HC Deb 12 July 1916 vol 84 cc470-89

(1) Where any person who, during the current Income Tax year, has served or is serving as a member of any of the naval or military forces of the Crown, or in service of a naval or military character in connection with the present War for which payment is made out of money provided by Parliament, or in any work abroad of the British Bed Cross Society or the St. John Ambulance Association, or any other body with similar objects, proves that he is assessed or charged to Income Tax, or has paid Income Tax either by way of deduction or otherwise on his pay in connection with any such service, he shall be entitled to claim such relief from Income Tax as will reduce the amount of Income Tax on that pay to the amount which would have been payable if the tax were charged on that pay at the rate of—

(2) The relief given under this Section shall be in addition to and not in derogation of any exemption or other relief or abatement under the Income Tax Acts and in cases where the total income does not exceed three hundred pounds shall not be subject to the reduction of exemption and abatements for which provision is made under the Finance (No. 2) Act, 1915; but relief in respect of earned income shall be given in respect of the pay by reference to the rates under this Section; and in calculating any earned income on which relief is to be given, any deductions from earned income made under Subsection (2) of Section nineteen of the Finance Act, 1907, shall be made primarily from the pay.

Mr. PETO

I beg to move, in Subsection (1), to leave out "3d." [1s. 3d. if his total income"].

This is one of a series of Amendments the effect of which will be to reduce the Schedule in this Clause of the rates of Income Tax on officers' pay on the middle five items of the Schedule in each case by the sum of 3d. When the question of a further remission of Income Tax on officers' pay came up in Committee a few minutes before eleven o'clock in an almost empty House, I pleaded with the Chancellor of the Exchequer to report Progress, so that this important matter might be discussed before a more reasonable number of members of the Committee. The right hon. Gentleman, while refusing the Amendment I then moved, which was to extend the partial remission of Income Tax which has been granted in the Finance Bill of 1915 to persons serving in the naval and military forces of the Crown whose total income from all sources was less than £300 a year to other people who were not entitled to claim any remission because they have a larger income-in fact, to make it general—told us that he was going to propose an alteration in what was then the proposal of the Government, which was in the case of officers with a larger income than £300 a year to leave them to pay the Income Tax on the scale imposed by the last 1915 Act instead of the increased rate under the present Bill. He read out this Schedule to an almost empty House in Committee, and I naturally, while expressing no enthusiasm for the offer of the Treasury, had by force majeure to to accept with what gratitude I could show this very partial remission. When we obtained from the Treasury the concession in respect of those who had an income of less than £300 a year from all sources, it was upon a definite principle that they should pay the rate that was in force before the declaration of hostilities—that is, that they should pay at the prewar rate, or peace rate of Income Tax. That seemed to me to be a concession which was based upon the definite principle, which I could enunciate in a single phrase, that it is not fair to ask people to fight and to pay for fighting as well, and that the great increase in direct taxation necessary to defray the cost of the War should come from the civilian population and not out of the pockets of the officers. Under this proposal, which is now incorporated in this Clause as apiended in Committee, the earlier part of the Schedule is not based upon any principle at all and therefore I merely ask the right hon. Gentleman to make it a reasonable and a simple Schedule. I naturally ask why this 3d. is added in every case. Instead of a plain 1s. and 1s. 6d. and so forth, why is it 1s. 3d., 1s. 9d., 2s. 3d., 2s. 9d. and 3s. 3d.? The obvious suggestion occurred to me that there was a little bit put on from which the right hon Gentleman would have been quite prepared to give way if he had seen any general feeling in the Committee that thre was not substantial justice in the proposal that he made. I would point out that in respect of the first two items, the 9d. and the 1s. 3d. which are the subject of the Amendment I am moving, there is a jump of 6d., although in income there is only a jump of £200 a year. If an officer or any person in the service of the Crown has a total income that does not exceed £300 he pays at the rate of 9d., but if he has £310 he pays at the rate of 1s. 3d. At the other end of the scale there is a tax of 3s. 3d. if the total income exceeds £2,000 and does not exceed £2,500, and then there is a jump of only 3d. if the total income is £10,000, or any other sum. That, again, confirms my impression that the Chancellor of the Exchequer should be quite prepared to accept the very reasonable Amendment I put forward. I did not have any opportunity of considering the scale which the Chancellor of the Exchequer read out in Committee, and I am sure on seeing it now in print it will be obvious to all hon. Members that it will be a very much more reasonable scale if we reduce it by 3d., as I propose.

