HC Deb 02 July 1914 vol 64 cc690-702

(1) In addition to the Income Tax charged at the rate of one shilling and fourpence under this Act there shall be charged, levied, and paid for the year beginning on the sixth day of April, nineteen hundred and fourteen, in respect of the income of any individual, the total of which from all sources exeeds three thousand pounds, an additional duty of Income Tax (in this Act referred to as Super-tax) at the following rates:—

In respect of the first two thousand five hundred pounds of the income nil.
In respect of the excess over two thousand five hundred pounds—
for every pound of the first five hundred pounds of the excess fivepence
for every pound of the next one thousand pounds of the excess sevenpence
for every pound of the next one thousand pounds of the excess ninepence
for every pound of the next one thousand pounds of the excess elevenpence
for every pound of the next one thousand pounds of the excess one shilling and a penny
for every pound of the next one thousand pounds of the excess one shilling and threepence
for every pound of the
remainder of the excess one shilling and fourpence.

(2) All such enactments relating to Super-tax as were in force with respect to the Super-tax granted for the year begining on the sixth day of April, nineteen hundred and thirteen, shall have full force and effect with respect to the Super-tax granted under this Section.

Amendment made: In Sub-section (1) leave out the words "four pence" ["of one shilling and four pence"], and insert instead thereof the words "three pence."—[Mr. Lloyd Georye.]

The CHAIRMAN

With respect to the first Amendment standing in the name of the hon. Member for Chelsea—in Sub-section (1) after the word "the" ["in respect of the income of any individual"] to insert the word "separate,"—I am not quite clear whether that would not effect a certain charge on persons not now chargeable. If so, of course, the hon. Member will have to wait for the Resolution of the Chancellor of the Exchequer.

Mr. HOARE

I think such an Amendment has been moved before and was always considered to be in order. I think I could show in the course of my remarks that it is in order.

The CHAIRMAN

I am not at the moment clear upon the point. I think it is not desirable that an Amendment should be moved unless I can see that it does not inflict a charge other than what is authorised by Resolution in Ways and Means. The point is that it might throw a charge upon persons that does not now exist. Will the hon. Gentleman give his views upon that limited point first?

Mr. HOARE

It need not necessarily throw a charge upon anyone.

The CHAIRMAN

From the point of view of our Rules I have to be very strict, and if it might throw a charge upon the wife, who is not now chargable, I should not permit the Amendment until the Resolution to which I have alluded is passed.

Mr. HOARE

I think I can treat it from another point of view. At present I think I am right in stating that the law is that the husband has to make a return of his wife's income, and that the wife has no statutory right to make a return of her income. That is a point I wish to bring under the notice of the Committee, and that would not impose a charge upon the wife in any sense, the husband would still be paying a tax although the wife would nave a right to make a return.

Mr. LLOYD GEORGE

On the point of Order. The hon. Gentleman does not propose to separate the incomes, and part of the income that belongs to the wife, although it be over £3,000, would escape Super-tax altogether. Unless he proposes that the effect would undoubtedly be to charge the wife.

Lord ROBERT CECIL

I should like to know very clearly how we stand about this matter. This is the Clause which deals with Super tax. It seems to me that if we pass this Clause, this grievance cannot be dealt with at all. The Chancellor of the Exchequer will correct me if I am wrong. At present I see a great difficulty. If we pass this Clause without dealing with this question, we shall not be able to go back and make a further Amendment. Of course, I do not know what the new Clause may be, but we have got to deal with it as a whole, and I certainly think it would be very improper for this Committee to go on with this proceeding if we are told some time or another we are to be allowed to discuss it, but not allowed to redress the matter.

Mr. LLOYD GEORGE

This is exactly the point raised by the hon. Member for St. Pancras. I promised to put down a Clause and to move a Resolution which would enable him to raise this generally upon this Bill. I think it has been your ruling, Mr. Whitley, that we must deal with this question. I propose to move an Amendment that does not go nearly so far as that of the hon. Gentleman's. Mine would not involve a charge upon the subject, but the hon. Member's would, and therefore I propose to move a Resolution enabling the hon. Member to raise that point. That will be by way of an Amendment to the Amendment put down by the Government.

