WAYS AND MEANS [11TH JULY]. (Hansard, 12 July 1916)

§ Sir J. D. REES
I beg to move, after the word "annuities" ["contracts for deferred annuities shall not"], to insert the words "entered into after the eleventh day of July, nineteen hundred and sixteen."
I think I need not add anything to what was said by myself and the hon. Member for Rochester (Sir E. Lamb) in regard to this proposal of the Chancellor of the Exchequer. As I understood him, it increases the amount payable by people who are liable to Income Tax or Super-tax. It is no uncommon thing to hear of people who over-insure themselves, who insure for a larger amount than they would probably have otherwise done in order to obtain the benefit of the provisions of this law. But I do not think all should be penalised on this account, because some may have done it to make a provision for their families, rather than to get the benefit in regard to the Income Tax. As I understood the Chancellor of the Exchequer, all the calculations upon which they proceeded have been rendered null and void, and a larger amount will be levied from some of them than that for which they made arrangements. My right hon. Friend knows perfectly well that in a great many families the provision for insurance is a sort of sheetanchor of domestic finance. Upon it depends not only the provision for widows and children, but also the other financial arrangements made. A family of small means might base their arrangements for the education of their children, for their domestic affairs, upon arrangements so concluded upon the faith of a law existing at the time. I do not remember myself a similar proposal to this being laid before Parliament, and I confess that when I got up to ask the Chancellor of the Exchequer as to what it was I expected him to disclaim any retrospective effect attaching to this Resolution. Apparently I was mistaken in that respect, and my hon. Friend opposite (Sir E. Lamb), who took the same point, is under the same impression.

§ Sir E. LAMB
I want to ask the Chancellor of the Exchequer, in view of his saying yesterday that he was maintaining an open mind on the question, not only to approach it sympathetically, but to concede the point, because when, on the 22nd June, he introduced this Clause he distinctly said to the House, and not only to the House, but to the country, that it was not going to be retrospective—the 363 Clause he then introduced I agree, but is a Clause dealing with this question. He said, in introducing the Resolution: This Resolution relates to insurance premiums and the relief which is now a statutory right with regard to those premiums. And later on in the same speech he said: We do not propose to interfere with bona-fide investments of this kind which have been made in the past. We think that in the future there should be a strict limit upon the right to obtain deduction of Income Tax in respect of premiums. When later, on the 28th June, he asked the House to accept this Resolution, stating in explanation that he was going to meet the insurance companies, and that if they would agree to some form that would cover the point he would then withdraw the Resolution then introduced and substitute another in an agreed form, in answer to an interjection he then again stated that the Clause is prospective. I want to point out that while the insurance companies, qua insurance companies, may have agreed to this alteration, they, after all, are not so intimately affected as the tens of thousands of policyholders who have already entered into contracts bearing on this point. So far as insurance companies are concerned, if it is to continue prospective, they are not thereby handicapped in the obtaining of new business, and are not so much concerned as regards business already entered into. But when we remember the many thousands of people in this country who are heavily insured, and who have insured in many cases up to the limit of the one-sixth of their income, taking into account their other liabilities and thinking that they were going to have this relief then allowed under statutory authority as regards relief from Income Tax, I ask the Chancellor of the Exchequer to consider one other point.
When, in the Finance Bill last year, he brought in an Amendment which affected policy holders, he limited it, in addition to the amount already limited to one-sixth of a man's income, to 7 per cent. of the capital sum, and he did not take the total premiums of a man, but the individual premiums. A man, therefore, might have many premiums running that were only 4 per cent, or 5 per cent., and he might, on the other hand, have one of 7 per cent., or considerably over 7 per cent. The right hon. Gentleman did not take the total premiums, but the individual premiums, paid, and therefore, if 364 you take the case of a man who had a ten years' endowment running for £1,000, and having to pay a premium of 95 per cent., he only gets relief upon £70, and still has to pay in full on the balance of £25. The right hon. Gentleman did not make this further limitation of relief retrospective. The consequence is that those who have already entered into these contracts find themselves in the position of not getting relief to which they thought they had a statutory right, and they feel that to be a grievance. There was little notice, because I think the Chancellor of the Exchequer will agree that no one had any idea of this alteration until he announced it in the House yesterday. When you bear in mind that it is in a sense to be rushed through the House, for reasons which I agree are satisfactory in view of the need for getting the Finance Bill, it does not give the people of the country the opportunity they would otherwise have of communicating with their representatives and bringing pressure to bear on the Government in an endeavour to ensure that they shall not be handicapped in this way. The Chancellor of the Exchequer has told us that he is maintaining an open mind, and I do hope that in order to save the time of the House and to make the passage of this Resolution through the House more easy, he will concede this point that it shall not be retrospective. If we cannot go to our Constituents and say that it does not affect contracts already entered into, those people who have insured, believing that they were going to get this relief all the time their policies were in force, but who suddenly find that at short notice, without time for making any representations to the Chancellor of the Exchequer, they are going to lose the advantage in so far as it exceeds 3s., will have a just cause of complaint. I ask him to concede this point, and, if he must do it, that he will alter it so that it will only be prospective. I do ask the right hon. Gentleman to see whether he cannot meet us on this point.

§ The CHANCELLOR of the EXCHEQUER (Mr. McKenna)
My hon. Friend wishes the House now to decide the question as to whether this Clause should apply to contracts already entered into as well as to future contracts. For my part, I think the House would be better advised to decide the question when it sees the Clause. It is just as easy to decide it then as now, and nothing is prejudiced by 365 allowing it to stand over until to-morrow. I adhere to the view I expressed yesterday—

§ Sir J. D. REES
Not to-morrow.

§ Mr. McKENNA
I think it is to-morrow; there is no bar to my re-committing the Bill. I think it would be a very convenient form The case has to be argued in the House. As I have said, I am quite prepared to take the decision of the House naturally either way, but I do not wish to influence it either way in regard to the matter. I think, however, that the facts ought to be stated to the House as to what is the argument on both sides of the question. I recognise the force of the argument my hon. Friend has put forward. There is another argument to the contrary, and it would be more convenient to take the discussion when we have the Clause. As regards the Resolution itself, I ought to correct one statement which my hon. Friend (Sir E. Lamb) made by inadvertence. The representatives of the companies have not agreed to this Clause being made applicable to existing contracts. They have agreed to the Clause in all other respects.