Mr. POLLOCK

I desire to second this Amendment. I have made some sort of calculation, and it appears to me that the amount of revenue which the Chancellor of the Exchequer would lose under this altered scale is very small. If the threepences had to be paid on about £1,500,000 the total loss would be £20,000, and no more. If they had to be paid on less, as probably they would be, the loss would be something between £10,000 and £12,000. Therefore, from the Chancellor of the Exchequer's point of view, this is simply a matter of pounds, shillings, and pence in the Treasury. There cannot be any matter of principle between 1s. and 1s, 3d., or between 1s. 6d. and 1s. 9d. It is purely a question of how much the right hon. Gentleman would lose on this new Schedule. If the amount is very small, might we not offer a further concession to the persons who are affected under this Section? It is almost an infinitesimal sum for the country, but to an officer with a small income, and to many a small home, it means a good deal. One more point has to be remembered. When we are dealing with our soldiers and sailors at the present time we must remember that we are relying now, not upon the men who have been always soldiers and sailors, but upon a rather different class. In the old days before the War, there was some sort of presumption that when a man became an officer as a soldier or a sailor he had some sort of resources of his own. We have now got the services of a great number of professional men who are, certainly in their civil circumstances, very poorly off, and who find the difficulties of their situation in the Army or the Navy somewhat extreme. Therefore, we really ought to try to palliate for these men, where we possibly can, the difficulties under which they suffer. We should remember that when we are talking of officers now we are talking of barristers, architects, and men in all sorts of humble spheres, where they have not got large incomes. Under these circumstances I think we should try to meet them in every possible way. If the Chancellor of the Exchequer tells us that there is very little money one way or the other in this proposal, I hope he will make a concession which I am sure will be very gratefully received by those to whom a small concession on Income Tax is of great value.

Mr. McKENNA

Usually I receive such fair treatment from all quarters of the House in dealing with the Finance Bill that it is quite by exception that I have to say that I do not think the hon. Member for Devizes (Mr. Peto) is treating me quite fairly. If we go back to the history of this Clause I think even he will agree that his argument this evening was not justified. In the last year's Budget we had, I will not say a fight, but a considerable amount of disagreement on the subject of the proper rate to be allowed in respect of Income Tax for officers. At a late hour of the evening, after a protracted Debate we came to an agreement. I accepted the major part of an Amendment which was then moved, and inserted a provision in last year's Bill, limiting the amount of Income Tax to 9d. in those cases in which the total income from all sources does not exceed £300. Last year that was accepted by the whole House as a settlement. This year, when I introduced the new Budget, I left that settlement untouched. Although the Income Tax is increased for all other persons, I left it in the Bill introduced this year on the footing at which it had been left by the settlement made in the last year's Budget. When I examined, however, what the settlement meant in the incidence of the tax I found that between an income of £300 and £500 there was a great jump. The rate of tax under £300 was 9d., in accordance with the settlement, but between £300 and £500, if my recollection serves me, the rate was no less than 2s. 1d. There was a jump of from 9d. to 2s. 1d. in the case of incomes between £300 and £500. Thereupon, I proposed in Committee to make a further concession and graduated the scale. Instead of charging 2s. 1d. on incomes between £300 and £500 I reduced the rate to 1s. 3d., and then graduated it up by steps of 6d. and 3d. in the last case, until it reached the year's maximum of 3s. 6d. Now this very concession is used as an argument against me. Because I have given something away on last year's settlement it is said that I am not acting on any principle and that I might as well give away a further 3d. I do not think that is treating me fairly. I think we have gone a very long way. There is considerable argument to be made against the concession being given at all. The hon. Member (Mr. Peto) says that it is an understandable principle that the man who fights shall not pay any more Income Tax than he does in peace. Is that his Amendment?

Mr. PETO

It was my Amendment.

Mr. McKENNA

Not at all.

Mr. PETO

It was my Amendment in Committee.

Mr. McKENNA

Does the man who fights only get the relief? Not at all. The person who gets relief is "any person … who has served or is serving as a member of any of the naval or military forces of the Crown." What proportion of the naval or military forces of the Crown fight? That is not all. The Clause goes on to say "or in service of a naval or military character in connection with the present War." What proportion of persons in service of a naval or military character fight? It is not really on any principle such as the hon. Member advocates that his Amendment is founded. I do put it to the Committee that this matter having been fought out last year, and having agreed to reduce to the prewar Income Tax on earned income in respect of incomes up to £300 a year, and not having increased the rate on persons serving in the naval or military forces of the Crown in the present year, but on the contrary having graduated down that rate so as to put it on easy stages, that we should leave the settlement where it now stands and not make any further alteration.

