Inheritance Tax

HL Deb 26 May 1999 vol 601 cc1015-36

8.50 p.m.

Lord Chesham

My Lords, I wonder if I can congratulate the noble Lord, Lord McIntosh of Haringey, on having been able to introduce something between the two debates in which I know he is involved. I would have thought he might have found someone else to do that: a minor thing.

In introducing this Question I should declare an interest. I am the owner of a number of items which were conditionally exempted from inheritance tax on my father's death in 1989, and indeed on my grandfather's death in 1952. My great-grandfather died in 1907, and I have no knowledge of the situation as it was then. I have discussed my position with the Clerks of this House who could not advise me not to speak on this issue as it is a matter of public policy. I also had discussions with the noble Lord, Lord McIntosh of Haringey, prior to the debate.

This debate, as I stated, is about public policy. If it concerned pecuniary matters I would not be speaking, as I have already advised the House of my interest. However, as the purpose of the debate is to attempt to be co-operative with the Government, I feel fully entitled to ask the Question.

The existing exemptions have long been given in return for an undertaking, the specific terms of which are agreed in writing between the Treasury and the inheriting owner, to secure reasonable access to the public. The specific terms agreed, in the majority of cases since 1976, have been that access shall be given by prior appointment. This seemed appropriate to the Treasury then, and on that basis the agreements were made. We are now being told that such agreements, retrospectively, were not appropriate. The new rules will be applied and new agreements are required. Such agreements can, if agreement cannot be reached between the parties, be made unilaterally by the Inland Revenue with the approval of a Special Commissioner.

I am sure that many decisions to seek conditional exemption would not have been taken in the past had the open access provisions been threatened at some time in the future. I believe that we all share an abhorrence of retrospective legislation, and I wonder it was deemed appropriate to apply retrospectivity in this situation.

Schedule 25 to the Finance Act 1998 introduced new rules. I wish only to consider two of them. First, under Section 8 a previous undertaking agreed by both parties may be varied either by agreement between the parties or by the Board of Inland Revenue imposing a variation, subject to approval by a Special Commissioner, without the consent of the person bound by this undertaking.

The Inland Revenue wrote to the owners of conditionally exempt chattels on 31st March 1999, requiring the owner to advise the Inland Revenue by 30th June on which 25 days the property would he open to the public without prior appointment. This is called "open access." The notes on the changes made by the Finance Act 1998 issued by the Inland Revenue state that under Section 5.11 the minimum period for open access should be for buildings which are not themselves tax exempt 5 to 100 days a year. It appears that a mandatory period of 25 days had subsequently been determined.

I understand that the Inland Revenue is to issue, or has issued, a second letter to heritage owners, indicating a degree of flexibility as far as open access is concerned. I welcome this concept of flexibility, which may assist in certain cases. I believe there is also an extension of time in which replies to the original letter may be made. I am slightly surprised that in the discussions that I had with the noble Lord, Lord McIntosh, last night he did not advise me that this letter was going out.

The second new rule requires that owners will be required to publicise their undertakings. The form attached to the Revenue letter contains the wording: I/we shall give appropriate publicity to the public access arrangements, namely by agreeing that the Inland Revenue may:

1. (1) publicise the availability of this access via the internet or other appropriate means, and
2. (2) provide anyone who requests it with a copy of the undertaking".

These new rules have created an impossible situation for owners who do not live in a house which is normally open to the public, on the grounds of security apart from anything else. Many people are not set up to open their houses to the public without prior appointment and the chattels may not all be displayed in one room, but may well be scattered throughout the house. This new requirement equates to a right to roam through private property, and I have been advised that either insurance premiums would leap (possibly to even more unaffordable levels) or insurance may not be available at all. This is hardly protecting the Government's interest in the chattels—because that is what exists. The exemption is only conditional: the Government have an interest in the chattels. Any open access is liable to create a security problem.

The second security problem is created by listing on the Internet. These two requirements surely comprise a "burglars' charter" which could endanger life and limb, to say nothing of the contents of the houses themselves. I understand that the second letter from the Inland Revenue makes no mention of the Internet problem.

The other point is that while there may be a number of exempt chattels in a house, there will be a considerable number of other chattels, all of which are put at risk by advertising on the Internet. I am sure that the Minister is aware of the words spoken in another place by the Financial Secretary to the Treasury on 30th June 1998. I quote: We are not saying that appointments to view objects should be abolished; we are saying that there should be a review of a system where there is appointment-only access to a certain category of object". She went on to say: There will still be cases, however, where an appointment will be necessary for the very reasons that the hon. Gentleman has outlined: security, sensitivity and an object's fragility".—[Official Report Commons, 30/6/98; cols. 238–39.] Your Lordships will note the use of the word "security".

On a slightly different tack, I wonder whether the Minister can confirm that Article 1 of the first protocol of the Human Rights Act would not apply to this potential invasion of private property. The protocol states: Every natural or legal person is entitled to the peaceful enjoyment of his possessions". I would also cite Article 8 of the convention, which states: Everyone has the right to respect for his private and family life, his home and his correspondence". Does this equate with listing on the Internet?

I am sure that the Minister will advise us that these concerns are not real: all one has to do is to lend the objects to a museum or gallery. However, it is not that simple. Quite apart from the difficulty of finding a suitable location—and I understand that the noble Lord will have something to say on that—there are also problems of damage during transit and of insurance. If these problems were addressed, this could certainly be a solution worthy of serious consideration.

I fear that the consequences of this legislation will be totally opposite to those intended. I am convinced that a number of heritage owners will either pay the deferred inheritance tax, where they have the wherewithal, or will sell all or part of their collections. The result will be to take them out of the public domain, and quite possibly overseas. That would be a great shame and, surely, contrary to the intention of the legislation.

