HC Deb 07 July 1920 vol 131 cc1549-52

The rate at which the first two hundred and twenty-five pounds of the taxable income of an individual shall be charged to income tax shall be half the standard rate of tax.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Colonel WEDGWOOD

This Clause deals with the rate at which the first £225 shall be taxed, and I want to get from the Chancellor of the Exchequer some statement as to the method by which the present charge of half the standard rate of tax is applied. It is very difficult to understand this Income Tax law. If the right hon. Gentleman would tell us exactly what is the meaning of this Clause, and how far it affects these rebates, I should be very grateful, and I think the Committee also would be glad to get the iniformation.

Mr. BALDWIN

I agree with my hon. and gallant Friend that these points are difficult to follow. The Royal Commission recommended a method of assessing Income Tax completely different from that which has been the practice hitherto. Hitherto a limit of amount has been fixed, and at various times alteratioins were made in the grading of the taxation imposed, going up by jumps according to income, until the rising tax was merged in the full tax. If my hon. and gallant Friend has studied the White Paper that was published on this subject, he will remember that the system embodied in this Bill is somewhat different. In the case of earned income, the amount of income is taken, and there is a fixed deduction of one-tenth. That deduction, however, must not exceed £200, from which it follows that the deduction of one-tenth is allowed until the income amounts to £2,000 a year. The net sum arrived at after that deduction has been made is called the "assessable income," and from that there is deducted the £225 which is allowed in the case of a married couple or £125 in the case of a single individual, and, in addition, such other deductions as are prescribed in the Bill in respect of dependants and so forth. The ultimate sum arrived at is called the "taxable income." Of that "taxable income," the first £225 is taxed at half the standard rate. I see my hon. and gallant Friend blinking under these statements, but I assure him that they are fairly simple when you get used to them, and I hope I am making myself clear. The first £225 of "taxable income" is charged at half the standard rate, that is to say, at 3s. in the £1. After that, the full rate is charged. The net result of this change—which, as I have said, is much simpler than it looks — is to give substantially more relief right through the scale on all the lower incomes than was given under the old system; and it does away at once with that very complicated series of differing rates of Income Tax which made the old system so difficult to understand. I am quite aware that, at first, it may be a little difficult for taxpayers; they will have to seek the aid of their local surveyors until they are accustomed to making these calculations. When they once get accustomed to it, I am sure the simplicity of the scheme and the equity of graduation will carry conviction.

Sir F. HALL

This is a very important point, and it should be plainly realised throughout the country. Are we to understand that the first £225 is to be charged at half the standard rate, irrespectively of the amount of the income, or is that benefit unobtainable on any income over a certain fixed amount?

Mr. BALDWIN

It applies all the way through.

Colonel WEDGWOOD

As I understand it, it merely refers to the earned incomes, and not to the unearned incomes.

Mr. BALDWIN

The £225 is common to both. The earned income gets the benefit of the deduction of one-tenth, and the unearned income does not.

Sir H. NIELD

Might I suggest that the right hon. Gentleman might ask his advisers to issue, either through the Press or directly, a model form to help those who have not yet been able to grasp this Chinese puzzle?

Mr. BALDWIN

I imagine that the explanatory forms have already been circulated, but certainly they will be circulated throughout the country. It is of the utmost importance that people should realise the present basis of assessment.

Sir H. NIELD

I mean a model form assuming certain figures.

Major ENTWISTLE

My hon. and gallant Friend (Colonel Wedgwood) has evidently not seen the graphs which were issued by the Government. I think they explain very fully exactly the relative positions of the lower incomes under the new system and under the old. The married persons and particularly those with smaller incomes come out much better under the new scale than under the old one. The graphs make the position very clear, and I suggest that more publicity should be given to them.