Finance Bill

[back to previous text]

Ruth Kelly: I understand the hon. Gentleman's point and people clearly take advantage of tax reliefs and tax-avoidance measures in order to get round some of the provisions that we have in place, which is their right for obvious reasons. However, I do not accept his case that people on very modest incomes are falling into the inheritance tax trap. The percentage of such people who pay inheritance tax is more than that that suggested earlier by the right hon. Member for

Column Number: 478

Fylde. The actual figure is 4 per cent., but that still does not represent a significant sum.

Mr. Jack rose—

Mr. Flight rose—

Ruth Kelly: I give way to the hon. Member for Arundel and South Downs.

Mr. Flight: For the record, when people refer to the ability to give and live for seven years, they often forget that if someone gives something to their children, capital gains tax, which is often not very different from an inheritance tax bill, must be paid on it. There are sometimes wrong notions about how capital gains tax and inheritance tax work together.

Ruth Kelly: I thank the hon. Gentleman for making an illuminating point for the Committee.

I should like to expand on the point about assets because the Government are committed to spreading wealth, assets and opportunity, and we have proposals that are specifically designed to do that. There has been an over-emphasis on income as a means to greater opportunity, and we have to look at wealth as well as income. The way to do that is not to encourage the very wealthy to hand down money to their sons and daughters, but to spread assets more widely among those who do not have any. That is why we are proposing, for example, the child trust fund, which will give an endowment across the population, give more to families on lower incomes and allow children to build up assets from birth that they will be able to access at the age of 18. We have proposals to spread assets, which are an important component of our strategy to combat poverty and inter-generational inequality.

Mr. Jack: Before the Financial Secretary moves too far away from the point at which she used the word ''vast''—she said that she did not like vast wealth being passed on—can she for the benefit of the Committee define in monetary terms what she means by that?

Ruth Kelly: No, I shall not define the words that I used; I think that they make sense to Committee members.

If we are to use taxpayers' money to spread wealth, we should use it to spread wealth among groups that have the least opportunity and advantage in our society, rather than to the benefit of others. For those reasons, I argue that the clause should stand part of Bill.

Mr. Jack: I listened with interest to the Financial Secretary, and I thank her for responding to an interesting discussion on the clause. However, she has not responded to the challenge from the Opposition side of the Committee. Back-Bench Members certainly called for a reconsideration of the purpose of inheritance tax.

The Financial Secretary attacked us for basing our arguments on the question of house prices, and said that people accumulated personal wealth by other mechanisms. However, she will be aware that her Government introduced individual savings accounts, and that their predecessors—personal equity plans—

Column Number: 479

will have accumulated wealth. Some people who have been using such savings vehicles to busily save to the maximum year on year are, I would hazard a guess, sitting on £150,000 to £200,000 of tax-free gain. They could be living in the most modest of properties—namely, valued at £50,000—and still be caught by the provision. The Government must decide on the objective of their strategy on capital tax.

The Financial Secretary may have a point that some large estates have grown to their size because the owners of the assets managed to circumnavigate taxation. Many lesser mortals have not been able to do that because they are PAYE taxpayers and must pay taxes because no mechanism exists legitimately to circumnavigate them. However, the point is that we are to be denied the opportunity to review that fact.

In justifying her support for the clause, the Financial Secretary invited those of us who implied that there was a case for abolishing inheritance tax to suggest where the missing money could come from. The Government have the solution in their hands. As we discussed at the beginning of the Bill, the National Audit Office produced a report on the indirect tax system, and the hon. Lady knows that that is losing more than £7 billion a year. If she and her Government ran it properly she would have more than enough to make up the missing money. There are ways and means.

Mr. Tom Harris (Glasgow, Cathcart): Will the right hon. Gentleman tell the Committee whether his enthusiasm for abolishing inheritance tax is a new-found belief, or whether he expressed it when he was a Treasury Minister in the previous Conservative Government?

