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I do not expect to be a beneficiary of any trust of this kind. I have created no such family trusts in my own family. I no longer have a spouse, so I have no direct interest in that context, either. I sought and gained a clean-break divorce settlement, so the divorce did not trigger the establishment of any trust. I therefore believe that I have approached the matter with independent judgment.
Having exercised my independent judgment, I conclude that there are many people of modest means who, quite legitimately, have taken advice and set up trusts to look after their family interests. In many instances, that was done not on the advice of people who said that it was a tax-efficient way of doing things, but on the advice of those who said that it was the best way of protecting family interests against competing claims
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within the familythe best way of meeting the legitimate needs and requirements of the children, as against the legitimate needs and requirements of a new spouse or another relative. It might not always be a case of family breakdown; other relatives could be involved, such as grandparents, grandchildren, aunts or uncles. There are numerous combinations for which trusts make a great deal of sense.
One answer that we need to tease out of the Government involves the extent to which the legislation appears to be retrospective. We would all feel easier about it if the Government recognised that over the past nine years they have presided over a tax and legal regime that made it perfectly rational and sensible for families to organise their affairs through trusts. Now they seem to be blowing the whistle. I consider that the Government are legislating retrospectively, in practice if not technically, when they say that they do not like the arrangements that people have made to deal with future events and force them to change those arrangementsarrangements that were made on the basis of good advice and were legal and sensible under the law of the time, which happens to have been approved and supported by this Government over the past nine years.
Rob Marris (Wolverhampton, South-West) (Lab): I understand what the right hon. Gentleman is saying. Did he support the Inheritance Tax Act 1984? As I recall, that Act changed the previous regime of capital transfer tax to the current inheritance tax regime and was open to the very criticisms that he is now making in regard to retrospectivity and people who plan for the future.
Mr. Redwood: I did not support it because I was not a Member of Parliament at the time. [Interruption.] I am telling the hon. Gentleman the truth. I did not support the legislation, and I dare say that if it contained an element of retrospection I wouldas a well-known independent voicehave pointed it out.
Mr. Redwood: The Minister may recall that I resigned from the Cabinet over matters of principle because I had reached a point at which I did not agree with that Government. The Minister has walked into a heffalump trap of his own making: I am not the person to tease over sticking to my principles.
Mr. Redwood: It was a long time ago, but if the Minister reads my resignation statement he will see that my resignation was not about that; it was about issues of disagreement between myself and the Government. I hope that he will withdraw his uncharitable remark about my wishes on that occasion.
I hope that the Paymaster General will deal with the issue of retrospection. In this and earlier debates, a number of Members have drawn attention to the high cost, for families of modest means, of going over ground that they thought had been resolved at the time of the
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original trust settlementwhen the grandparents made their offer, when the divorce was agreed, or when something else triggered the arrangement.
The Labour party seems to want to stretch the debate to discover what are the general intentions in relation to inheritance tax. I know that you are very careful to maintain order, Sir Alan, but I will say this: of course I think that a much higher threshold for inheritance tax would be helpful generally and would deal with some of the problems that we seem to be encountering across the Floor today.
Helen Goodman : If the right hon. Gentleman thinks that, can he also tell us whether agrees or disagrees with the right hon. Member for West Dorset (Mr. Letwin), who says that equality is a problem in this regard? How does the right hon. Member for Wokingham (Mr. Redwood) reconcile those two ideas?
Mr. Redwood: I am a great believer in equality of opportunity, and the way to have a much richer and more prosperous society is to give greater freedom and to set lower taxes, so that more people can participate in such prosperity. That is exactly the point that I was trying to tease out of the hon. Member for Rhondda (Chris Bryant). I hope that he is proud to represent his constituency and that he expects some of his constituents to use the opportunities provided under even a Labour Government to build businesses and buy properties, for example, in order to become more prosperous, thereby coming into the tax regime that this Government have so carefully designed to entrap them.
Mr. Redwood: I do not think that that is true; indeed, there are many examples to the contrary. I have not inherited any wealth up to this point and I do not have great prospects in that regard, but I do not begrudge those who come from much richer families than mine doing so. If that money trickles down through the generations, it very often does far more good than if it trickles into the sticky hands of the Chancellor of the Exchequer, which seems the only alternative on offer in today's debate.
It would be much better if the inheritance tax system recognised that a person is not very rich just because they have a flat or house that might now be worth a lot of money. There are a number of elderly residents in Kensington and Chelsea living in two or three-bedroom flats that are perhaps worth the best part of £1 million who might be on quite low incomes. Is the Labour party saying that those people must move to realise their asset and to show that they have some wealth? I want to live in a country where, if such people want to carry on living in their two-bedroom flats, they can do so. They should not be treated as rich because, even though they have low incomes and have no other assets to pay all the taxes that Labour now wants to impose on them, they happen to live in a part of the country that has rather high flat and house prices.
I hope that the Paymaster General will deal with the inequality of house prices nationwide, which is not always, as Labour seems to imply, good news for those
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in high house price areas. Such people could be worse off than those in low house price areas because they have to pay a disproportionately higher proportion of their assets and income in order to secure and maintain their property. In other words, the principle can work in the opposite direction.
The final issue is what should happen in future. If the Paymaster General can persuade us that there is no effective element of retrospection and that there is an injustice to tackle, we have then to test whether she has found a route to tackling the injustice and inequality that she sees, and whether she would do so in a way that would make Britain a more prosperous and equal society. I suspect that she will achieve the opposite of what she wishes to achieve.
I do not want to live in a country where only the super-rich can prosper bythanks to their access to the really good lawyersfinding a way around the more complicated regulations that the Government have come up with. I do not want to live in a society that sends out the message that it is better to go offshore or live abroad. I know that offshore trusts have been popular with some Labour donors and Ministers, but they are not a particularly good thing to encourage. It is much better to have an honest, low-tax system that is the same for everybody, and which encourages more enterprise and success.
I hope that the Paymaster General will think twice, three times or however long it takes and understand that her proposals contain several objectionable parts. First, retrospection will disrupt family arrangements. Secondly, the suspicion that all trusts are evil tax dodges is clearly not true. Thirdly, on the Paymaster General's idea that such complexity will squeeze the rich and help the poor, I suspect that the rich will escape because they will have access to good lawyers and accountants and can always go offshore. In short, I urge the Government to drop this proposal.
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