HL Deb 03 December 1964 vol 261 cc1299-309

8.18 p.m.

LORD DERWENT rose to ask Her Majesty's Government whether they will refrain from announcing proposals for taxation when their implications have not been considered, and financial losses may consequently be suffered by those invited to invest. The noble Lord said: My Lords, my noble friend Lord Dundee has asked me to put the Question which stands in his name, and to apologise for his absence; but unexpectedly he was called away. I do not intend to anticipate anything which will be better discussed in next Wednesday's debate, and when we put this Question down we intended to save time by getting this particular aspect of the matter out of the way. May I, first of all, make quite clear that we have no objection at all in principle to the Chancellor of the Exchequer's revealing what he intends to do five months in advance; but we feel rather strongly that before doing so, and before making any announcement of this kind five months in advance, he ought to be in a position to remove uncertainties which are likely to have bad effects on the economy, and, in particular, which might well have bad effects, and do have bad effects, on savings.

I would remind the House—and, as I say, we have no objection to the Chancellor's making statements about future taxes a long way in advance—that this is not the first time that this has happened. In July, 1961, my right honourable friend Mr. Selwyn Lloyd, who was then the Chancellor of the Exchequer, said that the following year he proposed to put a tax on speculative capital gains. But, my Lords, he at the same time did what I believe to be the essential thing: he stressed, not the details of the tax, but on what and in what direction exactly it was going to work. He said that the tax he intended to put on would not affect long-term investments; so there was no uncertainty at that time. He made it quite clear that any tax he intended to put on was with a view to short-term investments.

Again, although it is not an exact parallel, in 1962 my right honourable friend Mr. Maudling promised well in advance changes in capital allowances in order to increase investment; but that is not a complete parallel, and I do not think anyone particularly bothered about that advance notice, because it was a notice to reduce taxation and not to increase it, and people were therefore somewhat less excited about it. The present Chancellor of the Exchequer has already let it be known that the new corporation tax is not intended to result, for example, in double taxation of foreign holdings, and that the values of a capital gains tax may be computed either at cost price or at market value on Budget Day, whichever is the higher.

These little revelations, these hints, encouraged us to hope that the Chancellor might really have thought out well in advance all the implications of his future new taxes, and it was because we hoped for definite answers on particular matters that we put down the Questions that we did put down yesterday, seeking information. They were, I would remind your Lordships, questions on life insurance policies and National Development Bonds, and there was particularly the Question by the noble Lord, Lord Airedale, on the conversion of Defence Bonds. They were responsible Questions, they were legitimate Questions, and we considered that by this time the Government ought to have had the answers to them.

I think there are also other questions, which were not mentioned yesterday, to which the public are entitled to know the answers. They are entitled, at this stage, I think, to information as to whether gilt-edged stocks in general are to be exempt or not from this new tax. Will pension funds be exempt? Will investment trusts have to pay the tax if they do not distribute capital gains among individual investors? My Lords, we say—and this is the reason why we put this Question down to-day—that the Chancellor ought to have known (indeed, he may have known; we do not know, but we ought to have known) the answers to these questions much earlier, and that something ought to have been said much earlier, before unnecessary anxiety and unnecessary uncertainty had been caused.

My Lords, I hope I have not said anything to offend noble Lords so far, but I would introduce perhaps one note of asperity. I have not been as long in your Lordships' House as some noble Lords, but I have sat in this House for just on sixteen years. I have sat here under Conservative Governments, I have sat here under Labour Governments, and, my Lords, this is the first time since I have been in this House during those sixteen years that, time and again, we have not got any answers to questions, legitimate questions, which we have put forward in search of information.

We have got no answers at all—and of course, that can be for one of two reasons: it is either that the noble Lords opposite are unable to answer, or that they are not willing to answer. I hope it is that they are unable to answer, because I cannot imagine that if they could answer they would not. But from these announcements, not only by the Chancellor (and I would stress this) but in discussion by other Ministers over many weeks, and going back right through the Election to before the Election on many of these matters, I think we are justified in saying—and I am not saying this as a fact—either that these matters were not properly thought out before the announcements were made, in which case, in our view, the announcements were made too early, or, if they were thought out, that we should have been told the answers. We tried yesterday, and, quite frankly, we got from the noble Lord, Lord Rhodes, with great charm, no answer at all.

