(c) crown copyright
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THIS D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T
CC(74) 30th
Conclusions COPY NO CABINET
C O N C L U S I O N S of a M e e t i n g of the C a b i n e t
h e l d at 10 Downing S t r e e t on
T U E S D A Y 30 J U L Y 1974
at 12. 00 noon
PRESENT
T h e R t Hon H a r o l d W i l s o n M P ,,
P r i m e Minister
The Rt Hon E d w a r d S h o r t M P
Lord P r e s i d e n t of the C o u n c i l
T h e Rt Hon L o r d Elwyn-Jones L o r d Chancellor The Rt Hon R o y Jenkins M P
Secretary of. State f o r t h e H o m e D e p a r t m e n t
T h e Rt H o n D e n i s H e a l e y M P C h a n c e l l o r of t h e E x c h e q u e r The Rt Hon A n t h o n y C r o s l a n d M P
S e c r e t a r y o f State f o r t h e E n v i r o n m e n t
T h e Rt Hon M i c h a e l F o o t M P S e c r e t a r y o f State f o r E m p l o y m e n t The Rt Hon E r i c V a r l e y M P
S e c r e t a r y of State f o r E n e r g y
The Rt Hon Shirley W i l l i a m s M P S e c r e t a r y o f State f o r P r i c e s and Consumer Protection The R t Hon B a r b a r a C a s t l e M P
S e c r e t a r y of State f o r S o c i a l S e r v i c e s
T h e R t Hon A n t h o n y W e d g w o o d B e n n M P
S e c r e t a r y o f State f o r I n d u s t r y
The R t Hon R o y M a s o n M P
S e c r e t a r y of State f o r D e f e n c e
The Rt Hon Reginald P r e n t i c e M P S e c r e t a r y of State f o r E d u c a t i o n and Science The Rt Hon W i l l i a m R o s s M P
S e c r e t a r y of State f o r S c o t l a n d
T h e R t H o n John M o r r i s Q C M P S e c r e t a r y o f State f o r W a l e s The Rt Hon F r e d P e a r t M P
Minister of A g r i c u l t u r e , F i s h e r i e s and F o o d
The Rt Hon H a r o l d L e v e r M P C h a n c e l l o r o f the Duchy of L a n c a s t e r The R t Hon L o r d S h e p h e r d
Lord P r i v y S e a l
T h e R t Hon R o b e r t M e l l i s h M P Parliamentary Secretary, Treasury
SECRETARIAT
S i r John Hunt
M r P Benner
M r J Anson
C O N T E N T S
If
Subject
NATIONAL
SUPERANNUATION
TAXES ON C A P I T A L
ii
( I t e m 1)
( I t e m 2)
0
IjATIONAL
1,
T h e C a b i n e t had b e f o r e t h e m a m e m o r a n d u m b y the
pPERANNUATION
S e c r e t a r y of State f o r S o c i a l S e r v i c e s about N a t i o n a l
Superannuation ( C ( 7 4 ) 8 4 ) , t o w h i c h w a s appended a d r a f t
White P a p e r .
THE S E C R E T A R Y O F S T A T E F O R S O C I A L S E R V I C E S said
that m u c h of the c r e d i t f o r the v e r y ingenious p r o p o s a l s f o r
i m p r o v e d l o n g - t e r m p e n s i o n a r r a n g e m e n t s r e s t e d w i t h the
M i n i s t e r of State i n h e r D e p a r t m e n t , M r 0 ' M a l l e y .
The main
p r i n c i p l e s w h i c h any s c h e m e adopted b y the p r e s e n t G o v e r n m e n t
would h a v e to s a t i s f y w e r e that i t should a f f o r d an a d e q u a t e
e a r n i n g s - r e l a t e d pension f o r e v e r y o n e ; provide a r o l e for good
o c c u p a t i o n a l p e n s i o n s s c h e m e s ; b e s i m p l e r than the p r o p o s a l s
put f o r w a r d b y M r G r o s s m a n i n the t i m e of the l a s t L a b o u r
G o v e r n m e n t ; m a k e s o m e i m p r o v e m e n t i n the p o s i t i o n of
existing p e n s i o n e r s ; p r o v i d e for equal t r e a t m e n t for w o m e n
and f o r an e l e m e n t , o f r e d i s t r i b u t i o n in f a v o u r o f the l o w e r p a i d ;
and o f f e r p r o o f i n g a g a i n s t i n f l a t i o n .