§ Mr. LOUGH
No.

§ Mr. McKENNA
Yes, I think so.

§ Mr. LOUGH
They have agreed in principle, but not to the Clause as now drawn.

§ Mr. McKENNA
The representatives of the companies have agreed to the Clause in all respects except with regard to its application to existing contracts. Therefore, I would submit to the House that the more convenient procedure would be that we should take the Resolution now as it stands, leaving the House perfect liberty of action to decide to-morrow on the Clause, quickly I hope, the simple question of whether it should apply to existing contracts or not. That, I understand, is the only outstanding question. There is no criticism of the proposal in any other respect.

§ Mr. LOUGH
Yes, there is.

§ Mr. McKENNA
It has not come to my knowledge.

§ Mr. LOUGH
The 3s.

§ Mr. McKENNA
That is agreed.

§ Mr. LOUGH
Not in the House of Commons.

§ Mr. McKENNA
No, not in the House, but my right hon. Friend seems to forget the history of this Clause. There is already in the Bill a Clause dealing with this subject.

§ Mr. LOUGH
Which Clause?

§ Mr. McKENNA
Endowment. The Clause was introduced in order to hit particular people. There was already a Clause in the Bill, and for my part, so far as the revenue is concerned, I should be content with that Clause as it stands. It is in order to meet the difficulties of the companies and policy holders that we have agreed that if we can find another method of dealing with this evil satisfactory to all parties, we will substitute this Clause for the existing Clause. If my right hon. Friend is going to object to all Clauses, then I shall have no alternative but to go on with the existing Clause. I think it would be more convenient to go on with the Clause that has run the gauntlet of the criticism of experts on all sides, who represent policy holders just as much as the companies. I would submit to the House that it would be most convenient to allow us to have the Resolution now, and to discuss the question tomorrow.

§ Sir E. CARSON
The question that is raised with reference to these insurances is a very much more important one to the country than I think the right hon. Gentleman seems to imagine, and for my own part I doubt very much if the country is at all aware of what is being attempted to be done by the Clause which the right hon. Gentleman proposes now to insert in the Bill. The history of the Income Tax Act is perfectly clear. I think it was in 1854, or 1853, that it was decided to encourage people to make provision for their families. There were exemptions given up to a certain amount to those who insured themselves and thereby claimed that provision. That has lasted ever since, and has, I think, fulfilled the objects for which the Statute was enacted in promoting the insuring of people against death, and thereby making provision for their families. Now, in the middle of a war, at a time when everybody has much less means of carrying out the obligations into which they have entered, the right hon. Gentleman comes down and wants to upset the whole of this arrangement—selecting a particular class of persons which, up to this, the Government have always tried to encourage—and to penalise those who have 367 been thriftful and have attempted to make provision, and to put upon them what really amounts to an extra tax. As originally framed, this Bill dealt only, as I understand it, with endowment policies. The right hon. Gentleman did not mean to touch the ordinary policies at all. I can see very good reasons, so long as you do not affect past contracts, for dealing with endowment policies. People at the present day, when Income Tax is very high, and Death Duties are very high, may have been induced—and in fact, as one knows by the many advertisements one sees, have been induced—to invest very large sums of money in policies for a short period of years, thereby saving Income Tax, and getting at the same time a very large, and a very certain, return for their money at the end of the period, or, if they die in the meanwhile, very considerable advantages for their families or for those to whom they leave their money. For my own part, I do not think it was unfair, if that was limited to future contracts, for the Chancellor of the Exchequer to try to stop that method of evading the Income Tax to a certain extent.
But he has abandoned that, which was really a much fairer and much sounder proposition. Now he proposes to affect all people who have taken out insurances upon their lives. I can tell the Chancellor of the Exchequer that there are thousands of people in this country who are, to use a popular phrase, put in a corner to pay their insurances, and if they are to be made to pay in the ordinary case an additional 2s. 6d. in the £ Income Tax, as he proposes, I believe there are many people who will have to abandon the policies on which they have been paying or to surrender the policies and take the surrender value. I believe he will create a great hardship.
What is the case of the right hon. Gentleman? He says, "I have settled all this with the insurance companies." I do not care about the insurance companies. Insurance companies are the most illiberal companies I know. They go on, according as we pass laws and spend a great deal of money in hygienic legislation in order to prolong the life of the people, which undoubtedly it has done according to the tables-they go on charging the old rates and amassing enormous sums of money. No doubt in some cases they are mutual companies, but in some cases they are 368 companies for profit—the profit of their shareholders. They are not the people to be considered at all.
The people to be considered are the poor insurers, many of them just over the limit of exemption in the Insurance Act. I protest, when you are saddling them with every other kind of expense—the increased prices of living, of which we hear sometimes so much in relation merely to the working classes, who are very often better off than poor clerks and other people who have to make provision for their children—I protest that at this time, with an Income Tax at 5s. in the £, as it is at present, that you should put upon them what is an extra tax because they have in the past done what all prudent citizens ought to do, try to make a small or comparatively large, as it may be, according to their means, provision for their children. For my part I shall oppose this with all the power I can command, and I shall certainly divide the House tomorrow, if the right hon. Gentleman puts it off until tomorrow, not only against the Clause but I shall also divide against the 3s. which he has down and ask him, so far as these ordinary policies are concerned, at all events up to some limit which he can easily name, to say that these people are not to be saddled with this exceptional tax. With regard to what the right hon. Gentleman said that we ought not to divide against it now, I can only say that I really do not know enough of Parliamentary technicalities to know whether it is more convenient not to divide today than tomorrow.

§ Mr. McKENNA
May I explain to the right hon. Gentleman. Tomorrow we get the Clause in Committee. Then I can speak more than once and hon. Members can speak more than once, and we get a chance of agreeing to Amendments and getting something settled to the satisfaction to the whole House. I cannot answer the right hon. Gentleman now except by leave of the House. The Report stage is not an opportunity for coming to a settlement. I would much rather come to a settlement in Committee tomorrow. I have listened with respect to what the right hon. Gentleman has said, and I do not think we shall be unable to come to a settlement. That is the only reason for my request.