THE EARL OF LONGFORD

My Lords, may I interrupt the noble Lord? I was not anxious to interrupt him, but I think his remarks about the replies of the noble Lord, Lord Rhodes, are extraordinarily unkind and incorrect. I was very doubtful myself whether, as Leader of the House, I had responsibility yesterday for suggesting to noble Lords that they were going very wide of any ordinary Question Time; but the noble Lord, Lord Rhodes, gave answers which made a very good impression on many Members of the House, and why the noble Lord should suddenly denounce them in his absence I am afraid defeats me. I am afraid the whole attack yesterday on the noble Lord, Lord Rhodes, left rather a painful impression on me. The noble Lord, Lord Derwent, must know perfectly well that the first answers of that kind would not be given in this House; that they would be given in another place. And how, with his sixteen years' experience here, he should expect to be given to the House of Lords, on matters of taxation, answers which have not been given to another place. I am afraid defeats me.

LORD DERWENT

My Lords. I do not agree, I must say, with what the noble Earl has said. I was making no personal attack on the noble Lord, Lord Rhodes. I said that he answered the Questions with great charm (I think those were my exact words) but he did not give us any answers—and presumably he was unable to give us any answers, or he would have done so. There was no personal attack on him at all. I do not accept that noble Lords in this House are not entitled to an answer to a perfectly proper question, if the answer is available. I do not accept that from the noble Earl, and I think there are many noble Lords in this House who would agree with me on that.

My Lords, having got off that bit of heat, may I say that I was delighted today that the noble Lord, Lord Rhodes, was able, not only to give us information to-day which I think (I am saying nothing against him personally) might probably well have been given yesterday, but also to tell us that we are to have a statement from the Chancellor as early as next Tuesday. I think that is thoroughly satisfactory. I know that the noble Earl the Leader of the House will disagree with me, in view of what he said, but it might be—one is full of hope—that the Questions we asked yesterday might have had some effect in bringing it forward a day or two. I am sorry to gainsay this to the noble Earl, but I do not accept that perfectly proper questions are not entitled to an answer in this House if the information is available.

THE EARL OF LONGFORD

I must just intervene again to say to the noble Lord that if an answer is available then of course it will be given; but I think he was making a very great mistake in supposing that information would be given here first on matters of taxation before it was given in the House of Commons.

LORD DERWENT

That may be the noble Earl's view: it is not mine.

8.28 p.m.

LORD AIREDALE

My Lords, in view of the promised statement for next Tuesday, there is only one particular matter, which is one of some urgency, that I shall mention very briefly now. I would revert once more, very briefly, to this matter of the Defence Bond holders who have open to them this conversion offer from the Government—the conversion offer into National Development Bonds—which expires on Friday of next week, to-morrow week.

We are to have this statement from the Chancellor of the Exchequer next Tuesday. It will no doubt be of great interest to the holders of 3½ per cent. Defence Bonds, who are trying to make up their minds whether or not to accept the Government's offer of conversion into these National Development Bonds, which carry a 2 per cent. tax-free bonus—or, at any rate, as the law stands at the moment the bonus is tax-free—and these people will want to know, on the best advice, whether or not to accept the Government's offer. Now the keenest among them will presumably read the Chancellor's statement in their newspapers next Wednesday, and some of them, no doubt, will wish to obtain advice as to what they should do in the light of the statement. They cannot be expected to come to a decision and communicate it to the Treasury by Friday of next week.

In relation to the small altercation which took place just now between the noble Earl the Leader of the House and the noble Lord, Lord Derwent, may I just say this? The noble Lord, Lord Rhodes—again, I am quite sure that none of us intends anything personal—did not help the House yesterday when, in reply to me on this question about these people who have to act before Friday of next week, he said "You will have to be patient." That was not helpful. The only question I should like now to ask Her Majesty's Government is this. In view of the situation, do they propose to extend the time within which these holders of Defence Bonds may come to a proper decision, calmly and in their own time, and in the light of the statement from the Chancellor of the Exchequer which they will read in their newspapers on Wednesday, as to whether or not to accept the conversion offer?