Lord ROBERT CECIL

I am sure the right hon. Gentleman does not wish to evade that point, but he has not answered the specific question put to him as to whether this question of the Super-tax can be raised. That is the exact point. I quite understand that the question of the Income Tax is a difficult point and can be raised. As the Chancellor of the Exchequer knows, the Super-tax operates with very great hardships upon the married woman who is charged on a small income with a rate of tax due to the income of her husband. If the right hon. Gentleman can assure me that this point can be raised, I agree with what he has said, but otherwise it appears to me that the Committee ought to adjourn.

Mr. LLOYD GEORGE

This depends upon hon. Members themselves. I propose to move a Resolution that will enable hon. Members to raise this specific issue.

Lord ROBERT CECIL

Super-tax, as well as ordinary tax?

Mr. LLOYD GEORGE

Yes, the Resolution will enable hon. Members to raise that point. The Resolution I propose to put down will bring within the Rules of Order an Amendment upon which that point can be raised.

Sir F. BANBURY

Before we go any further, may I point out that we might be met with a ruling from the Chair that the Committee have already decided this point, and consequently cannot raise it again? I am certain the right hon. Gentleman is not desirous of doing that, but I think we ought to safeguard ourselves on this point.

Mr. PRETYMAN

I understood the right hon. Gentleman to say that on Monday a Resolution will be moved allocating the time for discussion on this Bill. Will he undertake that there will be an opportunity for discussing this point?

The CHAIRMAN (Mr. Whitley)

We are getting rather wide of the Amendment. I wish to know whether the Amendment of the hon. Member for Chelsea involves a charge upon somebody who is not now liable to pay Super-tax. If that is so, I cannot admit the Amendment.

Mr. JOYNSON-HICKS

I think, Mr. Chairman, if you will consider for a moment this point, you will see that it is quite clear that there is no obligation on the wife, as a wife, to pay Super-tax. There is nothing whatever in this Amendment which makes a wife pay Super-tax. I think it might have the effect, if this Amendment were passed as it now stands, of letting the wife off free, but it certainly imposes no obligation on the wife to pay Super-tax. It simply says that the wife's income shall not be aggregated with that of the husband for the purpose of Super-tax. It does not say that the wife should make a separate return. I think it is perfectly clear from the wording of this Amendment that it deals with the husband only. It merely says that the husband will not have to aggregate with his return the income which his wife possesses. The effect would be, if passed per se, the wife would get off without making any return at all. I submit that the Amendment here imposes no obligation upon the wife to make any return, and, therefore, it imposes no extra taxation upon her.

The CHAIRMAN

I rather read it the other way, and it seems to me that the Amendment would throw a charge of Super-tax on the wife.

Mr. JOYNSON-HICKS

I submit that we must go back to the original taxing Act, where we find that the wife's Super-tax is to be aggregated and paid by the husband. The husband is the individual aimed at here, the wife not being included, and I submit that the Amendment would not place any obligation on the wife at all.

Sir J. SIMON

Of course, the hon. Gentleman is quite right when he says that in the construction of the Income Tax Act, whether it is the ordinary Income Tax or the Super-tax, the individual in the case of a married couple is the husband. They are for this purpose regarded as a perfectly united couple. If you proceed to separate them, the result is that you have two individuals. Although they were married, the husband would be one and the wife another. I submit, Sir, that your ruling is quite right.

Mr. JAMES HOPE

The separate income of an individual must be less than an aggregated income, and the effect of putting in the word "nett" or "separate" must be to diminish the amount on which the tax can possibly be paid.

The CHAIRMAN

That is not the point. It may be quite true that you are diminishing the total amount to be paid by the two together. I really think that the effect of this would be to impose upon somebody a charge to which he is not at present liable.