§ Sir E. CARSON
I do not want to be in the least unreasonable. I know the Government are anxious to get the Bill and 369 that it is necessary for Revenue to get the Bill. The only thing that appears to me as an innocent individual is that passing this Resolution with this retrospective Clause in it does seem to mean that we shall be prejudiced in the Committee. If, however, the right hon. Gentleman makes it perfectly clear that the whole of his matter will be done without any prejudice—

§ Mr. McKENNA
Hear, hear. That is perfectly clear.

§ Sir E. CARSON
Then, so far as I am concerned, I shall not pursue the matter further to-day. That will give me an opportunity of communicating in the ordinary way with hon. Gentlemen on this side of the House, at all events with whom I generally work, asking them to come down here and vigorously oppose the proposal of the right hon. Gentleman unless it is modified and made just towards the ordinary insurer.

§ Sir E. LAMB
On a point of Order. I understand that the Chancellor of the Exchequer asks us to postpone this until to-morrow. The meaning of the Amendment is that, if it is passed, we shall make it impossible for him to draw his Clause so as to make it retrospective. I desire to know whether, if we pass the Amendment, we shall make it impossible for him to draw his Clause so as to make it retrospective?

§ Mr. SPEAKER
Certainly if the Report is not amended to-day it is open to Amendment to-morrow, but if the Report is amended today in the restricting sense, it will not be open to the Chancellor of the Exchequer to expand it to-morrow.

§ Sir T. WHITTAKER
I should like to say a few words upon this proposal. I happen to be in some difficulty, because there is no doubt that the view which the right hon. and learned Gentleman (Sir E. Carson) has expressed is the view which the insurance companies will hold. They would desire the reduction to be continued. I know, being personally interested in insurance and being able to speak from the interests of the office with which I am connected and other companies, that they would desire this limit to apply only to the future. But one has to act here, I presume, in the interests of the community and of what is the right thing. Therefore, I want to express the opinion that it is just and equitable that this should apply to all policies. What is the origin of this? Can 370 any hon. Member give a bonâ-fide and sound reason why the allowance should be made at all?

§ Sir E. CARSON
To encourage insurance.

An HON. MEMBER
Thrift!

§ Sir T. WHITTAKER
No! that is not the origin of this. If you want to encourage thrift, why is the encouragement to be limited to one particular kind of thrift? If it is to encourage thrift, why is it not allowed on every investment into which a man who is saving his money is putting it? The origin of this was not to encourage thrift. There is another thing. The allowance of 3s. in the £ would practically cover people who are earning up to £1,000 a year. It is the wealthier people who are going to be touched by this restriction of the allowance. They are not the people for whom we need to go out of our way to encourage thrift. We have gentleman insuring for £100,000, £200,000 and £300,000, and paying £5,000, £10,000 and £15,000 a year in premiums. They are to have an allowance of 8s. 6d. in £! I say it is monstrous that they should be relieved of taxation in wartime to that extent. It is the wealthy people who get this allowance beyond 3s. in the £. What was the origin of this allowance? Anyone who will read Mr. Gladstone's speech in 1853 will see it. In those days the Income Tax was at one level. There was one rate in the £ for all kinds and classes of income. It was felt that to levy the same rate of tax on people who had an earned income as upon those who derived the same income from investments was inequitable, and that the person who was earning £1,000 a year and who had no other income was in a very different position as regards his family from the man who received £1,000 from investments, because the man who was earning £l,000 a year had out of it to provide for his family. In those days it was considered impracticable—as hon. Members know, for a great many years it was the opinion of the authorities—to have differentiation as between earned and unearned income. In order to meet the difficulty it was conceded that the persons who insured their lives should have an allowance off the Income Tax. It was pointed out at that time that practically the only persons who insured their lives were persons earning an income, or who had life incomes only—persons earning incomes from business or professions. There 371 was no necessity because of big Death Duties and that kind of thing to insure. They did not exist. That big kind of insurance did not exist at all in those days. It was only really the professional and trading people who were earning their incomes who insured, and this concession was made to them as a setoff against the inequality of the tax upon earned and unearned incomes being at the same rate. That was the only reason for that allowance. It is the only reason that can be given. When this House in 1907 decided to differentiate between earned and unearned income and to levy a lower rate of tax on earned incomes than on unearned incomes the whole reason for this allowance disappeared. [HON. MEMBERS: "No, no!"] It was the only reason that could be given for it.

§ Sir E. CARSON
May I ask the right hon. Gentleman, are not those people who pay insurance money liable to the Death Duties?

§ Sir T. WHITTAKER
So has everyone else. If a man puts his savings into a house, the value of that house is subject to Death Duties. In just the same way, if he has put it into railway stock, the value of the railway stock is liable to Death Duties. He does not get any allowance.

§ Sir E. CARSON
The right hon. Gentleman did not quite appreciate my question. He is talking of a difference. There were not these enormous Death Duties at the time the tax was put on.

§ Sir T. WHITTAKER
That is why, as a practical matter of good insurance in those days, we limited the allowance to persons who had only life incomes, either earned or life interest. That is why the allowance was made. We have these others with large insurances now, and now no such reason exists. In the vast majority of cases of the insurance contracts entered into, the persons who entered into them had no conception whatever of getting an allowance of 5s. and sometime 8s. 6d. in the £. When the Income Tax stood at 8d., 10d., 1s., or 1s. 2d. in the £—1s. 2d. was thought to be an enormous tax-they never entered into the contract with any expectation of getting an allowance of 8s. 6d. in the £. To say that this is retrospective is scarcely the correct way of expressing it. You are not taxing anybody backwards at all. You are settling the allowance to be made now and for the 372 future. If you do not make the allowance to apply to the existing policies, you will have some men with policies they have taken out before this date on which they will be getting a very large allowance and others taken out afterwards on which they will be getting a smaller allowance. You will have some persons getting one allowance and others getting another. There is no reason for it. It is unreasonable and inequitable when they never took out the insurance expecting such an allowance. They never thought there would be such a tax. We ought not to allow people, the wealthier people, 5s. to 8s. in the £ during wartime off their Income Tax. They ought to pay their share like anybody else. It would be a gross injustice to continue this allowance. It is retrospective only in this sense, that you are allowing it on an old bargain which was made when they never expected any such relief. Now with regard to the number of people who will be affected. Three shillings in the £ will represent the tax practically on all those whose incomes are under £1,000 a year. They are the enormous bulk of the policy holders of the country, and they will get a full reduction on their income They will get the full amount. In my judgment they are the people who are entitled to it. Even if you suggest the idea, of thrift, Members of this House since the War began have taken up policies for £100,000, and are paying premiums of £5,000 or £6,000 a year. It is ridiculous totalk about thrift in a case like that, and to allow them 8s. 6d. in the £ off. It means that smaller people have to pay a bigger rate of tax because you are making this allowance to wealthy people. Three shillings will cover all the class of people for whom the allowance was originally intended, and I hope we shall be able to rise above our own interests in this matter and determine to do what is the equitable and just thing.