I am sure that most heritage owners are proud of their objects and wish to co-operate with the Government in this matter. They would appreciate the opportunity of discussions as to how these problems can be overcome. I look forward to hearing the speeches of those following me and the answers of the Minister. The debate is intended to be helpful and I hope that it is accepted with that intention in mind.

9 p.m.

Lord Bridges

My Lords, I am glad to be able to take part in this debate. Like some other noble Lords, I am personally affected. But the reason for raising the Question in this forum is that the main issue concerns a matter of public policy; namely, access to significant works of art and their maintenance in this country. It is, in other words, a heritage or cultural matter. The articles in question are those considered by the authorities to be sufficiently significant to warrant deferral of taxes due to the Inland Revenue based on the proviso that the articles are accessible for the general public to inspect them. What is at issue here for me and others is the nature of public access.

There is a wide variety in the articles themselves and in the places where they are kept. This is a large part of the difficulty. If we are talking about a painting in a large country house which is already open to the public, it may not be difficulty for the owner/custodian to agree to access for a minimum number of days each year. If a picture is hung in a room not normally open to the public, it may be moved or an extra room added to the circuit of the house. But not all custodians are like that. He or she may be an elderly person living alone, perhaps in a flat in London, with a single precious possession—a picture, a piece of fine furniture or porcelain—and circumstances may be such that the owner is wary of having the front door open to all-comers for a stated period each year. I do not believe that that is an uncommon state of affairs.

My own position is somewhat in between those two extremes. I and my three siblings share ownership of an interesting collection of books belonging to our grandfather, Robert Bridges, the poet laureate who died in 1930. Two successive deferrals of tax have been granted on the death of our parents. The books, perhaps 3,500 in all, were either written by the poet, many of them having been beautifully printed by Provost Daniel on his private press, or were written and presented to him by his friends, who included Hopkins, Yeats, Masefield and J.C. Smuts, or were books of personal interest to him, such as the miniature edition of Virgil which he carried on his person for much of his life. The value and interest of this collection does not lie in individually precious bibliographical items so much as the illustration of the wide range of his intellectual interests and friendships. In other words, it is the totality of the collection.

It is also interesting to see evidence of his wide reading in other European languages; for example, his heavily annotated copy of Dante. The books are housed in a handsome glass-fronted bookcase and looked after by a member of the family. This person happens to live in an isolated place with no close neighbours. For these security reasons, the house is not open to casual visitors.

We have however a contact in central London who can arrange for individual items to be brought to his office within 36 hours for inspection. So far as we know, this system, which has been agreed with the Inland Revenue, works well. It has not given rise to any complaint. In fact, the only people who have made use of it are journalists who have no apparent interest in the items themselves: they seek to look at the books on a random basis so that they can test the system. The scholars who are interested in these books know who we are and approach us direct. There is no difficulty.

The problem we face is this. We believe that the present system works and fully meets our earlier obligations to the Inland Revenue. We acknowledge our responsibilities over access and if the Revenue tells us, as it does, that its obligations have been changed which obliges it to alter the terms of an earlier agreement (because of the retrospective legislation already referred to) we will do what we can to help. But we feel unable to agree to access on demand. That would endanger the security of the collection, the other possessions in the house and the people living there.

We are also amazed by the news that the locations may be publicly advertised by the Government on the Internet. This amounts to an invitation to burglars on an international scale and hardly seems to accord with the terms of the European Convention on Human Rights. Why should the Government publish a catalogue for international burglars? It seems very unacceptable.

So what can we do in this situation? There is the legal route which would mean taking a case to a special commissioner. That would apparently involve the employment of counsel and I am given to understand that such services are very expensive. I am told that the cost is a minimum of £15,000 a time. Presumably that would be outside the scope of the access to justice legislation. Why should we have to bear this burden? Furthermore, it would be a difficult contest as the commissioner would address just the "reasonableness" of the Inland Revenue's proposals and not our own. This looks to me like a very expensive and uncertain kind of justice. I am not litigious by nature and would prefer a different approach if we could find one.

What are the alternatives? We could sell the collection. We could give it away to a public library or learned body. But we would find it difficult to pay the tax without seriously depleting assets set aside for years of retirement, and not all of us could do that anyway. We have thought of entrusting it to a university or college and feel that it might be accepted in good faith for a period of years. But if major repairs to the college roof were necessary, that asset would be at risk.

Furthermore, big libraries do not like to keep a donated collection intact, preferring to distribute the books among their various classified sections. I suspect that many donors will end up selling some of their articles in order to retain others. That will lead to many sales and the export of items which this arrangement was designed to prevent in the first place.

So the Revenue's action is presenting us with an apparently insoluble set of problems. I am happy to work out a solution if we can find one, but I have to say that a commitment to open access for a fixed number of days annually would be very difficult for us and probably impossible. I suggest that that arises from a false perception by the Revenue of the very various circumstances of custody and the articles in question. Indeed, it looks as though someone in the Revenue or Treasury has the wrong image of who we are and how we live. They apparently see us in the image of Trollope's Duke of Omnium, living in Gatherum Castle with a suite of liveried servants having nothing much to do. That certainly does not apply to me.

I come back to where I began. This is, or should be, a policy issue regarding our cultural heritage. In my case, I want to maintain the totality of the collection. It is quite difficult to find a collection of books belonging to some person of past literary status in this country. I remember only Macaulay's collection of books which were entrusted to the Trevelyan family in Wallington in Northumberland, now in the care of the National Trust. That is a remarkable but unusual exception. When I take from the shelf the Pickering edition of Surrey's poems inscribed to my grandfather by Hopkins in his unmistakable hand, I feel an immediate link with that remarkable friendship which has left its mark on our literature.

That collection is worth preserving. If we can work out some system with the Revenue to enable that to happen, I shall be delighted. I trust that the Treasury will allow the Revenue sufficient flexibility to arrive at a means of access acceptable to all concerned.

