FINANCE BILL

HL Deb 13 March 1975 vol 358 cc411-73

3.40 p.m.

Lord BESWICK

My Lords, I beg to move that this Bill be now read a second time. In our economic debates over recent years, whether from this Box or that, I have always emphasised the theme that a successful, fruitful, economic or financial strategy must stand up to the test of social fairness. In our present situation, with inflation the most immediate and potent menace, it is at once more essential and more difficult to be fair as between man and man.

There is another contemporary factor which, additionally, makes it more difficult to be seen to be fair. To " tax and to please ", said Edmund Burke, "is not given to men", but in an expanding economy, with a genuinely larger consumable cake to share, it is easier to adjust the burden of taxation without creating an acute sense of hardship or unfairness. It is far more difficult to redistribute wealth if the total available is not increasing but may indeed even be shrinking.

I think I have before in this House called attention to the fact that the wind of change, to which Mr. Harold Macmillan referred in his remarkable African tour, brought not only a transfer of political responsibility but a significant shift in economic power. The significance of this—upon which I insisted, although there were then some sceptics—is now beginning to show more clearly in the statistics. A new statistical series prepared by the Central Statistical Office illustrates the dramatic effect of the adverse shift in the terms of trade on our real income over the past three years. This shift stems, of course, from a depreciation of sterling and from the rise in commodity prices, especially the huge increase in oil prices.

What this series does is to adjust the standard measure of changes in the volume of output—the so-called GDP— to allow for the impact of this shift. It calculates what is available for domestic use after allowing for the change in the volume of domestic output needed to acquire a given volume of imports. The result of this calculation for the period 1972 to 1974 is striking testimony of the change in our economic fortunes as a result of international forces. While the conventional volume of output (GDP) may have risen by about 4½ per cent, over this period, the volume of domestic output at our disposal—or our real national income—may have actually fallen. If this fall has not fully been reflected in reduced domestic expenditure, it is because we have chosen to live temporarily beyond our means by heavy external borrowing abroad, in the expectation— happily shared by our external creditors — that we shall be able to repay them out of our future visible and invisible earnings.

The emphasis on the difference between GDP and national disposable income draws attention to the importance of the terms of trade for our economy. Between 1972 and 1974 the terms of | trade actually deteriorated by over 25 per cent. It is true that this reflects the nearly four-fold rise in oil prices over this period, but the rise in the prices of primary product imports must not be forgotten. In the case of imported food, beverages and tobacco, though the volume imported fell slightly over this same period, prices almost doubled.

My Lords, with depressed world trade, as at present, it is true that there may be a much slower growth in import prices during 1975, but the balance of payments, as a whole, can improve only if our exports remain competitive. Various international agencies expect that the volume of world trade will increase markedly in the course of 1976, but if this happens, while our export prospects would improve, so would those of the primary producing areas. What would happen to prices of imports from these areas, given this upturn, would depend upon factors governing their supply, including climatic conditions. But it would be foolhardy to pin our hopes for getting out of debt abroad solely on the availability of cheap food and raw materials, and, therefore, on a large shift of the terms of trade in our favour. Those primary producing areas, once ruled by others— in many cases by us— are now in firmer control of their own affairs. It is in this situation that taxes of any kind are doubly depressing, and a sense of unfairness much easier to kindle.

It is at this point, and on that note, that I turn to the most controversial tax, the capital transfer tax, for which provision is made in Clauses 19 to 52 and associated Schedules to the Bill which I trust we shall duly pass later this evening. This tax, as the House is well aware, replaces estate duty which, as we all know, was avoidable. Indeed, it was termed a voluntary tax. The CTT will bear much more fairly on the transfer of wealth from one generation to another.

There has been some criticism of the allegedly hasty way in which the tax was introduced. I do not believe that such criticism can fairly be sustained. It was essential that the tax should be effective from the day it was announced. To have done otherwise would have invited a flood of gifts in anticipation of the tax. It would have been a perfect recipe for avoidance. It would have meant that much wealth, previously liable for many years to estate duty, would have been beyond the reach of taxation for a generation or more.

My Lords, I hope that will be agreed. If so, I think it will further be agreed that if the tax was to be effective it needed to be spelled out in the Statute Book as quickly as possible. Delay would have been intolerably unfair to all those who wished properly to make provision for some transfer—in life or at death. In other circumstances I readily concede that, as with the wealth tax, we might have had a more leisurely consideration in a Select Committee. But the circumstances I have set out just did not permit this.

Notwithstanding this, the resulting legislation does not merit the criticisms levelled against it. For the first time since 1894, there will be a consolidated legislative code in this field. Once practitioners are used to it, there are good grounds for thinking that it will be infinitely preferable to the old estate duty law.

On more particular points, there are several areas in which the detractors of this tax have claimed that it will have harmful effects, and I think we should examine them. These are not claims which stand up well on closer examination. A tax bearing on transfers of capital ought, in principle, to bear evenly on all capital, in whatever form it is held. Special reliefs in respect of classes of asset ought to be kept to a minimum. Otherwise, there is unfairness to those whose wealth happens not to be held in favoured assets, and both the holding of and the market for such assets will be distorted.

For example, so far as agriculture is concerned, the Government have not felt it right to extend any particular relief under the tax to the agricultural landlord. But we recognised the special case for the preservation of the farm in family ownership, and for this reason we have given a relief from the tax for the fulltime working farmer. The agricultural value of his agricultural property will be reduced for the purposes of the new tax, to a figure of twenty times its rental value. We have promised to keep this relief under review and to maintain its effectiveness in relation to the capital value of land. Perhaps, more importantly, both agricultural landlord and working farmer will share with all transferors the benefit from the substantially lower levels of tax on lifetime gifts generally which we have proposed, and from the facility to pay by instalments the tax on certain transfers of land.

The possible effect of the tax on forestry has been a subject of keen interest to this House, and of fairly recent debate in this Chamber. As noble Lords will be aware, we have considered carefully the views that have been put—and put, if I may say so, with much force and effect. In the light of these views we have decided to give up altogether the capital transfer tax on growing timber on all deaths except the last, before the timber is disposed of. This is a very substantial concession in the context of the new tax: it means, for example, that it will be possible for a hardwood crop to suffer only one charge to tax over the four or five generations which it may span. No one can deny that, in comparison with other assets — which would be charged on each death —this is very generous treatment indeed.

It has been claimed that the small businessman will be harshly affected by this tax. But here again the reduction in the rates of tax on lifetime transfers will be of considerable benefit, and, as is the case with land, it will be possible to pay the tax by instalments where the transfer is made on death or where it is a lifetime gift and the donee is to pay the tax. In addition, the interest on outstanding instalments will be waived where they relate to business assets (including farm businesses) up to £250,000 and if they are paid on time. There is another point which has apparently been disregarded by those who have claimed that the tax will prevent the family business from being passed on. They have based some rather wild calculations on the premise that the whole business will be transferred on one occasion. Of course, this is unlikely to be the case in practice, and this means that the businessman will be able to benefit from the provision allowing any person to make gifts of up to £1,000 a year free of tax, and his wife the same amount again. Even a prosperous business worth £100,000 can be transferred undivided at a cost to the recipient of under £1,800 a year for eight years, interestfree, at the capital transfer tax rates on a lifetime gift.

So far as charities are concerned, we have taken steps to ensure that the change from estate duty to capital transfer tax will not operate to their disadvantage. Gifts to charity made during the donor's lifetime (provided that they are made more than one year before his death) will be exempt from tax as they were before. And gifts made on death or within one year of death will be exempt to a limit of £100,000—not the £50,000 level fixed for estate duty purposes.

As for property held in trust, the consistent aim of the legislation has been to ensure that property transferred by that route is taxed no more and no less heavily than property transferred directly. The Government have, however, recognised the difficulties facing discretionary trusts, and changes made in the Report stage in another place give a period of grace in which funds may be rearranged with only a low tax charge.

I must make special mention of the treatment of those assets which form the national heritage. We have made interim arrangements for those until the Select Committee on the wealth tax completes its deliberations. These arrangements continue the estate duty exemption for gifts to major national heritage bodies, and for gifts of national heritage property to other bodies not established or conducted for profit. So far as the national heritage remaining in private ownership is concerned, we are not only continuing the estate duty conditional exemption on death for outstanding works of art, but we have broken new ground by extending this exemption to historic houses (including such adjoining land and contents as are essential to their character) and to land of scientific interest. In doing all this we have prevented any unforeseen charge to tax by reason of a death before the Select Committee on wealth tax completes its work and have given virtually everything for which we were asked.

There are only two exceptions. First, we have decided that we cannot extend the exemption to cover funds for the upkeep of the national heritage in private ownership. It is true that such funds are exempted when the heritage property and the funds are handed over to nonprofitmaking bodies, but quite different problems and considerations arise when the fund and property remain in private hands. Secondly, we have not extended the exemption to lifetime gifts. Any such extension would give rise to very difficult technical problems, and since nobody is under a compulsion to make lifetime gifts we regard their exclusion as a reasonable immediate measure which we shall of course consider afresh in the course of the review.

If one considers carefully and objectively the net result of all these tax changes, I cannot see that the extreme agitation is justified. The rates of the new tax are lower than the old duty which they replace. For the first time we now exempt a man's bequest to his widow and any transfers which, during lifetime, a man and wife may make to each other, will similarly be exempt.

To conclude I should perhaps relate all this to our economic position and outlook. Without any doubt our priority is to control inflation. Industrial confidence, essential investment, job security, all depend upon our bringing that evil destructive process under control. Lest we get too depressed, or too reluctant to recognise our own strength, let us look back to only one year ago when our entire industrial base appeared to be in peril. Since then we have started to grapple with underlying economic problems. Amidst the fashionable gloom there are at least some glimmers of light.

The latest figures of actual manufacturing investment show that in 1974 a stable volume of investment has been maintained at a rate 10 per cent. above 1973. Significantly, in a most difficult economic situation, the final figure of realised investment is markedly higher than investment intentions surveys led us to expect. Investment intentions for 1975 are gloomy, but there are bright spots, notably in chemicals and energy.

On the external front there are encouraging signs of improvement in the nonoil balance in each of the three months, November, December and January. It is also relevant to note foreign confidence in Britain's credit standing. But all these encouraging facts will be at risk if any one section of our community—whether organised workers or categories of taxpayers—fails to recognise that national needs and overall social policy, must be taken into account. I do not intend— because I do not want to inflict a long speech on this House—to deal with the Social Contract. But the concept of that contract, the spirit behind it, is something which all of us, each in our own way, must seek to strengthen if we are to win through. My Lords, I beg to move.

Moved, That the Bill be now read 2^a.— (Lord Beswick.)

4.0 p.m.

The Earl of MANSFIELD

My Lords, in his opening remarks the noble Lord, Lord Beswick, described as fair this Bill before your Lordships today. In the course of my few remarks I hope to show beyond peradventure that, whatever else it is, it is not fair. A four-letter word may well describe it, but not the word, "fair". If, by my attitude and by my remarks this afternoon, I evince a sense of indignation which I hope is usually foreign to the remarks I make before your Lordships, it is because of the attitude which this Bill engenders, not only in me, because my attitude is totally unimportant—not only in noble Lords on this side of the House, although their attitude is much more important—but in the thousands and thousands of ordinary decent people up and down the country who, as a result of the measures in this extremely unwelcome Bill, see the whole of their lives being turned upside down. They are not millionaires, not tax evaders, not people who have made a quick penny or even a quick pound in the City, but ordinary people, especially those living in the rural and agricultural areas —the places where the Labour Party is least strong—who see all the evils of this Bill and who are very worried, as I say, that their traditional way of life is to come to an end.

My Lords, it is right that I should declare my interest. I am a farmer, I own land, I plant trees, I have a historic home, I am a fruit ripe for squeezing. In the words attributed to the Chancellor of the Exchequer: Pips, if there are any of them, may well squeak. But I do not expect your Lordships to take my remarks in any less sincere way because of my inherited wealth.

Generally speaking, this Bill, which the noble Lord described as fair, I see as conceived in malice, vicious in intention, slovenly in drafting and arrogant in its presentation before the other place and your Lordships' House. It was never considered properly at any stage in the other place. For the first time in many years the guillotine procedure was used. We who now have to consider it can scarcely even read it in Hansard unless we scrounge one over a picket line. There has been little or no time for consideration. What kind of Bill is this which has been described as one which will have a greater effect on the way in which we comport ourselves than anything since the Dissolution of the Monasteries? It cannot be said that the Government have not been warned. Everybody who has responsibility for business, agriculture, forestry, has made ceaseless representation. All of them seem in very large measure to have been ignored.

Several Noble Lords : Hear, hear!

The Earl of MANSFIELD

I shall show it. my Lords. There have been countless letters in The Times and in other papers. Only last week there was a letter from the President of the Senate of the Inns of Court, the joint president of the Law Society and the president of the Society of Accountants deploring the fact that this hasty and illconsidered measure is apparently going to reach the Statute Book without proper discussion or debate.