§ Sir F. BANBURY
The right hon. Gentleman has delivered what seems to me to be a very curious argument. He says, "Do not do this if it touches someone whose income is less than £l,500 a year, but if it touches someone whose income is larger, then we can do it."

§ Sir T. WHITTAKER
No, that is a gross misrepresentation. My point was that persons above this income are not persons who ought to require encouragement in the matter of thrift, if that was the argument.

§ Sir F. BANBURY
It is not a question whether these people require to be encouraged to be thrifty or not. It is a question as to whether, having entered into a contract, that contract is to be observed. I think I am speaking within the recollection of the House when I say that the right hon. Gentleman's argument was founded upon what I said just now, namely, that as rich people were not very numerous, and as they were rich, it was right to break a contract with them.

§ Mr. McKENNA
There is no contract.

§ Sir F. BANBURY
I will explain what I mean by contract. In the would apply to a very large number of people whose income was under £1,500 a year and as long as they were not touched the right hon. Gentlemen did not mind. That is what I understood him say. If he withdraws it—

§ Sir T. WHITTAKER
I do not withdraw it because I never said it

§ Sir F. BANBURY
Then I do not really understand what was the object of the right hon. Gentleman's speech. The Chancellor of the Exchequer said there was no contract. The right hon. Gentleman (Sir T. Whittaker) told us that in the year 1853 Mr. Gladstone introduced this provision into the Finance Bill, and it has been in force ever since. I call that a contract. On the faith of that statutory enactment, which has been in force for sixty-three years, people have invested, believing that these privileges would occur. It may be that it was a mistake to do it. It may be that the right hon. Gentleman is quite right in the course he is going to pursue, but it must be for the future and not for the past, so that people who insure in the future will know what they are doing. I am sorry my right hon. Friend (Sir E. Carson) has not insisted upon a Division today, because by passing this Resolution we are going to assent to the principle that you may impose a retrospective tax. I say that is wrong. I have not looked up the precedents, because the Motion came suddenly before us, and we did not know what we were doing, but I do not believe we have ever had a retrospective tax in this House before.

§ Mr. McKENNA
You have not now.

§ Sir F. BANBURY
But we are giving the Government power to impose a retrospective tax if we pass this Resolution.

McKENNA
No, we are not.

§ Sir F. BANBURY
Certainly we are, and if we carry the Amendment we shall prevent the Government imposing a retrospective tax. Even now, if my hon. Friend goes to a Division, I shall be very happy to vote with him. I view with great regret and with great fear the growing tendency on the part of the Government to override all the old rules dealing with finance—trying to take two stages in one day, making mistakes as they did yesterday, and then trying to alter them by putting Motions on the Paper which they have to withdraw—and I look on that with the greatest fear and misgiving, especially in view of the fact that we are now the only House which has any control over finance, and that ought to make us far more careful than we were before. We ought not to give any Government the power which the present Government are demanding. I am against the principle of this Resolution that you should make a tax retrospective, and I shall certainly vote with my hon. Friend if he goes to a Division.

§ Sir COURTENAY WARNER
I hope the Chancellor of the Exchequer will not stick to the point of deferring this. It is not a question of amending the Clause that we are objecting to at present, but a question of principle. Is this to be retrospective or not? It will be very much easier to put the Clause in its proper form if this has been decided beforehand, and the Amendments and the discussion of details could be very properly left to the Committee stage. But with regard to this question of whether it is to be retrospective or not, in spite of all that has been said by my right hon. Friend (Sir T. Whittaker) I think it is retrospective taxation, and there are a great many cases of men with incomes of £2,000 a year who have very little to spend and who have always put away a very considerable proportion of that income to provide for their families, and who will suddenly be required to pay extra Income Tax of 2s. on that amount when they have only £300 or £400 to live on. There are many men rated at £2,000 a year who have certainly less than £600 a year to live on, because if their investment is in real property the taxes come out a great deal more than a quarter of the income nowadays and they have certain charges, and they very often have less than £500 a year. These men will have to pay, perhaps, £50 or £100 a year more and they will not be able to do it.

§ Mr. McKENNA
How do you make that out?

§ Sir C. WARNER
They will have to pay 2s. on the money that they have paid to the insurance company. That 2s. will have to come out of their income and not out of the insurance company.

§ Mr. McKENNA
Your figures are hopelessly wrong.

§ Sir C. WARNER
If a man is paying a premium of £300 a year, which I do not think is a very extraordinary large sum, and you put 2s. in the £ on £300 a year, I calculate that is £60 a year.

§ Mr. McKENNA
Thirty pounds a year.

§ Sir C. WARNER
If it is £600 a year, it is £60. Six hundred pounds a year is not a very large provision to make.

§ Mr. McKENNA
Six hundred pounds a year on a £2,000 a year income?

§ Sir C. WARNER
It is not a question of getting relief on the £600 a year. It is a question of the £600 a year being placed with the insurance company.

§ Mr. McKENNA
made an observation which was not heard in the Reporters' Gallery.