Like the noble Lord, Lord Chesham, I note the remarks made by the Financial Secretary of 30th June of last year in another place. When I read the latest letter from the Inland Revenue dated 25th May, which arrived, perhaps not entirely by chance, today, it expressed its views in more emollient language but it follows quite a different line from that of Dawn Primarolo and shows little real flexibility of principle in relation to access on demand. For my part, that is still the sticking point.

9.8 p.m.

Lord Montagu of Beaulieu

My Lords, the whole House and the whole country should be grateful to my noble friend Lord Chesham for raising this important issue which is so vital to the future of our heritage.

I take part in this debate specifically as the founding president of the Historic Houses Association whose views I express; and beyond that, as the owner of a property which has for nearly 50 years provided access and enjoyment for many millions of visitors who can see what conditionally exempt objects I own every day of the year.

I speak not only as an individual but also as former chairman of English Heritage whose philosophy has always been to advocate the policy of the quid pro quo of tax concessions in exchange for public access as being fundamental to the future survival of Britain's heritage—both for historic houses and gardens arid their contents.

There are elements of the new legislation that the Government have introduced to improve access to conditionally exempt works of art that the Historic Houses Association welcomes. The functioning of the old V?A list system had become increasingly unsatisfactory, despite the efforts of the last government to improve it. In only a very few instances was the malfunctioning the fault of the owner. The fault was the system, which needed improvement—improvement rather than wholesale change. I fully accept the need to ensure that tax deferred is balanced by an appropriate degree of public benefit. However, there are elements of the new measures which will cause concern. It is all a question of balance and what is appropriate. It would be extremely counter-productive if the measures which the Government intend to introduce were to deny the nation the treasures that the legislation was set up to protect and to deny the public the present access that they currently enjoy.

To make an appointment to see an object can in some cases be a long-winded and frustrating process. That should not be so. Equally, there are elements of the by-appointment system which have suited everyone very well. The thousands who do so by appointment enjoy access at times to suit both the visitor and the owner. They appreciate the personal element involved. For example, several thousand visitors went to Hovingham Hall in Yorkshire by appointment last year. At another house, more than 80 days' access were provided, which is far more than some houses which are open regularly to the public. Scholars are invariably made most welcome by those owners with similar interests who are delighted to share access to their objects, particularly those of academic interest.

All that advantage may be lost if the by-appointment system is removed entirely, as a matter of principle. The Government must realise not only the advantages of the by-appointment system but also why the alternative of open public access which they are proposing will in many cases simply not work.

First, to set up the whole infrastructure of opening to the public, as I know only too well—the car parks, the lavatories, security, guides, regulations and disabled access—is a complex and expensive business. Those who live in urban areas in either small houses or flats or who are at work all day simply could not contemplate that. They have no alternative but to sell.

The overwhelming concern, as has been said by other noble Lords, is criminal activities, invariably mentioned by those faced with providing open access for the first time. The fear of burglary is real. I could tell your Lordships horrific stories of owners tied up and beaten by thieves who had already targeted their treasures and knew where to find them. A chilling fact is that in 1997 alone items valued at £1.8 million were stolen from 259 historic houses.

Under the new regulations, once you provide open public access to your house, you have to advertise the fact that in that house are kept particularly valuable objects. Many owners feel, quite rightly, that their first priority is to protect their families and treasures. Therefore, they are reluctant to undertake such advertising. The most dangerous suggestion is that those objects should be advertised on the Internet. However, advertising would certainly increase the insurance premiums which will be necessary.

There is a good suggestion that some major objects should be loaned to local or national museums for a period, say in the winter months. The truth is however that their storerooms are already full and in my experience they like to lend objects out rather than receive more in.

Next there is the subject of retrospection. I shall not dwell on this; my noble friend Lord Chesham covered it very well. It strikes at the heart of legal essentials and I suspect that lawyers are bound to resist it fiercely. While most owners will have little problem in accepting variations to future agreements, many would not have agreed to the arrangements that are now being proposed if they had known about them in advance.

I confirm that much good will exists among owners who recognise their obligations to preserve our heritage, but even with that good will the new arrangements could make it hard for many to comply in simple practical terms. But I am sure that a solution to all this does exist, and I am greatly heartened to hear of a growing realisation within the Government of the dangers within this new legislation, introduced, I have to say, with insufficient consideration and forethought of its consequences.

HHA has held constructive discussions with the Inland Revenue and I understand that it is to meet the Paymaster General. It is comforting to know that consideration is being given to the need for individual agreements according to circumstances on a house-to-house basis to ensure that they are just and reasonable and that the rigid maximum of 25 days is negotiable, subject to the type of object and its situation.

For the past 100 years generations of owners have acted as unpaid curators of important parts of our national heritage. Pictures and other objects have been cleaned and restored and furniture repaired; increased insurance premiums have been paid. There has been absolutely no financial reward or profit for the owner and when they have been forced sometimes to sell, taxes are assessed at the old rates of duty, sometimes going as high as 80 or 90 per cent.

The sensible concessions recently proposed by the Revenue will certainly help. But there may be a need to go further before a stable and worthwhile solution can be found to resolve this potentially damaging situation. The HHA welcomes dialogue but urges the Government to continue to consider how best to introduce measures that are sufficiently flexible to retain the best elements of the old system, rather than discarding it, and agree a new regime for the benefit of all, especially for future generations. After all, the system was set up in the 1890s to preserve our heritage objects. It has up to now worked extremely well; without it the country would have been much poorer instead of being enriched. So I say—to use an old expression—"Don't throw the baby out with the bath water".

9.18 p.m.

Earl Haig

My Lords, I, too, should like to thank my noble friend Lord Chesham for putting this Question to the Government.