Lord BESWICK

My Lords, perhaps the noble Earl will help me. When he says that no notice has been taken, is he thinking of the representations which have been made about the national heritage, about the representations made about forestry or the representations made about the working farmer?

The Earl of MANSFIELD

My Lords, if the noble Lord has a little patience he will hear my discourse about the last two. So far as the historic houses are concerned, I shall leave that to other noble Lords who, I have no doubt, will demonstrate that the so-called concessions are illusory. If I may get on, one only regrets that your Lordships' role as a revising Chamber does not extend to this Bill. If ever there was a Bill which should be revised in a sensible and objective way, this, I suggest, is one. As I was saying, even up to this week, countless letters in The Times have protested. On the same day as the letter about which I spoke there was a letter from a number of employees of the Victoria and Albert Museum protesting that, even with the concessions which the noble Lord has just talked about, the policy of the Government—and I think I am using the word which was used in the letter—was "crazy". And these, to use the LeftWing term with which I am not very familiar, were scarcely "lackeys of the Right-Wing Imperialism", or however it is described.

One asks what justification the Govrnment have for taking these measures. I thought we were not going to hear the dreaded phrase, "Social Contract", from the lips of the noble Lord, Lord Beswick, but my optimism was in vain. It slipped out in almost the last sentence. If the Social Contract between the Government and the unions is, in fact, a contract to confiscate the assets of persons who are no party to the contract and have never been consulted about its terms, to me the Social Contract becomes less than a contract between consenting people and more like a conspiracy between robbers; one could call it a thieves' charter. The effect on private businesses and the countryside will be profound. It is no exaggeration to say that rural depopulation will start once more.

May I quote one example near my home. In my part of Scotland we have at last got to the bottom of the population trough. Farms are reasonably prosperous; forestry until now has been a good employer of labour. The slip in the population which has been going on ever since 1745 seems at last to have bottomed out and a happy and contented rural population has at last established itself. The number of pupils attending the schools is gradually rising. If these measures bite, especially in regard to forestry, people will not employ foresters because there will be no profit in timber, and once more we shall get the decline and drift of population.

My Lords, I do not want to prolong the agony too long. Regarding capital taxes, let me say that we on this side of the House have no quarrel with a degree of capital taxation in some form; I want to make that absolutely plain. That remark or something like it has been made clearly and frequently by many, including my right honourable friend the Leader of the Opposition in another place. The Government keep telling us that the present tax on capital —that is, the tax law up to the introduction of the present proposals—is unfair and ineffective. That is a matter of opinion, I suggest, but this Bill replaces those taxes with the capital transfer tax, which is not only unfair but destructive. The Government try to justify the provisions by claiming that they are necessary to overcome what they claim is massive avoidance of estate duty. I should like to take the noble Lord up on that.

The Finance Act of 1894 contained the first estate duty. That was rather more than 80 years ago and the rate was 8 per cent. In those days, there was no capital gains tax, no surcharge of investment income and there was no top rate of investment income at 98 per cent. The rate of estate duty gradually became higher because it was understood, I suggest, that duty applied only to a proportion of the deceased's estate. It was, in effect, a tax on bequests. It was anticipated that most of an estate would be given away during the lifetime of the donor and that therefore tax in the form of estate duty would fall on the remainder. Gifts inter vivos to avoid estate duty were a provision by Parliament and it hardly lies in the Government's mouth to criticise those who take advantage of what is, after all, an act of avoidance provided by Parliament. There is an almost nauseating hypocrisy about that. Two days ago, just before the seven o'clock news, a snippet of information was broadcast about how the Government intended to use the taxpayers' money to set up offices where people could find out about their allowances in relation to income tax. At the same time, the Chancellor of the Exchequer in the other place was fulminating about the evils of tax avoidance. I think that illustrates the point.

My Lords, it is a totally different matter to say, as the Government claim, that the penally high rates of taxation in the capital transfer tax should be applicable to the whole of an estate.

Lord BESWICK

My Lords, if I could help the noble Earl before he goes further with his theme, I have made inquiries as to the yield of the new tax. I am informed that, while in the year 1975/1976 the yield from the old estate duty would have been £360 million, the yield from the combined capital transfer tax and the remaining estate duty will be £335 million. That is actually a smaller yield. How, then, can the noble Earl go on as he has about this being a penally high rate of taxation?

The EARL of MANSFIELD

My Lords, it is quite simple: one cannot lake one year. One must go forward. One cannot take one year on a hypothetical basis and say what the tax bite will be in five or ten years. But I ask the noble Lord this: if he is saying that this will be a tax to replace estate duty but that it is in fact a mild and fair tax and will in the future raise less revenue than estate duty, then why do it?

A Noble Lord: Because it is fairer.

The Earl of MANSFIELD

Fairer to whom, my Lords? Certainly it will not be fairer to those who are being taxed. The attitude which I have been trying to put over is one that has been taken by every previous Government, including those of a Labour complexion, and, indeed, the period for which a donor had to live after making the gift was extended by Mr. Jenkins in the Finance Act of 1969. There was then not a word about this hideous avoidance and about how unfair it was. Mr. Jenkins merely said that the period would be lengthened from five to seven years. This is a new conception, and I suggest that it is a false one which has been introduced to try to justify what we on this side of the House say is a penal and unfair tax.

My Lords, it does not only come to that. In the old days, when people made over their possessions to those who came after them, they could retain no benefits or the whole purpose of the gift was lost. This is really the point which I do not think either noble Lords opposite or the Government understand so far as estate duty is concerned. Throughout the history of that tax, those who cared sufficiently to pass their assets on—and it does not matter whether it was a business or a farm or whatever—could do so free of estate duty although they deprived themselves of the benefit. If they were not so minded and either did not care about their family or did not care about their assets, estate duty came in at their death and removed some or most of what they left. That was the point and I suggest that it was part of the British genius. It carried out what so many other countries in Europe do in that it gave encouragement to people to pass on what they had made, saved or inherited to the next generation. If they did not care to do that, it went. My Lords, finishing that line of thought, the 45 per cent. relief on agricultural land was there as a safety net for those who were employed on the land in one form or another or who were landlords and who died before they could make any arrangements.

My Lords, I want to clear up a misconception current among noble Lords opposite and which was apparently given the seal of Government approval by the noble Lord, Lord Jacques, on 5th March. I should tell the noble Lord that he was talking about tax on capital in Europe, and I have no doubt that he will remember what he said because it was not very long ago. He said that estate duty, is an avoidable tax and a tax which is completely unfair. We want to put in its place a more effective tax which will be fair to all citizens, not just some of the citizens. I am surprised that there should be so much humbug about this."—[Official Report, 5/3/75 ; col. 1330.] My Lords, the humbug is not on one side. "Look at the Continent", says the noble Lord, Lord Jacques. "What we are doing has already been done in France, Germany, Sweden, Denmark and the English-speaking community." Let us take the top rate of gift and inheritance tax in those countries and examine them for one moment. All the figures which I shall give are—because it is my point —the rates where the gift is to close members of the family. In Germany, it is 20 per cent.; in Holland, 20 per cent.; in Denmark, 40 per cent.; in France, 10 per cent.; and in Sweden, 70 per cent. on half a million pounds. It does not end there. In Sweden, which has an ostensibly high rate, agricultural land is assessed at 75 per cent. of the market value, based on the statistical average of the free market price over the two years immediately before the assessment. In all the three Scandinavian countries— that is, Norway, Denmark and Sweden— agricultural land and forestry are undervalued tacitly or with Government approval. So much, then, for this throwaway line, "All God's children have capital tax: don't you complain."

Bearing those figures in mind, let us see what the close relations will enjoy in this country under this fair measure. A man has a 500 acre farm—which is a reasonably modest holding these days— and he wishes to make it over. He and his son are both working farmers. Let us say that the value of the farm is £200,000. If the farmer has other assets or savings so that he can pay the capital transfer tax, he will pay £110,000. If he has no such assets and his son accepts the burden, that son will have the privilege of paying £51,400 in eight equal instalments. Pausing there, at a time when agriculture is becoming increasingly intensive, when the cost of an ordinary tractor is between £4,000 and £5,000 and when we are being told to produce more food and to invest more in our farms, how is a young man to undertake a burden of £51,400, to be paid, in the Government's kindness, in eight equal instalments, particularly having regard to the fact that, as of this moment, if his father made over the farm he would have to pay nothing? Let us take it a stage further. If the donor father died then the son, assuming he accepted the bequest, would have to pay £84,800 on a farm worth £200,000, very nearly 50 per cent. How is he to pay that in eight equal instalments? He is going to live a life of drudgery and debt. His farm will suffer, as will his food production and family; yet this is regarded as a fair measure.

I will give your Lordships one other example, that of a family business worth, say, £250,000, an easy sum for my poor brain. If the father makes over the business and he pays the capital transfer tax out of his own pocket, this business will cost him £185,000 in tax. If the son accepts the burden and pays it himself, he will have the privilege of paying £77,000 on a £250,000 business. If the father dies without any transfer having been made and his son accepts the burden with the legacy, he will then pay £115,000 on that family business. How can that be fair? How could a family business stand it?

This is the theme which is running right through this Bill and to me there are only three reasons which have motivated the Government. First, they do not know the effects of this tax—Heaven forgive them for not knowing what they are doing! —or, second, they know and, in the legal sense, are reckless as to the consequences; or, third, and this is the most sinister of the three, they know very well what the effects will be and mean them to take place. If it is the third reason— and I can think of no other except these three—the Government are under a duty to say so. No noble Lord opposite has yet interrupted me to say that this is all part of the Labour Party Manifesto, though I suppose that someone will. If that is said, I would answer in this way: Nobody minds if the Labour Party , in a Manifesto or anything else, says that the earth is flat or seeks to prove it; but what the ordinary people, the people I know, feel indignant about is if they are hurt while the Labour Party tries to prove it, and that is what will happen in this case.

I come to the question of forestry. On this the noble Lord, Lord Beswick, sought to show that this industry had nothing to fear and certainly nothing to complain about. I seek to show that that is an optimistic view of the situation, and I recapitulate what the estate duty rules were as they applied to the forestry industry before November of last year. The payment of estate duty, first on timber but not on the land on which it grew, was postponed until the timber was sold. Second, the timber value of a deceased person's estate was not aggregrated with the remainder of his estate for the purpose of determining the principal value and hence the rate at which the duty was payable. Third, there was allowed as a deduction from the proceeds of subsequent sales felled timber, necessary outgoings and the cost of, for example, replanting. Fourth, on a subsequent death any duty still outstanding in respect of the previous death was cancelled; and that could be most important. Fifth, and almost as important, the 45 per cent. agricultural abatement was applied to the value of the land on which the timber was growing.

What is the situation now? According to the noble Lord—and this, I understand, was what was said on Report in another place—it is proposed that the deferred tax should be chargeable not on the value of the trees at the time of death but on the proceeds of their eventual sale. The latter value could be anything up to ten or more times higher than the former value; but it is the intention, therefore, to tax values which, to a greater or less extent, will have been nonexistent at the time that the transfer took place; that is, at the date of the death. This is patently unjust. It will place on forestry a tax burden which is suffered by no other industry and will make the private production of timber totally uneconomic.

Next, the rate of tax. The most unfair aspect, as I understand it, is the proposal to charge the tax on the proceeds of eventual sales at the rate applicable at the top slice of the estate transferred at death, so that timber will therefore be penalised invariably by bearing capital transfer tax at its highest rate. Can that be fair? Is this anything other than a discrimination against forestry? I do not think it is. If one bears in mind the sort of returns on forestry, which in all conscience are relatively modest compared with other businesses, family or otherwise, one sees that this is bound to discourage the timber industry.

But the matter does not end there. Consider the five-year rule, and here I have a word of praise for the Government. The five-year rule is not bad because no genuine forester wishes to see the industry used either for making a quick buck, if I may use that expression, or as a means of financial advantage for those who really do not have any interest in the land or forestry or in the people who live on that land. However, I submit that in the case of a deceased person who planted the trees himself, it is unfair, if he dies within the five-year period, that he should then, as it were, lose that relief.

A matter which raises grave doubts is the application of the relief only to dedicated woodlands. There are many small pockets of timber which are undedicated. They are amenity timber, often hardwoods, which have no great agricultural or forestry use, though they may provide shelter, shade or cover for the creatures of the earth to nest in and they are a welcome part of the countryside. As this tax bites, they will be cut and they will never be replanted. That is something that the Government might have considered. There are practical difficulties of dedicating tiny corners of relatively unproductive woodland, and in this context this is a matter which is unfortunate rather than unfair. The 45 per cent. relief on forestry no longer attaches to what we in Scotland call the solum. This is a distinct matter which will discourage the planting of timber; and when one considers how important it is as an industry, irrespective of how important it is to the countryside, it is, I imagine, something which noble Lords will deplore.