§ Sir C. WARNER
I originally began with £300, and I have changed the figure. It means that he has £3,600 gross income, and in that case, instead of having about £500 or £600 a year, he might have £800 or £l,000 to spend after he had paid his insurance money. I do not think that man can pay £60 or £100 a year if he has a family to keep up, and if he has been in the habit of having nearly half as much again as he has now, because taxation has brought his income down enormously. It is a hard case, and one in which we ought not to put retrospective action in force. If the Chancellor of the Exchequer was to alter the date so as to catch the people who have been doing it in the last few months there would be something to be said for it, but when he is putting it back for all the insurances which have been made for providing for families it is unfair, and I hope my right hon. Friend will give way on this point of making this retrospective. I prefer the original Clause, though the insurance companies will not like it very much, to the new one, and I think if we are to have the new one in its present form it will be a very much greater evil than the old one, though 376 perhaps it will do less harm to the insurance companies; but I am not concerned with them; I am concerned with the general public, and I think it would be fairer and more just of this House to keep the old Clause than to pass the new Clause as it stands now. I think we ought to take the question of whether it is to be retrospective or not at this stage, and not on the Committee stage.

§ Mr. CHURCHILL
I was going to ask the right hon. Gentleman about a point which has a direct bearing on the question we have to decide, namely, the effect of the proposal on the extra war premiums which officers have had in so many cases to pay when ordered on active service. There have been cases of extraordinary hardship in that connection. I remember at the beginning of the War bringing this matter to the notice of the Treasury, but I do not think anything was done to help the officers affected. In some cases the premium asked is as much as 12 per cent. or 15 per cent., and even with old subscribers it comes to 7 per cent, or 8 per cent. This is money which the man has to pay simply because he is going into danger for the public, and it seems to me very hard indeed that that premium should not be deducted from a man's income, because this is a charge which will last as long as the War goes on and very likely will be an increasing charge, and it seems very hard on officers who have to make provision for their families, who have the choice between letting their investment fall to the ground and paying these very heavy premiums, if when they have done that this extra charge which they have paid cannot even be deducted from the income of the year. Take, for instance, the case of a commanding officer whose pay is £500 a year, and he has to pay £300 or £400 war premiums to go out and take up his duty. In such a case surely the whole of the extra sum he has to pay for going on active service ought to be deducted from his income for the purpose of Income Tax. I think the Chancellor of the Exchequer would be well advised to give attention to that point, which would certainly relieve my feelings in the matter.

§ Mr. CURRIE
I do not wish to prolong the discussion upon the merits of the Clause, but I wish to point out to the Chancellor of the Exchequer, and I think he realises it himself, that the undertaking 377 which he gave in the course of discussion the other day to the effect that this Clause was to be prospective and not retrospective has brought about rather a curious position. I think I am speaking fairly when I say that the other day he gave us that undertaking really for value received across the floor of the House, and I scarcely think in connection with this Finance Bill that he is quite at liberty to consider the whole question as still open for discussion, and that it is enough to say that the Debate tomorrow will not be prejudiced. I rather think that as he gave policy holders—for that is what it comes to—to understand that no retrospective proposal was being made, and that now it is proposed that this levy should be made so as to refer to existing or old contracts he should defer proceeding with that part of the proposal until he brings forward another Finance Bill. It would be unfair to policy holders that they should feel that they have been deprived of the opportunity of organising themselves and expressing their views in the ordinary way, or, rather, that they have been thrown off their guard, because the right hon. Gentleman gave them to understand there was no necessity for doing anything of the sort. Speaking as a private Member of the House, I think the Chancellor of the Exchequer would bring about rather an unfortunate position if he gave an undertaking or promise of that kind and then quite inadvertently went back upon it in a way that there seems to be a risk of our being asked to do tomorrow. It is quite clear from the context of the Chancellor of the Exchequer's remarks as to the Clause being prospective, that he really meant to assure us that the Clause was not to be retrospective. I am quite in favour of this practice of the insurance companies being brought to an end once for all; I think it has been tolerated far too long. I do not think it is fair to say that it is retrospective taxation. Whether it should refer back to old contracts is a fair matter for debate in view of what the Chancellor of the Exchequer said the other day.

§ Mr. BRYCE
I want to emphasise what has been said by the right hon. Member for Dundee (Mr. Churchill). As a director of one of the large insurance companies I know what an extreme hardship this inflicts upon very large numbers of people, not of large means, who are serving in the Army and with other forces of the Crown. It is a point which I brought before the 378 Chancellor of the Exchequer when this Resolution was up for Second Beading. He promised to consider the Amendment which I then gave him to provide for this particular point, but I do not think that in the Clause he has done that.

§ Mr. McKENNA
What is the point?

§ Mr. BRYCE
The point as to the deduction of the extra premiums payable in respect of war risks being counted in the sixth or the seventh of the income. That is a point which the Chancellor of the Exchequer promised to consider, but it does not appear in the Clause. There is one other point which I think the Chancellor of the Exchequer ought to consider, and that is the limitation of the age to sixty.

§ Mr. McKENNA
made a remark which was inaudible in the Reporters' Gallery.

§ Mr. BRYCE
I understand that the Chancellor of the Exchequer has taken out the limit of sixty years. I am glad of that, because that would have affected also a very large number of cases which is is very desirable should be insured.

§ Mr. McKENNA
I should like to say a few words upon the point raised in regard to extra levies paid by officers as war risks. I quite agree that that is a case which we ought to consider. I will look into the matter, but it is not the same point as that which has been spoken of by the hon. Member (Mr. Bryce), because an additional single payment made by an officer in respect of war risks does not get any relief at all whether inside or outside the sixth. Belief is only given in respect of annual payments.

§ Mr. CHURCHILL
These are annual payments during the War.

§ Mr. McKENNA
I cannot say whether that would be an annual payment for the purpose of the Act. If I am right in that view, it makes a still stronger case for relief. I will consider it.

§ Mr. JOYNSON-HICKS
The Chancellor of the Exchequer told us just now that there is no contract in regard to this rebate. As an old lawyer, he will know of the old principle of "holding out." The Government has held out to the insurer that he would get this rebate. We are asked to alter that now. I maintain that the Government, having held out to A, B, and C that if they insured their lives they would get this rebate, cannot 379 possibly go back on a policy which has been taken out on the faith of the Government holding out that inducement. The right hon. Member (Sir T. Whittaker) sneered at the large insurers, people who, he said, had insured for £200,000 or £300,000. That is the very best thing that could happen to the country at the present time. The real reason why the House of Commons has given this rebate on insurance premiums is because we desire to encourage thrift, and because we desire to encourage the accumulation of capital. At this time, of all others, it is absolutely essential that we should encourage the accumulation of capital in the largest possible manner. It is the big insurance policy which is really needed to put the country right at the present time. The right hon. Gentleman (Sir T. Whittaker) may smile, or do more than smile if he likes, but I emphasise that point. During the last two years we have been blowing away capital in thousands of millions, and we want to encourage everybody today to replace that capital by stinting themselves in their daily life, and instead of spending all their income, whether it be large or small, to put it into insurance companies. The right hon. Gentleman knows—and certainly I know, as a director of a small company—that nearly all the premiums now go into Government War Loans, or Exchequer Bonds, so that the money invested in insurance is really coining back to the Chancellor of the Exchequer in another form. What we are doing is to encourage the accumulation of capital, and that is the very thing we want to encourage to the utmost extent while the War is going on.

