that there should be a repeal of the 1946 legislation. This legislation was introduced by the late Mr. Dalton, as he then was, but successive Conservative Chancellors of the Exchequer have since taken the view that the law should stand. The basis on which it proceeded was that it was unreasonable that what purported to be annual contributions by a private citizen to charity should, in effect, be financed by the Exchequer at the full rates of income tax and surtax (when Lord Dalton was Chancellor of the Exchequer, the maximum rate was 19s. 6d. in the £), and that tax relief at the standard rate (then 9s. in the £) was fully adequate. We hold the view that this argument still stands with a top rate of 17s. 9d. and a standard rate of 7s. 9d. The cost of allowing contributors under deeds of covenant a surtax deduction for their contributions would be about £3 million a year, provided that there were no increase in the number of surtax payers making such payments or in the amounts they pay, but, in 580 fact, it is likely the number of surtax payers would increase if that came into force. A person paying surtax at the top rate would be able, in effect, to make a gift costing him only 2s. 3d. in the £, the rest being found by the Exchequer. If the total is 17s. 9d. he will be paying 2s. 3d. of his gift.
May I say one word about estate duty liability? The suggestion is that for a donor who dies within twelve months there should be a graduated scale or he should not pay at all—something of that kind. In fact few inter vivos gifts to charities are subject to estate duty under the twelve months' rule (which is generous when compared with the five-year period for ordinary inter vivos gifts, as the noble Earl said) where relief does not start to operate for two years. But it cannot be argued from this that it would cost little to do away with the twelve months' period. Abolition would be likely to encourage death-bed gifts to charities. At the moment it is not costing very much. But if the twelve months' rule was not in effect and we were swamped by death-bed gifts, this could cost many millions. The Exchequer would be paying for somebody's death-bed gift. And it would seem to be wrong. I have little doubt that, if this were allowed, there would be a tremendous pressure for all legacies not to be charged, if given within twelve months.
May I add one word about companies? The cost of the suggested allowance to companies of up to 1 per cent. of their profits for donations to charities would be about £l1 million a year in income tax and profits tax combined. There seems no real reason to give companies relief from tax for charitable contributions. The other argument raised by the noble Lord, Lord Nathan, of the many companies which give to certain charities —for instance insurance companies which give to charities that benefit their policy holders; say to cancer research—concerns a quite different kind of charity.
Unless any noble Lord can remind me of any point I have missed, I think that I have dealt with all the main questions that have been raised. I repeat that what I have done is to give the case against the suggestions. It is not for me to say whether the arguments I have put forward are stronger than those put forward by other noble Lords. That is a matter for 581 my right honourable friend the Chancellor of the Exchequer. But I am glad that this matter has been well ventilated, and the points raised by noble Lords will certainly be considered by my right honourable friend.
§ 7.22 p.m.
§ LORD FERRIER
My Lords, it remains for me to thank noble Lords who have taken part in this debate very sincerely for their contributions, which, from their different angles, have so embellished the case which I put forward in small compass for what I regard as a complex subject. May I have your Lordships' permission to ask the noble Lord, Lord Nathan, a question on what he said about the regular increase in the number of charitable trusts which are being registered? Am I not right in saying that this is one way in which a well-to-do individual or family can save paying tax, by establishing a charitable trust and setting aside of their capital so much in perpetuity, so that the income from that trust is payable to charity and, as the noble Lord has said himself, is not liable to tax at that stage?
§ LORD NATHAN
My Lords, if I may be permitted to answer a question, of course, it is the case that when charitable foundations are created, their funds go out of the estate of the founder and to that extent are free of death duties, if he should live beyond the year. But I understand that a great many of these new trusts are quite small. They are trusts important to the people who make them, but in terms of money for the purposes of the Exchequer they are relatively small. 582 There are very great trusts. I myself am the chairman of an important trust, as the noble Lord knows. But there are a vast number not like that, which have been registered regularly.
§ LORD FERRIER
My Lords, I thank the noble Lord, and I am most grateful to your Lordships' House for making it possible for that question to be answered. To my mind, it is an important factor in dealing with the number of trusts which are now being registered. As for the legal right of companies to subscribe to charities, this has much to do with the company's articles of association and memorandum. As the noble Lord, Lord Luke, and the right reverend Prelate said, many companies are patrons of charities, often for educational purposes, particularly technical education, which they can support only by the fact that this education is allied to the industry which they represent.
The noble Lord, at the Dispatch Box was no less helpful than I expected him to be. It would be possible to argue some of the points he made, and I am grateful to him for pointing out clearly that he was only making a case from the other angle. The debate has shown that there is a widely spread interest in, and a considerable measure of support for, some of the views that I have expressed. The whole subject has been given a very thorough pre-Budget airing. It only remains for me to ask your Lordships' permission to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.
§ House adjourned at twenty-six minutes past seven o'clock.