Before I come to the measures necessary to achieve this, there is one particular matter which can conveniently be dealt with at this stage—transactions in land and buildings.

I have in the past explained why I do not think that a straight increase in the rate of capital gains tax on land transactions is the answer. Unlike income tax, capital gains tax is charged at a flat rate, and I do not believe that it is the wish of anyone, who reflects on this problem, to increase that rate in the case of comparatively small transactions of the ordinary kind. The sort of large windfall profits, which I have previously described in this House as "offensive". fall into a different category.

The criticism is valid, notwithstanding that, as I explained in my Budget Statement last March, profits from speculation in land are already fully taxed as income, so that for individuals the rate can be as high as 75 per cent. or in some cases even 90 per cent., and that, in the case of company profits which are distributed, the combination of corporation tax and income tax can together amount to nearly 93 per cent. of the underlying profits.

Where land is held as an investment, however, gains on disposal are taxed as capital gains at a rate of 30 per cent. But, as I said in the Budget, it has to be recognised that any increase of taxation on land disposals could lead either to people withholding from the market land which would otherwise have been made available, or to an increase in land prices, or to both.

What has to be weighed, therefore, is the risk that higher taxation would have this effect against the widely-held public view that the taxation of certain land profits is seriously inadequate.

I have come to the conclusion that this is a risk which must be accepted, and I have accordingly decided that new measures are called for.

For the reasons I have given, I am sure that it would be wrong to raise the general 30 per cent. rate of capital gains tax. This is a long-term tax, and when this rate was fixed in 1965 the then Government justified the fact that it was lower than the rates of income tax by acknowledging that there was no allowance for the effect of inflation. That is still the case today. What is required is something which recognises the particular nature of certain land profits.

What differentiates land from other assets liable to capital gains tax is the fact that with land an owner can quite fortuitously make huge windfall gains simply as a result of decisions made by planning authorities acting on behalf of the community as a whole. It is the huge gains due to this development value—or even to potential development value—which people find offensive. It is this element in the gain on a disposal—the development gain—which should be liable to taxation at a rate higher than 30 per cent.

This was, of course, the concept that underlay the betterment levy established by the previous Government's Land Commission Act. But that Act suffered from a number of fundamental defects which were, no doubt, the main reason why its repeal went unmourned. The truth is that the betterment levy was a bad tax, and that was why it failed.

It was not graduated according to a taxpayer's ability to pay. It was charged on individuals when there was no disposal, so that those individuals often had to realise other savings to pay it. It sometimes imposed a burden on the ordinary owner-occupier and on others who were in no way involved in land development or land speculation. Also, perhaps most important of all, the levy fell upon a huge number of totally insignificant transactions which involved a mammoth bureaucracy and a vast interference with thousands of perfectly inoffensive small transactions in land, far removed from the kind of large windfall gains which have been the principal source of disquiet in recent years.

I am sure that there is no wish to return to that kind of impost. Whatever is done must avoid each of those objections to the betterment levy.

The House will remember that during the debates on the Land Commission Bill my right hon. Friends argued that the particular problem of development gains, as distinct from normal land transactions, could be dealt with by an extension of the capital gains tax. This is the concept which we have been working on with a view to legislation in the next Finance Bill. The change will now be made forthwith.

To avoid the mistakes of the betterment levy, the new charge must have three principal features.

First, it must be charged at rates which take account of the vendor's ability to pay.

Second, it should normally be paid only when there is a disposal.

Third, the great mass—[Interruption.] What I have to say concerns many people throughout the country. I hope, therefore, that the House will allow me to deliver my statement in its normally courteous manner. Third, the great mass of small land transactions and, of course, all sales by owner occupiers must be excluded. These are not the cases which have given rise to public disquiet.

Legislation will accordingly be included in the 1974 Finance Bill to tax development gains much more severely. The new tax rates will apply to disposals of land or buildings in the United Kingdom after today.

Tax at the new rates will be charged on the gain in development value during the vendor's period of ownership. But only gains above a number of closely-defined limits will be subject to the new charge.

Subject to these limits—which I will outline in a moment—gains in development value made by individuals who are liable to income tax will be taxed as income at normal income tax rates up to 75 per cent. Development gains made by companies will be taxed as income at the full corporation tax rate, but companies will not be able to set payments of advance corporation tax against the corporation tax payable on these gains. Individuals will be able to spread the gain backwards over four income tax years or such lesser period during which the land or buildings have been in their ownership.

As with the existing charge to capital gains tax, the principal private residence or a house occupied by a dependent relative will be exempt.

The limits will be as follows.

First, there will be excluded from the new charge all disposals of land and buildings by an individual in any year where the total proceeds do not exceed £10,000. For companies, in order to avoid the danger of fragmented sales by companies in the same ownership, the threshold will be £1,000.

Second, there will be excluded disposals where the total gain—that is, existing use gain as well as development gain—is less than 20 per cent. of the cost, That simple test will enable the Revenue to disregard at a glance many disposals where the development gain must be quite small.

Third, there will be excluded disposals where the disposal proceeds do not exceed the current use value plus 10 per cent. That will take out most cases where there is merely a slight prospect of future development.

These limits are essential to exclude the great mass of small disposals, or disposals with a little development value, which would otherwise clog up the machinery of valuation and collection.

No significant revenue is at stake with these limits; and they will enable the new charge to be operated by the Inland Revenue with relatively few additional staff.

Also, as I have said, a principal private residence, or a house occupied by a dependent relative, will be exempted from the new charge, just as they are exempted from the capital gains tax.

There will be provisions to extend the charge to disposals of shares in close land-owning companies and to interests in certain trusts, which means that it will be of no advantage to an individual to hold his land interests through a private company.

I turn next to another, and even more difficult area in this general context of the taxation of land and buildings—the case where a property investment company has unrealised gains accrued over many years on which, because there are no disposals, any capital gains tax is postponed indefinitely. This was, of course, inherent in the capital gains tax as introduced by the then Government in 1965. An example will illustrate the point. A development company acquires land at its current use value. It subsequently gets planning permission, builds, and lets the building without any premium. Under the law as it stands, the letting in these circumstances is not a disposal for the purposes of capial gains tax.

This general problem also we have been considering, and I have come to the conclusion that it is wrong to allow liability to be postponed in these circumstances because, as a matter of common sense, the letting of the premises should be treated as a disposal.

The 1974 Finance Bill will therefore provide that where material development of land or buildings in the United Kingdom, other than residential development, has been carried out by an owner and the property is subsequently let for the first time, this first letting will be treated as a disposal for all purposes of the capital gains tax, including, where appropriate, the charge on the development gain. The charge will apply to all such first-time lettings after today.

Here again, it is necessary to have a limit below which this new occasion of charge will not operate. It would be wrong for the Revenue to be concerned with the great mass of small commercial lettings that may be made of new buildings up and down the country—for instance, where a shop with a store at the back is built and the store is let to a tenant. Only, therefore, where the proceeds of lettings are equivalent to a rack rent of £2,500 or more a year will a disposal be treated as having taken place for capital gains tax.

Finally, on this part of my statement, I should make it clear that any capital gains from the disposal of land which are not subject to the new charge or to the new rule about first lettings—for instance, gains below the thresholds and so on—will remain subject to the normal tax charge on capital gains.

Because of the importance of these changes, which I have inevitably had to explain at some length, the Inland Revenue is publishing a fuller statement setting out more of the details which will be contained in the legislation.

It is obviously very difficult to estimate the yield of proposals of this sort, but the best estimate that can be made is that their total yield will amount to some £80 million in a full year.