§ Section fifteen of the Finance Act, 1925 (which, as amended by Section eight of the Finance (No. 2) Act, 1931, makes provision for an allowance in respect of earned incomes), shall have effect as if the word "one-fourth" were substituted for the word "one-fifth."[Mr. Lees-Smith.]
§ Brought up and read the First time.
§ 9.19 p.m.
§ Mr. Lees-SmithI beg to move, "That the Clause be read a Second time." In moving this Clause I wish to call attention to the present differentiation 2264 between the allowances on earned incomes and unearned incomes in respect of Income Tax. At present the recipient of an earned income is allowed an abatement of one-fifth as against the recipient of an unearned income, and this new Clause proposes to increase the abatement to one-fourth in the case of earned income. As an illustration of how the law works at present let me take the example of a doctor earning, say, £600 a year. He would be paying the same amount in Income Tax as a man living on dividends and obtaining from them 2265 an income of £480 a year. This new Clause is put forward with the view that there is really an insufficient distinction between the allowances to the two men if we take their real financial position into account. To begin with, the income of the doctor is a precarious income. It disappears if he falls ill, and also when he retires. A large part of it has to be spent upon insurance. The man receiving £480 a year from dividends does not, to begin with, have to insure—that is a big difference right away. His income is not precarious, it goes on. If he dies it continues for his dependants. If he falls ill it goes on. It goes on when he is asleep and when he is awake. He has the whole of his time free for other occupations.
If we take all these facts into account it is not the case that a man with all the changes and chances of life to contend with earning £600 a year is as well off as a man with an unearned income of £480 a year. To see the distinction between the two cases—I admit is not a complete illustration—one ought to consider what is their capital. In the case of a doctor who is earning £600 a year, his capital is represented by two or three years' purchase. His capital is really between £1,200 and £1,600. A man who has an unearned income of £480 a year has a capital, calculating it on a 3½ per cent. basis, of about £14,000. That shows the great difference in the stability of the two incomes. In view of the whole history of Income Tax this Clause suggests a very moderate amendment of the law. When I first began to pay Income Tax—on a smaller income—I was allowed a deduction of one-third, as it was earned income. That was the position for many years. Then one year, after very little debate in this House—I looked up the Debate—the rate of abatement was suddenly changed from one-third to one-tenth.
That, to my mind, was a great mistake, and Parliament has been retracing its steps ever since. I find that in one year they changed the one-tenth to one-sixth. Then under the last Labour administration the one-sixth was changed to one-fifth. I have no doubt that some day it will go back to one-third, and as a first step towards that I make this proposal of one-quarter. An immense addition to this argument has been made by the discussions on the National Defence Con- 2266 tribution because one of the arguments used over and over again against its original form was that it was a tax on enterprise, youth and progress in industry. A tax on unearned income is a tax on the passive, rentier section; a tax on earned income is a tax on the vital part of industry. Therefore, both on grounds of justice and of common sense in taxation, I move this new Clause.
§ 9.27 p.m.
§ Lieut.-Colonel ColvilleThe right hon. Gentleman has moved this Clause in his usual persuasive way, and in temperate language, but I feel bound to dispute one or two of his contentions. He thinks that the present allowance of one-fifth does not make a sufficient distinction between earned and unearned income. I ask the Committee to remember that when we speak generally of unearned income we often refer to the interest on the savings of a lifetime of work, and it should not be forgotten that there are many people in this country whose income is all technically unearned, but who have toiled throughout their working years to save up the money to provide them with that income, and when the right hon. Gentleman urges that we should make a further distinction between earned and unearned income, I hope that that consideration will be fully borne in mind by the Committee. Let me say a word or two on the history of this allowance since 1920. The Royal Commission on the Income Tax recommended in that year that the allowance should be one-tenth and that was adopted in the Finance Act, 1920. That was in operation from 1920 to 1925. In 1925 it was increased to one-sixth. In 1931 it was again increased to one-fifth, thus abating in favour of the earned Income Tax payer the increase in liability arising from the 6d. increase in the standard rate and the cuts in the personal allowances which were made at that time.
