§ (1) Income Tax for the year beginning on the sixth day of April, nineteen hundred and eleven, shall be charged at the rate of one shilling and twopence, and the same Super-tax shall be charged, levied, and paid for that year as was charged for the year beginning on the sixth day of April, nineteen hundred and ten.
§ (2) All such enactments relating to Income Tax (including Super-tax) as were in force with respect to duties of Income Tax granted for the year beginning on the sixth day of April, nineteen hundred and ten, shall have full force and effect with respect to any duties of Income Tax hereby granted.
§ (3) The annual value of any property which has been adopted for the purpose of either Income Tax under Schedules A and B in the Income Tax Act, 1853, or of Inhabited House Duty, during the year ending on the fifth day of April, nineteen hundred and eleven, shall be taken as the annual value of such property for the same purpose during the next subsequent year; provided that this Sub-section—
- (a) so far as respects the duty on inhabited houses in Scotland, shall be construed with the substitution of the twenty-fourth day of May for the fifth day of April; and
- (b) shall not apply to the metropolis as defined by the Valuation (Metropolis) Act, 1869.
§ Mr. STEWART
I beg to move in Sub-section (1) after the word "twopence" ["at the rate of one shilling and twopence"] to insert the words,
"But any person who proves to the satisfaction of the Commissioners for Income Tax that his total income from all sources does not exceed five hundred pounds, and that he (or if such person is a widow, that her husband) has been or was engaged in the practice of any profession or in any business or other remunerative occupation for upwards of twenty years, shall be entitled in addition to all other exemptions, abatements, and relief enjoyed by him or her under any previous enactments to such relief from Income Tax as will reduce the amount payable on such as is unearned income to the amount which would be payable if the tax were charged on such unearned income at the rate of ninepence."
I hope this Amendment will recommend itself to hon. Members on the other side of the House, for I am sure all of them have constituents who are deeply interested in this matter, which, I beg to say, is one of considerable importance. In the combat which is going on in the country between the Socialist party and the wealthy the effect of the very heavy new taxation upon the middle classes is apt to be lost sight 2077 of. Therefore if it were not mentioned at the present moment it might be assumed in some quarters that an Income Tax at 1s. 2d. in the pound in a time of profound peace—so far, at any rate, as this country is concerned—was a tax with which people generally were content. If in peace time we are bound to have under present conditions an Income Tax of 1s. 2d. in the pound, then it is fair to say that our taxation is on much too narrow a basis and lacking in variety. My Amendment is intended to afford some relief from the undoubted pressure which is brought to bear on the middle classes, and which they find it difficult to sustain. I am sure I am correct in saying that owing to a variety of causes, including trade failures, sickness, and so on, the great bulk of the middle classes are very well satisfied if they can gather together a little money with which to spend the declining years of their lives. On such people an Income Tax at 1s. 2d. in the pound is a great burden.
We have heard a great deal in the past on the subject of sloppiness of definition, but never was a sloppier form of definition used in the financial world as a whole than this definition of unearned income. I maintain that there is no such thing as unearned money. There may be differences of opinion as to the fairness of the division of money after it is earned, but the money is always earned, either by the community or the individual. We hear a great deal from the other side of the House about money which is earned by the community. I venture to put in a plea for the money earned, and very fairly earned, by the individual. There are some reformers who think that to collect a dividend warrant is almost a crime. When an old man is poor we cherish him, and we do so rightly; but in the case of the middle classes, when a man has been defeated by age, or a woman is left alone by her husband's death, you choose that very period, the weakest time of their lives, to levy upon them extra taxation. When a trader or a professional man breaks down in health, as so many do under the strain of modern competition, and hands on his business or his practice to a younger man, the latter is allowed to have an Income Tax of 9d. up to £2,000 and 1s. up to £3,000. But the unfortunate older man, the man who has broken down in health and is forced to relinquish his former activities, is charged 1s. 2d. on anything he has saved. That may be good electioneering, but in my opinion it is very 2078 poor justice. Take the case of the merchant-steamer captain. In my Constituency I have many such men as that, and I hope I may touch a chord of sympathy in the heart of the Chancellor of the Exchequer, because many of them are Welshmen. Those men, by the laws of the service, are ordered off the bridge at the age of sixty-five. The man who gets the job of one of these merchant steamer captains when he retires on reaching that age is charged Income Tax at the rate of 9d., but the older man who comes ashore is charged 1s. 2d. on all he has saved.