Mr. CASSEL

The question is whether the passing of this Clause would prevent us dealing with the matter at a later stage. May I remind you of your previous ruling and ask whether that would not also apply to the Super-tax, and whether, if we pass this Clause, we could not still deal with the Clause for the opportunity of moving which I thank the right hon. Gentleman. Supposing your ruling stood that the matter could not be dealt with now, I submit that the passing of this Clause would not interefere with our dealing with the question at a later stage after the requisite resolution for offering which I thank the right hon. Gentleman.

The CHAIRMAN

The hon. and learned Gentleman is perfectly correct. The earlier ruling which I gave does apply, and nothing in this Clause, as it stands, even if it is passed, will in any way bar the new Clause to which he has referred.

Lord ROBERT CECIL

Will this matter really be open to discussion? Under the guillotine Resolution we may not have any opportunity of moving the Amendment.

Mr. LLOYD GEORGE

This is a pledge I gave to the hon. and learned Gentleman last year, and I am sorry, owing to reasons over which I had no control, that I could not then fulfil it, but I propose to put this Clause first after the Resolution to be moved on Monday, so that the Committee will have an opportunity of discussing the matter the hon. Gentleman wishes to raise.

Mr. HOARE

After what you, Sir, and the Chancellor of the Exchequer have just said, I do not wish to press it any further now. I was very anxious it should be raised, because there is a good deal of feeling in the country about it. Time after time, owing to some particular reason we have been prevented dealing with it, but in view of what the Chancellor of the Exchequer has said, and on the express understanding that we shall have an opportunity of discussing not only the Income Tax but the Super-tax, I will not press the point further.

Mr. PETO

If the Chancellor of the Exchequer puts down a new Clause which takes the first place under a very stringent guillotine will it not very likely, as it is most contentious, rule out entirely all Clauses of private Members under the Resolution?

The CHAIRMAN

That is not a point of Order.

Mr. HOARE

I beg to move, in Subsection (1), after the words "in respect of the" to insert the word "net" ["net income of any individual."].

This is a very simple point. In theory, the taxpayer is supposed to be taxed on his income; in actual practice he is called upon to pay Super-tax on income which he never receives at all owing to the practice of collection at the source—a practice which has now become part of our established system. He receives a great part of his income with the tax already deducted, but when he has to make his return for Super-tax he has to add to his income the amount already deducted from his dividend for Income Tax. That is very inconvenient, and it is not always a very easy calculation to make. There are certain Members of this House who would like to see the Income Tax at 20s. in the £ on rent and income of property. Let us consider what would be the case if hon. Members were successful in bringing about that state of affairs. Every penny of a man's income would be taken before he received it, yet, for the purpose of Super-tax he would still be called upon to pay anything from 5d. over the ordinary Income Tax to 1s. 4d. on money he had never received at all. It is only necessary to point out what would be the inevitable result of the present practice if hon. Members had their way to show how necessary some such Amendment as this is.

Sir J. SIMON

If I understand the hon. Gentleman rightly, what he wants to do is to provide that in the case of Super-tax a man should not pay Super-tax on the statutory income as defined by the law, but before he arrives at that figure he should be allowed to deduct what has already been paid in the form of Income Tax. There appears to be no obvious reason why if that is to be done, such a proposal should be limited to the Super-tax. It might be said with more force in the case of ordinary Income Tax, that it should only be paid on a man's income after the Income Tax had been deducted. If there is any distinction between the two cases, obviously the stronger case can be made for the poorer person as against the richer one. Income Tax is a tax upon income and not upon income less tax, and that is the real reason why this is not done. The hon. Gentleman has not told us exactly what he means by "net." I make no point about that, but, as I understand his proposal—and he will correct me if I have put it wrongly—it is not one which we can accept. It does not appear to us to be at all reasonable to make such a suggestion in connection with the Super-tax when it is quite contrary to the ordinary Income Tax law. The hon. Gentleman said the day might come when a man will pay 20s. in the £ Income Tax, and will have to pay the Super-tax in addition. That day has not come yet, and until it does we must proceed with things as they are.