The policy of conditional exemption was established by the Inland Revenue many years ago. So far as I am aware, it has been managed with success by the Capital Taxes Office. It has been suggested that some owners are taking advantage of the scheme without carrying out their obligations, and so defrauding the taxpayer. If there are cases of infringement, then those cases need greater supervision.

By and large the scheme is, as my noble friend Lord Montagu said, working well. Owners resent the implication by the Government that they are trying to defraud the taxpayer. In my view the public have benefited greatly from the arrangements that are in place. Many of the owners, like my noble friend Lord Montagu, have rendered service as trustees of museums and galleries and taken part in the scheme in a spirit of wanting to let like-minded people enjoy their possessions.

Like my noble friend Lord Chesham I must declare an interest as the acquirer of a modern collection, now owned by my son. It is largely of the British school with some Euston Road paintings, many of which were made by my friends between 1940 and 1960. It is a painter's collection which has expanded into abstraction. One early inspiration came from Jackson Pollock whose work is being exhibited in the Tate at the moment. The value of my collection is not for its individual works, but for its value as a whole. It may be studied and enjoyed by those people who make a plan to visit my home. The paintings are housed and shown in a historic house, part of which was redesigned in 1960 for the purpose of a modern gallery.

Some 60 years ago the opportunity arose to preserve the collection intact for a future generation, when I entered into an agreement with the Government whereby those paintings which were judged by the National Gallery of Scotland to be of national importance, some 170 modern paintings, would be donated to my son and heir, and would be housed, heated, secured and insured at Bemersyde. I undertook to show them to members of the public who applied for appointments to visit, with good warning. My son undertook not to sell any of the works with the proviso that, if anything was sold, tax would be liable on the income which would have arisen from the capital difference between the 1983 valuation and the valuation of the work when sold. In my son's case, such a sale would be unlikely.

Like other noble Lords, I wonder whether the Government are within their rights to break a legal agreement. Are they entitled to amend legislation, which will come into force retrospectively, thus cancelling legal agreements made in good faith in the past? In my view, the legislation which underpinned our agreement has been changed. These changes are unworkable and unacceptable. If an owner is unable to embark on a system which is impossible to carry out, he has no alternative but to withdraw, but at what appears to be considerable cost. This amounts to expropriation.

In my case the open access requirements are impractical, as I believe they are for many others also. We live in an isolated area and are vulnerable to break-ins. All the houses which are open to the public in our area have been burgled. Extended access would encourage reconnaissance by potential thieves and add to our security risks. I would not be able to ensure the safety of the collection, and the cost of my insurance would rise steeply. When the public wish to see items which are stored in a public collection, they have to apply and their credentials are checked before authority is given. To have open access would not only be a problem from a security point of view, but it would also destroy privacy.

My own experience of past years relates to the time when I opened the house to the public to show my father's memorabilia. I found that the house was not large enough to be lived in and used as a museum at the same time. So I presented my father's collection to Edinburgh City Council for exhibition at Huntly House. As we are on the Walter Scott tourist route, the number of visitors escalated because of the historic interest rather than because of interest in the paintings. So I decided that our privacy had to be protected and I stopped the regular opening of the house.

The present system of opening the collection to members of the National Art Collections Fund, to NADFAS, friends of museums and galleries and various groups all over the country is working very well. Many of the visitors are painters themselves. Any regular opening would require additional guides and increased security arrangements, both of which are outwith my slender pocket.

I am particularly worried by the publication by the Victoria and Albert Museum of details of my collection on the Internet. Publication of those lists offers an invitation to burglars. Recently I have been pressurised by people in television and by journalists who ring me up pretending to be genuine students of art. On one occasion, the telephone conversation was taped and used for a comedy programme in which I was portrayed as a Colonel Blimp, much more so than I might appear in reality, with my mind totally focused on the loos and facilities available for a children's play area. The matter was raised with the television complaints commission and an apology was offered by Channel 4.

Part of the public resentment in the matter has been whipped up by a few art critics and journalists who fail to acknowledge the advantages to the public. They ring me up pretending to be potential visitors, but with no intention of making a visit. They ask whether I have such and such a picture, which they have spotted in the V&A catalogue, to sound me out as to whether or not I have a welcoming attitude and whether or not I am a good egalitarian. There is no sharing of the love of painting during the conversations. We might just as well be discussing the marketing of a sack of coal.

As a result of these variations of tax exemptions, art lovers will be denied the opportunity to see works of art in a domestic setting. The chance of using smaller historic houses for a good purpose will be ruled out. I hope that my noble friend's Question will encourage the Government to think again.

9.24 p.m.

The Earl of Kintore

My Lords, I also thank the noble Lord, Lord Chesham, for asking this important Question. I have a number of interests to declare. I am the custodian and 60 per cent owner of a small collection of exempt pictures and a few other small chattels. I am responsible for the maintenance of a small listed house. I am a member of the Historic Houses Association, and the house, because of its size, is on its "not generally open to the public" list. Finally, I am an associate by examination of the Chartered Insurance Institute.

I wish to speak mainly to the second part of the Question and only in respect of pictures and small chattels. I say at the outset that I entirely understand what the Government are trying to achieve but I see some real practical problems and dangers. I suppose the most alarming proposal is at paragraph 5.32 on page 20 of the Revenue's January 1999 booklet which states, In general, we will expect you to agree to provide through the Inland Revenue's Internet website the following basic information about the exempt assets and public access to them". There follows a heading, Chattels excluding historically associated chattels. The document continues, A description of each object and, If they are located in a building open to the public, the full address of the building and the opening times". If someone invited me to design a burglar's charter I could not have done it better. The Internet is a wonderful source of information but it is totally uncontrolled and information is available to those of good intent and of bad.