I also speak for many people who have come home broken in health from bad climates abroad. There is no country in the world, I suppose, which has a greater proportion of women who have lost their husbands owing to service in bad climates. Our educational centres in this country are full of women with children whom they have to educate, and when these women collect some slender dividends it is a travesty of justice to say that they are living on unearned money, when the money has cost the lives of the fathers of their children. You cannot do this thing with impunity. We have heard hon. Members talk of the Whisky Tax being put on too high and the smuggling point having been arrived at, and when you put the Income Tax too high the evasion point is not very far off, and it drives people to invest money outside your jurisdiction. In these days of increased travel, too, it is quite possible for people to live outside this country for five or six months of the year, and be free from your Income Tax altogether. All I ask is that this very narrow extension of the system of graduation, which you have already accepted as a principle, should be given to people who, I think, deserve it. I draw attention to the fact that pensions are treated as deferred pay and charged at the rate of 9d. I entirely approve of that, and all I ask is for the extension of the same privilege to people who have no Government behind them, and have to provide for their own pensions. The Civil Service up to now has been manned by men who have entered by competitive examination, but it is at the present moment being selected by preference and patronage and the status of the Civil Service has been considerably altered.
In 1874—the golden days of Liberalism as they have been called—the Income Tax was 2d. in the £. Now it is 1s. 2d. in the £ and for rich people 1s. 8d., an increase 2079 of 700 per cent. in the one case and 1,000 in the other. That, in time of peace, should be sufficient to please even the most advanced followers on the other side. The remission I ask for is about £4 5s. in the case of an income of £365 a year; on £400, which is the smallest amount a respectable man can live on, so far as I can judge, it is £5 a year. The middle classes are, I think, the best weight-carriers of taxation in the country. They pay their rates and taxes both locally and Imperially, and there are many middle-class homes in this country where after paying rates, wages, school bills, doctors, and charities, there is less money for actual food than in the case of many people whose nominal income is considerably less. I asked the Chancellor of the Exchequer on the 23rd May the number of Income Taxpayers with £700 a year and under, and the amount collected as unearned increment, and the answer I got was that the information could not possibly be furnished. If the amount had been important the Chancellor of the Exchequer would have known something about it, and therefore I am justified in saying that the remission I ask for is really an unimportant matter. The way the tax is being screwed up now I think has a bad effect, because it discourages thrift and induces people to live on their capital, and if without children they go to an American life insurance company and buy an annuity, and when they die the money leaves this country altogether. I know gratitude is not very plentiful in politics, but I ask for a little recognition for a small and deserving body, and I ask the Government to remember that these people are those who really put them in power in 1832 and who kept them in power for many years. I therefore ask them now for the sake of old times to extend consideration to a very deserving body who apparently now have passed into oblivion.
§ Mr. WALTER REA
I do not know whether I can follow the hon. Member who has just sat down on all the matters put forward on behalf of his Amendment, nor should I at the present moment be prepared to go as far as he does, but, as I did not move the Amendment in my name, perhaps I may be allowed in a very few words to put forward a plea for the people who have to pay this very heavy rate of Income Tax on small unearned incomes. I think I can claim some sympathy from the Chancellor of the Exchequer after the 2080 speech he made this afternoon on the question of the graduation and the proper burden of this tax. Of course there is at present a very rough and ready fashion of carrying it into effect, and pending the logical solution which one may look for from the Chancellor of the Exchequer when he can tackle the Income Tax scientifically, I do ask him to consider the case of the widow and also that of the small tradesman who has retired on very small savings, and finds there is a considerable burden in having to meet this tax. And really it is a very heavy burden upon a man with £300 a year to pay in one lump sum something over £8. I do not ask that he should be put on the same level as the man who earns his income, because I recognise fully the income in the former case does not cease with his exertions, but can pass with his death; but if my right hon. Friend cannot meet the whole case put by the hon. Member opposite—it is perhaps a little higher than I should venture to put it—he might at any rate take into consideration the case I have brought forward of differentiating between the person whose savings are small, and the person whose savings are large, by reducing the tax on incomes under £500 a year from 1s. 2d. to 1s. in the £.