It has been left unaltered at that figure, although the adjustments made in the Finance Acts of 1935 and 1936 have removed in the case of the small income a large part of the additional burden which it was found necessary to impose in 1931 and, although now the standard rate is at 5s. again, the earned income taxpayer is considerably better off than he was under the second Finance Act of 1931, for he has higher personal allowances; and this is specially true of the small earned incomes, 2267 which now pay at only one-third of the standard rate. I therefore claim that the history of this allowance goes to show that the present rate of one-fifth is not ungenerous. There is a cogent reason why I cannot accept this Clause, and that is that it would be very expensive from the revenue point of view. In the first year it would cost between £3,000,000 and £4,000,000, and in a full year it would cost about £7,500,000. So, bearing in
§ mind the high cost to the Exchequer in a year when it is generally admitted that, we have great demands to meet, and also the contention that we should not speak too loosely of unearned income, I consider that the present rate should be adhered to, and I cannot accept the Clause.
§ Question put, "That the Clause be read a Second time.
§ The Committee divided: Ayes, 128; Noes, 177.
2269| Division No. 252.] | AYES. | 9.31 p.m. |
| Acland, R. T. D. (Barnstaple) | Griffiths, G. A. (Hemsworth) | Oliver, G. H. |
| Adams, D. (Consett) | Griffiths, J. (Llanelly) | Paling, W. |
| Adams, D. M. (Poplar, S.) | Groves, T. E. | Parker, J. |
| Adamson, W. M. | Hall, G. H. (Aberdare) | Parkinson, J. A. |
| Alexander, Rt. Hon. A. V. (H'lsbr.) | Hall, J. H. (Whitechapel) | Pethick-Lawrence, Rt. Hon. F. W. |
| Ammon, C. G. | Harris, Sir P. A. | Price, M. P. |
| Attlee, Rt. Hon. C. R. | Henderson, J. (Ardwick) | Pritt, D. N. |
| Banfield, J. W. | Henderson, T. (Tradeston) | Quibell, D. J. K. |
| Barr, J. | Hills, A. (Pontefract) | Ridley, G. |
| Batey, J. | Hollins, A. | Riley, B. |
| Bellenger, F. J. | Hopkin, D. | Ritson, J. |
| Benn, Rt. Hon. W. W. | Jagger, J. | Robinson, W. A. (St. Helens) |
| Broad, F. A. | Jenkins, A. (Pontypool) | Rowson, G. |
| Brown, C. (Mansfield) | Jenkins, Sir W. (Neath) | Salter, Dr. A. (Bermondsey) |
| Brown, Rt. Hon. J. (S. Ayrshire) | John, W. | Sanders, W. S. |
| Burke, W. A. | Johnston, Rt. Hon. T. | Sexton, T. M. |
| Cape, T. | Jones, A. C. (Shipley) | Silkin, L. |
| Charleton, H. C. | Jones, Morgan (Caerphilly) | Simpson, F. B. |
| Chater, D. | Kelly, W. T. | Smith, Ben (Rotherhithe) |
| Cluse, W. S. | Kennedy, Rt. Hon. T. | Smith, E. (Stoke) |
| Clynes, Rt. Hon. J. R. | Kirby, B. V. | Smith, Rt. Hon. H. B. Lees- (K'ly) |
| Cocks, F. S. | Kirkwood, D. | Smith, T. (Normanton) |
| Cove, W. G. | Lansbury, Rt. Hon. G. | Sorensen, R. W. |
| Cripps, Hon. Sir Stafford | Lathan, G. | Stewart, W. J. (H'ght'n-le-Sp'ng) |