Mr. Jack: I believe that the hon. Gentleman will find that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) indicated in speeches that in the long term it was certainly the intention of the then Conservative Government—I absolve my right hon. and hon. Friends on the Front Bench from any imputation that they may wish to follow these routes—to abolish not only inheritance tax but capital gains tax. The problem that we faced was one of economy. I would have been delighted if the Financial Secretary had said that the Government needed £2.5 billion and that such taxes were a nice way of getting it, because those who are taxed are dead and cannot say anything about it. That would have been an honest reply, but we did not get an honest reply. We got a pseudo-justification.

I have given the Financial Secretary a way of recovering the necessary moneys. There is a case to be made for re-examining capital taxes to determine whether they are effective, given the fact that there are ways around them. A £250,000 limit, up by all of £3,000, may be welcomed by some people at the margin of the last pound—I would not deny that. However, the Government should reconsider the tax and the way that it operates because, as discussed by Opposition Members, there may well be circumstances that the Government would subsequently regret.

Column Number: 480

Question put and agreed to.

Clause 115 ordered to stand part of the Bill.

Clause 116

IHT: powers over, or exercisable in relation to, settled property or a settlement

Question proposed, That the clause stand part of the Bill.

The Chairman: Clause 116, although clearly a different provision, relates very much to the same subject. I trust that we will not rehearse the same debate again.

Mr. Bercow: I have no intention of doing anything of the kind. We are here to debate clause 116, which relates to powers over, or exercisable in relation to, settled property or a settlement. My understanding is that the clause deals with a recent court decision, the Melville case; I will no doubt be corrected speedily if I am mistaken. The decision led to uncertainty for trustees, and the purpose of the clause is to reverse the decision and to end the uncertainty.

In the context of the Government's intentions and of the case to which they relate, it is relevant to report to the Committee the view of respected bodies and interested parties. The tax faculty of the Institute of Chartered Accountants in England and Wales has made critical observations on the clause. It is concerned that new section 55A in subsection (3) is likely to create uncertainty in relation to many arrangements that are outside its target.

For example, suppose that a person receives a power on a trust reorganisation that he did not have before and that, at the same time, existing powers are circumscribed or reduced. It is possible in such circumstances that the second change might be interpreted as consideration of the first. That is the tax faculty's fear, which I hope that the Financial Secretary will be able to deal with successfully. New section 55A is intended to deal with a very unusual circumstance. The tax faculty of the Institute of Chartered Accountants questions whether its introduction is justified in the light of the uncertainties that it believes the clause, particularly that part of it, is likely to create. The tax faculty would welcome clarification of why the spouse, charity and other exemptions are excluded in new section 55A(1)(d).

It will be blindingly obvious, to your satisfaction, Mr. Gale, that I do not intend to rehearse earlier arguments. However, to record the view of the Chartered Institute of Taxation must surely be relevant. It has informed us that subsection (7)

    ''will need amending to ensure that potentially exempt transfers which become chargeable as a result of a death before 17 April 2002 are also excluded.''

It queried

    ''the necessity of the new section 55A and''


    ''that, if enacted, its powers will'',

whatever the intention, prove to be too wide.

The institute is

Column Number: 481

    ''concerned that it will affect many arrangements outside what''

it believes to be

    ''its targets. For example, in a trust reorganisation it may be that trust powers are given up or transferred as part of a larger reorganisation where the transferee acquires revised interests and powers.''

Such an arrangement

    ''could amount to consideration bringing these anti-avoidance provisions into effect inappropriately.''

It is therefore concerned that the provisions

    ''will apply where settlement powers are acquired 'for consideration in money or money's worth' on a trust reorganisation.''

The institute

    ''would like some explanation as to why this detailed new section is necessary.''

With all the humility that I normally demonstrate and which you have come to expect habitually from me, Mr. Gale, I am bound to say that if the Chartered Institute of Taxation feels in need of clarification and justification of the new measure, who am I to demur?

6.45 pm

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2002
Prepared 18 June 2002