My Lords, may I say finally, that this has been a bad week for your Lordships' House. On Monday and Tuesday the Government sought to abrogate the rule of law and exclude the courts from their friends in the trade union movement. On Wednesday the Government sought to turn the Constitution upside down and on its head to get them out of a difficulty over the matter of our membership of the European Economic Community. Today we have introduced to your Lordships a Bill which I hope I have demonstrated is vindictive and unfair, and designed to placate the Government Left-Wing as against those in the countryside, in particular, who cannot protect themselves. It is a bad day for Parliament; it is a bad day for the country. Sooner or later, if this country has the political genius which we always abscribe to it, there will be a reckoning. My guess, and certainly my hope, is that the Labour Party will pay a heavy price.

4.30 p.m.

Lord WILBERFORCE

My Lords, I am very glad that the House has decided after, I think, five years' abstinence, to debate a Finance Bill, because it must surely be right that this House should contribute its views on Finance Bills which introduce a new principle into our law and which raise questions as to the method of legislation and the working of our Constitution. This is all the more so in this case because the House of Commons, owing to its guillotine procedure, had not time to discuss this Bill in its completed form before passing it up to this House. We are here very much frustrated by the existence of the Parliament Act, and on these Benches in particular we are only too liable to be ground into a flat pancake by the steamrollers on both sides of us. I have a suspicion, too, that an atmosphere of boredom, or at any rate frustration, is beginning to descend on discussions relating to the capital transfer tax. Nevertheless, I hope that I will not detain your Lordships too long in making a few observations of a very general character on this Bill, particularly on Part III which introduces the capital transfer tax.

My Lords, as to a capital transfer tax in principle, or even as to this particular capital transfer tax, I do not propose to say anything as to either its merits or demerits. That would not be appropriate for one who will have the very unthankful task of trying to interpret this Bill when it goes before the courts. But I must refer for a few moments to some of the characteristics of the tax, and I hope that noble Lords will forgive me if I make some errors or inaccuracies in what I say, simply because it has been so difficult to follow the discussions or even to get a copy of the Bill. Your Lordships have here, as is generally known, a brand new and radical tax designed to replace the 80 year-old Harcourt Act, the estate duty Act, of 1894, which over the period in which it has been in existence has accumulated a fair number of barnacles.

Putting it in its very simplest form, the object of this new Bill, I take it, is to assimilate gifts during life and gifts on death, and it is pretty clear what the brief given to the draftsman of the Bill was: "Get us a tax which is equally appropriate to gifts during life and gifts on death, and make sure that there are no loopholes in it." One can imagine the delight with which this was greeted in the Inland Revenue. They were able to get out of their pigeon holes all sorts of anti-avoidance clauses which have been lying there for some years, and which they have not previously succeeded in putting over ; that was their chance. So instead of a nice simple Bill with a tax on all gifts— simpler and more rational than the Finance Act of 1894; which is what we hoped would happen—Parliament was faced, when this Bill was introduced, with a most intricate piece of legislation, full of provisions about tax havens, foreign settlements, lease back provisions, reversionary interests, deemed transfers, associated operations, arms-length transactions, and all the paraphernalia, and correspondingly (and this is the important point) a very considerable neglect to deal with those realities which affect the ordinary man in his ordinary life.

My Lords, that is a generalisation and I must support it with a few examples, which I will try to do. First, it seems pretty clear that the framers of the Bill had not thought about family businesses. Then the Sunday Telegraph revealed some horrifying figures through what is known as the " grossing up " provision. I will not inflict that on your Lordships ; it is one of these incomprehensibles. But the figures were shown in the Sunday Telegraph—grossing up, capital gains tax on top, with a really frightening result with regard to small businesses. So the Government introduced, and it is to their credit that they should, an entirely newschedule of rates to be found in Clause 37, to deal with gifts inter vivos of businesses. But then it was realised that you could not confine this new schedule to businesses ". you had to apply it to other assets. Then it was realised that you could not limit it just to gifts of other assets; it had to be applied to trusts, gifts into trusts, and gifts out of trusts, and distributions through trusts, so you find a whole series of new clauses, put in to meet this situation. Then somebody thought of the man who transfers a business, or whatever it is, on his death bed. You must not have a loop-hole there. So we get a three-year rule introduced. If you do it within three years of your death, you have the higher rate, so we are back on one of the complications of the estate duty legislation.

Secondly, there is the position regarding forestry. I do not want to go deeply into this, although I know that it arouses deep emotions in a number of noble Lords. It certainly seems to have been overlooked when the Bill was introduced. We had, in due course, a new schedule— Schedule 9—which contains a number of detailed and no doubt benevolently intended provisions, introduced at the very last moment, on a take it or leave it basis, which admitted of no discussion. I do not want to say more about that, except that forestry is a subject about which many noble Lords in this House know a great deal and on which their views would surely be of value; but they were not consulted about it. Until today, there has been no opportunity for them to put over their views. We are simply faced with Schedule 9 which, as we heard from the noble Earl who spoke from the Opposition Bench, certainly does not meet everybody's view.

Thirdly, there is the remarkable Clause 45 which relates to the Channel Islands and the Isle of Man. I think that imposes a tax on gifts made by people domiciled in the Channel Islands and the Isle of Man, if they have been at any time after November 1974 domiciled in this country. This is a very remarkable clause. We know that the Inland Revenue has for a long time been trying to get a provision included to deal with the Channel Islands. I have no complaint about that, but the fact is—and I believe this to be absolutely correct—that there was no previous discussion with the Islands about this. Enormous repercussions will follow, far beyond the field of possible tax avoidance. These were pointed out in great detail in the discussion in Standing Committee in the other place, and the Government spokesman had no answer at all to them, and could say only that further consultation would take place at a later stage. I am not going to follow that up, because we have here—and I am glad to know he will be following me—the noble Lord, Lord Sandhurst, who is far better able to speak about the repercussions of this clause as regards the Islands than I am. But I think it is right to say that lawyers generally are shocked at this clause, introduced in the way it was without very careful consultation beforehand.

Fourthly, my Lords, we have the whole domain of trusts. There is a general attack on trusts—discretionary trusts and other trusts—as if they were nothing but an anti-avoidance device. There seems to be lacking any realisation that the trust is probably the most distinctive and useful contribution to English law which has been in existence and used in a most beneficial manner for some 350 years. So it had to be pointed out in discussion that the trusts support a number of indispensable things in our life: compensation funds such as for thalidomides or Aberfan, superannuation schemes, pension funds, employees' trusts, newspaper trusts, protective trusts of unforgettable value to English music through Sir Thomas Beecham. Therefore, many new clauses had to be spatchcocked in to deal with these situations one by one. Are they complete? Are they logical? Are they clear? We do not know. Time alone will show; but I strongly suspect that there are a great number of anomalies and omissions in this field.

Then, fifthly, there is the subject of loans, curiously called in the Bill "free loans" in Clause 41. This was picked upon as an anti-avoidance device. "You must stop this up; otherwise you can get over capital transfer by making a loan free of interest."—a product of the "loop-hole syndrome". People had forgotten about mother-in-law's flat for the poor lady to live in rent free, they had forgotten about tied cottages, loans, small businesses and difficulties of every kind. The clause was shot so full of holes that the astonishing expedient had to be adopted of postponing its operation until April 6th 1976, until there could be found what was oddly described as a "juridical formula". Your Lordships will, I think, enjoy the passage in which that was explained. This is not an exhaustive list. If noble Lords want some light reading, I commend page 106 of this Bill which provides a really quite astonishing clause about gifts to political Parties; but I think it would be impertinent from these Benches to comment on that clause. To round it all off, it seems from the report of the debates in another place that the Opposition spokesman has delivered to the Government a list of numerous other difficulties which will have to be dealt with. This was received in a friendly spirit, and promises made; but there are a great number of unresolved difficulties which will result inevitably in extensive changes and Amendments in the course of this year and next year.

To crown it all—as if all this were not enough—we have a promise from the Opposition to repeal the tax when they come in and throw us all back to square one. I do not want to be unkind about all this, particularly in view of the moderate and reasonable way in which the noble Lord, Lord Beswick, presented the House with this Bill; but there are two lines of criticism—respectful criticism—of the state of affairs which I should like to develop.

Lord BESWICK

My Lords, the House will be grateful to the noble and learned Lord; but would he be kind enough when he continues with his criticisms to answer the point I made about the difficulty of putting this tax before a Select Committee before it becomes operative on any given date? Would he not agree that this would be a recipe for tax avoidance?

Lord WILBERFORCE

My Lords, I shall come to the Select Committee point later. This is something we have to discuss. I know that the Government are obsessed with tax avoidance. It is the one factor they think about at every point. It is given as a reason for every defect in the Bill. I should like, if I may, to develop the points I want to make about the legislative process in relation to this Bill, so that we can see where we are; no doubt the noble Lords on the Government Benches will wish to take them up. The first point of criticism that I should like to make—and it cannot really be disputed—is this: the way in which this Bill has proceeded and the state in which it has been left makes it extremely difficult for individuals to plan their affairs. They cannot understand, I believe, what the law is at the present time. I certainly cannot; and I am sure the ordinary citizen cannot, either. They cannot see what they ought to do about their affairs this year, next year or after the 5th April or when the next batch of Amendments comes along; and then they have the possibility of total repeal hanging over them a few years later. It makes the job of the lawyers absolutely impossible.

We hear much about "lawyers' paradise" when one has a complicated piece of legislation like this; but this is a lawyer's nightmare. Lawyers do not like to have to advise their clients that they cannot understand what a Bill is about. Lawyers like to be able to go to their clients. The Bill must be just difficult enough so that the client cannot understand it for himself; but at that point the lawyer wants to be able to say with confidence, "Do this (or that) and everything will be all right; and you will save a lot of money." That is not the position here by a long chalk.

The noble Earl referred to the letter to The Times signed by the chairman of the Bar Council and the president of the Law Society pointing out the impossible difficulties which the lawyers would be under in the course of next year; and the accountants were even more emphatic. May I quote what the president of the Institute of Chartered Accountants said about the use of the guillotine. He said: It amounted to the crassest folly for which the public generally and the accountancy and legal professions and the Inland Revenue in particular will suffer endless hours of unproductive worry and argumentation to no beneficial end. I do not believe that there is any exaggeration in that.

To be absolutely fair, I believe the Government know in their hearts that this is quite true. I believe that the Government know where or in what area the remedy lies. It lies in greater openness. I know that they published a White Paper; but the White Paper was very sketchy and did not go into all the details which are now giving us these difficulties. A greater openness at an earlier stage and greater discussion, while the Bill was going through, with people who know about these matters, with practitioners in trusts, with the owners of small businesses, with politicians from the Channel Islands, with experts on forestry, with accountants—none of these things took place. I should be grateful, as would the House, if the Government would deal with the possibility of the use of a Select Committee to which Members of this House and other people could contribute their expertise and experience. I say with great respect to both sides of the House —for both will be legislators of this kind of Bill in due course—that I venture to hope that some recognition of difficulties of this kind may come out of this debate. This is the first line of criticism, a line which one might call the practical one.

The second criticism is constitutional. We know that this is a tax; but it is not a tax merely to produce revenue. As the noble Lord has just explained, it does not seem to be intended to produce any more money—at any rate, at the beginning— than the superseded estate duty. At any rate, it is not presented as a tax-raising measure. It is presented as a social measure with social objectives, and certainly it is one which will impinge upon citizens over a very wide range of our society at a number of sensitive points.

I suggest to your Lordships that a measure of that kind ought to be more widely and effectively discussed by Parliament, as a whole. It has been discussed, as your Lordships know, mainly in the Standing Committee of another place, with voting figures of 16 to 15 on each point, all the work being done in effect by some 10 Members. I think it is only right to pay tribute to the work which those Members did. If anybody thinks that Members of Parliament do not earn their pay, they might read with profit the report of those debates. There was an enormous amount of work put in over long hours of sitting in order to try to improve this measure. Certainly, they have done their stuff and they have done their homework—but how few of them! There were between 10 and 31 present at all these crucial discussions. Is that really a broad enough base to discuss something of such wide implications?

That brings me to the role of this House in this kind of matter. Of course, I know it is a delicate subject, and to suggest that we should have power even to amend a measure of this kind in this day and age would be "spitting in the wind". The other place must remain " sovereign " in matters of taxation and as regards the voting of taxes ; but perhaps one might ask one or two questions about our Constitution, in our present state. What sort of Constitution is it, one might ask, that allows us to discuss, as we do, and to improve proposals about grants and subsidies to forestry, but not to discuss—at any rate, to discuss effectively—measures which may make intelligent forestry impossible?

What sort of Constitution is it that allows us to discuss and consider the constitutional position of the Channel Islands and the Isle of Man, but does not allow us to question in principle a law which taxes people domiciled there? What sort of Constitution is it which allows us to amend provisions in legislation giving powers to enter people's houses in search of drugs, or giving to officials powers to demand information about exchange control or exports to Rhodesia, but which prevents us from questioning powers such as we find in this Bill to force solicitors to give information about their clients' settlements— just because they are in a Money Bill? What sort of Constitution is it which allows us in this House to initiate legislation about the variation of trusts, whatever tax effects those variations may produce, but does not allow us to question provisions which practically make many trusts unworkable?