| Daggar, G. | Lawson, J. J. | Strauss, G. R. (Lambeth, N.) |
| Davies, R. J. (Westhoughton) | Leach, W. | Taylor, R. J. (Morpeth) |
| Davies, S. O. (Merthyr) | Lee, F. | Thurtle, E. |
| Day, H. | Leonard, W. | Tinker, J. J. |
| Dobbie, W. | Leslie, J. R. | Viant, S. P. |
| Dunn, E. (Rother Valley) | Lunn, W. | Walkden, A. G. |
| Ede, J. C. | McEntee, V. La T. | Walker, J. |
| Edwards, Sir C. (Bedwellty) | McGhee, H. G. | Watkins, F. C. |
| Evans, D. O. (Cardigan) | MacLaren, A. | Watson, W. McL. |
| Evans, E. (Univ. of Wales) | Maclean, N. | Welsh, J. C. |
| Foot, D. M. | MacMillan, M. (Western Isles) | Westwood, J. |
| Gallacher, W. | Mainwaring, W. H. | Wilkinson, Ellen |
| Gardner, B. W. | Marshall, F. | Williams, T. (Don Valley) |
| Garro Jones, G. M. | Maxton, J. | Windsor, W. (Hull, C.) |
| Gibson, R. (Greenock) | Messer, F. | Woods, G. S. (Finsbury) |
| Graham, D. M. (Hamilton) | Montague, F. | Young, Sir R. (Newton) |
| Green, W. H. (Deptford) | Morrison, Rt. Hon. H. (Hackney, S.) | |
| Greenwood, Rt. Hon. A. | Morrison, R. C. (Tottenham, N.) | TELLERS FOR THE AYES.— |
| Grenfell, D. R. | Naylor, T. E. | Mr. Whiteley and Mr. Mathers. |
| Griffith, F. Kingsley (M'ddl'sbro, W.) | Noel-Baker, P. J. | |
| NOES. | ||
| Acland-Troyte, Lt.-Col. G. J. | Brown, Brig.-Gen H. C. (Newbury) | Croft, Brig.-Gen. Sir H. Page |
| Adams, S. V. T. (Leeds, W.) | Butcher, H. W. | Crooke, J. S. |
| Agnew, Lieut.-Comdr. P. G. | Carver, Major W. H. | Crookshank, Capt. H. F. C. |
| Albery, Sir Irving | Cary, R. A. | Cross, R. H. |
| Anstruther-Gray, W. J. | Castlereagh, Viscount | Crossley, A. C. |
| Apsley, Lord | Cayzer, Sir H. R. (Portsmouth, S.) | Crowder, J. F. E. |
| Aske, Sir R. W. | Chamberlain, Rt. Hn. N. (Edgb't'n) | Cruddas, Col. B. |
| Baillie, Sir A. W. M. | Clarke, Lt.-Col. R. S. (E. Grinstead) | Dawson, Sir P. |
| Baldwin-Webb, Col. J. | Cobb, Captain E. C. (Preston) | Denville, Alfred |
| Balfour, G. (Hampstead) | Colville, Lt.-Col. Rt. Hon. D. J. | Dixon, Capt. Rt. Hon. H. |
| Balfour, Capt. H. H. (Isle of Thanet) | Conant, Captain R. J. E. | Donner, P. W. |
| Beauchamp, Sir B. C. | Cook, Sir T. R. A. M. (Norfolk, N.) | Dower, Major A. V. G. |
| Beaumont, Hon. R. E. B. (Portsm'h) | Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs) | Drewe, C. |
| Boyce, H. Leslie | Cooper, Rt. Hn. T. M. (E'nburgh, W.) | Duckworth, W. R. (Moss Side) |
| Brass, Sir W. | Cox, H. B. T. | Dugdale, Captain T. L. |
| Brocklebank, Sir Edmund | Cranborne, Viscount | Duncan, J. A. L. |
| Brown, Rt. Hon. E. (Leith) | Craven-Ellis, W. | Eastwood, J. F. |
| Edmondson, Major Sir J. | Lovat-Fraser, J. A. | Salmon, Sir I. |
| Ellis, Sir G. | Lyons, A. M. | Samuel, M. R. A. |
| Elliston, Capt. G. S. | Mabane, W. (Huddersfield) | Sanderson, Sir F. B. |
| Entwistle, Sir C. F. | MacAndrew, Colonel Sir C. G. | Savery, Sir Servington |