Mr. WORTHINGTON EVANS

The right hon. and learned Gentleman has really complained of the moderation of my hon. Friend (Mr. Hoare), and has used that moderation as a stick with which to whack him. He says that if it is right as regards Super-tax, it is also right as regards Income Tax. The right hon. Gentleman, as the guardian for the moment of the Treasury, ought really to have congratulated my hon. Friend upon his moderation, and have dealt with the arguments he put forward. As I have other Amendments on the Paper of a detailed nature, may I state the case for them? I suggest that the intention is to tax the income which the taxpayer has and of which he is capable of disposing for any purpose that he chooses. That is the measure of his ability to bear the burden, and that is the class of income that ought to be taxed. Super-tax ought to be payable on the income after deducting the Income Tax which is paid before that income is received by the taxpayer. There ought also to be deducted the Undeveloped Land Duty and the Mineral Values Duty, which is another form of Income Tax, and should be treated on the same basis. I am not asking that the total receipts for the Exchequer should be reduced, but I ask that the actual amount charged upon the taxpayer should be stated in plain terms. Let me show the difference it makes upon an income of £10,000.

The CHAIRMAN

I observe that the hon. Member is arguing, and quite rightly, some Amendment he has on the Paper. He is quite entitled to do so here, and also to obtain a reply, but he is not entitled to do it again as well. I am quite agreeable that it should be done now.

Mr. PRETYMAN

On that point of Order, I think there are points which arise on my hon. Friend's subsequent Amendment which are upon a very different basis from this, and I hope he will give us an opportunity of discussing them.

Mr. WORTHINGTON EVANS

I was only trying to remove the reproach the right hon. and learned Gentleman cast on my hon. Friend for not having denned the word "net." But my hon. Friend, in my view, quite well explained his own Amendment, and I will reserve the observations I will make upon the other Amendments, which come later on the Paper, for another occasion. I must say the right hon. Gentleman showed less than his usual intelligence if he really did not understand my hon. Friend's Amendment.

Lord ROBERT CECIL

I was a little astonished at the right hon. Gentleman's description of the Income Tax. It is commonly called Income Tax, but it is really a tax on profits and is so defined in the Act. The question of what is profit is a difficult matter, and there are some things which may be deducted before you arrive at what your profits are and some things which may not. I am sure the right hon. Gentleman does not suppose that the tax is imposed on gross income, which would be most unfair and ridiculous. You might be taxed out of all existence directly if you were taxed on your gross receipts, which is what the right hon. Gentleman appeared for the moment to think. I know he did not think so, because he knows it is not so, but he used language to that effect. The way any particular deduction should be made is entirely a question of whether, in the judgment of the Legislature, that is a proper deduction to be made before you arrive truly at the profits which the taxpayer receives. I agree that this is a stronger point when you come to ordinary Income Tax than when you come to Super-tax. We can only deal with the Super-tax Clause at the moment. In principle it seems to me that the object which my hon. Friend has in view is a right one, that you should only tax the taxpayer upon the money which comes to him which he is able to avail himself of, either for his own advantage, for paying salaries, or whatever he likes to do with it.

Mr. PETO

I desire to reinforce what the Noble Lord has said. The Attorney-General's argument amounts to this, that what is right with regard to the Income Tax is, with regard to the Super-tax, a fortiori right and just, or more right and more just. I would remind him of the title of the Income Tax Act of 1842, which is the basis of the whole of our modern Income Tax—"An Act for granting to His Majesty the duties and profits arising from property, professions, trades and offices." That is over seventy years before the Super-tax was ever thought of or invented, and the very title "Super-tax" implies something over and above Income Tax. Everyone knows who has to pay Super-tax that you have to go through the most complicated arrangement after arriving at what your net income is. Really, I think we are entitled to some more intelligent argument from the Law Officer of the Crown than has yet been put forward.