My Lords, these are bold questions and I am emboldened to put them at this time and to risk being ground to powder by the constitutionalists on both sides, because at long last there seems to be in the air a whiff of a feeling that the British Constitution is not so wonderful as some of us think it is. We have ideas floating of a Bill of Rights, of devolution and of changes in the electoral system, of sovereignty and even of a Referendum. All these are stirring. Is it really good enough, when one is dealing with matters of such large import, to stand on the Parliament Act of 1911 and on two 17th century resolutions?

I come now to my final remark. One knows that Governments have a vested interest in a system which gets their legislation through, and Oppositions hope to succeed to the same instrument in a few years' time. But may one, speaking for the ordinary man—the afflicted Achaean, if the allusion is understood— humbly make the point that, agreeable though it is to win the battle of the day, legislation of this kind is not in government's best interests. It is against the best interests of government if it does not get consensus; it is against the best interests of government if legislation leads to confusion or if it cannot be properly worked by professional men; it is against the best interests of government if it leads to the impression either that Parliament is not able to do a good legislative job or, still more, that Parliament is not vastly interested in doing a good legislative job. If we are to stand up to Brussels, do we not need to refurbish our own tools? Perhaps a modest appeal from these Benches may not be in vain.

4.56 p.m.

Lord SANDHURST

My Lords, I ask for your Lordships' indulgence today. I find myself in a curious situation. I live in Jersey, one of the Channel Islands, and the matter under discussion will make liable to United Kingdom domestic taxation property and assets in the Channel Islands which are themselves outside the United Kingdom, and beyond the jurisdiction of the courts of the United Kingdom. It has been suggested to me that a Peer who leaves the United Kingdom to live in Jersey is an example of the tax avoider for whom these measures are designed, so I am perhaps not best fitted to speak on the subject. However, when I left the United Kingdom I was not a Peer, nor a tax avoider; and I went there to work.

As regards what was said by the noble and learned Lord, Lord Wilberforce, my concern this afternoon is not about assets transferred from the United Kingdom to the Channel Islands, which is the specific object of this measure, but about assets which are either wholly of the Channel Islands or at least not directly connected with the United Kingdom. How easy it will be, under the new discriminatory rules of domicile, for them to become liable to United Kingdom taxation! I should like to put before your Lordships three ways in which this could happen, and I think you will agree that these are three likely examples.

First, there is the case of a young man who emigrates to Jersey and, by hard work, becomes wealthy. He need never return to the United Kingdom, but everything he acquires in Jersey during his life will remain liable to CTT; and if he marries into a Jersey family that family's own property may in the course of time also become involved. Secondly, every Jerseyman marrying an English girl will be bringing into his family a potential liability to CTT. Under Jersey's laws of inheritance, a husband must leave to his wife absolutely one-third of his estate. So there will be no way of avoiding this difficulty unless the wife is allowed to change her domicile on marriage. Thirdly, there is the case of a young Jerseyman who comes to England at the age of 18 and works here until he is 36. Then he returns home, to find that the United Kingdom Government have changed his domicile and that everything which belongs to him in his native island has become liable to United Kingdom taxes.

In this respect I should like to refer particularly to Channel Islanders who enlist in Her Majesty's Forces. The Islands are often maligned, I think, for making no financial contribution towards the Defence Budget, but little is said about the very large number of Islanders who make physical contributions by personal service. In this respect, the Islands can claim with justice to make the largest contribution per head of population of any comparable area in the British Isles; and, further, to have a truly remarkable share of those who rise to senior ranks in all three Services. I noted only the other day that at the Sovereign's Parade at Sandhurst the Sword of Honour was, for the second time in six years, awarded to a Guernseyman. I hope the time will never come when the reward to a Channel Islander for long and faithful service to the Crown comes in the form of a tax liability.

Such has been the speed of the legislative timetable for this measure that negotiations between the United Kingdom Government and the Governments of the Channel Islands have been unfairly handicapped. I hope that following the passage of this measure the Government will give due consideration to the representations put forward by the Islands' negotiators. Logical explanations will no doubt be given for the decisions that for emigrants France at 25 miles is far enough away ; that the Channel Islands at 80 miles are too close; or that it is better that they remove their capital outside the exchange control area of the British Isles, rather than keep it within that area by going to the Channel Islands. Above all, my Lords, I hope that matters will not be so arranged that United Kingdom emigrants will be encouraged to go anywhere but to the Channel Islands, and Channel Islanders to go anywhere rather than the United Kingdom; and that marriages between islanders and mainlanders become not a matter for romance but a matter for tax consultancy.

5 p.m.

The Earl of LONGFORD

My Lords, I am sure that the whole House will wish me on its behalf to extend hearty congratulations to the noble Lord, Lord Sandhurst, on his maiden speech. He is a brave man, as indeed he was decorated for valour in the war; and he comes here, obviously, for various reasons with some diffidence about speaking on behalf of the Channel Islands. But he spoke up on their behalf nobly and well and I am sure that what he has had to say will be carefully studied by the Government; and I know the House will often wish to listen to him again.

My Lords, it is a pleasure after many years to be taking part in a debate on a Finance Bill and to be supporting the noble Lord, Lord Beswick, and the general strategy of the Government. I first began speaking on Finance Bills, which I did for over 20 years, in 1945. In those days my opposite number was the late Lord Cherwell, formerly Professor Lindemann. Unfortunately, we have lost the attendance of the noble Earl, Lord Mansfield, who this afternoon spoke very sharply about the Government; and therefore perhaps the noble Lord, Lord Sandford, who is to follow me will allow me to pass a few remarks about the noble Earl. I will not say he has fled from the Chamber, but at any rate he has disappeared from view.

The noble Earl spoke strongly about the Government, and in a sense Lord Cherwell, 25 years ago, would have shared some of his sentiments because that is the way Tory speakers in those days spoke about a Labour Government—indeed, they often do. But the noble Earl very quickly used these words: malicious, vicious, slovenly, arrogant. Later, thinking he had not said enough, he spoke about nauseating hypocrisy. I do not think that Lord Cherwell would have thought that very subtle. I venture to suggest to the noble Earl that if he is going in for invective he should learn a lesson from Lord Cherwell or from one of the masters who were sitting behind who also have departed, the noble Lord, Lord Carrington, and the noble Lord, Lord Hailsham of Saint Marylebone. Somebody a good many years ago said that insolence is not invective. Perhaps in the absence of the noble Earl I will not pursue that topic. He is obviously a speaker who is extremely able, and I am sure we shall listen to him with great pleasure; but so far as this afternoon is concerned I thought his language made his total effect somewhat ludicrous. I hope I have said that in the spirit of Christian charity which will be conveyed in the same spirit by the noble and reverend Lord who sits beside him.

To return to the issues before us, as I say, I spoke on these questions and defended the Government during the crises of 1947, 1949 and 1951. I was usually there or thereabouts when a crisis suddenly arose under Governments of one complexion or another. But now for seven years I have followed the advice that the late Lord Attlee once gave to Professor Laski—I am sorry that I have just had to make some sharp remarks in his absence about the noble Earl, who has now returned. But as Hansard is not at the moment readily available it may be that he will never read them; perhaps that is an advantage. At any rate they were delivered in a spirit of entire goodwill. As I was saying, a good many years ago the late Lord Attlee said to Professor Laski, then chairman of the Labour Party, "A period of silence on your part will be welcome"; and so far as finance debates are concerned I have followed that advice and have not raised my voice in such debates for seven years.

After seven years, how do things look? I cannot say that my absence from the scene has improved the situation. We are told by the highest authorities that on all sides we are now in the midst of the gravest financial crisis since the war. Let us be clear about one point. The Government, and particularly the Chancellor of the Exchequer, the right honourable Denis Healey, have spelt this out very clearly. The Financial Times a few weeks ago said: It is unusual for the Chancellor of the Exchequer to issue a public warning that the country could go bankrupt if the national wage bill were to rise excessively fast this year. If the comments of the Financial Times are followed they will be seen to give full credit to Mr. Healey for repeatedly saying that and other things just as strong. Indeed, his language has become plainer and plainer. Yet I suppose we agree that it is extraordinarily hard to bring home to the general public the real nature of the situation and to bring about the understanding which would elicit the kind of sacrifices required.

I referred earlier to some of those crises in the 1940s and 1950s, and these were primarily balance-of-payments crises. That was true of the crisis that produced a situation which led to my withdrawal from the Government in 1968. The balance of payments was the enemy at the gate. In a sense that made things a little easier. One had to act or not act, and it was in a sense easier then than now to realise that action was imperative. But today it is undoubtedly rather hard to bring home to people, particularly when we are living on so much borrowed money, that things cannot go on just as they are going. However, I want to praise not only the words of the Chancellor of the Exchequer but also his deeds.

That of course brings us to the Finance Bill and various other measures, because clearly this Bill is only part of the total economic strategy. Mr. Healey wound up his speech on the economy on 18th December of last year, his last major speech on the economy in Parliament, with this impressive peroration: I believe … that under this Government we shall have a society invigorated by a unity which has eluded us for a generation of peacetime, because it is a unity based on compassion and justice".—[Official Report, Commons, col. 1632.] I repeat, " based on compassion and justice". That was his conviction, and within the limits of democracy I think he was right. I say, "within the limits of democracy" because I am not recommending, and I do not think anybody is recommending, a Coalition Government at the moment and as long as we have a democracy and a political struggle between the Parties obviously there will not be total agreement. But within those limits I think what he said was right.

The noble Earl again was horrified at the idea of the Budget, and presumably the total economic strategy, being regarded as fair. Incidentally, now that he has returned I will say this to him. He used such strong words that I do not know what he has left for subsequent speeches, of which I hope we shall hear many. He hinted that in a sense he would have preferred to use another kind of four-letter word; I do not know whether that will be his next recourse. But if one takes his point of view, it is bound to be very different from that of the average citizen. He was very frank in explaining that he was a man of large property and he warned us of his angle. But he then went on to speak about "ordinary people". He used that expression several times. To him, the ordinary man is a man with 500 acres— I think that is a fair account. Of course, if we were a country like that his policies might be rather more relevant than they are now. But for most people that kind of language is, frankly, infinitely far removed from the actual situation.

The noble Earl will recognise that one would not expect a Labour Government to carry out exactly the same policies as a Tory Government. A Labour Government will set out to redistribute wealth in favour of the poorer classes. It does not always succeed. In spite of the many efforts which were made when I was a Minister during the last Labour Administration from 1964 to 1970,I do not know whether very much was achieved. However, that is the Labour point of view. It is no good the noble Earl pretending that it must be based upon some kind of villainy or total folly. The Labour point of view is that for which the country has voted twice in the last year. Therefore, I hope that the noble Earl will take all that into fuller account.

However, one recognises that government will never be easy; it is not intended by Providence that government should be easy. Clearly one must redistribute wealth if one believes in a Labour policy. At the same time, one has to encourage private industry, and this creates a problem. If one had a Government led by the noble Earl, or by those who think like him, one might encourage private industry somewhat more; one might find it rather easier to encourage private industry—but only at the expense of being reduced to a three-day week. That is what happened a year ago. Therefore it is not a very easy problem, but somehow a balance has to be struck. I submit that the present Government, and more particularly the Chancellor of the Exchequer, have, on the whole, achieved that balance.

There are one or two technical points on which I should touch, which are not strictly related to Party politics. Again, I think that the answer is just about right. Some of these points could have been made, whichever Party was in power. In his speech in December, Mr. Healey took reasonable pride in having given a lead in persuading other European countries that unemployment is now as serious a danger as inflation. That is our point of view, and I hope that noble Lords opposite will agree with it; there is no reason why there should be division between the Parties on that point. We take the view that there are these twin evils of unemployment and inflation, and we are trying to counter both of them.

Mr. Healey can fairly claim, as he has claimed more than once, that he has kept the money supply under strict control. Compared with his unfortunate predecessors, that is plain beyond all argument. Also, he has claimed that he has kept public expenditure under strict control. There, again, in comparison with his predecessors, it is very difficult to resist that argument. Nevertheless, there is no doubt that inflation continues apace. I do not think I am taking a cheery view of the immediate prospect. The Chancellor himself has recently said that the key to controlling inflation in 1975 is likely to be the level of wage and salary settlements. Therefore, my Lords, do not let me imply that, somehow or other, things will sort themselves out if we do not disturb ourselves too much. In fact, in 1974, the real value of wages rose by 10 per cent. Real output in 1974 was about constant; that is to say, it neither rose nor fell. However, the consequence is that labour is pricing itself out of the market; hence the many forecasts of over 1 million unemployed towards the end of this year. These are facts which one must not shirk, whichever Party one belongs to.