Her proposals satisfied
these r e q u i r e m e n t s .
T h e b e n e f i t s p r o p o s e d w e r e outlined i n
the m e m o r a n d u m she had c i r c u l a t e d .
The base l e v e l pension
w o u l d be r e v a l u e d i n l i n e w i t h a v e r a g e n a t i o n a l e a r n i n g s and
the r e m a i n d e r of the p e n s i o n w o u l d b e p r i c e p r o t e c t e d .
It
w o u l d be a s s u m e d that the r a t e of c o n t r i b u t i o n s at the s t a r t
of the s c h e m e w o u l d b e not m o r e than l f i f p e r c e n t .
This
c o m p a r e d w i t h a c o n t r i b u t i o n of 14j p e r c e n t a s f r o m A p r i l 1975
and r e f l e c t e d a r e d u c t i o n i n h e r o r i g i n a l p r o p o s a l s i n the l i g h t
of d i s c u s s i o n s w i t h T r e a s u r y M i n i s t e r s .
E m p l o y e e s w h o had
b e e n c o n t r a c t e d i n would b e paying 6 j p e r c e n t ; t h o s e w h o had
b e e n c o n t r a c t e d out w o u l d b e paying 6 f p e r c e n t up to the b a s e
l e v e l and p r o b a b l y 4 p e r c e n t on the r e m a i n d e r of t h e i r e a r n i n g s ;
but the d e t a i l e d a r r a n g e m e n t s f o r c o n t r a c t i n g out c o u l d not b e
f i n a l i s e d pending the c o m p l e t i o n of c o n s u l t a t i o n s w i t h the
interests concerned.
T h e p e r i o d o f m a t u r i t y w o u l d b e 20 y e a r s
and p e n s i o n s w o u l d b e c a l c u l a t e d on the b a s i s o f the c o n t r i b u t o r ^
b e s t 20 y e a r s of e a r n i n g s .
The latter was a particularly
a t t r a c t i v e p r o v i s i o n w h i c h would b e a p p r e c i a t e d b y m a n u a l
w o r k e r s and b y y o u n g e r w o r k e r s g e n e r a l l y .
The proposals
e n v i s a g e d e q u a l i t y of t r e a t m e n t f o r w o m e n , and t h e r e f o r e the
m a r r i e d w o m a n ' s option w o u l d b e a b o l i s h e d f o r a l l w o m e n n e w l y
entering employment.
B u t , b e c a u s e of the c o n s e q u e n t i a l
increase in contributions, phasing-in arrangements w e r e
n e e d e d f o r w o m e n a l r e a d y at w o r k ; the W h i t e P a p e r i n d i c a t e d
that t h e r e w e r e to b e d i s c u s s i o n s w i t h i n t e r e s t e d o r g a n i s a t i o n s
but that the G o v e r n m e n t l o o k e d s y m p a t h e t i c a l l y a t the
p o s s i b i l i t y of a l l o w i n g the continuance f o r e x i s t i n g w o r k i n g w i v e s
of t h e r i g h t t o opt out of c o v e r f o r s h o r t - t e r m b e n e f i t s .
This
w o u l d s i g n i f i c a n t l y r e d u c e the t o t a l c o s t o f the s c h e m e and
w o u l d h a v e the f u r t h e r a d v a n t a g e of l a r g e l y e l i m i n a t i n g the
1
need f o r additional staff to operate it,
A point s t i l l
outstanding w a s the p r o v i s i o n to b e m a d e f o r e x i s t i n g p e n s i o n e r s .
A g e n e r a l i m p r o v e m e n t i n b a s i c p e n s i o n s w o u l d b e very­
e x p e n s i v e , and the a l t e r n a t i v e p o s s i b i l i t y of s o m e f o r m of
n e g a t i v e i n c o m e tax w a s b e i n g e x a m i n e d .