§ Sir H. ELVERSTON
I think the object of the Treasury is to stop the exploitation of the huge Income Tax which has been put on during the last two years. The people who insured prior to the outbreak of War in 1914 are really in a far better position today as regards the rebate on Income Tax than ever they expected to be. A great many people, however, have been exploiting the Income Tax by means of insurance. They have been taking out policies purely to get the rebate, and they have been using the accumulative rebate to pay future premiums. I will give one example of what has been going on. In one company I know of, a man took out a short term policy under a scheme which the company put forward. 380 He pays to that company one premium only, and he gets from the Treasury a tax rebate which exceeds 25 per cent. of the premium. He then pays the rebate over to the company, and the company loan to him the balance of the premium, and that goes on for ten years. At the end of the ten years the man has only paid one premium to the company, and the Government has paid the rest of the premiums, with the exception of loans, which have been secured from the company. The result is that at the end of the ten years the man is owing to the company about £7,000, and he gets from the company £10,000, leaving a balance of £3,000. He has been insured the whole of this time for nothing. The Government rebates have paid the whole of the premiums. It is perfectly right and correct for the Treasury to step in and say that in wartime, when the Income Tax has become so heavy, a stop should be put to the exploiting of the Income Tax in the manner in which it has been done. That is the whole position, and that is the whole object of the Treasury. I am quite sure that the Treasury is not doing the slightest damage to the genuine insurer, certainly no damage to those who insured prior to 1914, because they are getting today three times as much rebate as they ever expected prior to 1914. These insurances were taken out not by the extremely wealthy people, but by the middleclass people, as I pointed out to the House a short time ago, and it is only the very wealthy people who are exploiting the tax today. Under the amended Clause a middleclass person, the person who genuinely needs this help from the Government, will receive this help as before. I consider that the amended Clause is a great improvement upon the Clause which was put to us before.

§ Mr. LOUGH
I think the House is greatly indebted to the hon. Baronet, because he has just brought us back to the position in which we were when the Chancellor of the Exchequer dealt with this matter in the Finance Bill. When the Chancellor of the Exchequer explained the position to us, he said there was a growing evil on account of the high Income Tax, and he aimed his prospective Clause at that growing evil, and the House generally agreed with him. In what position do we find ourselves now? The Chancellor of the Exchequer has abandoned the policy of penalising the people 381 who are taking out these large new policies, and instead is depriving all the people who have enjoyed it for sixty years of the allowance which they receive under the Act of 1853. That is the change which is to be made in the Act. That is the reason why we are having this inconvenient discussion on the Resolution in Committee. It is because the Chancellor of the Exchequer is not pursuing the policy which he stated in Committee. It is all very well for the right hon. Member for Spen Valley (Sir T. Whittaker) to shake his head. His argument was devoted to the point that it was a good thing to change the general law. I want to present the case against that. We are in war time, and we ought not to have these violent changes of principle made, and especially made for a very small purpose. The Chancellor of the Exchequer gave a reason when the Bill was before the House. He said that in order to avoid the heavy Income Tax, a particularly clever kind of policy had been developed. He gave us his explanation and his proposals for meeting the situation, and there would not have been any serious objection if his proposal had been confined to that matter. What do we find now? We find that, misled I believe by ingenious Gentlemen like the right hon. Member for Spen Valley, he goes into a proposal for a violent change of the whole Income Tax law, and to deprive people of a small advantage for no great gain to the Treasury. He alters the character of thousands, I might say hundreds of thousands of policies, that are in existence, and deprives people of an allowance that they have enjoyed for over sixty years. My hon. Friend behind me (Mr. Currie), who is a most consistent supporter of the Chancellor of the Exchequer and of the Government, and who has helped to carry the right hon. Gentleman through some difficulties, has warned him, and I would venture to do the same thing. Let the Chancellor of the Exchequer go back to his Clause, and all his difficulties will disappear, but if he persists in this violent change of the Income Tax law of 1853 we shall have long discussions upon it. We will not have this explanation from the right hon. Member for Spen Valley as to what Mr. Gladstone meant in 1853. How does he know what Mr. Gladstone meant?

§ Sir T. WHITTAKER
I know what he said.

§ Mr. LOUGH
We know what he said, and we are just as well able to judge as to what he meant as the right hon. Member for Spen Valley. I suspect all that these experts say to us on a point of this kind. I put this simply to the House, that this is not a convenient time to reduce to three-fifths the allowance that has been made and steadily maintained by this House for over two generations, and I appeal to the House not to assent to it.

§ Mr. J. SAMUEL
In discussing this matter I feel that the right hon. Gentleman who has just sat down has described exactly the effect of this Clause upon policy holders. I do certainly not agree with my right' hon. Friend the Member for Spen Valley in his review of the history of the rebate on the payment of Income Tax granted to policy holders, because that does not apply to this Clause at all. I certainly hold that the Chancellor of the Exchequer has rather broken faith with the House of Commons. When the Clause in the Finance Bill, that was amended in Committee, was under consideration he brought in a New Clause in which he proposed certain alterations affecting two classes of policies. One was the life and endowment and the other was the deferred annuities, and he proposed to affect very considerably every new policy holder who took out a policy in either of these classes. At the present time there are hundreds of thousands of policies taken out every year with the insurance companies. I could give statistics of one of the largest which insures something like £103,000,000 of policies in the ordinary branch. So we have hundreds of thousands of policies taken out by people under what is called the fifteen years', twenty years', or twenty-five years' endowment. Under the Clause in the existing Bill it would read in this way—

§ Mr. McKENNA
We do not propose to alter it.