8.32 p.m.

LORD SHEPHERD

My Lords, may I reply to the noble Lord, Lord Airedale? I have taken note of what he said, and while I am quite sure he will not expect a reply from me this afternoon as to what action the Government might or might not take, I will certainly see that the views he has expressed are conveyed to my right honourable friend the Chancellor of the Exchequer. And I will see that it is done tomorrow. I am grateful to the noble Lord, Lord Derwent, for asking this Question in the name of the noble Earl, Lord Dundee, and I was glad to see, when he used the word "we": that this was, in fact, an Opposition question and not one of an individual Member; because I have a number of things which I must say, not only to the noble Lord, Lord Derwent, who made a very fine speech this evening, but also to Members on the other side of the House.

My Lords, the Question is a strange one. It does not seek information; it implies that Her Majesty's Government have acted irresponsibly, in view of the Chancellor of the Exchequer's statement on November 11 in regard to various matters of tax reform. The question implies that there have been severe losses, or that losses are likely to be suffered by those who invest. This is a serious matter; I think it would perhaps have been better put in the form of a Motion, rather than in the form of a Question.

First of all, may I say this to the noble Lord? There is no evidence that the statement of the Chancellor of the Exchequer on November 11 in regard to a capital gains tax and corporation tax has in itself resulted in any losses to investors. As the noble Lord is no doubt aware, recent fluctuations on the Stock Exchange have clearly been influenced by a wide range of factors. Her Majesty's Government recognise that certain uncertainties exist: the Chancellor of the Exchequer is particularly aware of this and has been so for some time. As my noble friend Lord Rhodes indicated in this House this afternoon, the Chancellor of the Exchequer will be giving information to Parliament on Tuesday.

But my Lords, having recognised the uncertainties, I think it is fair and true to say that at any Budget time, and in particular during the weeks prior to it, there is always uncertainty, with wide-ranging speculation of what the Chancellor of the Exchequer proposes to do in the existing circumstances. Therefore I think the noble Lord was rather wide of the mark in suggesting that investors were being put into a particularly special position because of the Chancellor's statement. The noble Lord in putting this Question is asking Her Majesty's Government to refrain from announcing proposals … when their implications have not been considered. I am bound to point out to the noble Lord that prior to the November Budget, in view of the gravity of the economic situation which we inherited—and I hope that he will not forget that—there was wide speculation as to what steps the Chancellor would take. Both corporation and capital gains taxes were often mentioned.

Perhaps I might remind the noble Lord of the reactions on the Stock Exchange after Budget day, when there was considerable relief about the Chancellor's Budget statement. Perhaps I may also remind the House, and the noble Lord, of the Labour Party Manifesto upon which this Party fought the Election. We clearly stated that we intended to undertake a major overhaul of our tax system. We also stated that taxes must be fair and must be seen to be fair, and that we regarded this as an essential support to any national incomes policy. We therefore said that we would tax capital gains and block up the notorious avoidance and evasion devices of which noble Lords are probably aware. These points were made by my right honourable friend the Prime Minister, and by other members of the present Government, and indications of tax reform were given in the Queen's Speech. Therefore, clearly, it cannot be said that the statement made by my right honourable friend on November 11 raised any new issue.

We, and I am sure noble Lords opposite—and, I hope, their Party, because I believe that there is some doubt about that—set great store in achieving an incomes policy. We firmly believe that these two proposals, particularly the corporation tax, will assist us in achieving what perhaps will be the greatest breakthrough in our effort to make this country dynamic and competitive. My right honourable friend the Chancellor of the Exchequer proposed in the 1965 Budget to introduce proposals for taxation of capital gains which, I understand, will exclude gains on owner-occupied houses, or on the principal house, where the taxpayer has more than one. But this tax will apply to gains arising from assets whenever acquired. The gains assessed for tax will not exceed the difference between the value of a particular asset at the time of the 1965 Budget and the amount realised when it is disposed of subsequently.