I n the m e a n t i m e ,
a l t e r n a t i v e f o r m s of w o r d s had b e e n i n c l u d e d i n the d r a f t W h i t e
P a p e r ; the c h o i c e b e t w e e n t h e m w o u l d h a v e to d e p e n d on the
o u t c o m e of the d i s c u s s i o n s w h i c h h e r D e p a r t m e n t w a s a t p r e s e n t
h a v i n g w i t h the T r e a s u r y .
T h e s c h e m e w o u l d not i n v o l v e a n y
a d d i t i o n a l p u b l i c e x p e n d i t u r e until 1978-79 and the e x t r a c o s t
a f t e r the f i r s t y e a r w o u l d b e about £133 m i l l i o n - l e s s , i f the
m a r r i e d w o m a n ' s r i g h t to opt out f r o m s h o r t - t e r m b e n e f i t s w e r e
retained.
She sought the C a b i n e f s a g r e e m e n t t o p u b l i c a t i o n o f
the d r a f t W h i t e P a p e r e a r l y i n S e p t e m b e r , i f p o s s i b l e b e f o r e the
annual T r a d e s Union C o n g r e s s .
T H E C H A N C E L L O R . O F T H E E X C H E Q U E R s a i d that i n p r i n c i p l e
he e n d o r s e d the p r o p o s a l s put f o r w a r d b y the S e c r e t a r y of S t a t e
for Social Services.
T h e r e w o u l d b e public e x p e n d i t u r e
i m p l i c a t i o n s ; but t h e y w o u l d not a r i s e until the l a s t y e a r of the
p r e s e n t P E S C p e r i o d and i t was p o s s i b l e that if t h e r e w e r e a
g e n e r a l e l e c t i o n in 1978-79 the i n t r o d u c t i o n of the s c h e m e m i g h t
be d e f e r r e d for a further y e a r .
T h e c o s t of the p r o p o s a l s
w o u l d i n the l o n g run b e v e r y g r e a t , and i t w a s i m p o r t a n t that
the W h i t e P a p e r should b e p r e s e n t e d s o that i t w o u l d h a v e the
l e a s t e f f e c t on c o n f i d e n c e i n this c o u n t r y ' s f i n a n c i a l s t a b i l i t y .
H e had f o u r c o m m e n t s on the d r a f t w h i c h had b e e n c i r c u l a t e d .
F i r s t , w h a t e v e r m i g h t b e d e c i d e d about n e g a t i v e i n c o m e tax ­
and the p r o s p e c t s of p r o p o s a l s b e i n g w o r k e d out d i d not a t
p r e s e n t s e e m p r o m i s i n g - he s t r o n g l y p r e f e r r e d the s e c o n d of
the t w o a l t e r n a t i v e v e r s i o n s of p a r a g r a p h 9 of the f o r e w o r d .
S e c o n d l y , p a r a g r a p h 14 o f the d r a f t W h i t e P a p e r i t s e l f should
i n d i c a t e that the p a r t of the p e n s i o n a b o v e the b a s e l e v e l w o u l d
r e c e i v e p r i c e p r o t e c t i o n r a t h e r than " n o l e s s ' £ h a n " p r i c e
protection.
T h i r d l y , i t w a s a r g u a b l e that the p r o p o s a l s f o r
w i d o w s and w i d o w e r s w e r e unduly f a v o u r a b l e and i t w o u l d
t h e r e f o r e be d e s i r a b l e to r e v i e w them.
F o u r t h l y , the w o r d i n g
o f p a r a g r a p h s 36 and 38 should b e r e v i e w e d to r e f l e c t the f a c t
that the f i g u r e of 16^ p e r c e n t f o r the i n i t i a l c o n t r i b u t i o n w a s t o
be regarded as a m a x i m u m .
T H E P R I M E M I N I S T E R , s u m m i n g up a b r i e f d i s c u s s i o n , s a i d that
the C a b i n e t c o n g r a t u l a t e d the S e c r e t a r y of State f o r S o c i a l
S e r v i c e s and the M i n i s t e r of State on h a v i n g p r o d u c e d a n
i n g e n i o u s and a c c e p t a b l e s e t of p r o p o s a l s .
T h e y a g r e e d that a
W h i t e P a p e r should b e p u b l i s h e d e a r l y i n S e p t e m b e r , i f p o s s i b l e
b e f o r e the annual T r a d e s Union C o n g r e s s .