Mr. McKINNON WOOD
I am afraid the Government cannot accept this Amendment. The administrative difficulty connected with it is important, but I think on the point of principle it is rather difficult to justify. The proposal is that any person with an income under £500 if he has been engaged in the practice of any profession or in any business or other remunerative occupation for upwards of twenty years shall be entitled, in addition to all other exemptions, abatements, and relief to which he is now entitled, to have the tax on his unearned income reduced to ninepence. As a matter of fact, with the abatements that already exist, most of the people who come under this Clause are already paying Income Tax below 9d., and at the very highest something a little above 9d. It would be extremely difficult to say what was the practice of any profession or business. Would a barrister who had a brief, say, once in twenty years have been engaged in the profession of the law, and be entitled to the benefit of this proposal? I should like to point out that it does not follow that the person who has been twenty years in business is living on an income earned during those twenty 2081 years. He may be living on an unearned income with which he started or which he inherited, or it may be his wife's income, and in all these cases it is seriously proposed that that income should not be treated as unearned income, which it is in fact, but should be treated as earned income. I fear the proposal is not a very practical one, and I am sorry we cannot accept it.
§ Amendment negatived.
§ Mr. NEWMAN
I beg to move at the end of Sub-section (1), to add the words, Provided that as regards any assessment or collection of Super-tax Section 30 of 53 and 54 Vic., cap. 8 shall not be deemed to apply.
This Amendment, though it seems technical, is in reality very simple. The Income Tax authorities appear to regard the Super-tax as a sort of second volume of the Income Tax. It may have gilt edges, but still it is regarded merely as a second volume. In reality the Super-tax is quite different from the Income Tax, and in that contention I have the Chancellor of the Exchequer himself to back me up. When the Chancellor of the Exchequer introduced his proposals for Super-tax, on the 16th of May, 1909, he made one or two remarks in which he seemed to regard Super-tax and Income Tax as not quite the same thing. He said:—The machinery will be in the main independent of the machinery of the existing Income Tax, but the assessment will be made by Special Commissioners appointed under the Income Tax Acts.Later on he said:—The yield of the Super-tax in a full year is estimated at £2,300,000, but as new machinery has to be set up, and returns have to be made by the taxpayers, the full yield will not be got in the first year.Therefore I think I can say I have the support of the right hon. Gentleman when I say that Income Tax and Super-tax are not one and the same thing. In the near future the Super-tax is going to be a vastly more important tax than the Income Tax. The Income Tax is going to be stereotyped and will remain at something like 1s., but our expenditure is going to grow, and another thing is that the people termed the masses are not going to pay any more taxation. They have enough laid on them in the way of indirect taxation. Every Chancellor of the Exchequer will have to turn to the wealthy classes to meet the growing deficiency.
I can imagine when our side of the House are in power that these direct 2082 means of levying Super-tax will disappear altogether. I can imagine that we shall raise the £2,300,000 by other methods altogether. For instance I can imagine a tax on the American motorcar, or a tax on the German pianola, or a swingeing duty on Perrier-Jouet or on certain brands of cigars. If the present Government continue in office I can imagine that in the near future the Super-tax will no longer be sixpence but something vastly bigger. We had a hint of that the other day. The Chancellor of the Exchequer told us in connection with the Insurance Bill that it would have been possible for him to have gone to the country and say, "I will collect the money, the whole of the twenty-six millions, direct from the governing classes," and he told us he could have easily got it. Well, if he had it would have meant a big increase in the Super-tax. It is a mistake to suppose that the Super-tax is a new tax. It has been enforced before. All of us who know our history of England know there were certain English kings who, like the Chancellor of the Exchequer of the present day, were always impecunious, and these kings had their Super-tax Class. King John had the Isaacs, the Moses, and the Samuels of that day, whom he used to collect in Lincoln Castle and elsewhere, and tell them that if they did not pay the Super-tax they would have to lose a certain amount of ivory from their mouths. In the same way to-day we have the king, the lord of our finances, who summons us to pay our Super-tax.