§ Mr. SAMUEL
I know that, but I want to explain the difference between this Clause and what is proposed, because it has been suggested that we should resuscitate the existing Clause, and every insurance company and policy holder are opposed to it, and for this reason: Supposing a man took up a policy at twenty years of age to insure for twenty or twenty-five years, he would have no Income Tax abatement. That 383 would be a very serious matter to many of these young men who took out insurance policies under the existing Clause. We opposed that very strongly in Committee. The result was that the Chancellor of the Exchequer said that he would take it back and further consider it. He has further considered it. Now the objection which I have to the new suggestion is this: The Chancellor of the Exchequer in this Clause made it operative after the 22nd of June, 1916, so that all policies before that date would continue to receive the abatement of the Income Tax. Now the Chancellor of the Exchequer proposes to reverse that. That is where I object to this new suggestion. I disagree entirely with the hon. Baronet's suggestion—and I am rather surprised that he should make it—that men who have taken out policies, whatever the size of the policies may be, previous to the introduction of the original Bill should be penalised by having the Income Tax abatement declined or refused. That, I think, would be absolutely wrong, and I think that the new proposal is infinitely better than the existing Clause. The Chancellor of the Exchequer now proposes to allow all policies, whatever they are, to have an abatement of 3s. in the £. That would cover all men with an earned income up to £1,500 a year—that is to say, if a man was earning £1,500 a year, this new Clause would not affect his policy. But if he earned from £1,500 to £2,000 a year, it would affect him to the extent of 8d. in the £. He would have a rebate of 3s., the 8d. would not be allowed, and he would have to pay the 8d. on the amount of the premium which he was paying to the insurance companies.

§ Mr. RAWLINSON
How much is the insurance?

§ Mr. SAMUEL
That is immaterial. It does not affect the amount of the insurance. It simply affects the amount that the man is paying in the form of Income Tax. If a man is paying, say, 5s. in the £ Income Tax, he would be allowed up to 3s. in the £ on his insurance premiums. The other 2s. he would have to pay on the insurance premiums. But this new Clause, in my opinion, will not touch the vast majority of policy holders in this country. I believe that the vast bulk of people who do insure are people up to £2,000, and those who insure up to 384 that income will not be touched very severely. They will only be touched to the extent of 8d, in the £, but if we were to pass the Clause which is now in the Bill, they would be deprived entirely of the whole of the abatement that is allowed on the endowment and life policies which they drew before they were sixty years of age. That is a most serious matter, and I have taken it up entirely in the interests of the policy holders and not in the interests of the insurance companies. They have nothing to do with it because they do not pay the premiums. The premiums are paid by the policy holder, and if this abatement were stopped it would affect the policy holders and the policy holders only. I do appeal to the Chancellor of the Exchequer to keep faith with the Committee—that is to say, to restore to this new Clause that he will introduce to-morrow—the time limit—that is to say, in June or July—so that the existing policies would not be affected by any change.

§ Mr. J. M. HENDERSON
There is one point which has not been mentioned to which I would like to call the attention of ray right hon. Friend. He proposes to limit the allowance on all policies, whenever they are taken out, to 3s. in the £. A great many of these policies—in fact, the majority—are taken out under what is called the accumulation of profits system. Is the right hon. Gentleman aware that this year, for the first time in the history of some of these insurance companies, who have a quinquennial period in which they used to declare bonuses, they are passing it, and they will do so next year, because they have had very heavy claims on them? Many people who have insured for twenty, thirty, or forty years will find that very hard, and they really deserve some consideration. With regard to the big amounts, special policies which have come into vogue, since the 1907 Budget particularly, to provide for Death Duties, I admit that the Chancellor has a case, but for ordinary policies which were taken out, ordinary continuation of life policies, or policies payable at sixty, or whatever it may be, I do not know why he should depart from the old allowance to which we were all accustomed. I think that he ought to reconsider that, particularly in view of the fact, which is common knowledge, that all the large offices, even the best offices, are passing bonuses this year and next year they will do the same thing, because their 385 losses on claims during the War have been very great. In reference to the point raised by the right hon. Gentleman the Member for Dundee (Mr. Churchill) the right hon. Gentleman promised to consider that. I will just give him an instance of an officer with some £300 a year. He had a policy for £500, and instead of paying the visual premium of about £16, he had to pay about £56. That is a very serious matter, and he will have to pay that during the time he is alive, or while the War lasts. In these circumstances I think that the right hon. Gentleman ought not to touch the holders of the common policies which have been existing or continuing to exist, and that they should have the benefits of the reduction of Income Tax, whatever it may be.

§ Sir GEORGE YOUNGER
I trust that the right hon. Gentleman will realise that the opinion of the House is against his proposal to make this new arrangement retrospective. It is not fair for him to introduce a very controversial question of this kind in the House of Commons. We do not at present deal with those questions as in ordinary times. We are tied very much by our obligations to the Government in almost everything that is proposed, and we are placed in a very unfair position in dealing with this proposal. I do not think that anything has been said about the policy holder who takes the highest possible insurance and will be terribly penalised by the retrospective Clause. Take the man with, say, £1,500 a year, who takes out the highest possible policy and spends the largest possible portion of his income in this way—

§ Mr. McKENNA
He would not be affected.

§ Sir G. YOUNGER
Two thousand pounds a year is quite a common income for people of this class. It is very hard on them to make this retrospective. I agree entirely that the right hon. Gentleman is bound to protect the revenue with regard to future business, and I am sure that the insurance companies think so too. There is another point to be remembered. If you alter the old arrangement and make these policies subject to an amount of tax over 3s., you very largely reduce their value as securities for borrowing purposes. That is a very important point. The right hon. Gentleman the Member for Spen Valley shakes his head. Does he suggest that a policy which is liable to 386 be taxed up to this extent is not a less valuable security than one which is not so liable?

§ Sir T. WHITTAKER
It has precisely the same value. The loan value depends upon the surrender value of the policy. The surrender value of the policy is not affected by the amount of tax on the premium at all.

§ Sir G. YOUNGER
That may be true from the point of view of the insurance company.

§ Sir T. WHITTAKER
It is true from the point of view of the banker.