T h e d r a f t w h i c h had
b e e n c i r c u l a t e d w a s a g r e e d , s u b j e c t to e x a m i n a t i o n b y the
C h a n c e l l o r of the E x c h e q u e r and the S e c r e t a r y of S t a t e f o r
2
S o c i a l S e r v i c e s of the points w h i c h had b e e n r a i s e d .
In the l i g h t of t h e i r c o n s u l t a t i o n s , any n e c e s s a r y a m e n d m e n t s
should b e m a d e t o the d r a f t , and the C a b i n e t n e e d b e c o n s u l t e d
a g a i n o n l y i f t h e r e w e r e points w h i c h the M i n i s t e r s w e r e unable
to settle between t h e m s e l v e s .
T h e S e c r e t a r y of State should
c o n s i d e r the i s s u e of a p o p u l a r v e r s i o n o f the W h i t e P a p e r and
the p r o v i s i o n f o r M i n i s t e r s of suitable b r i e f i n g m a t e r i a l at the
t i m e of p u b l i c a t i o n .
The Cabinet T o o k n o t e , w i t h a p p r o v a l , of the P r i m e M i n i s t e r s
s u m m i n g up of t h e i r d i s c u s s i o n and i n v i t e d the
S e c r e t a r y of State f o r S o c i a l S e r v i c e s , i n
c o n s u l t a t i o n w i t h the C h a n c e l l o r of the E x c h e q u e r ,
to proceed a c c o r d i n g l y .
!
2.
T h e C a b i n e t c o n s i d e r e d t a x e s on c a p i t a l .
Their
d i s c u s s i o n and the c o n c l u s i o n s r e a c h e d a r e r e c o r d e d
separately.
Cabinet Office
30 J u l y 1974
3
'
1
SECRET
9
HIS D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S
GOVERNMENT
COPY NO
A
r
­
lb
CABINET
CONFIDENTIAL, ANNEX
C C ( 7 4 ) 30th C o n c l u s i o n s , M i n u t e 2
T u e s d a y 30 J u l y 1974 at 12. 00 noon
TAXES O N
CAPITAL
T H E C H A N C E L L O R O F T H E E X C H E Q U E R s a i d that the
G o v e r n m e n t w e r e c o m m i t t e d b y t h e i r E l e c t i o n M a n i f e s t o to m e a s u r e s
o f r e d i s t r i b u t i o n of w e a l t h a s w e l l as of i n c o m e .
T h e only t a x on
w e a l t h at p r e s e n t w a s e s t a t e duty, w h i c h w a s w i d e l y a v o i d e d b y
l i f e t i m e g i f t s and t r u s t s .
I f a w e a l t h t a x w a s not to b e s i m i l a r l y
a v o i d e d , a tax on g i f t s w a s a l s o i n d i s p e n s a b l e .
H e had
therefore
a l r e a d y announced i n h i s B u d g e t a new g i f t s t a x w h i c h w o u l d h a v e
i m r r e diate e f f e c t and f o r w h i c h the l e g i s l a t i o n , w h i c h w o u l d b e v e r y
c o m p l i c a t e d , w o u l d be i n t r o d u c e d i n the s e c o n d F i n a n c e B i l l .
He
had u n d e r t a k e n to g i v e f u r t h e r i n f o r m a t i o n about the t a x , and this
w o u l d now b e published i n a W h i t e P a p e r .
T h e r a t e s o f t a x would
b e l o w e r than t h o s e of the p r e s e n t e s t a t e duty, but the e v e n t u a l y i e l d
w o u l d b e h i g h e r , w h i c h w a s an i n d i c a t i o n of the e x t e n t t o w h i c h
e s t a t e duty w a s a v o i d e d a t p r e s e n t .
The most complex provisions
w o u l d r e l a t e to t r u s t s , w h e r e the g e n e r a l p r i n c i p l e w o u l d b e that t h e
c h a r g e to t a x should b e n e i t h e r g r e a t e r nor l e s s than the c h a r g e o n
a s s e t s held a b s o l u t e l y .
The exemption for gifts to national h e r i t a g e
bodies would continue.