My right honourable friend on November 24 clarified the position. I do not propose to read what he said, but I would draw the attention of the House, and of any noble Lords who wish to read it, to column 1102, of Volume 702 (No. 19) of the OFFICIAL REPORT of the other place. I appreciate the point of view and position taken this week by noble Lords opposite, in particular the noble Lord, Lord Conesford, and the noble Lord, Lord Airedale. These views were noted and were, I know, conveyed to my right honourable friend.

I think perhaps I might say some words in regard to my noble friend Lord Rhodes. I was surprised at the words used by the noble Lord, Lord Derwent. The noble Lord has been a Minister in this House—

LORD DERWENT

My Lords, I am sorry to interrupt. The noble Lord said that I used words which were apparently regarded as derogatory to the noble Lord, Lord Rhodes. I wish he would quote them.

LORD SHEPHERD

The noble Lord used the phrase that my noble friend had provided this House with an inadequate answer or no answer at all. I would regard that as a reflection on any Minister called upon to perform a duty in your Lordships' House.

SEVERAL NOBLE LORDS: No.

LORD DERWENT

Not if the information was not available. He could not help it.

LORD SHEPHERD

The noble Lord indicated that he was not in a position to make a statement, and he asked the House to await a statement that would be made by his right honourable friend the Chancellor of the Exchequer.

LORD DERWENT

That is inadequate.

LORD SHEPHERD

My Lords, I do not want to go too far into this, but it is quite clear that in Treasury and finance matters this House is in some difficulty. Clearly we have an interest in financial matters. Clearly a Minister in your Lordships' House, if unable to give a reply, can only undertake to see that the message is conveyed to the right authority, and then come back and make a statement. That, I should have thought, was what my noble friend intended to do, and it was, in fact, what he did.

In regard to the corporation tax, my right honourable friend has in mind not only the simplification of the tax system, but also, as I think is generally recognised, that the present tax position of companies does not provide sufficient incentive for them to plough back profits, a factor which is of the greatest importance if we are to expand our economy and be competitive in world trade. I am sure that the noble Lord will agree with me. An incomes policy depends both on employers and employees and on an expanding economy, and my right honourable friend takes the view that revision here will stimulate production and make us more competitive. This is an essential part of an incomes policy.

In his Question, the noble Lord implied adverse criticism of my right honourable friend for making these statements. The noble Lord himself admitted that there are precedents for making statements of intention. We have clearly indicated in the statement that bodies which will play an essential part in obtaining an incomes policy will now know that our intentions in regard to taxation are fair. This was one of the purposes of making the statement. By making the statement my right honourable friend has also caused considerable discussion in the City and in industry. This also was one of his intentions, as he himself said in his speech. I think that this is important and it has not been considered by the House. I am sure that the noble Lord is aware that the Bank of England, on their own initiative, are carrying out inquiries in the City. Undoubtedly Her Majesty's Government will receive information and opinions from many quarters. All this will be borne in mind by my right honourable friend when he comes to make his final decision on this matter.

I am sure that the noble Lord would agree that, if we are to move forward, if we are to have a dynamic and progressive economy, this will depend on co-operation and understanding; and if we can obtain these, particularly in a major tax reform, there is something to be said for it. I think it is a good thing that the Chancellor of the Exchequer has adopted this method. I am sure that my noble friend Lord Rhodes would have been happier if he could have given an answer at Question Time that would have satisfied noble Lords, but clearly he was not in a position to do so. Frankly, the House has to take into account the fact that financial control does not lie with us but with another place, and though it is perfectly right that we should be able to express our views, we must be careful not to do anything that might upset this division on financial matters between the two Houses. I hasten to say that this does not preclude noble Lords from pressing their point of view, both in debate and in supplementary questions. But it is quite wrong to attack a Minister in this House when he clearly is not in a position to answer. Certainly, if we cannot answer, we will endeavour to see that the views expressed by noble Lords are conveyed to the right quarters. I hope that the information that will be available on Tuesday will settle most of the uncertainties which, I recognise, do exist. I will see that the views expressed by the noble Lord, Lord Airedale, are conveyed to the right quarters, and I hope that he, too, will be satisfied with the information that will be given on Tuesday.