§ Sir G. YOUNGER
Securities of that kind would be accepted very often owing to the fact that the man who borrows the money is supposed to be able to pay the premium. The right hon. Gentleman shakes his head, but that is an ordinary commercial transaction. The banker takes the security on the strength of the personal position of the man, and because that personal position warrants his doing so.

§ Sir T. WHITTAKER
Not a single banker would ever lend on a policy beyond the surrender value.

§ Sir G. YOUNGER
All I have got to say is that the right hon. Gentleman has never been a banker, or he would know that he is talking utter nonsense when he says that. There is one reason which the Chancellor of the Exchequer ought to bear in mind, and which ought to prevent his being too drastic in regard to the future. The insurance business at the present moment was never so bad as it is now. Very few people are insuring their lives, and the amount of insurances effected at the present moment has fallen enormously. Therefore difficulty should not be put in the way of the insurance companies at the present moment, when they require encouragement and not discouragement.

§ Mr. ANEURIN WILLIAMS
The hon. Member said just now that the sense of the House was against the Government in this matter. I very much doubt that; at any rate, for my part, I do not feel that the Government are doing wrong in this matter at all. I am not going over the arguments that have been used before, but I desire to put a view which appears to me to have a bearing on this matter, and which has not been put hitherto. It is this: No attempt, or practically no 387 attempt, has been made to show that the proposal of the Government would inflict any hardship on insurers who insure from now onwards. No attempt has been made, or practically no attempt, to show that any hardship will be inflicted upon those who have insured since the beginning of the War until the present time; because the great majority of those who would be affected by this change insured with the express purpose of getting hold of an investment which would escape the heavy war taxation. It has been said that this would be a hardship on the ordinary common insurer who insured before the War broke out. I would like to put the case between two men, two investors, one of whom insured long before the War broke out and the other had made up his mind to a definite course of saving. If, twenty years ago, one of the two men, in the same position, and who have remained in the same position since then, made up his mind to invest £100 a year in an insurance policy and the other to invest £100 a year in the purchase of small property to leave to his family, the one who invested in an insurance policy would have been receiving, possibly for good reasons, an advantage from the State every year since that date, as compared with his friend who had made his thrift in another form. If you are now going on to give the insured man a benefit to the extent of 5s., and even up to 8s. in the £, you are going to give him an enormous and a very unfair advantage as against the man who has put his thrift in another form. It therefore does seem to me that this proposal of the Government is going to do justice as between man and man, between all citizens, in whatever form they made up their minds to save long before this War broke out.

§ Mr. PETO
The hon. Member for Ayr Burghs put the case of the professional policy; I quite agree that that is a strong case; but I ask in the case of a perfectly genuine policy, taken out years ago, to meet the Death Duties, whether it is a reasonable thing to say in the case of a man liable to Income Tax and Super-tax, on an average of 5s. and 2s., that he shall only be able to claim 3s. in the £ on the premiums? The effect of that would be to leave him to pay 4s. in the £ himself—that is, his premium is increased by 20 per cent. at the very moment his income is greatly reduced, while, for other reasons, he has the greatest difficulty in keeping 388 up the insurance. This is the very antithesis of what the Chancellor of the Exchequer put in the Clause which was originally before the House, for he now hits and hits hard the very man who is already heavily burdened in regard to Death Duties—and who seeks to make provision to meet that burden. I cannot believe, in a contract of insurance made three, four, five or ten years ago, for the definite purpose of finding money to meet the Death Duties, that such an injustice will be done by the Chancellor of the Exchequer. I submit that it is utterly wrong, in the middle of the War, to alter the whole form of contract of these insurers, and throw this extra burden upon men who have sought to make this provision.

§ Sir J. D. REES
Notwithstanding the strong support which it has received, I ask leave to withdraw the Amendment, on the understanding that the right hon. Gentleman will make a full statement tomorrow, and will not deprecate discussion or Division without Government Whips.

§ Mr. McKENNA
I have said all I have to say on the matter, and I will keep an open mind until we come to the discussion on the Committee stage.

§ Sir J. D. REES
As regards the Government Whips?

§ Mr. McKENNA
I can give no assurance on that.

§ Sir J. D. REES
I beg leave to withdraw my Amendment.

§ Mr. RAWLINSON
On the main question I wish to say a few words. I have read the new Clause very carefully, and I am not quite sure, as regards the future, what effect it will have in regard to the insurance of teachers in secondary schools. In future there is to be a policy of encouraging teachers to take up insurance policies, with Government consent, as a matter of fact. We are asking them to take pension policies which would give them pensions at the age of fifty-five, so as to let them retire. It is of advantage, not only to themselves, but to efficiency in educational matters, that they should retire at that age. As many policies we hope will be taken out for the purpose of giving them an annuity at that age, it 389 seems to me that the new Clause does affect those cases. Exemption was intended to be given under the scheme, and the point is whether the Clause does not apply to those teachers. If the Chancellor of the Exchequer would answer that point, he may save some trouble tomorrow. I think that the Amendment as it stands does touch these teachers.

§ Mr. McKENNA
I know the point which the hon. and learned Member has in view, and, primâ facie, the case is affected by paragraph (6) of Sub-secton (2) of the Resolution. I will go into the Clause with my advisers between now and placing it on the Paper. We have no intention of depriving the teachers of the benefit of the reduction.

§ Sir ALBERT SPICER
I think the case of the family man should be put before the House. As I understand, the question is to come up again, but I would suggest to the Government whether they are not at the present time, although it may seem a comparatively small matter, striking a certain blow at that saving, at that provision for families—and for larger families than those to which we are too much accustimed to-day—which is being made by those who are just turning the scale as regards putting so much compulsory saving into insurance. Hitherto, whatever is put into insurance up to a certain limit, we have been allowed to deduct Income Tax on the premiums. You are now going to say in future that, whatever the Income Tax is, you are only to deduct 3s. in the £. In some cases that may mean—and this is a point well worthy of further consideration—that it would just be the turning point in regard to this question of providing for the family. After all, we do not want another hindrance with regard to families in future. We want to put every premium we can on large families, and not to be ashamed of large families, which has been too much the case in the last few years. I am here to admit that I am one of the, large family men, and I am proud of it. I ask the Government to reconsider this question with a view to seeing, in regard to saving for the family, that we are not striking a blow which might prove injurious to the country.