T h e p r e s e n t r e l i e f f r o m e s t a t e duty f o r
b u s i n e s s and f a r m a s s e t s w o u l d b e d i s c o n t i n u e d , but f o l l o w i n g
d i s c u s s i o n i n the M i n i s t e r i a l C o m m i t t e e on E c o n o m i c S t r a t e g y , the
d r a f t W h i t e P a p e r w a s b e i n g m o d i f i e d t o s h o w m o r e r e c o g n i t i o n of
the p r o b l e m s f a c e d by s m a l l b u s i n e s s m e n and f a r m e r s .
H e had a l s o a c c e p t e d an o b l i g a t i o n to p u b l i s h a G r e e n P a p e r on the
w e a l t h tax.
T h i s tax w o u l d b e a new d e p a r t u r e i n this c o u n t r y ,
although o t h e r c o u n t r i e s had had s i m i l a r t a x e s f o r a c o n s i d e r a b l e
time.
T h e G r e e n P a p e r w o u l d i n d i c a t e the b r o a d shape and
s t r u c t u r e of the tax, and e x p l a i n the m a i n d i f f i c u l t i e s , s u g g e s t i n g
alternative solutions w h e r e a p p r o p r i a t e .
It w o u l d b e p r o p o s e d that
the G r e e n P a p e r should b e r e f e r r e d t o a S e l e c t C o m m i t t e e o f the
H o u s e of C o m m o n s .
It w o u l d not be p o s s i b l e t o i n c l u d e the n e c e s s a r y
l e g i s l a t i o n i n a s p r i n g F i n a n c e B i l l i n 1975, although i t m i g h t w e l l b e
p o s s i b l e t o i n c l u d e i t in an autumn F i n a n c e B i l l if t h e r e w a s o n e .
O t h e r w i s e i t w o u l d h a v e t o b e d e f e r r e d until the 1976 F i n a n c e B i l l ,
i n w h i c h c a s e the v a l u a t i o n and the f i r s t p a y m e n t s of the n e w t a x
would t a k e p l a c e in 1977.
It w a s p r o p o s e d that the s t a r t i n g point
f o r the t a x should b e £100, 000, r a t h e r than the f i g u r e of £ 5 0 , 000
w h i c h had b e e n p r e v i o u s l y e n v i s a g e d .
This was n e c e s s a r y in o r d e r
t o a v o i d an u n m a n a g e a b l e b u r d e n on the Inland R e v e n u e , and i t a l s o
r e c o g n i s e d the e f f e c t of i n f l a t i o n s i n c e the f i g u r e of £ 5 0 , 000 w a s
originally suggested.
D e p e n d i n g on s h a r e v a l u e s , the t a x w o u l d
a f f e c t one in e v e r y 200 t o 300 of the p o p u l a t i o n .
The tax would
s t a r t a t 1 p e r cent, and t w o p o s s i b l e i l l u s t r a t i v e s c a l e s would be
i n d i c a t e d , y i e l d i n g a p p r o x i m a t e l y £ 2 0 0 m i l l i o n and £300 m i l l i o n
respectively.
A n y s p e c i a l e x e m p t i o n f o r w o r k s of a r t w o u l d b e
a s s o c i a t e d w i t h a r e q u i r e m e n t that t h e y should b e p l a c e d on public
d i s p l a y , but h o u s e h o l d g o o d s m i g h t b e e x e m p t e d b e l o w a s p e c i f i e d
limit.
W h e n the w e a l t h tax had b e e n i n t r o d u c e d , i t should b e
p o s s i b l e t o a b o l i s h the i n v e s t m e n t i n c o m e s u r c h a r g e , and a l s o t o
r e d u c e s o m e w h a t the h i g h e r r a t e s of i n c o m e t a x .
The proposals
g e n e r a l l y m i g h t b e f e l t b y s o m e to b e i n s u f f i c i e n t l y d r a c o n i a n , but
i t was p r e f e r a b l e to i n t r o d u c e t h e m i n a w a y w h i c h w o u l d not d a m a g e
confidence.
T h e i m p o r t a n t thing w a s t o g e t the tax onto the statute
b o o k , and i t w o u l d a l w a y s b e p o s s i b l e to c h a n g e the r a t e s l a t e r i f
necessary.
