HC Deb 11 August 1913 vol 56 cc2177-80

"Section 19, Sub-section (7), of the Finance Act, 1907, shall be amended so as to include in the expression "earned income," any income (including annuities) accruing to any person from investments or property which have been acquired wholly or in part by such person, or the husband or wife of such person, out of moneys earned by such person, or the husband or wife of such person, in any trade, business, vocation, or profession, or in any employment, or otherwise by the personal effort, skill, or ingenuity, of such person, or the husband or wife of such person, and where such investments or property have been partly acquired out of moneys earned as aforesaid, or where any annuity has been partly purchased out of moneys so earned, a proportionate part of the income arising from such investment or property, or a proportionate part of such annuity, shall be deemed to be earned income."

Clause brought up, and read the first time.


I beg to move, "That the Clause be read a second time."

While the Budget of 1907 was under consideration and the distinction between earned and unearned increment was under discussion the Chancellor of the Exchequer was prevailed upon to allow pensions to be treated as earned income. If you allow pensions to be so treated, I cannot see why you should not, in common justice and equity, also allow the income from savings, which of themselves have been derived from a man's earnings, to be also classified as earned income. When a man saves his income and invests the money or purchases an annuity you treat that as unearned income, and if he is rich enough not to invest his money but to allow his capital to accumulate, his descendants, if he has any, have to pay a large sum. That is obviously putting a premium upon unthrift and encouraging people to spend the whole of their income. I have no doubt that the Chancellor will say that this Amendment is desirable, but that it is quite impracticable in its working, because he would have to depend upon the personal declaration of the Income Tax payer. I do not see any very great difficulty about that, because at the present moment the Chancellor of the Exchequer is very glad to receive personal declarations when he wishes to collect Income Tax or when he wants to collect the Super-tax, and he is quite willing to trust to the accuracy of the returns. He is also content to receive personal declarations from people who want to get exemptions or abatements. Therefore, I cannot see why he should not also accept the personal declaration that a certain definite proportion of income is derived from savings accumulated during the active portion of a man's life, and it is because I wish to encourage people to save during the active portion of their lives so as to have the compensation at the end of their lives of comparative prosperity that I beg to move this Amendment.


When the question of extending the concessions with regard to earned income to pensions was first raised the Prime Minister, who was then Chancellor of the Exchequer, was very doubtful as to the principle and the expediency of making that concession, but on the whole the balance of argument was in favour of treating pensions as portions of the income which a man earned, and therefore the pension is not a saving, but is only a part of a man's income, the payment of which you defer until he has retired from the service. On that ground the Amendment was accepted. But the present proposal in the first place is, I think, quite impracticable. If a man has been for twenty or thirty or forty years in business, then, according to this Amendment, if his income or portion of it is derived from investments of savings that he has made, he is to be charged on the ninepenny rate. The hon. Gentleman says that his own declaration ought to suffice, and that if he makes a statement that his investments arise from money which he had saved, that ought to be conclusive. If not how are you going to check it? You have difficulties enough in checking the declarations made by the subject now which only deal with the income of the preceding year; but this would involve examination of accounts extending over twenty, thirty, or forty years in order to discover whether the money which he has got to-day was earned or inherited or got by some other means not earned. It is quite an impracticable policy. I do not think that it could be carried out, and I cannot possibly accept the extension. I think that the hon. Baronet who pressed for the inclusion of pensions was quite prepared to take the statement that the inclusion of the pension did not necessarily justify the claim of those who save money to treat it as earned income when they invested it later in life.


I do not remember with regard to pensions, but I do not see any difference between a pension which is a deferred income and the savings of an income. Take the case of a man in business. He makes £3,000 a year. He is a prudent, saving man. He only spends £1,000 out of that £3,000. After twenty years or so he finds himself the possessor of 50,000. On that he retires. What is the difference between that man and the Civil servant who receives an income of £3,000 a year and spends the whole of it, but when he retires he is granted a pension of £2,000 a year on the ground that it is deferred pay. I see no difference between those two cases. I should rather say that the exemption should be in favour of the person who out of the £3,000 a year only spends £1,000, and resists the temptation to spend the whole of his income and makes a saving for himself and his family, while the Civil servant gets the deferred money which he could not touch if he wanted, because the State, acting as a provident and wise parent, refuses to give him the whole amount of what he was earning during the time he was earning it, but gives him a pension. I do not see why that pension should be considered as earned money, while the savings of the man of business on which he has retired are not to be considered as earned income. I must say I do not see where the difficulty mentioned by the right hon. Gentleman comes in. Surely it is perfectly easy, taking the case of a man with an income of £2,000 a year, for the Income Tax Commissioners to ask him to make a declaration that none of the money came to him by inheritance or under a will. It would be perfectly easy to consult the records at Somerset House, which would show whether certain people had received money under wills or from inheritance. If they did not, then there are no means of which I am aware by which they can get money save by their own exertion. That may or may not be the case; but I do not see there is any difficulty in requiring a declaration from the person as to whether his income is derived from gift under a will or inheritance, or whether it is derived from savings. My idea, however, is that all these exemptions never should have been made; I think it is a mistake to introduce them; but if you exempt the pensioner, you certainly ought to exempt a man who has saved his earnings.

Question, "That the Clause be read a second time," put, and negatived.