Again, we are committed to a steady real growth in the standard of our social services, and I endorse that commitment with all my heart. It is a side of human activity in which I am most interested. However, this can be achieved only by public spending, for which the money must be found from somewhere. At present, this money comes from overseas —in fact, from the oil sheiks—but this position cannot continue indefinitely. That is the position in which we find ourselves at the present time. It is not a question of whose fault it is. It is a question of analysing the situation and asking ourselves, as patriotic people, what we propose to do about it.

Mr. Healey has made it plain several times that everything depends upon wages and salaries not rising too fast in the current year. We all know the various forms of action which, in principle or theory, are open to us. Statutory controls, which I favoured in the past, are certainly not a practical possibility at the present time. Unemployment on the prewar scale is, I hope, repulsive to most of us on all sides of the House. Therefore, we are left with a policy of some kind of voluntary restraint. One can call it a policy of sacrifice, if only in the sense that it means the sacrifice of opportunities of exploiting one's economic position.

My Lords, here I must speak almost in shorthand. The former Archbishop of Canterbury and the present most reverend Primate have both picked out greed as the cause of many of our present troubles. No doubt that is true; it has always been true. But can one argue that, as a nation, we are more greedy than we used to be?

Lord HAILSHAM of SAINT MARYLEBONE

Yes, my Lords, we can.

The Earl of LONGFORD

Surely not, my Lords. We are greedy, but no more greedy than we were. The point is that the fear of unemployment in the old days prevented the majority of the nation from exercising greed; it did not prevent the minority from doing so. When I learned economics a good many years ago, some of them from the noble Lord, Lord Robbins—who is not with us— they were based on the concept of somebody called "economic man". "Economic man" was really "greedy man". It was assumed that "economic man" would take the fullest possible advantage of his economic position to enrich himself. The time has come when the trade unions are in a position to follow the same code of behaviour as was taught to them by those who were in powerful positions in the past. The temptation to follow that code is very strong; in other words, we have reached the position where "economic man", whether he belongs to the business classes, to the working classes or to any other section of the community is a very insufficient and dangerous guide. Somehow or other, "economic man" must be blended with " patriotic man "—a not inconceivable figure, as we learned as recently as the last war.

On another occasion perhaps I could spell out more clearly what kind of examples of sacrifice should be set, beginning at the top. However, that would take us rather far from the Finance Bill which is before us today. Therefore, may I end by repeating my conviction that the economic strategy of our Government is well conceived, but that neither that nor any other economic strategy will work unless a new spirit is generated in all sections of the community. And that in turn will not be effective unless those who are in the strongest position show the way.

5.17 p.m.

Lord SANDFORD

My Lords, the noble Lord, Lord Beswick, introduced the Second Reading of this Bill by seeking to demonstrate how fair it is. I think that my noble friend Lord Mansfield was able to show convincingly—to me, at any rate —that it is exactly the reverse. But what followed after that was a devastating speech from the noble and learned Lord, Lord Wilberforce, who showed, further, that in their preparation and handling of this Bill the Government are behaving like a bull crashing around in a china shop, almost unconscious of the damage and loss of confidence which they are causing.

The aspect of that suggestion on which I should like to spend a moment before dealing with one or two clauses in the Bill is the Government's apparent misjudgment of the importance of the hereditary principle in the whole social fabric of our nation. Estate duty, which has operated until now, has had the intention and effect of penalising and raising revenue from those who sought to hold on to their wealth until their lives' end. At the same time, however, it exercised a positive encouragement to those who had wealth to make proper dispositions of it at the right moment to their heirs and successors. May I suggest to your Lordships' House that this is a very proper and right thing to do, and that the whole nation has enormously benefited from it. It is this that we want to see continued. It is normal, it is natural, and it is widespread. In earlier speeches in another place, the Government have given the impression —and I cannot see why they should want to deceive us—that they think these early and timely dispositions of wealth among heirs and successors constitute an evasion in which only a certain elite are able to take part, and that it is this that they want to stop.

Of course the hereditary principle begins with the Monarch and it continues through the Peerage. These are both exclusive and elitist parts of the social fabric. But even when we come to the Peerage, it is not because the Hereditary Peerage was found to be at fault that we have Life Peers here. Life Peers are very welcome and enriching, but the Hereditary Peerage goes on, and if it were not for the Hereditary Peerage we would not have the noble Lord, Lord Strabolgi, succeeding to his title at 40 and the noble Lord, Lord Melchett—who was here a moment ago—succeeding to his at 25, both of them doing much in the process to prevent us becoming too much an assembly looking like a Sunset Home.

The hereditary principle goes right through society. Almost every small farm passes from father to son. The great majority of the small firms—many of them are now large and successful businesses —began as family businesses and passed from father to son. We talk about " Messrs. Black & Sons," " Messrs. White & Sons ", and this is a part of our society which we must seek to preserve. My noble friend showed very clearly that they will only survive for a generation or two.

As if this is not sufficient demonstration that the hereditary principle runs right through society, just look at our names. My own family name is Edmondson—Edmond's son ; we have Robinson —Robin's son; we have Thomson— Thorn's son.

Lord HAILSHAM of SAINT MARYLEBONE

Will's son.

Lord SANDFORD

And we have Will's son— and what could be more ordinary and common than that. This should be maintained and continued. It is because capital transfer tax strikes such a damaging blow to such a fundamental part of the fabric of our national life that, as soon as possible, when we have got rid of this rotten Government we shall get rid of this rotten Bill. But in the meantime we have to make the best of a bad job.

Even if I were not a clergyman—as the noble Earl, Lord Longford, just reminded me—I would have to welcome the signs of amendment and repentance that have gone on as the Bill has proceeded through another place, but this is where, as the noble and learned Lord, Lord Wilberforce, has shown, the Government have shown all the signs of behaving like a bull in a china shop which does not know what damage it is doing. However it does not alter the underlying philosophy behind the capital transfer tax, which is objectionable.

The substance of the clauses incorporated is also ill-considered. It is ill-considered in drafting, as the noble and learned Lord, Lord Wilberforce, has shown; it has been ill-considered in another place, where the guillotine fell before all the Amendments at Report stage had been considered. It is even more ill-considered in this House than an ordinary Finance Bill, because not only are we not able to make any Amendments but most members of the House have had considerable difficulty in even getting copies of the Bill itself. This is really a disgraceful way in which to proceed with such far-reaching legislation.

Let me just illustrate the general thesis that I am propounding from two facets; namely, forestry, which my noble friend Lord Mansfield dealt with, and the national heritage. As one who was responsible for formulating the new forestry policy as a Minister in the Department of the Environment, I was delighted when the present Government took over that policy. I am delighted that they are still continuing to support the Tree Council. I am delighted that the Prime Minister planted a tree at Chequers. All these are symbols of the right spirit, but none of them will achieve anything and much of what we achieved in 1973 and 1974 will be set at nought by the policy that Her Majesty's Government are following towards forestry, as set out in this Bill.

Their attack in this case seems to be based upon a prejudice towards private investment forestry. I do not hesitate to say that I have had some harsh words to address to that sector as a Minister in the past for what they have rather thoughtlessly done to the detriment of the upland landscape of this country in some areas. But the new forestry policy would have put all that right; all that could have been dealt with as a matter of finetuning. But the main effect of the abolition of the tax incentives on private investment in forestry has been to bring all that to a halt. While the Prime Minister plants a single tree at Chequers we have really lost a whole planting season.

The further point is that the operation of the existing tax incentives was having a very desirable effect—whatever minor mistakes might have been made—on bringing financial support from those who had earned their wealth, perhaps, in the City, into the impoverished hills in the regions. Is not this what all the haggling at Brussels on the Regional Fund is about —to get money into the hills and into the regions? Why, at the same time as we are doing that, do we stop our own people from assisting with their own investments?

Once again, during the passage of the Bill I think the Government came to some recognition of the damage their proposals were doing and they have come up with fresh ones. But there has been no consultation in regard to this change of heart. There may have been some consultation to begin with, but the new clause, embodying their new attitude, was introduced right out of the blue. Although it indicates that the Government are thinking, it is certainly not true to say—and my noble friend has made this point—that what they are now proposing will be successful in encouraging the private planting of woodlands, any more than their first proposal. So the whole of private forestry is at a halt.

I now turn to the importance which the Government attach to the maintenance of the integrity of those parts of the national heritage which are in private hands at present. There have been three ways of safeguarding this part of the national heritage, and I understand Her Majesty's Government wish them to continue. There was the alternative of passing the property to the National Trust, or a similar body (the bodies are listed in the Bill) making and then handing over the property to a charitable trust—and that again is provided for in Schedule 6 to the Bill—or passing it over to heirs and successors during the owner's lifetime.

In each of those three cases there are many possible variations, depending on the composition of the estate and the circumstances of the parties concerned in the transaction. But in each one of them there is one essential ingredient; namely, the attached endowment, that wealth which is needed for the upkeep and the maintenance of the historic estate concerned. You do not have to have been in the business of looking after the national heritage to know that for ages it has been a basic condition of a transfer of property to the National Trust that there must be sufficient attached endowment included. Everyone knows this. Long experience has shown it to be essential. It is a condition of transfer to a body for public benefit that there is an attached endowment, and that is included in paragraph 13(2) of Schedule 6 to the Bill. That attached endowment is, of course, exempt from the capital transfer tax.

My right honourable friend in another place has spent much time in Committee, right into the night and the early morning, stressing to the Chief Secretary of the Treasury that such an attached endowment was always needed in each of those three cases, and he indicated that he had taken the point. It is all in the report of the debate in Committee and on Report in new Clause No. 6. Yet in the new clause which now appears in the Bill as No. 34, providing for transfers at death to be exempt under certain conditions—and no one objects to there being conditions—this essential ingredient of exemption for the attached endowment which supports the upkeep of the property is missing, and, of course, without it the clause is totally inoperative.

This is yet another example of the fact that even now, even with the greatest endeavours not only by my right honourable friends in another place, but also by people representing the amenity societies, such as the joint committee of amenity societies, writing directly to the Treasury and to the Chief Secretary, this point has not sunk in, and they do not realise what they are doing. As my noble friend said, there are three or four possible views one can take of this. One can assume, if one is not particularly charitable, that the Chief Secretary was trying to deceive another place. I cannot believe that, because such deceit would be so gross as to be hardly worth attempting. It may be that they know perfectly well what they are doing, in which case all their protestations about the importance in which they hold the national heritage ring false. I myself take the charitable view that it is just a failure to grasp what they are up to: Her Majesty's Government have promised to get the Select Committee on the wealth tax to look into this, which is a way of wriggling out of the situation. Indeed, it will be necessary for the Select Committee on the wealth tax to look into all these things.

Lord BESWICK

My Lords, if the noble Lord, Lord Sandford, will allow me to interrupt, and since he is tending to use strong language, we were advised by the noble and learned Lord, Lord Wilberforce, that the tax as a whole should have gone before a Select Committee before any decisions were taken. In this particular case, the matter has been submitted to a Committee. Why does the noble Lord say that it is a way of wriggling out of it?

Lord SANDFORD

My Lords, it is wriggling out of a situation which the Chief Secretary to the Treasury got into during the passage of the Bill through another place. Of course it has to go to the Select Commitee on the wealth tax because they are considering a totally different tax from the capital transfer tax. I entirely agree with the noble and learned Lord, Lord Wilberforce, that all this would have been very much better if far more people who knew what the effects would be had been drawn into consultation. I am making the point by way of an example and, Heaven knows! one could repeat it easily enough, that by rushing this enormous piece of legislation through in this difficult area, the Government have inevitably betrayed themselves as bulls rushing about in a china shop and doing the most terrible damage in the process. It betrays an absurd misunderstanding of this particular situation, to have omitted the exemption of the attached endowment in this new clause. I will not labour the point further, and I will not take up any examples. As the noble and learned Lord, Lord Wilberforce, said, it is really rather absurd that neither House has been able to put this right or, indeed, correct any of the very many remaining faults in this faultles piece of legislation.

5.34 p.m.

Lord BRUCE of DONINGTON

My Lords, it is my very pleasant duty also to offer, with my own, the congratulations of the House to the noble Lord, Lord Sandhurst, on his maiden speech. I am sure that I express the views of the whole House when I say that we hope there will be many opportunities of hearing the noble Lord speak again.

My Lords, the debate this afternoon was originally conceived to discuss the Finance Bill. So far as I can see, whether by agreement or otherwise, the debate has concentrated largely on the capital transfer tax. Therefore, with your Lordships' permission, and subject to one or two observations that I consider it wise to make in reply, I propose to confine my remarks mainly to that section of the Bill. But before I do so, I wish to refer to the speech of the noble and learned Lord, Lord Wilberforce, to which I listened very carefully. If my recollection serves me aright, the noble and learned Lord referred to the fact that barristers and solicitors would be required to pass information to the Government.

Lord WILBERFORCE

Not barristers.