T h e p r o p o s a l s i n both d o c u m e n t s w o u l d b e p r o v i s i o n a l .
The Green
P a p e r on the w e a l t h t a x w a s i n t e n d e d as a b a s i s f o r public d i s c u s s i o n .
T h e Y/hite P a p e r on the c a p i t a l t r a n s f e r tax would s k e t c h out the m a i n
p r i n c i p l e s , but the d e t a i l s would b e c o n t a i n e d i n the F i n a n c e B i l l .
H e p r o p o s e d to publish both d o c u m e n t s d u r i n g the f o l l o w i n g w e e k .
In d i s c u s s i o n , c o n c e r n was e x p r e s s e d that the t a x a t i o n of g i f t s
w o u l d a f f e c t t h o s e of r e l a t i v e l y m o d e s t m e a n s .
T h e r e would h o w e v e r
b e e x e m p t i o n s f o r g i f t s m a d e out of i n c o m e , f o r the f i r s t £ 1 , 000 of
g i f t s m a d e i n any one y e a r , and g i f t s on m a r r i a g e up t o £ 2 , 500; and
the f i r s t £ 1 5 , 000 of the c u m u l a t i v e t o t a l of c h a r g e a b l e t r a n s f e r s
w o u l d a l s o b e f r e e of t a x .
Gifts t o c h a r i t i e s w o u l d a l s o b e e x e m p t
up to a c u m u l a t i v e l i m i t of £ 5 0 , 000, w i t h half the n o r m a l r a t e of
tax a p p l y i n g t h e r e a f t e r .
T h e r e w e r e d i f f i c u l t i e s in g i v i n g c o m p l e t e
e x e m p t i o n f o r c h a r i t i e s b e c a u s e of the u n s a t i s f a c t o r y d e f i n i t i o n of
charities in existing charity law.
A further effort would h o w e v e r be
m a d e t o s e e i f c o m p l e t e e x e m p t i o n c o u l d b e g i v e n f o r g i f t s to
c h a r i t i e s f a l l i n g w i t h i n s o m e s t r i c t e r d e f i n i t i o n i n c l u d e d i n the F i n a n c e
B i l l f o r this p a r t i c u l a r p u r p o s e .
In f u r t h e r d i s c u s s i o n the f o l l o w i n g points w e r e m a d e ­
a.
T h e s p e c i a l p o s i t i o n of a g r i c u l t u r e has a l r e a d y b e e n
r e c o g n i s e d i n the d r a f t G r e e n P a p e r , and a g r e e m e n t has b e e n
r e a c h e d on a p a s s a g e of a s i m i l a r kind to b e i n c l u d e d i n the
d r a f t W h i t e P a p e r on the c a p i t a l t r a n s f e r t a x .
T h e e f f e c t on
a g r i c u l t u r e could h o w e v e r s t i l l be s e r i o u s .
w
b.
It had b e e n a r g u e d that the r a t e of t a x on l i f e t i m e
g i f t s should b e s o m e w h a t l o w e r than on d e a t h , s i n c e
o t h e r w i s e the f l o w of g i f t s m i g h t d r y up, t o the d e t r i m e n t
of the r e v e n u e .
A n y such d i f f e r e n t i a l c o u l d h o w e v e r
p r o b a b l y only b e c r e a t e d b y i n c r e a s i n g the r a t e of tax
p a y a b l e on d e a t h , r a t h e r than b y d e c r e a s i n g the r a t e
p a y a b l e on l i f e t i m e g i f t s .
T H E P R I M E M I N I S T E R , s u m m i n g up the d i s c u s s i o n , s a i d that the
C a b i n e t took note of the C h a n c e l l o r of the E x c h e q u e r ^ p r o p o s a l s .
F u r t h e r c o n s i d e r a t i o n w o u l d b e g i v e n t o the p o i n t r a i s e d in d i s c u s s i o n
about the t a x a t i o n of g i f t s to c h a r i t i e s .
The Cabinet T o o k n o t e , w i t h a p p r o v a l , of the P r i m e
s u m m i n g up of t h e i r d i s c u s s i o n .
Cabinet Office
31 July 1974
3
Ministers