Capital Taxation Structure (Hansard, 8 March 1988)

§ Lord Beaverbrook
My Lords, I am not aware of any reason why the present structure of capital taxation should encourage insider trading.

§ Lord Monson
My Lords, I thank the noble Lord for that reply. However, is he aware that whereas short-term capital gains are taxed at 30 per cent., long-term capital gains can effectively be taxed at several hundred or even several thousand per cent. because of the failure to index gains arising prior to 31st March 1982? Does that not encourage investors to go for short-term rather than long-term gains, and are not the people best placed to make short-term gains by definition insiders?

§ Lord Beaverbrook
My Lords, I am not sure that I follow the noble Lord's logic. No doubt many investors wish to make gains and perhaps wish to make them in the short term. But that is absolutely no reason to say that they wish to make profits from insider dealing.

§ Lord Williams of Elvel
My Lords, is the noble Lord aware that I too find the logic of the noble Lord, Lord Monson, rather difficult to follow? Perhaps the Minister can answer this question: how effective are the new arrangements under the Financial Services Act for detecting and prosecuting in insider dealing cases?
If the noble Lord has figures available, can he give us figures for a period prior to the commencement of the Financial Services Act arrangements on insider dealing and subsequent figures so that we can see how we are getting on? If he does not have the figures, perhaps he will be kind enough to write to me.

§ Lord Beaverbrook
My Lords, I shall look into this and find out whether figures are available. The fact is that the Financial Services Act provided for new powers of investigation of insider dealing and for certain substantive amendments to the insider dealing legislation. Your Lordships will be aware that the Stock Exchange introduced computer assisted surveillance in 1986, and I believe that that, together with the possibility of investigation by inspectors, means that the chances of detection and successful prosecution in such cases are much enhanced.

§ Lord Taylor of Gryfe
My Lords, the Minister gives some assurances with regard to expediting these investigations. A number of individuals have been 564 under suspicion and some have been removed from office during the investigations, which have lasted more than 18 months. Will the Minister give the House some assurance that progress will be made in investigations so that the matter may be clear and individuals and organisations may know where they stand?

§ Lord Beaverbrook
My Lords, it is in no one's interest for any such investigation to be rather slow or tardy in coming to a conclusion. However, I can say to the noble Lord that my noble friend the Secretary of State naturally wishes that inspectors making such investigations should report to him as quickly as possible.

§ Lord Diamond
My Lords, taking what I am afraid is precisely the opposite view to that of the noble Lord who asked this Question on the impact of short-term versus long-term capital gains tax, perhaps I may ask whether the noble Lord is aware that there is still considerable anxiety with regard to insider trading. Is he also aware that there is a considerable body of opinion which takes the view that the first major step to be taken with regard to insider trading is to freeze the capital dealings of directors of companies during the period that they hold their directorships of those shares in that company?

§ Lord Beaverbrook
My Lords, I am not sure whether I completely follow the noble Lord in that opinion, but I would say to your Lordships that the Criminal Justice Bill which is now in another place seeks to increase the maximum term of imprisonment that can be imposed on someone convicted of insider dealing from two years to seven years. That makes it an arrestable offence and an extradition crime.

§ Lord Williams of Elvel
My Lords, does the noble Lord agree that the problem is not so much whether this is an arrestable offence or what the prison sentence is but whether the mechanism for detection and subsequent prosecution is effective? It was lamentably ineffective under the previous regime when the Stock Exchange reported to the DTI, as the noble Lord's predecessor at the Government Dispatch Box has pointed out. Are the present arrangements any more effective?

§ Lord Beaverbrook
Yes, my Lords. As I said earlier to the noble Lord, I believe that the ability of the Stock Exchange to detect instances of insider dealing has been enhanced by computer assisted surveillance. I also believe that the collection of evidence has been made very much easier. The appointment of inspectors to look into such allegations is a great step forward. I think that it is still too early to say exactly what impact the Financial Services Act has had on our ability to bring those guilty parties to court and have, it is hoped, a successful conclusion if they are found guilty. At the moment we have no plans to amend the provisions in the Financial Services Act and I believe that we are making progress in that respect.