The Times of 25th May reported that two new Internet websites had opened the previous day. With the help of the Library I visited both sites. The first was a database posted by the Mormon Church to help us trace our ancestors and contained as much detail as possible. I shall not be able to post as much detail—enough detail to attract a member of the public to come to see an exempt picture certainly, but not enough to attract a burglary.

The second website I visited was a website of the Prison Service to help prisoners' families. That is a commendable intention but I can see another group of people that access to the site could help. I have not given the Minister notice of my next point but perhaps he can write to me with an assurance that if it is intended that prisons are to have Internet access, governors will be instructed to programme their equipment so that there is no possibility of accessing the Inland Revenue's Internet website of exempt chattels.

I turn to insurance. I hope that the Minister will not say that the Government have consulted the insurance industry and been advised that no increase in premium will be necessary. I have spoken with a fine art underwriter who considers that what is proposed will certainly lead him to rate the risk differently, possibly increasing the premium and certainly requiring extra security precautions. I hope I may put in a plea to the Government to instruct the planning and listed building authorities that if the owner of a listed building has to install security lights, window bars, window locks and double glazing as a direct result of complying with the insurer's requirements to cover the new risks that increased public access entails, permission will be given immediately without the normal hassle.

I understand that there is a proposal for those of us whose houses are too small for realistic public access to lend exempt items to larger houses which could show the items properly. That is an interesting idea, but I would counsel about too much movement. Good furniture and pictures hate being moved. Although damage and subsequent loss of value may not be immediately apparent, that will occur over time. Some of the evidence given to the inquiry into the Burrell collection is particularly relevant and possibly should be studied before this proposal is too far advanced.

An answer for small houses would seem to be to try again to make the "by appointment system" work. Having a lawyer as an agent can be problem. Why not use the excellent network of local galleries as agents holding the exempt list, with the directors of the galleries empowered to report us to the Inland Revenue if we are not fulfilling our obligations?

There is a serious problem here. It can be resolved by flexibility and good will on all sides, but if it is not resolved the only art available to the public to see will be in galleries and museums and the large, flagship, great houses.

9.31 p.m.

Lord Luke

My Lords, I shall not keep your Lordships long. Unfortunately, I have no interest to declare in this matter.

It appears that the reason why the rules are being changed and the goalposts moved is that a very few people took advantage; they have not been playing the game and making their heritable property available to managed access. That is a shame because, by and large, the scheme has worked very well, not only keeping together collections, keeping items in the country, but also making a large number of works of art available to view by scholars and members of the public, works which would not have been seen under other circumstances.

Many medium to small scale owners of heritable items have been upset by the retrospective nature of the new arrangements. Retrospective legislation is always bad, as other noble Lords have said this evening, and in this case it could be disastrous.

Many of the people concerned have had completely to reorganise their commitments. In some cases major items are being sold to pay outstanding tax. They will not be seen again unless they have been bought by museums—and they may be bought by museums abroad. In other cases, particularly where a person, perhaps a bachelor or an old lady, is living alone, whole collections are being sold up, or maybe, depending on circumstances, the person is selling the one treasure which he or she cannot possibly keep at the expense of allowing unrestricted access to his or her home, possibly a flat or small house. Security and comfort would be comprehensively destroyed.

I ask the Government to think again before it is too late. To my certain knowledge, certain dispositions have already been made in some cases, so if action is to be taken it must be soon.

It has been suggested that items could be displayed at museums and galleries for the requisite 25 days. The consideration raised by the noble Earl, Lord Kintore, about the movement of some of the items is real. Paintings, particularly old ones, do not like being moved, and certainly furniture and priceless porcelain would be very much at risk.

What evidence do the Government have that museums, particularly local museums, would be both willing and able to fulfil the function of a peripatetic warehouse, as it were?

One sensible way to solve the whole problem, and one that I strongly commend to the Minister, is to abolish inheritance tax.

9.34 p.m.

Lord Hamilton of Dalzell

My Lords, I, too, thank my noble friend Lord Chesham for initiating this debate and I declare an interest in having received a letter from the Revenue. I therefore share the anxieties expressed by noble Lords and have a question to ask the Minister. Why, when public service broadcasts and the police advise citizens never to open their doors to strangers and not to invite people in without first ascertaining that they are genuine tradesmen by asking for identification, are those who have valuable works of art in their houses compelled by law to overlook these sensible precautions?

When the Minister comes to reply, no doubt he will repeat the pledge made by the Labour Party before the election that it would take steps to stop the widespread avoidance of tax. This is one of the rackets that it has had in mind. I agree that this arrangement is questionable in law, or at least in one interpretation of it, but I maintain that it is not one which has up until now been allowed in order to protect the wealth of that section of the community who are neither too rich nor too poor to avoid being caught by inheritance tax. It was to save governments from the odium of being accused of taxing away that priceless and uniquely British heritage represented by houses and their contents.

When death duty was introduced at a very low rate at the end of the 19th century, there were those who said that this would mark the end of the country house and its estate. The forecast was premature, although the number of houses which have been pulled down or converted into flats, conference centres or golf clubs or have simply been allowed to become derelict bear witness to a steady attrition and the very high rates of tax extracted from their owners up to 1980—"until the pips, squeaked", so to speak. It has always appeared to be politically unacceptable to abolish a tax which by its very name and nature is a tax on our heritage. But what is the heritage if it is not what we inherit?

That any of our great houses and estates survive at all is due to the unwillingness of owners to abandon their responsibilities. They have given their properties to the National Trust when they could have cashed in by selling their contents, they have opened them to the public, given them to their children, lived in acute discomfort and cold and used every conceivable means at their disposal to ensure their preservation for posterity. To a considerable extent, their efforts have been connived at by every government since the war because they recognised the value of what was being done and did not want to lose the support of the powerful lobby representing the arts. The exemption of works of art from inheritance tax is just one instance of this connivance.