Mr. WATSON RUTHERFORD

There is a very great distinction between the case of the Income Tax which the Attorney-General has referred to and the point that is now before the Committee. In calculating Income Tax the rule is to take three years and get an average of what the income has actually been. And in arriving at these figures you are not allowed to deduct Income Tax. You are not allowed to take off the Income Tax which you have paid in the three previous years. The Super-tax which we are now discussing is on an altogether different footing. I think the Amendment now before the Committee is a very important, and, moreover, a very just one. You are asked to pay Super-tax in addition to your Income Tax, and you have got to make up the figure upon which that Super-tax is calculated. In the case of a man who happens to be a director of several public companies, or who occupies several offices, and who is perhaps drawing interest on mortgages, or from his business, and has got forty or fifty items of income, in respect of some of these Income Tax has already been collected at the source, and in respect of a considerable number the tax has not been deducted. Therefore the position you arrive at is this: an immense amount of trouble and inconvenience is cast upon the payer of Income Tax in going into different questions and ascertaining in regard to every one of these items of income whether or not the tax has already been deducted. If it has been deducted he has to add it on, and he has to pay Super-tax not only on the actual income but Income Tax on what he has already paid. I take it that the Amendment before the Committee is for the object of allowing a man who has to pay Super-tax to pay Super-tax upon the amount he has actually received. I know a good many cases where this has caused so much difficulty that several banking accounts have been opened with the object of minimising the difficulty and annoyance of going into all these items for the year to make up a proper return of the Super-tax.

There is no complication of this kind in the case of a professional man. He gets his portion of fees in full, and, therefore, unless he happened to occupy an important position under the Crown, his affairs from the point of view of paying taxes is very simple. I would simply put this argument before the Committee. If it is right to pay Super-tax at all, if it is a proper tax—and I am not going to argue that point this evening—at all events, it ought to be made as simple and convenient as possible to the taxpayer. It ought to be possible to arrive at a figure on which it ought to be paid without the necessity of a whole lot of complicated inquiries before the amount can be made out. Therefore, in the interest of simplicity, as well as in the interest of justice, I think the meaning of the Amendment is a matter to which, if not in this Finance Act, in. the next one, the Chancellor of the Exchequer might fairly give rather more attention than the Attorney-General was prepared to give it just now.

Question, "That the word 'net' be there inserted," put, and negatived.

Mr. HOARE

I beg to move, after the word "the" ["the income"], to insert the word "unearned."

In the first place, I wish to point out that there is a clear distinction, for the purposes of Super-tax, to be drawn between earned and unearned income; and in the second place, I desire to draw the attention of the Committee to the very heavy taxation which individuals with comparatively moderate incomes will suffer when this Budget becomes law. On the first point, it stands to reason that a professional man earning £3,000 a year precarious income is in an entirely different position from that of a man with a capital of £60,000 or £70,000. I know it has been said that anyone with an income big enough to pay Super-tax can afford to make provision in the way of life insurance or otherwise for the future. That may have been the case when the Super-tax was imposed upon individuals with £5,000 a year, but now that it is proposed to reduce the basis to £3,000 a year you touch an entirely new section of the population. I would therefore urge that to impose so heavy a Super-tax on a man earning a precarious income of £3,000 a year is to do something which is not warranted either by justice or by expediency. Further, it is forgotten that if the Government proposals are carried into law individuals with this kind of income will be more heavily taxed here than in any other country in Europe. I have been looking through a Return published recently by the Treasury of the Income Tax paid in various countries of Europe, and I find that while in the case of a man with £3,000 a year Super-tax and Income Tax amount to 7 per cent. in the United Kingdom, in other parts of Europe the average is only 4 per cent. In view of these facts, I beg to move this Amendment.

Mr. LLOYD GEORGE

If this Amendment were adopted it would make a very serious inroad upon the revenue to be provided by the Super-tax. It is very difficult to say at the moment the amount that would avoid the Super-tax of the Finance Act of 1909 and of the present Act. We have proceeded upon the principle of a graduated scale according to the size of the income. The distinction between earned and unearned income is very justified in the lower scale of incomes, but when you get beyond £3,000, I do not think that there is the same occasion for continuing that distinction. I therefore cannot accept the Amendment.

Question, "That the word 'unearned' I be there inserted," put, and negatived.

Committee report Progress; to sit again upon Monday next (6th June).

The remaining Orders were read, and postponed.

Adjourned at Thirteen minutes after Eleven o'clock.