Lord BRUCE of DONINGTON

My Lords, I am in very much the same position as many of your Lordships. The Bill did not arrive in my hands until yesterday, and I spent a good deal of time into the small hours of this morning examining it. But looking at Schedule 4 to the Bill, so far as I can discover, the only reference to the supplying of information by barristers and solicitors is limited to the supplying of names and addresses. I should not have thought that an entirely unreasonable request. I should not have thought there would have been any breach of that degree of absolute privilege which exists between either barristers or solicitors and their clients. If the remainder of the words that fell from the lips of the noble and learned Lord can be construed in the same degree of exaggeration that he implied when speaking on this particular point, it is something of which we should take great note. It is a very grave matter for the noble and learned Lord, who occupies a high judicial office, when debating a Bill of this kind to refer to something which strikes at the very roots of the Constitution.

My Lords, I now pass to the speech made by the noble Earl, Lord Mansfield. He mentioned the case of a farm whose market value was £250,000, and he quoted some blood-curdling figures. Like the noble Earl, I do not normally give professional advice except for a fee, but 1 am bound to say that on an examination of Schedule 8 and the strict application of the provisions of that Schedule, I should have thought that the figure of capital transfer tax would have materialised at a figure quite substantially below that which would normally be applicable for estate duty. However, I do not know the assumptions on which the noble Earl worked. I can only offer that as a preliminary opinion.

The Earl of MANSFIELD

My Lords, if the noble Lord, Lord Bruce of Donington, will kindly give way, I do not want there to be any doubt. Another accountant supplied me with those figures. He is a tax adviser to the Scottish Landowners' Federation, so there is no mystery.

Lord BRUCE of DONINGTON

My Lords, I accept that, but in view of the fact that the Bill has only just been published in its amended form, I should prefer to take a much longer look at it. If the noble Earl, Lord Mansfield, will take my advice he, too, will be well advised to take a much more careful look at the Bill in the light of the provisions in Schedule 8.

My Lords, if I may say so, this debate is proceeding in a most unreal atmosphere. We have heard stories of the most damaging effect that the provisions of the capital transfer tax would have, according to the noble Earl, Lord Mansfield, on thousands of people, and according to the noble and learned Lord, Lord Wilberforce, on ordinary people. But what are the real facts? How many people will be affected by the capital transfer tax? This is an extremely important matter. Listening once again to the arguments deployed in another place and outside, one would gather than the whole of Britain is full of people who would be working under a gross disability if they were allowed to give only £1,000 a year to their immediate relatives; and that there are thousands of people who have been labouring under a gross disability if they are permitted to give only a £5,000 wedding present to their daughter on marriage. There have been all kinds of statements which have implied that the capital transfer tax is a grievous imposition on the ordinary people of the country. This is far from the case. Noble Lords opposite have been concentrating most of their remarks this afternoon on the effects which this Bill, or the capital transfer sections of it, will have upon a very limited class of people indeed—very, very limited.

Several Noble Lords: Nonsense!

Lord BRUCE of DONINGTON

I shall provide the figures for noble Lords in due course. Noble Lords opposite must not complain, if they so assiduously pursue and defend the interests of what I shall show is a very small minority, whether hereditary or otherwise, if we on this side of the House dedicate ourselves to the task of studying the 80 to 95 per cent. of the people of this country who are not affected by this Bill.

Who are the people affected? To answer that we have to turn to Cmnd. 5704, which provides some rudimentary assessment of the shares of wealth in this country, the percentage of the population that owns so much wealth. What do we find relative to the year 1970? We find that the top 1 per cent. of the income range, which comprises some 412.000 people, own 30 per cent. of the total identifiable wealth of the country, and that the top 5 per cent.—which includes the 1 per cent. to which I have referred—which totals some 2 million people, own 56 per cent. of the nation's wealth. Whereas the 95 per cent. of people over 15 years of age—and all figures are over 15 years of age—own 44 per cent. of the nation's wealth. Averaging that out means that the top 1 per cent. have on average some £70,000— and we are talking of identifiable wealth; we are not talking of settlements; that the top 5 per cent., taken as a whole have some £26,000; and that the 95 per cent. of the population have on average a capital worth each of £1,088. If these figures may appear, since they are produced by the Government, slightly too much for noble Lords opposite to stomach, may I refer them to page 34 of last week's Economist, which produced exactly the same picture, except that in this particular case the top 20 per cent. of the population own some 70 per cent. of the nation's wealth. These 20 per cent. are the people with whom noble Lords opposite are principally concerned. These are the people to whom the provisions of the capital transfer tax apply.

My Lords, as I have said, we on this side of the House conceive it our duty to assess the effect of Government legislation upon the whole population, but including in particular the 80 per cent. of the people to whom I have referred; and those 80 per cent. of the people include some 10 million people in this country who are living at or below, or slightly above, subsistence level. This is why I say that the debate here this afternoon has a rather unreal aspect. It is not something that affects the population as a whole. We are concerned in this country to preserve and enlarge democracy.

Viscount MOUNTGARRET

My Lords, may I, with permission, ask whether the noble Lord is aware that there are approximately 2 million selfemployed people in this country, and this tax will hit them very hard indeed? They are the people to whom he is referring, they are the 5 per cent. of the population of this country, the 2 million people self-employed; and those 5 per cent. of the population contribute approximately one-quarter of the nation's trade.

Lord BRUCE of DONINGTON

My Lords. I note what the noble Viscount has said, but I point out to the noble Viscount that if there are self-employed people on the scale he suggests who are going to be caught by capital transfer tax, this implies that their wealth must be in excess of the sum that is made up by £1,000 a year gifts and £15,000 exemption on top of that. If the noble Viscount thinks that all the millions of self-employed people have capital resources of that kind, then I think he stands to be corrected, because the majority of self-employed people, in the numbers that he has been talking about, have not fortunes of that order.

My Lords, we are concerned in this country to preserve democracy. Democracy in Britain is going to be very difficult to preserve if the great gap between poverty and wealth continues, if the great gap between the urban areas and the country areas continues, and also if the gap—the great yawning chasm—between the educated and the uneducated or the under-educated continues to exist. Noble Lords opposite from time to lime make reference to growing violence in this country. Any debate on seditious movements, or so-called seditious movements, immediately commands very wide attendance. Reference is made from time to time to the growth of violence in our streets. Do not noble Lords opposite realise that all these things are the product of a society which is sick, and sick because of the gross inequalities within it? Because I think that in this Bill, together with other measures that are being proposed by them, Her Majesty's Government are trying in their democratic fashion to remedy these ills, I ask the House to give this Bill a Second Reading.

5.48 p.m.

The Viscount of ARBUTHNOTT

My Lords, I am always apologetic for speaking so seldom in your Lordships' House. The principal reason is that I am a full-time working land manager and farmer. I believe the noble Earl, Lord Longford, referred to my noble friend Lord Mansfield as a large landowner. I think this personalising of wealth is one of the problems, which has certainly again been introduced, if I may say so, with respect, by the last speaker. At 5 feet 7½ inches I have never considered myself a large landowner. In fact I am not a landowner at all. As I said, I am a manager of land, which happens to be held in a family trust, and I farm, as a tenant, some of that land; and the acres concerned are by no means extensive. We have paid our estate duty twice in the last fifteen years, so we cannot even be said to have been tax avoiders. although we may not perhaps have been so well advised as others who are alleged to have avoided. Last September I was telling people that I thought that anyone dependent for his wage, salary or income on a privately-owned family business of any size must feel his livelihood at risk if the then White Paper transfer tax proposals were implemented. I have had no occasion to change that view. There have certainly been some welcome concessions over principles, but the major effect of the Bill on privately-owned businesses will, I am sure, be just as great as I feared it would.

With respect to the noble Lord, Lord Beswick, he did not make the point that I wish to underline about the anxiety that is genuinely held by people over the imposition of this tax. That anxiety is enhanced by the fact that that tax is imposed on top of existing taxes—such as the capital gains tax—and there is the threat of a wealth tax to come. One is not anxious for oneself, but about the level of taxation that will affect one as an employer of men, as, in my case, a producer of food, or of timber, and of one's ability to play a role in the countryside. That explanation perhaps puts more into perspective where the anxiety lies and I should like to emphasise that point.

Secondly, I want to take up the matter of the distribution of wealth. In principle, no one can disagree that wealth should be distributed as evenly as possible, but we must never be in danger of confusing, as I have said before, wealth in that broad sense and capital that is invested in family businesses. This personalisation of wealth, as if so-and-so was a wealthy man when what you really mean is that he happens for a time to be the controller of a considerable capital investment which is productive and which is being purposefully and well used, is a threat that is causing anxiety.

My Lords, if I might quickly go through the three aspects which worry me over this imposition, the first must be, as other noble Lords have mentioned, within the field of agriculture. May I again stress that I am not going to talk about the personal effect that it will have on any one individual. I am concerned with the effect that this particular form of taxation will have on our ability to produce food in the countryside. The capital invested in the agricultural community is a very large sum indeed—£22,000 million. I think the agricultural industry is to be congratulated that nearly 90 per cent. of that capital is privately held. I do not think that anybody looking at the record of the industry could say that it had been inefficiently utilised or that it was not being used to its maximum potential.

One of the unfairnesses is that the relative concessions to agriculture have sought to benefit only 60 per cent. of the agricultural industry, in the sense that 40 per cent. of the industry's wealth is in tenanted land; land that is owned by landowners but not farmed by them. I cannot see the sense, or the fairness, of allowing a concession on an industry, for obviously good reasons, but on only 50 to 60 per cent. of that industry. Why should the capital be more at risk in one half of it than another? As one sees it, the fact is that the imposition of transfer tax will effectively take six times as much capital, by way of taxation per year, out of the agricultural industry than does the present estate duty. This is an industry which requires its capital, as does any other, but which holds it in a way which is mostly liquid. Therefore, taking it out must imply fragmentation, as has been said so often before.

What I should like to ask noble Lords opposite is this: if the extraction of capital from this industry is a means of redistributing wealth, how do you redistribute this illiquid capital, which is in the form of farms, land and buildings and which is most productively used in the form in which it is presently held? Who will benefit? Secondly, where will the money come from that will have to be reinvested in the industry to kep it viable at its present level? These are fair questions.

Now I wish to move quickly on to the subject of small businesses. Again I think the danger has been to personalise the businessman as if he were a wealthy man who has capital and who must redistribute it. The Small Industries Council for the rural areas of Scotland have under their wing the care of some 3,000 firms and a thousand craftsmen who are all employing an average of 12 employees in their businesses. They represent all the small manufacturing, servicing, construc- tion and maintenance sector of the rural economy. Through no fault of their own, as businesses they are largely undercapitalised, yet they come within the threat, because they are privatelyowned family businesses, of the imposition of this tax.

I think it was the noble Lord, Lord Beswick, who said that it could not be much of an imposition on a small businessman to pay, I think the figure was, £1,800 a year, to cover capital taxation. But it is in fact the very necessity for the forward commitment of capital, which is badly needed in these businesses, that is causing them so much despair and which is making the small family businessman give up hope of continuing and of handing over to his son. It is all very well to say that only so many hundreds of pounds a year are required to meet a tax, but it is those very hundreds which are not there. The business will disappear, and the rural economy, which is so dependent on a whole web of these small businesses, will be very sadly affected. Why, therefore, is there this attack on the small family business? To a certain extent I think that probably all of us (it is certainly true of the big men on both sides of industry) have got our eye far too much on the Industry Bill, while the effect of this taxation on the small family business has been largely neglected.

Finally, I should like to refer to forestry, again not from the point of view of the personal wealth, which really is not held in forestry, but as to the effect that these provisions have on, again, a very large section of the forestry industry. Something like 80 per cent. of the national growing stock in trees is held in private forestry industry, and the Forestry Commission, I am sure, could not come anywhere near meeting the requirements of our timber trade, and our timber industry, without the private sector to assist them.

Three years ago, we very nearly had our future planting requirements correct. In the year ending March 1972—in Scotland, at any rate—we had 50,000 acres of young trees being planted in the public sector and 40,000 in the private sector. Let us put the blame where it lies. In 1972 there appeared, most unwisely, consultative and other documents that put the future of private forestry at hazard. Last autumn, when another document was prepared for the future of private forestry in particular, some of us thought that it was getting right again but everything is now at risk and the future of that vital private sector has again been thoroughly threatened.

At this point it is probably fair to mention that it is not only the threat of the loss of the capital that should concern us, as both agriculture and forestry are productive industries which, as a nation, we require. We know that in Scotland alone, from a survey taken during the last three weeks, some £2 million worth of agricultural investment is now aborted, and the same is true of 13,000 acres of new planting land. In terms of jobs, and the threat to future production, that is a very sad reflection on the proposals that we are discussing this afternoon. It is fair to say that not all that aborted investment is due to the threat of capital taxation, but the survey reveals that in the case of agriculture nearly five out of ten people put that as their first reason; and in the case of forestry, not surprisingly, more than seven out of ten.