I do not believe that the majority of us who own exempted works have ever objected to people who could prove their bona fides seeing things that they have wanted to see. My noble friend Lord Haig made exactly that point. Objects go to exhibitions, even when they are not on the exempted list. Scholarship in art is to be encouraged and I find it interesting as an owner to hear what experts think.

There has been a campaign to make the general public feel hard done by because, hitherto, they have not for practical reasons been allowed free access to people's private homes to see things on the list. But true art lovers might be gratified that they can still see things in this country which might otherwise have been taxed away to the USA or Japan or some other more prosperous country.

In espousing what they would like to think of as the public cause, the Government might also like to reflect on the good deal they get as tax collectors on behalf of the general public. Tax on exempted works of art is not forgone; it is postponed, as my noble friend Lord Chesham said. If the exemption took place before inheritance tax was reduced to 40 per cent, this rate can be as high as 80 per cent. The astronomical rise in the art market in recent years means that when on a death 20 or 30 years ago they might have collected tens of thousands of pounds, now they stand to make hundreds of thousands, if not millions, of pounds on a sale.

The threat of inheritance taxes to the heritage arises because works of art must be regarded by the Revenue as financial assets for tax purposes. Because they earn no income but rather incur costs, they are in reality liabilities until they are sold. It is quite possible to inherit millions of such liabilities but to have no income because all the income-earning assets have been taxed away.

Attrition caused by taxing the passing of the generations, keeping ancient buildings in repair and a general decline in income from estates are bound to bring a perpetual flow of exempted items on to the market. The Finance Act 1998 will accelerate that process. The illusion that there was a sort of partnership between owners and government for the preservation of our heritage has been broken by New Labour. The Goths are at the gate—or is it the Scots?

9.41 p.m.

Lord Palmer

My Lords, I, too, thank the noble Lord, Lord Chesham, for asking this vitally important Question. I, too, must declare several interests. I am a director of the Historic Houses Association and chairman of its Scottish region, and almost everything that I own—objects and masonry—are conditionally exempt from inheritance tax.

My home was one of the last major historic houses to be built and has been described as the swan-song of the great classical house. If they were not exempt, there is no way that I could have inherited this marvellous property intact. Neither could I have considered passing it on to one of my children. Our only alternative would have been to sell the house and to disperse the contents—which of course are historically linked to the house. If that had happened the access enjoyed by the one quarter of a million people who have over the past 15 years visited and enjoyed the house, its remarkable contents and grounds would have been lost. As important, so too would the 20 jobs that are associated with providing public access.

Mercifully, however, I am not personally troubled by the new legislation. At home, our obligation is to open the house and grounds for 25 days a year, and to date that system has worked well. But I have great sympathy with those owners whose exempt objects are housed in smaller properties, for all the reasons so eloquently described by the noble Lord, Lord Montagu. Here, I pay enormous tribute to the noble Lord for all his efforts for the country's heritage and for the role that he played in founding the Historic Houses Association. There is one point from his speech that I would like to take up and leading on from this, one positive suggestion that I hope the Government might consider.

The noble Lord, Lord Montagu, and others described the very real practical difficulties that owners face in opening their houses to the public. I know only too well what many of them are. The noble Lord also draws attention to the horrendous security implications created by the publication of the exact location of their exempt objects, some of which will be very valuable, on the Internet. That will, I am afraid, dissuade many from agreeing to the Revenue's new proposals, much as they would wish to do so, even for a minimal number of days.

The alternative to displaying the objects at home, the Government would suggest, is to show them in a museum. For many, that is simply not an option. We all know that many museums are already filled to capacity and/or insufficiently funded to contemplate the extra curatorial burden. Moreover, it has long been the policy of successive governments to maintain as much as possible of Britain's "secondary collection" in private ownership, for practical and economic reasons. That sensible policy will undoubtedly be adversely affected by the new measures.

Where do owners who cannot show their objects at home or in a museum put them on display? The suggestion that I propose is that other historic houses, be they privately or publicly owned, that already have existing facilities such as car parks, guides, security and so on be encouraged to create display facilities to show exempt objects drawn from their immediate and surrounding localities.

Not only would such a scheme greatly assist the implementation of the new measures; but also it would create a series of displays of real interest. Objects would be shown in their proper setting rather than seen in the front room of a gloomy office shown by a grumpy solicitor who would rather be doing something else. The scheme would also extend the attractions on offer at those houses that already are open to the public.

The HHA has discussed this idea with Historic Scotland and the National Trust for Scotland. They are interested in it. English Heritage and others, however, remain to be convinced. There are, I admit, practical difficulties to be considered—transport, insurance and so on. But none of these need be insurmountable.

Endorsement of this scheme and, in particular, allowing a government indemnity, would go some way to encouraging what could become a beneficial aspect of what could otherwise be unhelpful legislation. There could be favourable consideration by the Revenue in allowing owners to accumulate credit for, say, three or four years by displaying their objects for a longer period in any single year.

I urge the Government positively to support what I believe to be a most practical proposal and thus to help safeguard the great heritage of this country.

9.46 p.m.

Viscount Falkland

My Lords, I shall be brief, as I have no personal interest to declare.

I have a great deal of sympathy with the case put by the noble Lord, Lord Chesham, who asked this Question. There are two principles involved that are not easily compatible. There is the principle that seems easy to support: if valuable works of art, furniture and other chattels which are part of the heritage of the nation are in private hands, and if tax can be deferred and they can be kept in the place where they have been for many years rather than being sold and dispersed, there is a strong reason for making sure that they are kept in situ. However, I do not understand the other, rigid principle of the Inland Revenue's 25 days' access. Perhaps the Minister can explain that.