Captain BATHURST

I have no knowledge except from what the right hon. Gentleman has said of the arrangement that was come to a year ago.

Mr. PETO

There was none.

Captain BATHURST

Because I was not then attending the House of Commons. But I have had for the last twelve months very considerable experience of the sort of man who during the last twelve or fifteen months has been made an officer in His Majesty's Army, and I want to speak for an entirely different class of men from that to which my hon. and learned Friend referred. During this period a very large proportion of the men who received promotion to the rank of captain in His Majesty's Army were men who had previously been regimental sergeant-majors, colour-sergeants or other men whose promotion has been from the ranks, and what I want to point out is the very great difficulty in which many of those men have found themselves. First of all they have to incur expense to which they are wholly unused, and they have no private income to meet it. I refer to men in receipt of from £330 to £360 a year, entirely as Army pay. They have to live lives at a much higher standard than they lived before. To my mind very properly, and in order to keep up appearances, which they have to do very often with very great difficulty to themselves, they have to place their wives and families in a better position before they go overseas than they were in before, when they occupied a different social rank. Those men require consideration, especially in view of the fact that the cost of living has gone up considerably during the last twelve months. I have had some pathetic appeals made to me while I have been staff officer at headquarters of the southern command, by the wives of men serving overseas, who find themselves in just that position, with an income received from their husbands who have recently been promoted from the ranks to the rank of captain. These are the people for whom consideration is required.

Mr. McKENNA

We have shown it.

Captain BATHURST

I have no sympathy with any other of these Amendments, but you suggest by this Clause that it is right to make an increase of 66 per cent, in the taxation of a man who derives his income wholly from his pay when that pay is over £300, as compared with the taxation which is imposed upon him if he receives from that source less than £300. In the interests of that class I desire to support this Amendment.

Amendment negatived.

Mr. PETO

I beg to move, in Subsection (2), to leave out the words, "in cases where the total income does not exceed three hundred pounds."

The effect of these words is to limit the concession with regard to abatements from income to the case of those men whose income from all sources is under £300. Therefore the argument of the hon. Member for Wilton (Captain Bathurst) will be particularly appropriate to this Amendment. The Chancellor of the Exchequer made what he called a settlement. I do not admit that there was a settlement at all, because Parliament protested with regard to men whose incomes were between £300 and £400 a year, and whose cases, where they had families to support, were harder than any others. We said that these cases deserved the same consideration as men with incomes under £300 a year. The Chancellor of the Exchequer limits the abatement to men with incomes under £300 a year. The exact effect of that is that the abatements which were reduced in the Finance Act (No. 2), 1915, makes abatements only in respect of £120, as against £160, which are allowed to those who have the smaller income. If the Act of 1898 was right in principle in prewar days, giving an abatement of from £160 to £70 on incomes varying from £400 to £700, I cannot see why that is not done under the Schedule which the Chancellor of the Exchequer has now introduced. On the Amendment which I proposed in Committee, it was clearly appropriate, because we suggested similar treatment for persons in respect of their pay, no matter what their income was; but it is graduated now, and I do not see any reason for the abrupt refusal of the abatement which was in force before the War, in fact, before the Finance Act of 1915. What is the reason for this abrupt refusal of that abatement in respect of any whose income is beyond £300 a year? I ask the Chancellor of the Exchequer, now that he has recognised that something must be done in respect of the pay of all persons who are in the service of the Crown, to leave the amount of abatement where it stood before the Finance Act of 1915, and to leave this particular Subsection exactly as it stood in Clause 25 of the Finance Act (No. 2), 1915, and not withhold from those with incomes between £300 and £400 a year the abatement to which they would have been entitled but for the Clause passed in the Finance Act of 1915, Section 21, which limited the abatement for incomes that did not exceed £400 to £120.