We get no sympathy, but King John and these kings, they at any rate did give their super-taxed subjects a yearly summons. So we, who are super-taxed, now ask in the same way to have a special order given us every year—not a standing order, but that each year the tax shall not be levied or assessed by the Income Tax authorities until it has been passed by Parliament. It may seem a small matter, and perhaps it is a small matter, that the Budget used to be introduced in May and passed in July. Now the Budget is introduced in May and passed in the end of December. Therefore I submit that whatever may be the arguments as to the legality of this particular Clause with regard to Income Tax, it should not stand with regard to Super-tax. We who pay Super-tax stand in a separate position, and should at any rate have the courtesy of having this tax passed by Parliament.
§ Sir J. SIMON
The hon. Gentleman referred us to Section 30 of the Act of 1890, and said it would not apply to Super-tax. I understood him further to contend that Super-tax is not Income Tax. If it is not Income Tax Section 30 does not apply, and it is therefore unnecessary to accept the Amendment.
§ Amendment negatived.
§ Mr. COURTHOPE
moved to insert after the word "enactments" [all such enactments relating to Income Tax (including Super-tax)] the words "except Section 71 of The Finance Act, 1910." The effect of the Amendment will be to except from this sub-section the Clause in the Finance Act which deals with exceptions and abatements in the case of persons not residing in the United Kingdom. That Clause has, admittedly I think, been a very unsatisfactory one. To begin with, there are so many provisos contained in it that the case is very rare indeed where these exceptions and abatements cannot be claimed. Indeed I think the cases must be so few which are really affected by this complicated section that it would be much more satisfactory not to keep it alive.
Mr. McKINNON WOOD
As the hon. Gentleman has said, there have not been many cases of real hardship in connection with this matter. One justification for making this abatement is that people contribute otherwise according to their means. That argument, however, does not apply to those people who are outside the country. As to the other part of the question, bankers in this country would consider it unfair to their business if this Sub-section were repealed. It would drive foreign business abroad. On that ground I think it necessary that the Sub-section should be retained.
§ Amendment negatived.
§ Mr. HARMOOD BANNER moved to insert at the end of Sub-section (2) the words,
§ Provided that there shall be allowed as deduction from the amount on which Income Tax is calculated such sum or sums as have been paid by the persons assessed in respect of contributions under the National Insurance Bill.
§ I hope we shall have some explanation as to what is to be the effect of the very heavy charge that now falls upon all 2084 trading companies and all individuals in respect of the National Insurance Bill. It is quite true that to some extent it may be stated that the present law will admit of a deduction but, as one who is well acquainted with the ability of Somerset House to avoid deductions made by traders and others with respect to their businesses, I think it is absolutely necessary that, now we are to have this enormous charge placed upon the industries of the country and upon the individual, we should have it made absolutely clear so that there should be no question about the matter. So far as the individual is concerned, there are provisos for deductions for Income Tax on premiums paid on life insurance. As regards compensation for accidents, however, it is by no means clear that such is allowed in a charge for profit and loss. It is absolutely necessary that we should have some clear definition of the rights to deduct from Income Tax the contribution paid under the National Insurance Bill and I will be glad to have some assurance from the Chancellor of the Exchequer.
§ Mr. LLOYD GEORGE
As I explained in the House some time ago in answer to a question, any contributions paid by employers in respect of persons employed by them for purposes of profit will be allowed as a deduction on account of business expenses, and I do not think it is at all necessary to introduce words of this kind.
§ Mr. CASSEL
Take the case of landowners who employ persons on their estates—farm hands, carpenters, woodmen, and people of that description whose services are required for the upkeep of the estate. I think it would be a case of extreme hardship if the landowner had to pay the contributions of these men and was not able to deduct them. Will the right hon. Gentleman tell the Committee what would happen in such cases?
§ Mr. LLOYD GEORGE
I hardly like to give an answer to a question of that kind without a little more consideration, but I should have thought the test was whether the persons employed were employed for the purposes of profit. If you take the case of farm hands who are working on a farm and are employed for profit, then I should certainly say there should be a deduction, but in the case of an ornamental gardener I should say no deduction could be made. Farm hands, however, might be a test case.