| Erskine-Hill, A. G. | McCorquodale, M, S. | Scott, Lord William |
| Everard, W. L. | MacDonald, Rt. Hon. M. (Ross) | Selley, H. R. |
| Fildes, Sir H. | Macdonald, Capt. P. (Isle of Wight) | Shakespeare, G. H. |
| Fremantle, Sir F. E. | Macnamara, Capt. J. R. J. | Shaw, Major P. S. (Wavertree) |
| Ganzoni, Sir J. | Magnay, T. | Shaw, Captain W. T. (Forfar) |
| Gledhill, G. | Maitland, A, | Simon, Rt. Hon. Sir J. A. |
| Gluckstein, L. H. | Makins, Brig.-Gen. E. | Smith, Bracewell (Dulwich) |
| Goldie, N. B. | Manningham-Buller, Sir M. | Smith, Sir R. W. (Aberdeen) |
| Gower, Sir R. V. | Margesson, Capt. Rt. Hon. H. D. R. | Somervell, Sir D. B. (Crewe) |
| Grant-Ferris, R. | Mayhew, Lt.-Col. J. | Somerville, A. A. (Windsor) |
| Gritten, W. G. Howard | Mellor, Sir J. S. P. (Tamworth) | Southby, Commander Sir A. R. J. |
| Guest, Lieut.-Colonel H. (Drake) | Mills, Sir F. (Leyton, E.) | Spens, W. P. |
| Guest, Maj. Hon. O. (C'mb'rw'll, N.W.) | Mills, Major J. D. (New Forest) | Strauss, H. G. (Norwich) |
| Guinness, T. L. E. B. | Morrison, G. A. (Scottish Univ's.) | Strickland, Captain W. F. |
| Gunston, Capt. D. W. | Muirhead, Lt.-Col. A. J. | Stuart, Hon. J. (Moray and Nairn) |
| Guy, J. C. M. | Munro, P. | Sutcliffe, H. |
| Hannah, I. C. | Neven-Spence, Major B. H. H. | Tasker, Sir R. I. |
| Hannon, Sir P. J. H. | Ormsby-Gore, Rt. Hon. W. G. A. | Thomas, J. P. L. |
| Haslam, Sir J. (Bolton) | Orr-Ewing, I. L. | Thomson, Sir J. D. W. |
| Heilgers, Captain F. F. A. | Peat, C. U. | Touche, G. C. |
| Hepburn, P. G. T. Buchan- | Peters, Dr. S. J. | Tufnell, Lieut.-Commander R. L. |
| Hepworth, J. | Petherick, M. | Turton, R. H. |
| Herbert, Major J. A. (Monmouth) | Pilkington, R. | Wakefield, W. W. |
| Higgs, W. F. | Ponsonby, Col. C. E. | Walker-Smith, Sir J. |
| Hills, Major Rt. Hon. J. W. (Ripon) | Procter, Major H. A. | Wallace, Capt. Rt. Hon. Euan |
| Hoare, Rt. Hon. Sir S. | Radford, E. A. | Waterhouse, Captain C. |
| Holdsworth, H. | Raikes, H. V. A. M. | Watt, G. S. H. |
| Horsbrugh, Florence | Ramsay, Captain A. H. M. | Wayland, Sir W. A |
| Hume, Sir G. H. | Ramsbotham, H. | Wedderburn, H. J. S. |
| Hutchinson, G. C. | Rankin, Sir R. | Wickham, Lt.-Col. E. T. R. |
| Keeling, E. H. | Rayner, Major R. H. | Williams, H. G. (Croydon, S.) |
| Kerr, J. Graham (Scottish Univs.) | Reid, J. S. C. (Hillhead) | Windsor-dive, Lieut.-Colonel G. |
| Lamb, Sir J. Q. | Reid, W. Allan (Derby) | Womersley, Sir W. J. |
| Leckie, J. A. | Rickards, G. W. (Skipton) | Wood, Rt. Hon. Sir Kingsley |
| Lees-Jones, J. | Ropner, Colonel L. | Wright, Squadron-Leader J. A. C. |
| Leighton, Major B. E. P. | Ross, Major Sir R. D. (Londonderry) | Young, A. S. L. (Partick) |
| Liddall, W S. | Ross Taylor, W. (Woodbridge) | |
| Llewellin, Lieut.-Col. J. J. | Rowlands, G. | TELLERS FOR THE NOES.— |
| Loftus, P. C. | Russell, S. H. M. (Darwen) | Mr. Crimston and Mr. Furness. |