Mr. McKENNA

I could not quite gather from the hon. Gentleman's speech whether he appreciates either the effect of the Clause or of his Amendment. The effect of the Clause as it stands now is that officers and persons serving in the naval and military forces whose total income is less than £300 a year are entitled to a reduction for the purpose of Income Tax of £160. Persons whose income are over £300 come under the ordinary law, and would only be entitled to a reduction of £120 instead of £160. That alteration having been made by the Act of last year, the whole of the persons receiving incomes between £300 and £500 a year would be entitled to the same reduction as any other taxpayer, the difference between them and the position of the other taxpayers being that they pay Income Tax at the rate of 1s. 3d. instead of at the rate, I think, of 2s. 3d.—I am not sure—or 2s. 6d. What the hon. Gentleman complains of is a want of logic in the better treatment we have given to persons with incomes of less than £300, who are now better off than other persons, not only by the fact that they pay a smaller Income Tax, but are also allowed an abatement of £160 instead of £120. That was the arrangement, I call it "settlement," although the hon. Gentleman objects to that, but it was agreed to by the great majority of the House, and the hon. Gentleman, who intended to force a Division, had to abandon his intention. I may say with regard to this, as to the other point, that I hope the House will not reopen the question.

Mr. POLLOCK

I desire to support the Amendment for this purpose: There are two unfortunate features in discussing this Clause. The first is that on Report, owing to our procedure, we cannot discuss its effect as a whole, but have to consider the immediate effect of each Amendment, and dealing with it piecemeal is not satisfactory. The other feature which is unfortunate is this: I hope the Chancellor does not suppose that in any quarter of the House there is any desire to increase his difficulties or not to realise that throughout the whole of this Bill he has done his very best to meet a number of Amendments which have been proposed, to meet objections which have been fairly put forward and which, I venture to say on behalf of myself and a great number of others, have been most fairly and even generously met by the Chancellor. I hope he will not think that in discussing this Amendment we are in any way tilting either at the way in which he has dealt with the Bill or met those who moved the Amendments, and I hope that he will give the same appreciative and generous consideration to these Amendment and to this Clause as a whole, which he has given to other portions of the Bill. The object with which these Amendments have been put down is to increase the exemption which is given to officers, and I say officers because it is really officers who come within the ambit of this scale of charges on £300 or over £300. I think the House as a whole is inclined to treat those men generously, and I am quite sure the Chancellor of the Exchequer appreciates what my hon. and gallant Friend (Captain Bathurst) has said about the officers who have come under his personal control from the point of view of income. If one could treat all those questions as a whole it would be very easy to say what one wants to do to meet hard cases and to increase the exemptions to officers with small incomes. That is the purpose. The object of the Amendment is to cut out what apparently is a limitation and what I understand from my reading of the Income Tax Acts is a limitation, because you only give this particular concession in the case where the total income does not exceed £300. There are concessions which are given under the Clause which I quite acknowledge. We want to increase the number of cases which fall under this more fortunate scale. There is another Amendment later on designed for the same purpose. If the Chancellor of the Exchequer says, "I cannot do anything more, even to the extent of £5, £10, or £20," there is an end of it, we cannot press the matter further. But the real object we have is to try to improve the position of officers who deserve recognition. I am not talking merely of men who are fighting, or any thing of that sort. I have cases where men have come from civil employment and undertaken naval or military duties with responsibilities to which they find themselves ill-matched, having regard to the scale of pay given. I think the whole question from the point of view of the Chancellor of the Exchequer is, "How much shall I lose?" If he loses very little he may make some concession. If it is a question of merely £20,000 or £30,000 I think the money would be well distributed by a further exemption. If it is a very large sum, we are all quite reasonable, and we know the country cannot afford it. But so long as it is a small sum, I hope the Chancellor of the Exchequer will allow us to put these Amendments forward in the belief that we are endeavouring to meet cases of hardship and to provide for men whom all quarters of the House desire to treat generously and fairly.

Captain BATHURST

I do not want again to press to any great extent the point I have already made, but I sincerely wish that the Chancellor of the Exchequer, if he cannot accept the present Amendment, would change the word "three" into "four," so that the Clause would read "in cases where the total income does not exceed four hundred pounds." The reason why I suggest that is that the position of a captain of a company who has risen from the ranks is a very difficult one, and sometimes an extremely embarrassing one, both to himself and to his wife and children. After all, it does not matter much about the Army subaltern. He has not to maintain any great position either in the officers' mess or so far as his family is concerned. But it is very different with the commander of a company. A large number of these men, as a result of their military progress, have been raised from the ranks very rapidly to the position of commanders of companies and receive a nominal income of something short of £400. That they should not be entitled to exemptions and abatements provided for other men who have nothing like the same position to keep up, I feel operates to some extent as an injustice. I appeal to the Chancellor of the Exchequer, if it is not too late, to make some concession in favour of this class.