§ Mr. PRETYMAN
An owner of agricultural property is assessed for Income Tax under Schedule A, under which he is not allowed to make any deductions other than official statutory deductions, which I need not refer to in detail now. There is, so far as I am aware, absolutely no machinery of any sort which enables him on the assessment for Income Tax to consider the question of profit at all. In most cases, it is true, he makes no profit, but whether he does or does not it is absolutely apart from the Income Tax in any shape or form. If you have an owner of agricultural property employing a considerable staff of workmen for the maintenance of his estate, and for those workmen he has to pay contributions in respect of insurance, what we desire to ask is whether some machinery will be provided by which that might made a deduction in addition to the statutory deduction on a totally different basis to which he is already entitled.
§ Mr. LLOYD GEORGE
Of course, it is very difficult in cases of that kind to make a deduction. I will tell you why. Take the case of a farmer. He may elect not to be assessed on his profit at all, but on an arbitrary basis which does not represent his profit in the slightest degree. He may make three times the profit that this basis represents, and in that case we are bound to accept the option he exercises. Therefore, in a case of this kind it is difficult to make any deduction at all, because he is not assessed on his profits. With regard to the case that the hon. Gentleman (Mr. Cassel) put to me, I should rather like to consider the question, and I shall be able to give him a definite answer to-morrow.
§ Mr. COURTHOPE
The right hon. Gentleman has referred to the farmer. It is quite true the farmer is usually assessed under Schedule B. He has the option to be so assessed, but the landlord has no such option.
§ Mr. LLOYD GEORGE
I said so. I made a distinction between the two cases. I would rather, with regard to the landlord case, that the hon. Gentleman (Mr. Cassel) should put a question to me to-morrow.
§ Mr. CASSEL
The case I intended to raise was under Schedule A. I feel bound to say, as the point was raised suddenly, that if the right hon. Gentleman desires to consider it, I think we cannot press it further to-night.
§ Mr. PRETYMAN
I think the right hon. Gentleman must see that the farmer is put in a distinctly worse position, because his profits will be reduced by the amount of the Insurance Tax under Schedule B. Of course, if he is under Schedule D he can deduct it, because it is a case then purely of a trade profit. Whether a man is a farmer or a cotton manufacturer he is on the same footing under Schedule D; but Schedule B has been expressly provided for farmers under present conditions. Yet the farmer is left to pay exactly as before under Schedule B, and therefore I say the farmer is placed in a distinctly worse position. The Insurance Bill hits the farmer especially hard, because the money payment from a farmer for his men is larger in proportion to his business than in any other case. Between the farmer and the labourer there is a great deal in kind, and very little in money payment. Therefore the burden is much heavier in proportion. I must enter my caveat against that. I should like the right hon. Gentleman to consider the case of the farmer under Schedule B, as well as the case of the owner of land under Schedule A, and to give an answer on both points after careful reflection.
§ Amendment, by leave, withdrawn.
§ Mr. HARMOOD-BANNER
I beg to move, at the end of Sub-section (2), to insert the words,
Provided that in the calculation of Income Tax allowance shall be made in respect of diminution in value arising from waste or expiry of capital value.
I think perhaps it would be considered cruelty to the Committee if I started to discuss the question of depreciation of this kind in all its aspects to-night, but it is nevertheless a matter of the very greatest importance to every trader, manufacturer, and merchant in the kingdom. The present Chancellor of the Exchequer, especially, has now brought the Income Tax into the position of being a fixed tax which is never to be taken off our shoulders. To the ordinary Income Tax is added the Super-tax, which especially is a burden on individuals, and as regards depreciation of assets is most unfair. It touches the individual who trades in his own name as against the individual who trades as a shareholder in a limited company in a way which can only be termed wicked. It is an absolutely unfair system that a man who carries on business and pays Income Tax has no depreciation 2087 allowed. Now the Income Tax is a fixed tax upon the profits of all individuals it is incumbent upon us not to allow the Finance Bill to go through without raising this question. When we had a discussion on it, I think two years ago, I had a little sympathy from the Chancellor of the Exchequer and he promised that he would look into it. I believe also I had the sympathy of our own ex-Chancellor of the Exchequer (Mr. Austen Chamberlain). The matter was promised consideration with a view of ascertaining whether justice could not be done in respect of this question of depreciation. It is too late to-night to enter upon so large and prolific a field. [HON. MEMBERS: "Go on."] I am afraid I am too anxious to go home to rest, and I venture to believe the Chancellor of the Exchequer will pay more attention to me and consider the question with a more enlightened and ready mind if I allow him to go home instead of pressing the point at this hour. I only urge upon him that it is a matter of immense importance, and as he has made his name on the National Insurance Bill so he will make it highly appreciated by the traders, manufacturers, and merchants in this Kingdom if he adopts a fair and proper principle of depreciation.