Where is the public demand for such access? I can understand that there is a demand from scholarly bodies whose representatives come to see such chattels by appointment. I can understand that if it is possible for the noble Lord, Lord Chesham, in the physical surroundings, to make access available to those bodies by arrangement, and even members of the public who apply to join them, there is good reason, in order that he may continue to enjoy his own chattels and the tax deferment, for him to make a contract to allow that access. But to allow 25 days a year access across the board seems extraordinary.

I also take the noble Lord's point that advertising on the Internet seems crazy and can hardly have been thought through. It is an invitation to criminals—probably more so than having one's house displayed in all its glory in Hello magazine. I wonder whether the Inland Revenue has considered that. No doubt the noble Lord who will reply has thought about it carefully and will give it his full attention.

This approach is extremely rigid. If there is a principle of access of which he can persuade me, surely a more reasonable and flexible way of making it work can be found. At present, it seems to me that the complaint of the noble Lord, Lord Chesham, and other noble Lords is well-founded. The matter needs some thought and sensitivity. I look forward to the noble Lord's reply.

9.49 p.m.

Baroness Anelay of St. Johns

My Lords, I am in some difficulty because it is the normal courtesy of the House that I should begin by thanking my noble friend Lord Chesham for asking the Question of the Government. However, he put me in difficulty because by asking the Question tonight he has prevented me from being elsewhere—that is, in front of the television set watching a football match that I would rather have seen. I know that earlier today the noble Lord, Lord McIntosh—he is "tut-tutting" now—made clear that he would rather be elsewhere, but not watching the match.

Lord McIntosh of Haringey

My Lords, I was invited by the noble Baroness to tell the House the result. We have just passed a message to her with it.

Baroness Anelay of St. Johns

I am glad he did so. I am extremely grateful not only to the Minister but also his officials for making it possible for the House to know the result: Manchester United won, 2:1. We are delighted.

Returning to the debate tonight, on this occasion I have no personal interest to declare, but I am interested in the implications of the issue for the heritage of our country. I am interested in ensuring that whatever system is in place is fair to both the owner of the historic items and to the taxpayer. The rules should be fair in their composition and in their application. It would not be in the public interest if the rules were applied in such a way that collections were broken up or works of art sold and lost to an overseas buyer.

Tonight noble Lords have examined the implications of the changes introduced by the Finance Act 1998. First, there is the requirement that those who have already obtained exemption from tax on their works of art in exchange for an undertaking to make them available to the public by appointment should renegotiate those undertakings so that they will in future have to allow access without prior appointments. Secondly, there is the requirement that in future the standard of the work of art, in order to qualify for exemption from tax, will have to be of pre-eminent instead of museum quality.

The first change is the one that has attracted most of the publicity. It is possible that many people will pay the tax rather than allow open access to the work of art and that those who cannot afford the tax will sell their work of art. But the second change, of definition, is also a serious threat to the retention of works of art in collections in this country.

Like my noble friend Lord Luke., I intend to be relatively brief so I do not propose to rehearse again all the arguments which have been adduced so effectively this evening. I listened with interest to the points argued so effectively by my noble friend Lord Montagu. I wish to associate myself with them. I also wish to thank the HHA for the time it has taken to provide me with most helpful briefing material and for meeting Lord Luke and myself to discuss the issues in some detail. I also endorse the remarks made by my noble friend with regard to the invidious position in which the changes put those individuals who may live alone in modest circumstances but who have always been prepared to offer access to their work of art by appointment. They may feel that their personal security is compromised by these changes.

I also wish to ask what evidence exists to prove that museums are ready, willing and able to give room to those works of art which are currently open to view in homes, but which owners may wish to show outside their home under the operation of the changed rules.

In preparation for this debate I was made aware that there had been extensive and constructive discussions on the matter between the Inland Revenue, interested representative organisations and the Government. I have of course not been party to those discussions, but believe that they have made significant progress. I would be grateful if the Minister could give the House such information as is not confidential about the progress of those discussions and their likely outcome.

9.53 p.m.

Lord McIntosh of Haringey

My Lords, this debate can take place only on the basis that it is about public policy. The noble Lord, Lord Chesham, made that clear and I respect him for it. Your Lordships will therefore understand that although a considerable number of contributions have been about noble Lords' own personal circumstances, it would be quite improper for me to attempt to reply to that part of the debate. What I shall seek to do is to talk about the public policy issues which are raised by the Question.

First, I shall say something about the changes which have taken place to the inheritance tax rules for conditionally exempt chattels. I understand that we are not talking about land and buildings. I shall then say something about the nature of the problem that gave rise to the change in the law. I shall explain what the Inland Revenue has done and is doing. Finally. I shall make some suggestions—perhaps modest and inadequate—about possible solutions to the problem that has been identified.

Two changes were made to the inheritance tax rules by the 1998 Budget. The first related to the quality of the items. It was made clear that in order to qualify for conditional exemption in future, items should be of pre-eminent quality rather than, as under the past vile, of a quality sufficient for them to be shown in a local authority collection. There has not been any debate on that side of the issue tonight and I shall not go into it any further.

The second change in rule which has been the subject of debate is that there should be improved access. I shall deal with how that is intended to be achieved. It is proposed that there should be improved access only where there is already in the agreement a requirement for reasonable public access. That makes it clear that this is not retrospective legislation as claimed by the noble Lord, Lord Chesham, and a number of other noble Lords.

How is it proposed under the legislation that this should be achieved? If possible, it should be done by agreement. I shall come to the letters which the Inland Revenue has sent out. I suspect that in a very large number of cases there will be agreement. That is not even required in the case of those noble Lords and others whose houses are already open to the public for at least 25 days a year, of which there is a substantial number. If agreement cannot be reached arrangements will have to be made which will be endorsed on review by the Special Commissioners of Income Tax who are the tax judges. As in all Revenue matters the arrangements would have to be, just and reasonable in all the circumstances".