Amendment negatived.

Mr. PETO

I beg to move, after the word "from" ["primarily from the pay"], to insert the words "income other than."

I regard this Amendment as being of much greater importance than either of the other two. I have found, to my amazement, that in the carrying out of the concession which the Chancellor of the Exchequer has called a settlement of the matter arrived at in 1915, that the effect of the words at the end of this Clause has been practically to negative the whole intention of the House in granting relief to officers on their pay whose income did not exceed £300 The words which were then in Clause 25 of the Finance Act of 1915 to which I refer, and which show the intention of the House, are these: "Re shall be entitled to claim such relief from Income Tax as will reduce the amount of Income Tax on that pay to the amount which would have been payable at the rate in force immediately before the commencement of the War." Those words seem quite clear. That amount was 9d. One would naturally infer that in the case of a man in receipt of a total income of £300, of which £160 was in respect of pay and £140 of which was the interest on some legacy or prewar saving, or represented something received in lieu of earned income, making up his income to what he was in receipt of before he joined the Army for the period of the War, the pay would be on that portion of his income derived from pay, namely, £160, at the rate of 9d. The effect of the interpretation of these words, which I now wish to amend, is exactly the opposite. The Income Tax authorities say, " Oh, the words of the Act are perfectly clear: these abatements are to be deducted primarily from pay, so that, in the case of a person in receipt of an income of £160 from pay, it works out to this." They say, " Oh, you are entitled under the previous words of Subsection (2) to the full abatement which was granted in the Act of 1898 of £160, because your income is under £400 a year; your abatement is £160, and your pay is £160, and, of course, as it has to be deducted primarily from pay, that washes out the pay; therefore we charge you, if it is earned income, at the rate of 2s. 3d., and, if unearned income, at the rate of 3s. on the rest." The net position is that this officer, who as a class has made in very many cases great sacrifice of previous income in order to join the Army or Navy, is in precisely the same position as if he had never joined at all—except that he is entitled to an abatement of £160 instead of £120.

I desire to give the House one concrete case showing how exactly it is worked out. I have all the letters from the Income Tax authorities, so that there is no question whatever in regard to interpretation. The man whose case I give is a sergeantmajor in receipt of 5s. per day—actually £91 5s., or, in round figures, £90 a year. Under the interpretation of setting the abatement primarily against the pay, the Income Tax authorities work it out like this: Army pay, less £90 part allowance of statutory abatement, £160; net result, nil; no Income Tax payable. Ordinary earned income, £210, less balance of abatement £70; chidren's allowances (two children at £50); duty at the lowest rate of earned income, 1s. 6d. plus one-fifth—that is, 1s. 9d. and three-fifths; total Income Tax to pay, £8 2s. Now comes the reason. This man had an income in addition to his pay. He was the head master of a grammar school. The Governors of his school agreed when he enlisted in the Army at the beginning of the War to pay him the same salary that he was in receipt of before, as many other people in various walks of life have done. Whether employers or governors of schools, they have pursued the same course from patriotic motives. The result of that is that this man is in exactly the same position, with the small exception that I have already mentioned, on the question of the total abatement, as if he had never joined the Army. To finish his case, he ought to be paying about £3 7s. 6d. The first claim was for £11 odd, and that was corrected into £8 2s., and his wife has to pay that amount this year, which, owing to the rise in Income Tax, is over double that chargeable before the Chancellor of the Exchequer made his settlement, as be calls it, of this concession to officers on their small income.