My Lords, I have tried to avoid personalities and the bandying about of names and accusations of the way people express themselves. In fact, I did not intend to end up this way, but now I think it is fair to do so. Through this taxation we are concerned with the future of one-third of the country's business community. Those are the small businesses. We are concerned with the second and third greatest import bill savers— agriculture and forestry. The production of these three spheres is at risk. I am not sure whether we are playing a game of poker or social contract bridge over this legislation, but if the Administration holds a hand which someone else has termed a "busted flush", the cards that are being dealt to private enterprise are heavily marked and all of us will be the losers.

6.3 p.m.

Viscount DAVIDSON

My Lords, I should first like to add my congratulations to those already offered to the noble Lord, Lord Sandhurst, on his fluent maiden speech. Many of the more recent maiden speeches which we have heard in this House have come from those of your Lordships who have travelled only a short distance from another place. The noble Lord, Lord Sandhurst, has travelled a good deal further and I am sure we are grateful to him for coming, and we look forward to hearing him on a number of occasions. I should also like to refer to the speech by the noble and learned Lord, Lord Wilberforce, which was full of knowledge, common sense and wit, and was one to which I hope the Government will pay due heed and read most carefully.

So much has been written and spoken about the capital transfer tax since the White Paper was published, that it is difficult to find anything particularly new or original to say. But at this eleventh hour, and just before this Bill becomes law, I should like to pause for a moment and reflect on a few basic principles which I feel certain that many of your Lordships on all sides of the House will hold dearly, and which I suggest are put at severe risk by this new tax on private capital which we have an opportunity of discussing today. It is unfortunate that we do not have an opportunity of doing any more than that.

I am well aware that the Government have been very well apprised in no uncertain terms of the force of the opposition to this tax. Indeed, the fact that they have made certain major concessions in principle already, even though they may turn out to be only minor concessions in practice, must suggest that they realise and appreciate that much of the strength of the opposition stemmed either from logic or from reason rather than from pure party politics. I shall try to carry on the good work in the next few minutes and present arguments which I think are both objective and realistic.

My Lords, as we have already heard today, estate duty was introduced in 1894. A year later—the rate at the time was 8 per cent.—Lady Bracknell was heard to remark. What with the duties expected from one during one's lifetime and the duties exacted from one after one's death, land has ceased to be either a profit or a pleasure. It gives one position and prevents one from keeping it up. That is all that can be said about land. It took 78 years, in fact until 1972, for the Government—the last Conservative Government—to recognise the fact that the time had come to consider the reform of estate duty when it published a Green Paper called the Taxation of Capital on Death, a Possible Inheritance Tax in place of Estate Duty.

Quite apart from Lady Bracknell's comments, it had become too much like gambling with death to be considered either equitable or morally tenable any longer. The only thing that could be said in favour of estate duty was that it was legally possible to take avoiding action if one was so inclined. At first sight an inheritance tax appeared to be an attractive alternative to estate duty, in so far as the rates would be lower and the recipient of an inheritance would be responsible for paying the tax, instead of the estate of the deceased. On the other hand, it highlighted the difficulty, which I believe has been the subject of continuing discussion and debate during the last three or four years, of treating liquid and non-liquid assets in the same way.

If there is to be a system of capital taxation on death or capital taxation on gifts I personally do not believe that anyone who receives assets in the form of cash or easily realisable securities should object to paying the tax which is due. But when these assets are not easy to realise, or represent what I prefer to call functional capital, the problem arises of forced sales, liquidation of family businesses and fragmentation of land ownership. This problem was appreciated under estate duty so far as agriculture and small businesses were concerned. They were allowed the 45 per cent. abatement and the payment of the duty over eight years at a low rate of interest. But even in 1972 these concessions were beginning to look unrealistic. There is not the time tonight to go into the reasons, but it is material to the debate today to remind your Lordships that 1972 saw a sudden and startling rise in the prices paid for agricultural land. Until then there had always been some correlation between agricultural land values, rents and farming profits, or at least the prevailing farming economic climate used to have some effect on the level of land prices and rents. But with the floating of the pound and the general disenchantment with the stock markets as a home for investment funds, agricultural land suddenly became an attractive alternative investment for both City institutional and individual portfolios.

This happened at a time when not only were 75,000 acres being taken out of agriculture every year, but when the actual number of transactions and the acreage involved in those transactions was declining each year. So one saw operating the twin pressures of increasing demand from various sources coupled with a reduction of supply, leading inevitably and inexorably to a dramatic increase in prices.

The result of this explosion in agricultural land values was to put at risk both the principles of private land ownership and the continuity of ownership, for although only about 1½ per cent. of all agricultural land was changing hands each year at these speculative prices—and I think that one must call them speculative—they were the values which formed the basis of assessment both for estate duty and for capital gains tax. The result was that the heir of anyone who was unfortunate enough to die during this period had, even with the 45 per cent. abatement, to pay a massive estate duty bill which could only be found by selling off part or the whole of the farm or estate. Similarly, the size of the capital gains tax bill had become so great that it was virtually impossible to hand over an estate to an heir or successor. These high land values, coupled with the then existing forms and levels of capital taxation, were immediately responsible for starting a trend towards fragmentation and away from a continuing improvement of agricultural efficiency which had been developing so well since the war.

My Lords, I have felt it necessary to go back slightly into history to remind your Lordships of certain things in order to emphasise that the future of the private agricultural landowner, whether he be landlord or owner occupier, was already threatened before the proposals for the capital transfer tax and the wealth tax were conceived. One hoped at the time that it would only be a temporary threat but, in my view, the capital transfer tax has made it into a permanent reality.

This is not the moment to discuss possible alternative forms of capital taxation, of which there could be many variations both in form and in substance. I shall direct my remaining comments to capital transfer tax as we see it about to appear on the Statute Book tonight. My main criticism is that it was not considered in the first place as part of a general form of both capital and revenue taxation, in the same way as the Irish have gone about the reform of their taxation. If this was not possible, then a major new tax of this nature should have been introduced as a Green Paper and should have been considered by a Select Committee along with the proposals for the wealth tax. I take the point which the noble Lord, Lord Beswick, has been making about the difficulty of putting the capital transfer tax to a Select Committee. That would have meant that everyone who could would have given everything away so that they would not have to pay any tax. Even so, I do not think that, with the way in which things have worked out, this would have been a mistake because, at the moment, I feel that the capital transfer tax leaves room for so much improvement that it may well be necessary for it to be referred to a Select Committee to tidy up the many loose ends which I believe it displays.

One has only to read the reports of the endless hours of debate lasting through to the early hours of the morning in the Standing Committe in another place to realise that the impact of the tax on agriculture, forestry and small businesses of every kind had not been properly considered or appreciated when the Bill was drafted. Even after the so-called "concessional" amendments, it is quite clear that it goes into law as the most ill-conceived, ill-digested and hurriedly drafted piece of fiscal legislation that has ever found its way on to the Statute Book. I suggest that it would have been better and more sensible if the Government had waited for the Royal Commission on the Distribution of Wealth and Income to publish its findings before proceeding with the consideration of either of these two taxes, but I am afraid that that is a forlorn hope now.

My Lords, those are my general comments. I now come to my more detailed criticisms. First, one must welcome the fact that the Government have, after constant pressure in the interval between the White Paper and the publication of the Bill, accepted in principle a form of concession for agriculture. There are four factors which distinguish agriculture from other industries. First, as my noble friend Lord Arbuthnott has said, the great majority of the capital is owned by individuals. Secondly, about 80 per cent. of the capital is invested in land and fixed equipment. Thirdly, the capital invested per man employed is twice as great as it is, for instance, in ICI. Fourthly, the return from land-owning has always been low in comparison with other forms of investment. The Government appear to have ignored the first three of these factors and to have accepted the fourth only in so far as the concession is related to the speculative element in agricultural land values which existed over a year ago. Since then, as we all know, land values have declined and rents have risen, so that a concession based on 20 times the rental value no longer has the significance that it had over a year ago. Indeed, it could soon become a non-concession.

How much simpler and more logical it would have been to have granted a concession—if one was to be granted—on a percentage reduction below the open market value, as was done for Northern Ireland, or even to have left it to the professional valuers—who, I suggest, understand these matters far better than the Treasury Ministers—to use the more flexible procedure of taking the going rate for a year's purchase which is currently used for agricultural investments at the time the tax liability arises. It might be argued that a concession of this nature might open the door to some people to invest in land in order to obtain the concession, as happened—or so it has been alleged—with the 45 per cent. abatement. But, as it is only the full-time working farmer, as defined in the Bill, who is entitled to this concession, I cannot see that this argument has any force.

That leads me to consider the definition of the full-time working farmer. Here we have the perfect example of the result of what I might describe as the union of political dogma and economic fact. The result is a legislative mess. There will be more arguments about who qualifies under the definition than about anything else in the Bill, and that is saying something. "Wholly or mainly" is the phrase which is used. There will be arguments in the courts as to who is "wholly or mainly" and why "wholly" should be put in if it can be "mainly" and so on. One immediate effect will be that the amount of land available for letting will, very reluctantly but very drastically, be reduced, because of course any landlord will immediately get as much land as possible up to 1,000 acres in band in order to have himself defined as a working farmer and in order to attract a concession which, as I have said, may well not prove to be one in the future. I am sure that that is not what the Government intend.

My Lords, whatever the Government may or may not have intended, it is now quite clear that the effects on agriculture will be nothing less than disastrous, even with the lower rates of tax on gifts which appeared suddenly, in the middle of the night, in the Committee in the other place. They appeared just like that. It was most extraordinary. What was a single tax suddenly, at 1 o'clock in the morning, became two separate taxes. But, even with that lower rate of tax on gifts, it is unlikely that anyone in his right senses will voluntarily incur a massive tax bill by handing over his farm or estate before he dies, particularly as it is still not entirely clear whether the transferor or the transferee is to be liable for paying the tax.

But, more serious than that, the tax represents yet another impost on the already too-heavy burden of taxation which agriculture has to bear at the moment. On the economic side, we are seeing investment programmes being cut back or abandoned. This trend is bound to continue under the further threat of the wealth tax. We are witnessing the beginning of the end of the private landlord and tenant system, which has been the envy of other Common Market countries as providing the cheapest and most efficient method of agricultural investment. We are seeing a run-down in the maintenance of farm buildings and cottages. Moreover, these tax proposals are being introduced at a time when the industry is already suffering from a crisis of confidence and a serious cash-flow problem brought about by the inflationary rise in costs during the past year.

My Lords, I began by saying that I would try to be both objective and realistic. It may be that I have been more realistic than objective, and that is for your Lordships and the future to judge. But it is difficult to find anything in favour of the capital transfer tax which can commend it to anyone. It is complicated and bady drafted. I cannot understand how it will in any way contribute to our country's economic or social well being. However, if it is, as is alleged, part of the Social Contract, then perhaps we might console ourselves with the thought that it might not work, anyway.

I conclude with this comment. This Government have set out to achieve a social revolution. I am not quarrelling particularly with that. I accept social evolution as a fact of life and of history. "Revolution" just means accelerating the process and making it all come back full circle a bit more quickly. But in this phase of evolution, the Government are implementing the political catch-phrase "the redistribution of wealth"—I still do not quite know what it means, though I admit it is a good political catch-phrase —as one of the methods of speeding up the revolution. I suggest that if they persist too strongly along this line, they may finish up by finding that there is no quicker way of raining a country than by sacrificing private capital on the altar of political doctrine.

6.23 p.m.

Lord BARNBY

My Lords, I have postponed intervening in the debate until this point, because I wanted to hear the remarks of noble Lords, particularly the comments of the noble Lord, Lord Beswick. Having just returned after being abroad for several months—indeed, from the day after the House rose in December —I have felt somewhat out of touch with the day to day British Press and I have returned to find myself sharing the perplexity which a great many others have. The noble Lord, Lord Beswick, made the kind of speech we have come to expect from him, clear and explanatory, but it did not include aspects to which I had hoped he would refer, particularly an explanation of the current overall position. But, then, his speech had the merit of brevity. The noble Lord spoke for only about 20 minutes, compared with the introductory speeches lasting three-quarters of an hour or more that we were in the habit of getting years ago. But, of course, there were not the repetitive Budgets then as there are these days.

I have certain questions to ask which the noble Lord, Lord Jacques, may not be able to answer because I have not given him notice of them. However, as we are soon to have a finance debate, perhaps they will be answered then. The first is on the subject of indexed bonds, a matter which has been raised in this House before and one to which the Budget contains no reference. The second is another matter which has previously been raised in this House—the developing habit of direct overseas borrowing by public authorities and other companies, and indeed individually, instead of by recourse to the Consolidated Fund, so masking the current balance of payments and, of course, building up a large subsequent debts service about which the Treasury has all the information.

There is a point which I wish to raise on which I hope the noble Lord, Lord Jacques, who is always readily forthcoming and clear when dealing with financial matters, will comment. In the latter part of 1973, after the Arab bombshell struck us—at a moment when we were internationally extremely extended in our finances—there was need for an active campaign throughout the country to explain the necessity for self-sacrifice and a tightening of belts by all, including the Government, so that there would be some modification of the extremely bad situation which we were likely to be in, with increasing unemployment. That need continued all through 1974. I appreciate that at the period in 1973 which I mentioned the present Government were not in Office, but for the greater part of 1974 they were and there was a conspicuous absence of the kind of warning which Government alone, by an active campaign throughout the country, could have brought about; a campaign to ensure a recognition of the sacrifice that was called for.