This means that in law it should be just and reasonable in all the circumstances relating to the asset, not the owner. Otherwise, one would have a situation in which different judgments were made by the Special Commissioners, not according to the nature of the original deal under which tax was foregone or postponed, depending on how noble Lords wish to describe it—some have used one word or the other—but according to the nature of the circumstances of the present owner and where he lived. That is not what the law says.

The Revenue has the intention as far as possible to proceed by case-by-case negotiations, but if there is no agreement arrangements must be made which are subject to legal process by the Special Commissioners. But the Revenue concedes, rightly I believe, that it has a duty under the Finance Act 1998 to review access to existing exempt chattels, to seek open access to them where appropriate and to require special access on conditions which the Special Commissioners must approve.

Before I leave the question of what the law says, I should like to respond to the argument of the noble Lord, Lord Chesham, that this may be in breach of Article 1 of the European Convention on Human Rights. There is a very simple solution for those who fear that their human rights are being infringed by the access proposals: they can remove the chattels from their houses for the amount of time that is proposed or, in an extreme case, sell them and pay the tax. Under those circumstances, I cannot conceive that there is any infringement of the European Convention on Human Rights.

I now turn to the scale of the problem. From the public point of view, this is costing the taxpayer £25 million to £30 million a year. There are 900 owners of conditionally exempt chattels and there are approximately 20,000 chattels concerned. When the system was set up it was intended that the prior appointment system should be the last resort. The basis was that there should be reasonable public access, and clearly prior appointment is not reasonable public access. Now in all too many cases it is the first resort. I know that noble Lords will not wish to hear the name of Mark Thomas and Channel 4. The three-tier mahogany buffet with partially reeded slender balustrade upright supports was a theme of his television programme.

It is not a question of access for scholars but for the general public—those who can go into our museums and galleries. It is the general public who are paying, in effect, through the tax that they have forgone. It is the general public, not scholars or researchers, who have to have access to these chattels. The plain fact is that in many cases that does not happen: they do not have access. Of course it occurs in the stately homes, the homes which are open to the public. But in far too many other cases it is simply not happening. The original intention of the legislation is not being achieved.

I appreciate the difficulties which have been described in public policy terms. I shall turn to possible solutions in a moment. In the meantime, I have to assert implacably that some public access is essential.

I turn to what the Inland Revenue has been doing. In January of this year, the Capital Taxes Office produced a booklet. It has been inadequately quoted today by the noble Earl, Lord Kintore. He quoted the full address and the opening times of a building open to the public. The Capital Taxes Office pamphlet states: If they are not located in such a building [it has to declare] period(s) when open access will be available; for example. 12 days from May to July [and the] name, address and telephone number of the person, yourself or your agent, who will give details (where necessary) of the actual opening days and the venue(s)". So neither the Internet nor any list produced by the Inland Revenue will give the address at which these chattels are held.

Paragraph 5.33 is quite clear. In answer to the question, Will the Internet entry identify the previous or the current owner of the exempt assets?", the answer is, No".

As has been stated, the Inland Revenue wrote to all owners of exempt chattels on 31st March. It sought a measure of public access on terms which do not require a public appointment. It suggested—the noble Lord, Lord Chesham, said that it was mandatory; it is not—a preferred access period of 25 days and asked for an answer by 30th June. This was a question which in Latin would begin with nonne: a question expecting the answer, yes. It expects people to answer as constructively as they can to suggest ways in which the law could be complied with. The Historic Houses Association—I pay tribute to it for that—is helpfully collating the responses.

A letter which has gone out today or yesterday—I do not know the date; I saw only the final draft—goes rather further. It invites people to telephone for further help and advice. It gives an extension to 31st July for a reply. It invites owners of conditionally exempt chattels to make their own suggestion in the hope that there can be an agreement. If not, it repeats that there have to be Inland Revenue proposals to these Special Commissioners.

As far as the 25-day period is concerned, it describes this as a fair starting period for currently exempt heritage objects of the highest quality; in other words, those which have been displayed or would be suitable to be displayed in a national collection. Where the quality standard does not apply, a lower level may be appropriate. But still, except where there are conservation problems, it would expect at least five days' access.

What are the solutions? I do not know that there are complete solutions and I cannot suggest that there are. The helpful suggestion was made by the noble Lord, Lord Palmer, that there could be access in larger houses which are already open to the public. The suggestion has also been made that objects could be on loan to a public collection. There is at the moment in the Fitzwilliam Museum in Cambridge a display, which I am told is very attractive, of conditionally exempt items from eastern England.

I recognise that the supply and demand are not meshed together. There is a market failure, one might say, between the museums and galleries that might show these items and owners who would wish to have them shown in order not to be required to show them without appointment in their houses. Digitised images on the register may be appropriate; it would be valuable if it could be done, but it could not be suggested that this would be an alternative to actually showing the items themselves.

What I should like to suggest, and I have discussed this with the Secretary of State for Culture, Media and Sport, is that we seek to set up a clearing-house, a way in which those who might show the items could be put in touch with those who might wish to have the items shown. Clearly I am not committing public expenditure to this: if it happened, it would save the owners money of the sort which has been described on insurance and other costs. In any case, what the Inland Revenue is doing is seeking agreement and case-by-case negotiations; and that will continue.

In the end, however, the result must be more public access, wider public enjoyment of the heritage and public support for the inheritance tax relief which is in existence and for which I suggest there is inadequate public support. The noble Lord, Lord Hamilton of Dalzell, asked: what is the heritage if it is not what we inherit? I take the heritage as being what we collectively inherit in this country: the public heritage of this country, rather than what individuals inherit. That is how I think the public see it and that is how I think the public will see the issue before the House this evening.

Lord Bridges

My Lords, before the noble Lord sits down I wonder—

Lord McIntosh of Haringey

My Lords, I am sorry, I cannot reply to questions.

House adjourned at eight minutes past ten o'clock.