Take a much more ordinary case, that of someone who has been in receipt of £160 a year pay, or thereabouts, and £140 of unearned income. Of course, in that case he has no advantage whatever, except the small difference of abatement. As it is worked out on the wording of the Act he is charged an Income Tax of £21. If he had £120 abatement he would pay £27 a year, and the real Income Tax he ought to pay, in accordance with the intention, and the obvious understanding, of the House, who did not observe these words at the end of the Clause, if the Clause had really carried out the intention of the House, and had given a real abatement in the rate of Income Tax, would be £5 5s., instead of £21. I think it is really carrying the Treasury rule a little bit too far. I understand that wherever there is a composite income, and there is any question of abatement or allowance, it is the custom always to set abatement or allowance against that portion of income chargeable at the lowest rate. When a special concession is made in specific words, particularly in view of what the Chancellor of the Exchequer said about settlement, that these men were to pay at the rate of 9d. on their pay, and we find, as a matter of fact, the whole of that pay is washed out in nine cases out of ten, and in all cases where men receive the smallest amount of pay it is washed out entirely on abatement, and they are charged the full rate on the rest of the income, I really think the House has not been fairly dealt with. The Chancellor of the Exchequer said I did not deal fairly with him in my previous Amendment, but keeping in these words, of which no one really understood the effect, now we have had six months' operation of the Act of 1915, the effect is to deprive these men in receipt of small pay of practically any concession whatever, and only to give it in the case of men with larger pay and no other income. It is really not fair to carry out that Treasury rule and take away with one hand what the Treasury appear to give by way of concession with the other.

Mr. POLLOCK

I beg to second the Amendment. I do not desire again to go over the general observations I made about the relief that we desired to secure under this Section, but the exemption which has been given, and which the Chancellor of the Exchequer, I think, intended to give, has certainly proved to be much less than was understood. Those who came within the exemption and the Section, which was intended to be a relieving Section, have found that in Income Tax, as in many other things, things are not always what they seem. They thought undoubtedly, as letters in the public Press indicate, that there was going to be a real concession of considerable value to them. It has proved otherwise for a valid reason. I think that Section 51 of the Income Tax Act of 1853 has probably militated against this concession being given to the full, and unless some statutory authority is given for altering the practice the Treasury was bound by the rules and Sections of this old Statute as it stood and the result has proved that the exemption has not applied in the way intended or as we understood it was intended to apply. It may be that those of us who listened to the discussion of the question of exemption were not very alert, and that the Chancellor of the Exchequer thought that we had in mind the ordinary practice. The Chancellor of the Exchequer will quite understand that I am not saying more than it is quite possible that none of us at the time realised that by virtue of an old Statute there was in truth and in fact a negation of the relief which we all understood was to be granted. It all comes back to this: That you make these deductions from the pay, and the result is that you leave the matter of the unearned income exactly where it was, and although the officer is in some small measure better off he has not received the full measure of relief that it was anticipated he would get and which we believed he would receive. I ask the Chancellor of the Exchequer how much money is there in this? It is not a question of bargains or settlements, but it is that when from time to time we find that the effect has not been so good as we hoped we may call for a little more relief. If the amount the right hon. Gentleman would lose is by no means large, I ask him to satisfy those gallant officers at the front by relieving their pockets and assisting them by introducing the words of this Amendment. The deduction should be made primarily from income other than pay. I hope the Chancellor of the Exchequer will give an explanation why he insists upon his present attitude and tell us how much he would be likely to lose if this concession were granted.

Mr. McKENNA

I do not think that there is any room in the language of the Clause for the misconception which appears to have existed in the mind of the hon. Member for Devizes (Mr. Peto), or my hon. Friend who spoke last.

Mr. POLLOCK

And hundreds of others.

Mr. McKENNA

I do not think there is any room for that in the actual language of the Clause. First of all, the Clause gives relief expressly, not in respect of the whole income, but only in respect of the pay. The lower rate of 9d., where the total is under £300 a year, would not be paid from the total income, but that lower rate would only be paid on that part of the income which consisted of pay, and the remainder would have to pay at the full rate. There was a distinction made on the face of the Clause as to the rate payable on the pay and the rate payable on the other parts of the income. Then the Clause specifically gave the concession in the form which would make the taxed rate on the pay the same as existed before the War. Well now, by the law, so recently passed as 1907, which distinguished between earned and unearned income in fixing the rate of tax, it was laid down that the deduction shall be made from that part of the income which is paying the lower tax. It was not merely by practice or inference from the Act of 1853, but by express enactment in 1907 that this practice existed. Where, upon the face of the Clause, there is a distinction between rate payable upon the pay and the rate payable upon the remainder; where, upon the face of the Clause with regard to the whole income the taxpayer is referred back to the conditions which existed before the War; where every taxpayer knew before the War that his allowance or abatement was made in respect to that part of the income which bore the lower rate of tax, it cannot be said that there was any ground for the misundersanding which appears to exist in the Amendment of the hon. Member for Devizes (Mr. Peto). To accept this Amendment would be to make a complete change in the statutory practice since earned and unearned income were initiated. Of course, by the selection of a particular case, where a precise sum is taken which shows an apparent hardship, an hon. Member can make out a plausible case.