§ Amendment negatived.
§ Mr. GRETTON
I beg to move, to leave out Sub-section (3).
This Clause is causing to a very large class of property a great deal of hardship. I will only deal to-night with the case of licences. Two leading cases have been decided, and in consequence there are a considerable number of cases pending in respect of valuation. I am quite sure the right hon. Gentleman will not wish that these cases should suffer injustice owing to the unequal action of a Clause of this kind in the Finance Bill. If this Clause is to take effect as it stands all appeals will be shut out for a period of four years. There is another case of some importance. There have been a good many land valuations lately, and there is a reasonable plea that there should be an extended period in order that these cases might all be gone into and not allowed to lie dormant, and in many cases settled with a great feeling of injustice arising in the minds of those concerned. I therefore ask the Government to give the matter consideration, and amend the words of the Clause so as to meet this very large class of cases.
§ Sir J. SIMON
The hon. Gentleman, in so far as he has called attention to possible cases of hardship, may rest assured that the administration is alive to the point he has made. I have no desire that that hardship should be inflicted, but really the proposal he makes to remedy it, if it is necessary, is not a practical proposal. What he is proposing to do is not to make some provision in the case of licensed premises which may be affected by the recent decisions he has referred to, but he is proposing to prevent in respect of all inhabited houses and of assessments under Schedules A and B the provision which is made every year carrying forward last year's assessment except when you come to quinquennial periods. I am sure the hon. Gentleman will see that that would be burning down the house to roast the pig. It has been the practice for a long time, and it is the necessary practice, to carry forward the assessment from year to year. But what the hon. Gentleman particularly has in mind is the possible hardship of the assessments being insisted upon for a whole period of five years in spite of the fact that a mistake has been made. I am sure the hon. Gentleman knows that in point of fact when a case of that kind has been brought to their notice the Commissioners have properly met it. I am not sure that they meet it by strictly legal means, but from the point of view of the hon. Gentleman it does not matter so long as they meet it. The Government are alive to the point the hon. Gentleman makes, and if he will withdraw his Amendment I will see that, in so far as we can suggest, the Commissioners bear the point in mind.
§ Mr. GRETTON
I am very thankful to the right hon. Gentleman. I rely on the strength and justice of the real facts to carry weight, but I would like to say that this method of dealing illegally with reason and justice in the assessment of taxation is extremely unsatisfactory. I would suggest to the Government to consider between now and the Report if there are not some means of introducing words in this Bill which will enable these appeals to be considered in a reasonable period after the termination of the year in order that injustice may not be done. I admit that the Commissioners in cases that have occurred to my knowledge have behaved fairly in this matter, but there is no doubt that they behave illegally, and it is always open to the Commissioners at any time, 2089 however urgent the case, to take shelter behind the law. That cannot be satisfactory, and I venture to state this matter in order that the Government may, as I hope, reconsider whether words cannot be inserted on Report so as to remedy this grievance.
§ Mr. CASSEL
I submit that it is a most unsatisfactory position in which to leave this Clause. The Government admit that the Clause as it stands will work injustice, but they will rely on those who administer the law not to carry it out. That is a most unsatisfactory position in which to leave the matter, and it is one of the results of hurrying through the Finance Bill in such a way that we have not time to frame words to meet cases of injustice, and I certainly think if our protests were ever justified before, they are doubly reinforced by the fact that the Government themselves now admit that, owing to the lack of time, they cannot put in words to meet these cases of hardship, but have to leave it simply to the administration.
§ Amendment, by leave, withdrawn.