There was need to explain the serious adverse balance of payments, the heavy deficit in the Budget, mounting inflation, dear money and every prospect of developing unemployment. Anyone who was out of the country for a prolonged time would have expected that in 1975 the Government would at least have recognised the need for dramatic action, but it has not been taken. Meanwhile, of course, the steadily advancing rates of income of a large part of the population have made it easy for them to confound any suggestion that sacrifices were needed, because many would say, "If this is inflation, give me inflation."

I referred to dear money. All my life I have been told that good trade cannot be expected in a dear money situation. But simultaneously we had a severe restriction on profits, the freezing of dividends, dear money and, of course, a stock market which prevented the possibility of firms raising the new funds which alone could have given them the working capital they required to face mounting inflation and obtain the resources for the kind of investment the Government have urged upon them should be made. Both parties have urged it, but the conditions are such that it has been impossible. At present it is puzzling that the Government are issuing a loan for 19 years, I think at 12½ per cent. with inflation at 20 per cent. If that is correct, it means that in seven years the buying power of the loan will have evaporated, and that does not give much encouragement to anyone to borrow in the commercial market in order to provide the funds for more energetic investment.

My Lords, I hope I have explained why I am perplexed, on returning from a long absence, while other Members of the House have remained in constant touch with the current Press. The incomes of a large part of the population remain good and rising, and their inclination to spend is a natural one in view of the decreasing value of money, and everybody says: "What we can get hold of today let us spend it quickly, because it will buy less tomorrow." In this situation, a large part of the community must be perplexed about this sacrifice to which I have referred. Except for a slight fall in the value of money, neither the balance of payments nor the Budget deficit has been corrected by the scale that would be necessary. It is in those circumstances that I hope the noble Lord, Lord Jacques, may be able to throw some light on the situation.

6.31 p.m.

Lord JACQUES

My Lords, I should first like to congratulate the noble Lord, Lord Sandhurst, on his maiden speech. I hope that we will hear from him for many years to come. I cannot give him much encouragement so far as the Channel Islands are concerned. I can say only that conversations have taken place, or will take place, with the authorities on the Islands.

This is the Second Reading of the Finance Bill, the most important part of which deals with the capital transfer tax, and the greater part of our debate has been on that tax. Therefore I think it would be reasonable, at this hour of the evening, if I confined my remarks to the capital transfer tax. As my noble friend pointed out, this is not additional taxation; it is simply a tax reform. He also pointed out that the yield in the year 1975–76 will be less than it would have been with estate duty. The noble Earl, Lord Mansfield, told the House that on a previous occasion I said that there were already gift taxes in France, Germany, Sweden. Denmark, Australia, New Zealand and the United States, and he went on to confirm that I was right. He added two pieces of information; that in some of these countries the rates were comparatively low, and that in Sweden, where the rate was high at 70 per cent., they had a concession to agriculture which was somewhat different from ours. I am not surprised at that.

A noble Lord asked why we should say that estate duty was avoidable. I should point out that my noble friend did not say that the old tax was being evaded; he said it was being avoided, and that is not a matter of opinion; it is a matter of fact. It was being avoided, and the ways in which it was avoided were so well known that it was avoided by very large numbers of people. We were also asked to whom the new tax would be more fair? That is easy to answer. Under the old régime, transfers made during life did not attract any tax, and transfers made at death attracted tax at fairly high rates. What we are saying is that it will be more fair if transfers both in a lifetime and at death bear some tax, even if those made during a lifetime bear lower rates than those made at death. It must be obvious to everybody that that is more fair; it is certainly obvious to us on this side of the House.

Furthermore, by reforming the tax and making it more effective, in the sense that there will be less avoidance, we are able to do things which ought to have been done years ago; for example, transfers as between spouses will be com- pletely free of the tax. One has to be very careful in giving fiscal privilege because, first, revenue is lost; and, secondly, it is almost always unfair, and sometimes grossly unfair. In our view, it was grossly unfair that a man who had his wealth in agricultural land should have a 45 per cent. abatement, but that another man who had his wealth in some other kind of asset should have no such abatement. We regarded that as unfair and a fiscal privilege which was not justified. In so far as it is justified, we say that it is justified only for the working farmer, and we have acted accordingly in putting this legislation before Parliament.

But, fiscal privilege is not only unfair; it also distorts in almost every case. There can be no doubt whatever that the 45 per cent. abatement in the case of agricultural land has been a major factor in the inflation of its price. The price of agricultural land is so inflated that the value of the land has little relation to its worth to the farmer. Its worth to the farmer is substantially less than its market value, and the fiscal privilege has been one of the factors in inflating its value. We believe that the working farmer should have a fiscal privilege, we believe that there are special circumstances and my noble friend explained how that privilege would be given by taking 20 times the annual value as the capital value.

I was a little disturbed by the example given by the noble Earl. I am not sure that I followed it, but he will probably stop me if I am wrong. I understood the example to be a farm with a capital value of £200,000 from 500 acres, so the land was worth £400 an acre. It is our experience that this is a very low value indeed, and the average would be between £500 and £600—

The Earl of MANSFIELD

My Lords, may I ask the noble Lord what part of the country and what type of farm he is thinking of?

Lord JACQUES

My Lords, I am thinking that 500 acres worth £200,000 would be a farm with relatively low value land—

The Earl of MANSFIELD

Exactly!

Lord JACQUES

We would estimate that in such a case the annual rent would be about £12 an acre, and that the value, for the purposes of the transfer tax, would be five acres multiplied by 12 multiplied by 20; that is, £120,000. If it were transferred during the lifetime of the donor and the tax was paid by the donee, the tax would be, in round thousands, £19,000. If the tax were paid by the donor, it would be more because he is giving away tax as well as land. In that case, it would be £30,000. If there were no transfer during the lifetime and it was transferred at death the figure would be £38,000.

Viscount DAVIDSON

My Lords, this question of valuation is very difficult. May I ask whether the land value and rental value the noble Lord is now supposing are based on the current values or on the values of six months, 12 months, 18 months or 24 months ago?

Lord JACQUES

My Lords, as I understand it, it would be the market value as at the time of death or at the time of transfer. The rental value for agricultural purposes, supposing the farm were owned by the farmer (so there is no immediate rent available) would be the market value as agricultural land at the time of transfer. I come now to woodlands. I am a little puzzled at the grumbling that has been going on over this. Let us look at the woodlands! First, so far as income tax is concerned, the occupier of woodlands, while the timber is growing, can have his costs set off against other income. Then, when the timber is ripe for cutting, he can make application to be taxed under Schedule B; and the tax will be comparatively slight compared to the value of the timber.

The Viscount of ARBUTHNOTT

My Lords, with respect, I think I must correct the noble Lord. Surely you cannot elect to Schedule B unless there is a change of ownership!

Lord JACQUES

My Lords, I can say only that that is my advice. If I am wrong, I will write to the noble Viscount.

So as far as income tax is concerned, he is treated very leniently indeed. We now come to capital gains tax. So far as the proceeds from the timber are concerned, there is no tax whatever. We now come to capital transfer tax. We say that there is no charge whatever for transfer at death unless there is a sale. Surely, nobody can be treated more reasonably than that! This is a case of fiscal privilege, and I can see that one day we may have to revise it, because the privilege is far too great.

I was also asked about amenity timber. If it is ancillary to agricultural land, the concession will be given to the working farmer. By and large, amenity timber is in a small area, has not much value and is not likely to be, in any way, penalised by this tax. The primary intention of the Government is to relieve timber as a commercial crop, simply to preserve employment in the woodlands and to save imports. That is the main objective.

On the subject of the small businessman, your Lordships had one example from my noble friend and another from the noble Earl. I think I shall leave you to take your choice. I was surprised at some of the criticisms we had on timing. Nobody denied the contention of my noble friend that, had we not dated this tax from the day it was announced, there would have been wholesale evasion. It had to operate from that date; there was no other reasonable possibility.

Viscount DAVIDSON

My Lords, I hesitate to interrupt; but I think there would have been wholesale avoidance, not evasion.

Lord JACQUES

I am sorry, my Lords, there would have been avoidance: undoubtedly so. Once you have said that the tax will start from March 27th 1974, then you are under an obligation to put it on to the Statute Book with reasonable speed. Outside commentators told us so at the time when we announced the tax. It was also suggested that it was taken through the other place unreasonably quickly, and that not sufficient time was devoted to it. I have a record of the hours which were devoted in Committee to the tax. In 1974 there were two Finance Bills with 79 clauses. To those two Finance Bills there were devoted 251 hours. The highest figure in recent years was in 1972. I should think that that was when VAT was introduced. There were 114 clauses, not 79, and there were only 160 hours in Committee. That is the highest figure I can find; so that the other place spent in Committee substantially more time per clause than on any other Finance Bill in modern history.

We were also taxed about the complications. I think that we all understand that one of the reasons why legislation is complicated is that we know some people will try to avoid it if they can. We must be more complicated than we should care to be, to avoid people getting around the legislation; and, of course, this is never more important than in the case of taxation. Consequently, I think it fair to say that all taxation legislation tends to be complicated. This legislation is, perhaps, a little more complicated than some taxation legislation, because we have had a good deal of experience of avoidance of tax and we try to put a Statute on the Statute Book so as to get the least possible avoidance. Another reason why it is complicated is that we have been amenable to the Opposition. They have been critical; but we have quickly had Amendments devised to meet their points of view. We are criticised if we are not amenable and we are criticised when we are.

My Lords, we were also told by the noble and learned Lord, Lord Wilberforce, about solicitors' obligations to give information. He was partly replied to by my noble friend Lord Bruce of Donington, but I can go further and say that the only time a solicitor is required to give information is when the trustees are, or will be, resident outside the United Kingdom. Then he is required to give the names and addresses of the settlers and the trustees—but only when the trustees will be outside the United Kingdom. In all other cases the information he gives is information which he is authorised by his client to give. If he is not authorised by his client to give it, then he is not expected to give it to the Inland Revenue.

So far as the national heritage is concerned, I would make only one comment. I was a little surprised that the noble Lord, Lord Sandford, should have made such a great " to-do" about a genuine misunderstanding in the other place regarding endowments. The Chief Secretary thought the Opposition were referring to national heritage gifts to non-profit-making bodies. Consequently he talked in the way he did, and in the end the Opposition accepted that there had been a clear misunderstanding. I should have thought that, when such a thing has been so accepted, the matter should end there.

So far as endowment for maintenance is concerned, I can add nothing to what was said by my noble friend in introducing the Bill, but I should like to comment on one or two other matters. I do not think sufficient has been made of the concessions given for transfers during one's lifetime. The rates have been very drastically reduced. For example, at the level of a quarter of a million, there is a reduction of one-third, and at lower levels the reduction is even greater. In addition, there are minor concessions relating to a gift of £1,000 by a single person, or £2,000 in the case of a married couple: such a gift is completely exempt. If the gift is somewhat less than £1,000— or £2,000, as the case may be—there can be a carry-forward to the next year (but only to the next year), so that in the next year there can be a greater sum. In addition to those concessions, there are unlimited exceptions for gifts of £100. These are quite unlimited; they are in addition to the gift of £1,000; and they are completely free.

Some mention has been made of grossing up. This arises when you are assessing the donor for tax. Grossing up is essential for three reasons. First, the whole tax is cumulative in assessing the final amount payable. As we already know from experience of estate duty, the tax must fall on the whole estate. Therefore grossing up is absolutely necessary if part of the estate is given away before death. Also, there are many more donees, as distinct from donors, and consequently collection is easier if it falls on the donor. Also, I understand that it is much easier in the case of settled property trusts.

Finally, I should like to refer to the complaints made about double taxation concerning the capital gains tax and the capital transfer tax. This is not an easy one. If a man realises an investment and pays capital gains tax, for how long is one to count it double taxation when he has to pay capital transfer tax—one year, the next year, ten years? It is an exceedingly difficult question, but there is one way out of it. The Finance Bill provides that where a gift is made out of income, and can be shown to be made, it is completely free of capital transfer tax. This is a concession which, incidentally, has not been mentioned at all in the debate; but it is there in the Bill.

There is a very thin line of distinction between a capital gain and income, because when you get money by way of a capital gain it is there to pay the bills in the same way as money earned as salary. There is little difference between the two; and if noble Lords opposite were to say to me: " We should prefer that a capital gain should be regarded as income and be subject to the same taxes as income, and should be completely free of the capital transfer tax ", I should regard that as a very constructive suggestion. I should be prepared to convey it to my right honourable friend with a commendation that it should be adopted.

On Question, Bill read 2a: Committee negatived.

Then, Standing Order No. 44 having been suspended (pursuant to Resolution), Bill read 3a, and passed.