Mr PETO

It is not a particular case. It is all cases below £160. Where the pay is below £160 they get no relief at all.

Mr. McKENNA

Where the pay is below £160 and there is no other income they get no relief at all from the concession, and I suppose the hon. Gentleman suggests that where there is other income they should get relief. What about the case of the unfortunate officer whose pay is below £160 and who has no other income? It is not suggested that he should get relief, unless hon. Gentlemen propose to pay him something for having no other income. There is no end to the possible exceptions which may be brought forward. I can assure hon. Members, who stand up as the friends of the officers who are being dealt with hardly, I have as strong a sympathy with the hard case as they have, but they are in the happy position of being able to make these appeals, expressing broad sympathy, against an unfeeling Chancellor of the Exchequer, who has to remember his duty and vindicate the interests of the taxpayers. I do not think we can go back upon the concession which has been already made. I put it to the House that we have already done enough, and I ask the House to accept the Clause as it stands.

Mr. RAWLINSON

I am not surprised at the statement of the Chancellor of the Exchequer. I put an Amendment down myself which raised the same point, and it is shortly this: The House has agreed, and the Chancellor of the Exchequer has sanctioned, a special concession to those men, chiefly schoolmasters and other professional men, who joined the Army and got pay in the Army and sometimes got money from other sources. I am not suggesting that there was any difficulty in following what the right hon. Gentleman said about the proper construction of that Section; I do not suggest that there could be any difficulty on reading the Section quietly. There was certainly in the House a very widespread idea that a special concession was being made to these men, and I am sure it was the intention of the House that concessions should be made to them. It is a very small one indeed as the law stands at present, and I do appeal very strongly to the Chancellor of the Exchequer to see, while yet there is time, whether this concession, which would be a real one, should not be given It means this: that a person has, say, £300 a year; £160 of which is earned, and £140 unearned. In that case he practically gets nothing under this concession at all. As regards these incomes I think a very small sum indeed would be involved, and in spite of the right hon. Gentleman's duty of safeguarding the Treasury I believe the House intended to act more liberally than they have done with these special classes, who are deserving of more, I will not say sympathy, which is said to be like mustard without beef.

Sir A. MARKHAM

I think the right hon. Gentleman is under a misapprehension as to what happened in the House this time last year. I understood that the concession he made was a concession to all officers having incomes under £300 a year. There is one point on which I should like the right hon. Gentleman to give me an answer, and that was the one raised by the hon. Member for Devizes (Mr. Peto) as to allowances or free gifts given to men now serving with the Colours, officers now serving abroad. Assuming that an employer gives to a young officer, or a married man, who has been in his employment a free payment, say, a gift of £200 a year: Is that officer bound to bring that gift into his income and pay Income Tax on it? The case given by the hon. Member for Devizes was one of a schoolmaster where, I understand, the employer continued the salary formerly paid to him as a free gift. Does he have to make an account of it in his income?

Mr. McKENNA

No.

Sir A. MARKHAM

The right hon. Gentleman says "No," and, therefore, that case regarding which the hon. Member for Devizes has just given me a letter—

Mr. McKENNA

If they are under contract to pay it would not be a free gift.

Sir A. MARKHAM

The hon. Member for Devizes is not entitled to speak again, so he has given me this letter, which says that for the year 1915–16, Mr.—was to receive, as headmaster of the grammar school at—,such amount of salary as would give him £300 a year and prewar emoluments, and that taking that estimate at £90 the assessment would be as has already been given by the hon. Member for Devizes. If the Chancellor of the Exchequer says that if there is no contract between the trustees, or whoever it may be, and the man that he was to have such an income, he was not liable—

Mr. McKENNA

If it is a free gift he is not liable.

Division No. 34.] AYES. [11.0 p.m.
Banner, Sir John S. Harmood Macmaster, Donald Samuel, Samuel (Wandsworth)
Bathurst, Capt. C. (Wilts, Wilton) Markham, Sir Arthur Basil Stewart, Gershom
Bonn. Arthur Shirley (Plymouth) Paget, Almeric Hugh Sykes, Col. Alan John (Ches., Knutsf'd)
Cowan, W. H. Pennefather, De Fonblanque
Craik, Sir Henry Perkins, Walter Frank TELLERS FOR THE AYES.—Mr. Peto and Mr. Pollock.
Flannery, Sir J. Fortescue Rawlinson, John Frederick Peel
NOES.
Acland, Rt. Hon. Francis Dyke Byles, Sir William Pollard Fletcher, John Samuel
Adamson, William Cave, Rt. Hon. Sir George Foster, Philip Staveley
Agg-Gardner, Sir James Tynte Collins, Sir Stephen (Lambeth) Goldstone, Frank
Ainsworth, John Stirling Craig, Ernest (Cheshire, Crewe) Greenwood, Sir G. G. (Peterborough)
Banbury, Rt. Hon. Sir F. G. Currie, George W. Gulland, John William
Barran, Sir John N. (Hawick Burgh's) Davies, Timothy (Lines., Louth) Harmsworth, Cecil (Luton, Beds)
Beale, Sir William Phipson Davies, Sir W. Howell (Bristol, S.) Harris, Percy A. (Leicester, S.)
Beck, Arthur Cecil Edge, Captain William Harvey, A. G. C. (Rochdale)
Bewerman, Rt. Hon. C. W. Edwards, Sir Francis (Radnor) Harvey, T. E. (Leeds, West)
Bridgeman, William Clive Fell, Arthur Higham, John Sharp
Brunner, John F. L. Ffrench, Peter Hinds, John
Sir A. MARKHAM

Any employer, then, who makes a free gift. How are you going to differentiate this particular case from a free gift? If the governors have agreed to continue the stipend there is no legal—

Mr. RAWLINSON

They agree to it.

Sir A. MARKHAM

That is a legal point. If the governors of the school, of their own free will, without it being any contractual obligation—

Mr. McKENNA

If there is no obligation, there is no Income Tax.

Sir A. MARKHAM

Very well, then.

Mr. HODGE

I was under the impression, as was stated by the Chancellor of the Exchequer, that the concession made was a very handsome concession to the officers. We have been hearing a great deal during the course of this Debate with respect to hardships. I am sure none of us desire to press hardly on the officers, but I think we have to remember that there are other hard cases than those of the officers. I know of many men who are serving as privates, having given up £250, £300, and over per annum, and the only thing they have to depend on is the private's pay of 1s. 2d. a day. I think that if anything is to be done further in the way of concessions men in a position such as I have indicated ought to have the first consideration. I really think that, in view of the concessions already made, those who are pressing the Chancellor would be well advised to withdraw their opposition to this particular Clause as it stands.

Question put, "That the words 'income other than' be there inserted in the Bill."

The House divided: Ayes, 15; Noes, 79.

Hodge, John Pease, Herbert Pike (Darlington) Toulmin, Sir George
Hope, Harry (Bute) Pryce-Jones, Colonel E. Valentia, Viscount
Jones, Edgar (Merthyr Tydvil) Rea, Walter Russell (Scarborough) Walker, Colonel William Hall
Jones, Henry Haydn (Merioneth) Rees, G. C. (Carnarvon, Arfon) Warner, Sir Thomas Courtenay T.
Jones, Leif (Notts, Rushcliffe) Pees, Sir J. D. (Nottingham, E.) Watt, Henry A.
Jowett, Frederick William Roberts, Charles H. (Lincoln) White, Patrick (Meath, North)
King, Joseph Roberts, George H. (Norwich) Whiteley, Herbert J.
Lambert, Richard (Wilts, Cricklade) Robinson, Sidney Wiles, Thomas
Levy, Sir Maurice Roch, Walter F. (Pembroke) Williams, Aneurin (Durham, N.W.)
Lloyd, George Butler (Shrewsbury) Rowlands, James Wilson, Rt. Hon. J. W. (Worcs, N.)
Macdonald, J. Ramsay (Leicester) Scott, A. MacCallum (Glas., Bridgeton) Wilson, W. T. (Westhoughton)
McKenna, Rt. Hon. Reginald Shortt, Edward Wing, Thomas Edward
Mono, Rt. Hon. Sir Alfred Simon, Rt. Hon. Sir John Allsebrook Wood, Rt. Hon. T. McKinnon (Glasgow)
Morgan, George Hay Spear, Sir John Ward
Munro, Rt. Hon. Robert Strauss, Edward A. (Southwark, West) TELLERS FOR THE NOES.—Lord E. Talbot and Mr. G. Howard.
Newdegate, F. A. Thome, G. R. (Wolverhampton)
O'Brien. Patrick (Kiikenry)